The Bombay High Court has declared that though Section 12-A of the Commercial Courts Act, 2015, is mandatory, the plaint cannot be rejected for non-exhaustion of pre-institution mediation. The Court said that the plaint, when read as a whole, discloses a cause of action against all defendants, based on their roles under the Master Restructuring Agreement (MRA) and Trust and the Retention Account (TRA) Agreements and the alleged breach of trust. Whether this cause of action is sustainable is a triable issue.
The Court asserted that the issue of limitation, particularly when the right to sue accrued, is a mixed question of fact and law that requires trial and cannot be decided at the preliminary stage of an Order VII Rule 11 application. Thus, the power to reject a plaint under Order VII Rule 11 cannot be exercised for a part of the plaint or against only some of the defendants; the plaint must be rejected as a whole or not at all.
The Court concluded by observing that the routine filing of such applications for rejection defeats the object of the Commercial Courts Act, which is the speedy disposal of suits.
A Single Judge Bench of Justice Gauri Godse noted that the Supreme Court in the case of Patil Automation Private Limited vs. Rakheja Engineers Private Limited [(2022) 10 SCC 1], had held Section 12-A to be mandatory, with this declaration taking effect from 20th August 2022, or from the date a jurisdictional High Court declared it mandatory. However, since the present suit was filed on July 31, 2021, which is before the provision was declared mandatory by the High Court, the Bench clarified that for the purpose of Section 12-A, the “institution” of a suit means the filing/presentation of the plaint, not its subsequent registration.
Therefore, the plaint could not be rejected for non-compliance with Section 12-A, as the mandatory requirement was not in effect at the time of its filing, added the Bench.
On a meaningful reading of the plaint, the Bench found that the plaintiffs’ names were listed as beneficiaries in the MRA and TRA agreements, with Defendant No. 1 designated as the ‘Lead Bank and the Account Bank’ responsible for releasing funds. Further, the cause of action was pleaded against Defendant Nos. 1 to 11 as trustees of the revenue generated by Varun, which was made possible by the plaintiffs’ financial assistance and bunker supplies.
On the contention of the plaintiffs that their right to sue accrued on 21st May 2019, upon discovering the alleged misappropriation of funds from the NCLT application, the Bench held that the question of when the right to sue accrues under Article 113 of the Limitation Act, 1963, is ordinarily a mixed question of fact and law. Therefore, the issue of limitation warrants a trial where evidence can be led and cannot be a ground for the summary rejection of the plaint at this stage.
Briefly, the suit was initiated by Asean International Limited (Plaintiff No. 1) and Modest & Parson International Private Limited (Plaintiff No. 2), collectively referred to as the ‘Asean Group’, who are in the business of supplying bunkers to ocean-going vessels. The plaintiffs filed for a money decree against Defendant Nos. 1 to 11, seeking joint and several payment of Rs. 83.57 Crores to Plaintiff No. 2 for an outstanding credit facility and USD 6,326,895.05 to Plaintiff No. 1 for outstanding bunker invoices.
On the other hand, the Defendant Nos. 1 to 9 are banks and financial institutions that formed a Joint Lenders Forum (JLF) to restructure the debts of Varun Resources Limited (Varun). The Defendant No. 10 acted as the security trustee, and Defendant No. 11 was the nominated account bank for the debt restructuring scheme. Varun is now in liquidation, represented by Defendant No. 13.
The plaintiffs claimed that they continued to supply fuel and advance money to Varun based on assurances from the JLF (Defendant Nos. 1 to 9) that their dues would be paid in priority. These assurances were allegedly made during JLF meetings and formalized under a Master Restructuring Agreement (MRA) and a Trust and Retention Account (TRA) Agreement, which set out an order of priority for payments. The plaintiffs contended that the right to sue accrued on 21st May 2019, when they discovered from a miscellaneous application filed in the NCLT by Mauritius Commercial Bank that Defendant No. 1 had allegedly breached the MRA and TRA agreements by misappropriating and diverting funds from Varun, instead of paying the plaintiffs as per the agreed priority.
The Defendant No. 1 (State Bank of India) filed an application under Order VII Rule 11(a) and (d) of the Civil Procedure Code, 1908, for the rejection of the plaint on the primary ground that the plaintiffs’ attempt at a private mediation was not compliant with the mandatory pre-institution mediation prescribed by Section 12-A of the Commercial Courts Act, 2015 and its associated Rules. The Defendant argued that the claims were based on invoices from 2014-2019 and a credit facility from 2015, making the suit, filed in 2021, time-barred. Additionally, it was argued that there was no privity of contract between the plaintiffs and Defendant No. 1.
Appearances:
Advocates Nirman Sharma, Deeshank Doshi, and Dhruva Sikarwar, for the Applicants
Advocates Siddhesh Bhole, Yakshay Chheda, Vidhi Sharma, Mohd. Riyaz Khan, and Jamshed Ansari, for the Defendants
