2008 (3) TMI 765 - HC - Indian Laws

Summary

Issues involved:
Challenge to order under Order VII Rule 11 CPC

Summary:
The appeal challenged the order dismissing the application filed by NTPC under Order VII Rule 11 CPC in a suit by IDBI against various parties including NTPC. The suit challenged a compromise agreement between SPGL and NTPC, alleging it was contrary to loan agreements with financial institutions. The appeal contended no cause of action was disclosed in the plaint.

Background Facts:
Financial assistance was provided to SPGL by financial institutions, governed by loan agreements. Disputes arose among promoters, leading to suits. A compromise agreement was reached between SPGL and NTPC, contested by IDBI. Supreme Court noted challenges could be raised regarding SPGL's authority to make payments to NTPC.

Contentions:
Appellant argued Lenders/Financial Institutions had no connection to the compromise agreement. IDBI lacked cause of action against NTPC. Settlement did not affect company's capital structure. NTPC entered into the settlement at IDBI's insistence. IDBI contended Lenders/Financial Institutions were vitally concerned by SPGL's payment to settle disputes.

Judgment:
Court found the settlement by SPGL with NTPC for loss of opportunity cost was of vital interest to Lenders/Financial Institutions. Payment disturbed debt equity ratio, making IDBI a vital stakeholder. Court held the suit had cause of action as disputes required adjudication. Rejection of plaint based on lack of cause of action is not warranted if some cause of action is disclosed. Weakness of case is not a ground for rejection.

Conclusion:
The appeal was dismissed as the suit had cause of action and required trial. The learned Single Judge's decision to dismiss the application was upheld.