2014 (11) TMI 1247 - HC - Indian Laws

Dishonor of Cheque - defendants have not paid the valid dues of the plaintiff inspite of due service of the legal notice - territorial jurisdiction - jurisdiction to intervene where there is an arbitration clause/ agreement - presumption in favour of the plaintiff or not - Order XXXVII CPC - HELD THAT - No evidence of any oral agreement or statement can be admitted when the terms of any such contract have been reduced in the form of a document. Thus, the grounds mentioned in the application for leave to defend as defence, it is merely a moonshine defence. The said grounds have no application in law. The present case is clearly covered in guiding principles of (d) and (e) of the judgment of MECHELEC ENGINEERS AND MANUFACTURERS VERSUS M/S. BASIC EQUIPMENT CORPORATION 1976 (11) TMI 194 - SUPREME COURT . The defendants have no defence who are not entitled for leave to defend. It is stated that as per Section 5 of the Act, no Court shall have jurisdiction to intervene where there is an arbitration clause/ agreement. Further as per Section 8 of the Act, it is clear that a judicial authority before which, an action is brought in a matter, which is the subject matter of an Arbitration Agreement shall be referred to the Arbitration - there is an existence of arbitration clause as per the settled law and conditions between the parties and the dispute raised in the suit relates to the subject matter of the Arbitration and the dispute be referred to arbitration. Having considered the undertaking/affidavit executed by the defendant No.2 as well as the dishonouring of the cheques issued by the said defendant, since the presumption is that the defendants have admitted their liability of the outstanding amount of the plaintiff, thus there is no dispute between the parties whereby the defendants have to pay the amount to the plaintiff - In the present case, since there are written documents raising presumption against the defendants with regard to the undertaking and dishonouring of the cheques, no ground has been made out by the defendants to grant the leave to defend in the present case. The application for leave to defend as well as the application under Sections 5 and 8 of the Act are dismissed.

Summary

Issues Involved:
1. Recovery of outstanding dues.
2. Territorial jurisdiction.
3. Quality and condition of supplied goods.
4. Existence and impact of an arbitration clause.
5. Legitimacy of the affidavit/undertaking and cheques issued.

Detailed Analysis:

1. Recovery of Outstanding Dues:
The plaintiff filed the suit under Order XXXVII CPC for recovery of Rs. 17,58,865/- against the defendants, which was confirmed in a written balance confirmation dated 13th October 2010. The defendants issued five cheques, each for Rs. 1,00,000/-, which were dishonoured due to insufficient funds. The plaintiff sought a decree for recovery of Rs. 23,88,865/- including interest at 18% per annum from 15th January 2009 until realization.

2. Territorial Jurisdiction:
The defendants argued that the court lacked jurisdiction as all transactions occurred in Karnal, Haryana. However, the court noted that the agreement, balance confirmation, and revalidation of cheques occurred in Delhi, establishing jurisdiction. The court rejected the defendants' contention, finding no contrary evidence to the plaintiff's claims.

3. Quality and Condition of Supplied Goods:
The defendants claimed that goods worth Rs. 12,00,000/- were returned due to defects and goods worth Rs. 10,00,000/- were still with them. They also cited expenses of Rs. 50,000/- for a trade fair and uncredited incentive schemes. However, the court found these claims unsubstantiated and noted the defendants failed to provide evidence or raise these issues during arguments.

4. Existence and Impact of an Arbitration Clause:
The defendants contended that the suit should be referred to arbitration as per the terms on the invoices. The court, however, found that the written undertaking and dishonoured cheques created a presumption of admitted liability, negating the need for arbitration. The court dismissed the application under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996.

5. Legitimacy of the Affidavit/Undertaking and Cheques Issued:
The defendants alleged that their signatures were obtained on blank documents, which were later misused. The court noted that the defendants did not deny the undertaking or the dishonoured cheques during arguments. The court held that the defendants' claims were mere moonshine and did not constitute a valid defence.

Conclusion:
The court concluded that the defendants had no substantial defence and dismissed their applications for leave to defend and for arbitration. The suit was decreed in favor of the plaintiff for Rs. 23,88,865/- along with interest at 18% per annum from the date of filing until realization, and the plaintiff was awarded the cost of the suit.