2023/DHC/001795

IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment delivered on: 07.03.2023

+ RFA(OS)(COMM) 10/2020

BRIJESH KUMAR AGARWAL AND ORS. ..... Appellants

versus

IFCI FACTORS LIMITED AND ANR. ..... Respondents

Advocates who appeared in this case:
For the Appellants : Mr Sanjeev Sagar, Mr Shivang Bansal and
Ms Nazia Parveen, Advocates.
For the Respondents : Mr Sharique Hussain, Advocate.

CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
HON’BLE MR JUSTICE AMIT MAHAJAN

JUDGMENT

VIBHU BAKHRU, J

1. The appellants have filed the present intra-court appeal under

Section 13 of the Commercial Courts Act, 2015 impugning a
judgment dated 05.09.2019 (hereafter ‘the impugned judgment’)
passed by the learned Single Judge, whereby the suit filed by
respondent no.1 (hereafter ‘IFL’), being CS(COMM) 1265/2016, was
decreed against the appellants, who were arrayed as defendant nos. 2
to 5 in the suit.

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2. IFL (IFCI Factors Limited) had filed the aforementioned suit

[CS(COMM) 1265/2016] as a summary suit under Order XXXVII of
the Code of Civil Procedure, 1908 (hereafter ‘the CPC’), inter alia,
claiming a decree for a sum of ₹4,78,37,930.22/- (Four Crore Seventy
Eight Lakh Thirty Seven Thousand Nine Hundred Thirty Rupees And
Twenty Two Paise Only) along with pendente lite and future interest
at the rate of 13.75% per annum as well as costs towards the counsel’s
fee assessed at ₹1,50,000 (One Lakh Fifty Thousand Rupees Only),
against the appellants and respondent no.2, who were arrayed as
defendants in the suit.

3. In its plaint, IFL claimed that it is a Government of India

Undertaking and a Non-Banking Finance Company incorporated
under the Companies Act, 1956. IFL claimed that it is, inter alia,
engaged in the business of providing financial facilities including
factoring of receivables as defined under Section 2(p) of the Factoring
Regulation Act, 2011. Respondent no.2 (Shyam Forgings Private
Limited – arrayed as defendant no.1 in the suit) was, at the material
time, engaged in the business of steel processing, forging and rolling.
It had approached IFL seeking Domestic Factoring Facilities. IFL
entered into an “Agreement for the Factoring of Receivables” dated
07.05.2010 (hereafter ‘Factoring Agreement’) with respondent no.2,
whereby it granted facility of domestic factoring of gross worth of
₹3,00,00,000/- (Rupees Three Crores Only) at a discount charge of
13.75% per annum.

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4. IFL claims that separate Deeds of Guarantee dated 07.05.2010

were executed by the appellants (defendant nos.2 to 5) in favour of
IFL for securing the said facilities. In terms of the Factoring
Agreement, IFL had disbursed 80% of the invoices raised by
respondent no.2 in respect of three entities – (a) Kunj Forging Pvt.
Ltd., (b) R.K.G. International Pvt. Ltd., and (c) Supreme Electrocast
Pvt. Ltd. – aggregating ₹2,77,99,639.12/- (Rupees Two Crores
Seventy Seven Lacs Ninety Nine Thousand Six Hundred Thirty Nine
and Twelve Paise only). IFL claimed that it was entitled to recover a
sum of ₹4,78,37,930.22/- (Rupees Four Crores Seventy Eight Lacs
Thirty Seven Thousand Nine Hundred Thirty and Twenty Two Paise
Only) including service charges and administrative charges. In
addition, IFL claimed that the defendants were also liable to pay
further pendente lite and future interest at the rate of 13.75%.

5. IFL stated that it had issued a notice dated 07.04.2016 to

respondent no.2 calling upon it to pay the amount of ₹4,49,53,724.79/.
It had, thereafter, by a notice dated 11.04.2016, invoked the
guarantees furnished by the appellants and called upon them to pay the
aforesaid amount of ₹4,49,53,724.79/- within a period of seven days
of the receipt of the notice. IFL claimed that despite service of
notices, the defendants did not pay the amount as demanded.

6. Insofar as respondent no.2 is concerned, it was disclosed that a

petition (being CO.PET.487/2018 under Section 433 of the
Companies Act, 1956) was filed by the Small Industries Development
Bank of India seeking winding up of the respondent no.2 company and

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the Company Court had passed an order dated 26.02.2016, appointing

the Official Liquidator as a Provisional Liquidator in respect of
respondent no.2 company.

