In a significant ruling on the mandatory nature of Section 12A of the Commercial Courts Act, 2015, the Bombay High Court dismissed the application filed by Guiness Securities and its directors seeking rejection of the plaint, holding that once ad-interim relief is granted by the Court, the question of urgency cannot be re-agitated at the threshold stage under Order 7 Rule 11 of the CPC. The Court held that Section 12A of the Commercial Courts Act, 2015 is mandatory and a strict condition precedent for maintaining a commercial suit where no urgent interim relief is contemplated, and non-compliance therewith justifies rejection of the plaint under Order 7 Rule 11 of the CPC.
However, the exception carved out under sub-section (1) of Section 12A applies where the suit genuinely contemplates urgent interim relief, which is to be ascertained on a holistic reading of the plaint, examining the nature and subject matter of the suit, the cause of action, and the conduct of the plaintiff before institution of the suit. Once ad-interim or interim relief is granted by the Court after considering the urgency pleaded, it is to be necessarily presumed that the suit contemplates urgent interim relief, and the Court cannot sit in appeal over such findings while deciding an application for rejection of the plaint.
The grant of ad-interim relief supports the plaintiff’s contention that interim relief was contemplated, and the plaint cannot be rejected on the ground of non-compliance with Section 12A. In cases involving serious findings of fraud against the defendants by SEBI, it would be unconscionable to permit such defendants to use Section 12A as a procedural shield to defeat the legitimate recovery claims of the plaintiff, particularly where the suit is filed for protecting the interests of investors who have lost monies and securities due to the fraudulent conduct of the defaulting trading member, added the Court.
A Single Judge Bench of Justice Sandeep V. Marne observed that Section 12A of the Commercial Courts Act, 2015 is not a mere procedural provision but is intended to be mandatory, as held by the Apex Court in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited [(2022) 10 SCC 1]. However, sub-section (1) of Section 12A carves out an exception for suits that contemplate any urgent interim relief.
The Court noted the principles laid down by the Apex Court in Yamini Manohar v. T.K.D. Keerthi [(2024) 5 SCC 815], where it was held that the plaintiff does not have an absolute right to paralyze Section 12A by merely inserting a prayer for urgent interim relief, and that camouflage and guise to bypass the statutory mandate of pre-litigation mediation should be checked when deception and falsity is apparent or established. The Court further relied on the recent decision of the Apex Court in Dhanbad Fuels Private Limited v. Union of India [2025 SCC Online SC 1129], which laid down the test for “urgent interim relief” as being whether, on examination of the nature and subject matter of the suit and the cause of action, the prayer for urgent interim relief could be said to be contemplable when seen from the standpoint of the plaintiff.
The Court observed that the test for urgent interim relief is satisfied when the prayer is not a mere unfounded excuse to bypass Section 12A, and that even if urgent interim relief is ultimately denied, the suit may proceed without compliance with Section 12A if the test is satisfied notwithstanding the actual outcome on merits. The Court further noted that once ad-interim or interim injunction is granted, the Court would readily presume contemplation of urgent interim relief in the suit.
The Court observed that in the present case, despite SEBI’s final order dated 30 June 2022 restraining Defendant Nos. 1 to 3 from disposing of assets, Defendant No. 1 had provided inventory of assets only up to December 2018, which justified the Plaintiff’s need to seek further disclosures and injunction through the suit. The Court noted that it had already granted ad-interim relief by order dated 8 February 2024 in terms of prayer clauses (a), (b), and (f), directing disclosure of financial returns, bank statements, asset lists, and restraining the Defendants from dealing with their assets.
The Court observed that once ad-interim relief is granted by the Court considering the nature of urgency involved, it cannot sit in appeal over the findings recorded in the ad-interim order while deciding an application under Order 7 Rule 11 of the CPC. The Court rejected the contention of Defendant Nos. 1 to 3 that the observations in para 62(h) of Dhanbad Fuels permitted re-examination of urgency once ad-interim relief was granted, holding that those observations only dealt with the converse situation where interim relief is denied.
The Court further observed that the Defendants, against whom findings of fraud were recorded by SEBI, were using the provisions of Order 7 Rule 11 as a shield to defeat the Plaintiff’s claim, and that it would be unconscionable for a party who has accepted findings of fraud to use Section 12A as a shield to resist the grant of interim relief.
Briefly, the Plaintiff, National Stock Exchange of India Ltd. (NSEL), filed a Commercial Suit seeking recovery of Rs. 339.57 crores along with interest from Defendant No. 1, Guiness Securities Ltd. and its Directors (Defendant Nos. 2 to 5). The suit arose out of 5,393 claims submitted by investors aggregating to the said amount, pursuant to the declaration of Defendant No. 1 as a defaulter under Bye-law No. 1(a) of Chapter 12 of NSEL’s Bye-laws and its consequent expulsion under Rules 1 and 2 of Chapter IV of the Rules of NSEL.
Defendant No. 1 was a trading member registered with NSEL in the Capital Market (CM) and Futures & Options (F&O) segments since July 2000 and in the Currency Derivatives (CD) segment since October 2008, and was also a self-clearing member in the CM and F&O segments. During a routine inspection in March 2018, NSEL noticed various irregularities in the books and records of Defendant No. 1, leading to issuance of a show cause notice dated 9 November 2018. The Disciplinary Action Committee of NSEL passed orders directing Defendant No. 1 to recoup the shortfall of funds and securities, and trading membership was suspended across all segments.
Later, SEBI passed an ad-interim order restraining Defendant Nos. 1 to 5 from accessing the securities market, dealing in securities, and disposing of or alienating assets without prior SEBI permission, and directing them to provide a full inventory of assets. On 6 May 2019, the Member Selection Committee of NSEL expelled Defendant No. 1 from membership, and NSEL issued a public notice on 9 May 2019 inviting clients to lodge claims within three months. A Forensic Audit Report confirmed misappropriation of client securities, misrepresentation, and falsification of books of account. Accordingly, SEBI passed a final order on 30 June 2022 restraining Defendant Nos. 1 and 2 for 7 years and Defendant No. 3 for 5 years from dealing in securities, freezing holdings of Defendant No. 1, and imposing monetary penalties of Rs. 2 crores, Rs. 1 crore, and Rs. 75 lakhs on Defendant Nos. 1, 2, and 3 respectively.
