Read Order: FORTUNE BUILDERS PVT LTD v. BLUE STAR LTD 

Tulip Kanth

New Delhi, April 11, 2022: Holding that the counterclaim did not deserve to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908(CPC), the Delhi High Court has opined that the conclusion of the plaint being liable to be rejected would have to be founded on a comprehensive and meaningful reading of the pleadings as tendered. 

The  Bench of Justice Yashwant Varma was of the opinion that for the purposes of evaluating whether a plaint is liable to be rejected under Order VII Rule 11 of the Code, the Court is obliged by law to read the plaint as a whole. 

The Court was hearing a revision petition filed by the plaintiff-petitioner assailing the order of November 19, 2018 passed by the Trial Judge rejecting an application made by it purporting to be under Order VII Rule 11 of the CPC. The application itself had come to be made with respect to a counter claim which was instituted by the defendant/respondent on March 15, 2018. The suit instituted by the plaintiff was essentially a money claim seeking the issuance of a decree for a sum of Rs  36,07,194 together with interest @ 24% per annum being rendered in favour of the petitioner. 

In terms of the counter claim which was preferred, the defendant/respondent sought a decree against the petitioner for a sum of Rs. 47,99,228 together with interest @ 20% per annum. The Trial Judge while dealing with the prayer for rejection of the plaint noticed that the principal contention of the petitioner was that the counter claim was barred in terms of the provisions made in the Limitation Act 1963

The case set forth by the petitioner in support of the invocation of Order VII Rule 11 of the Code was premised on the fact that the final invoice was issued and raised by the respondent on April  17, 201 and the counter claim came to be instituted on March 15,2018 which would clearly be barred under the provisions of the Act when viewed in light of the prescriptions contained in Articles 14 and 18 of the Schedule of the Act. The Trial Court dismissed the application u/O 7 R 11 CPC observation that the plaint couldnnot be rejected at the outset on demur.

Referring to the facts of the case, the Bench clarified that the dispute essentially related to an asserted outstanding amount of Rs. 47,99,228.While the respondent was stated to have raised the issue of outstanding payments through its various communications and e-mails, a legal notice for the balance sum was issued on March 10, 2016. The claim raised in terms of that notice was repudiated by the revisionist in its reply dated June 4,2016. The counter claim came to be instituted thereafter on March 15, 2018.

Also, the work was left at an incomplete stage with the respondent alleging that the revisionist failed to lay in place adequate facilities to enable it to complete the work and the revisionist at the other end alleging that the counter claimant abandoned the project mid-way constraining it to source material and machinery from independent sources and thus incurring further expenditure.

The Court was of the opinion that Article 14 would clearly not be attracted since the contract was clearly not one for supply of goods per se. Stating that application of Article 18 is dependent upon the suit being for the price of work done “where no time has been fixed for payment”, the Bench also noted that in terms of its language the period of limitation would commence once the work is done or completed or when a final bill is raised. 

Article 18 in stricto sensu was held to be inapplicable for the purposes of computing and answering the question of limitation as the Letter Of Intent in unambiguous terms set out the percentage of the total contract value which was to be released at different stages and this was not a case where no time frame for payment was fixed. Moreover, it was the revisionist’s own case that the work was not completed by the respondent and it had to consequently engage the services of others for completion of the project.

On the issue of rejection of plaint, Justice Varma said, “ For the purposes of evaluating whether a plaint is liable to be rejected under Order VII Rule 11 of the Code, the Court is obliged by law to read the plaint as a whole. The conclusion of the plaint being liable to be rejected would have to be founded on a comprehensive and meaningful reading of the pleadings as tendered. A mere stray assertion cannot be read in isolation to the case as set up in the plaint as a whole. Similarly, a description of facts which is otherwise established to be ex facie inaccurate or contrary to the record would also not warrant the invocation of Order VII Rule 11.”

The Bench also affirmed that even after those payments, issues relating to the execution of the contract simmered and festered between the parties. The rival claims ultimately stood crystalised and embodied in the legal notice and the reply that was exchanged. Reference was also made to the well settled precept of the prescription of limitation commencing from the time when an actual “dispute” can be said to have arisen which depends upon the assertion of a right by one party and its repudiation by the other. 

The Bench referred to the judgment of the Apex Court in Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd., wherein it was held that the Court  must find out what was the “breaking point” at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This “breaking point” would then be treated as the date on which the cause of action arises, for the purpose of limitation.

According to the Court, the disputes between the parties ultimately crystallised and came to be raised by the respondent in its legal notice. The claim raised was negated by the revisionist when it replied to the aforesaid notice and this action would constitute the “breaking point” .

“It becomes relevant to note that here too while the project was abandoned and left unfinished, parties were yet to settle their differences. This was not a case where the work had been duly finished at the time when the last invoice was raised by the respondent. Both sides have raised competing claims of why the project could not be completed. The legal notice and the reply of the revisionist disputing the claim in essence not only constituted a positive assertion of the claim by the respondent but also a point of no return in the dealings between the parties. It would thus constitute the crucial point in time from which the period of limitation would be liable to be viewed as having commenced”, noticed the Bench.

Testing the issue of limitation on the anvil of Article 113 of the Act and computing the period of limitation from the date of repudiation, it was held by the Court  that the counter claim could not be said to be barred by time and this was opined to be all the more evident when one would compute it from the time when the reply to the legal notice was sent and the filing of the counter claim thereafter.

Dismissing the Revision Petition, the Court held that the counter claim did not deserve to be rejected under Order VII Rule 11 of the Code.

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