2014 (3) TMI 1210 - HC - Indian Laws

Claim of forfeiture of the Security Deposit raised by the defendants - equitable set-off or not - Seeking a decree against the Defendants No. 1 and 2 on admissions - Order XII Rule 6 of the Civil Procedure Code, 1908 - HELD THAT - The object of Order XII Rule 6 is to enable a party to obtain a speedy judgment to the extent of the admissions of the Defendant to which relief the Plaintiff is entitled to. The rule permits the passing of the judgment at any stage without waiting for determination of any other question. It is a settled proposition of law that before a judgment can be passed under Order 12 Rule 6, the admission must be clear, unambiguous, unconditional and unequivocal. As per the law laid down by the Supreme Court for a Judgment to be passed on admission, the admission has to be clear, unambiguous and unequivocal. It is an enabling provision, it is neither mandatory nor peremptory but discretionary. The judicial discretion, has to be exercised keeping in mind that a judgment on admission is a judgment without trial which permanently denies any remedy to the defendant, by way of an appeal on merits. The valuable right of a defendant to contest the claim should not be denied unless the admission is clear, unambiguous and unconditional. Seeking setoff of the amount of Rs. 15,00,000/- as the setoff has not been lawfully claimed in the written statement - HELD THAT - As per the Jitendra Kumar Khan case 2013 (8) TMI 1057 - SUPREME COURT equitable set-off is distinct from the legal set-off as envisaged by Order VIII rule 6 of the Code. Equitable set-off is different than the legal set-off and it is independent of the provisions of the Code of Civil Procedure. However for claiming equitable set-off it must be established that the mutual debts and credits or cross-demands must have arisen out of the same transaction or are connected in the nature and circumstances. The Plea of equitable set-off is raised not as a matter of right but it is within the discretion of the court to entertain and allow such a plea or not. As per the CRB Capital case 2005 (5) TMI 346 - HIGH COURT OF DELHI equitable set-off can be claimed even for an unascertained sum of money provided the same arises out of the same transaction. In the present case, the claim of forfeiture of the Security Deposit raised by the defendants arises out of the same transaction and is in the nature of an equitable set-off. This of course is a prima facie expression of opinion. Whether the claim of forfeiture would be ultimately allowed or not would depend upon the evidence adduced by the Defendants so as to sustain a claim of equitable set-off. Application dismissed.

Summary

Issues Involved:
1. Application under Order XII Rule 6 CPC for a decree on admissions.
2. Breach of Memorandum of Understanding (MOU) and the supply of material.
3. Forfeiture of Security Deposit.
4. Claim of equitable set-off by the Defendants.

Issue-wise Detailed Analysis:

1. Application under Order XII Rule 6 CPC for a decree on admissions:
The Plaintiff filed an application under Order XII Rule 6 of the Civil Procedure Code, 1908, seeking a decree against Defendants No. 1 and 2 based on admissions. The Plaintiff argued that the Defendants admitted to receiving the Security Deposit of Rs. 15,00,000/- and thus, should refund the amount as there was no forfeiture clause in the agreement. The court emphasized that for a judgment to be passed under Order XII Rule 6, the admission must be "clear, unambiguous, unconditional and unequivocal." The court referenced the Supreme Court's rulings in Uttam Singh Duggal & Co. Ltd. v. Union Bank of India and Himani Alloys Ltd. v. Tata Steel Ltd., which clarified that the discretion to pass a judgment on admission should only be exercised when the admission is unmistakably clear.

2. Breach of Memorandum of Understanding (MOU) and the supply of material:
The Plaintiff claimed that after entering into a partnership and signing an MOU with M/s. Ikon Industries for the distributorship of packaged drinking water, the Defendants breached the terms by supplying material to other parties. The Plaintiff sought a refund of the Security Deposit and damages. The Defendants, however, contended that the Plaintiff was in breach of the agreement by not lifting the manufactured stock, leading to substantial losses. The Defendant No. 2 argued that they had to forfeit the Security Deposit due to the Plaintiff's non-compliance with the agreement.

3. Forfeiture of Security Deposit:
The Plaintiff argued that there was no clause for forfeiture of the Security Deposit in the agreement, and thus, the amount should be refunded. The Defendants countered that the Security Deposit was meant to ensure due performance of the agreement, and due to the Plaintiff's breach, the deposit was forfeited. The court noted that the term "Security Deposit" itself indicated that it was meant as a safeguard for the Defendants and that the issue of whether the deposit could be forfeited needed to be tested at trial.

4. Claim of equitable set-off by the Defendants:
The Defendants claimed that they suffered substantial losses due to the Plaintiff's breach and sought to set-off the Security Deposit against these losses. The court referenced the Supreme Court's ruling in Jitendra Kumar Khan v. Peerless General Finance & Investment Co. Ltd., which distinguished between legal and equitable set-off. Equitable set-off can be claimed for unascertained sums arising out of the same transaction, and it is within the court's discretion to allow such a plea. The court found that the Defendants' claim of forfeiture arose from the same transaction and was in the nature of an equitable set-off. However, for the purposes of a judgment on admission, there was no clear, unambiguous, and unequivocal admission by the Defendants that could be acted upon.

Conclusion:
The court concluded that the Plaintiff was not entitled to a decree on admission as the Defendants' admission of receiving the Security Deposit was coupled with a plea of forfeiture due to the Plaintiff's breach. The court dismissed the application under Order XII Rule 6, stating that the issue of whether the Security Deposit could be forfeited needed to be determined at trial. The application was dismissed without any costs.