7. As stated above, IFL had filed the suit as a summary suit under
Order XXXVII of the CPC. The appellants filed an application
seeking leave to defend raising several defenses. First, the appellants
claimed that IFL could not be treated as a factor as it had neither
asserted nor enclosed any certificate of registration as a factor under
the Factoring Regulation Act, 2011. Next, the appellants claimed that
in terms of the Factoring Agreement, IFL had stepped into the shoes
of respondent no.2 company in respect of the receivables discounted
by it; therefore, IFL had the right to recover receivables from the
debtors of respondent no.2 company directly. The appellants stated
that IFL had limited recourse against respondent no.2 company, which
would be equivalent to the amount remaining unpaid. But prior to
taking recourse against respondent no.2 company, it would be
necessary for IFL to take steps for recovery of the amounts due from
the debtors.

8. The appellants claimed that they have no liability as the period

of guarantee had expired. In addition, they claimed that they were not
the guarantors of various debtors and were not liable to discharge their
liability to IFL. It is important to note that the appellants also denied
that the amount as claimed by IFL was payable and stated that the
claim was arbitrarily calculated.

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Proceedings in the Suit

9. The suit was instituted on 30.08.2016 and was listed before the
Court for the first time on 14.09.2016. The Court entertained the suit
as a suit under Order XXXVII of the CPC and issued summons for
appearance of the defendants (appellants and respondent no.2). The
defendants filed the application under Section 8 of the Arbitration and
Conciliation Act, 1996 seeking reference of the parties to arbitration.
The said application was resisted by IFL on the ground that it had
entered into the arbitration agreement only with respondent no.2 and
not with the appellants.

10. In view of the above, the court dismissed the said application by
an order dated 02.01.2018.

11. The appellants filed an application for leave to defend on

12.01.2018 seeking various grounds as briefly noted above.

12. On 02.11.2018, on a concession made by IFL, the Court

directed that the suit be treated as an ordinary suit. In the
circumstances, the Court granted the defendants thirty days time to file
the written statement and a further thirty days time to IFL to file its
replication. The parties were also directed to file the affidavits of
admission/denial of each other’s documents before the next date of
hearing and the suit was directed to be listed on 27.03.2019 for
framing of issues.

13. However, the matter was not taken up on 27.03.2019 and the
hearing was adjourned to 29.07.2019. On the next date of hearing,

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that is, on 29.07.2019, the counsel appearing on behalf of IFL was

heard. The Court also noted that IFL had not filed a certificate under
Section 3(1) of the Factoring Regulation Act, 2011 and expressed its
displeasure regarding the same. The matter was directed to be listed on
the next date, that is, on 30.07.2019. The order sheet indicates that on
30.07.2019, arguments of the counsel appearing for the appellants
were heard and the matter was directed to be listed on 02.09.2019. The
order sheet of 02.09.2019 indicates that the counsels were heard, and
the matter was posted on 03.09.2019. The learned Single Judge also
observed that he intended to dictate a judgment in the Court. However,
the matter could not be taken up on 03.09.2019 and was directed to be
listed on 05.09.2019. On that date, the impugned judgment was
delivered.

Submissions

14. Mr. Sagar, learned counsel appearing for the appellants

submitted that the impugned judgment had been passed contrary to the
procedure established by law. He submitted that the matter had been
listed for framing of issues and the appellants were under the
impression that preliminary objections were being heard in the context
of framing of issues. Neither party had filed any affidavit of admission
and denial of documents. He submitted that the submissions were
made only with regard to the maintainability of the suit, as one of the
preliminary objections raised by the appellants was that the suit was
not maintainable. He submitted that the appellants were taken by
surprise when the suit was decreed without framing of any issue or

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without a detailed hearing on merits. He submitted that apart from the

points considered by the Court, there were other issues that were
required to be struck and decided. He pointed out that the appellants
had denied the amount as claimed and therefore, IFL was required to
prove the calculation of the said amount. However, the suit was
summarily decreed. He also pointed out that IFL had not filed any
replication despite opportunities and had not controverted the
assertions made in the written statement.

15. The learned counsel appearing for IFL countered the aforesaid
submissions. He submitted that the Court had considered the defences
raised on merit and had rendered a summary judgment. He submitted
that in terms of Rule 1 of Chapter X-A of the Delhi High Court
(Original Side) Rules, 2018, the Court was empowered to suo moto
render a summary judgment.

Reasons and Conclusion

16. The main question that arises for consideration of this Court is
whether the learned Single Judge could proceed to suo moto render a
summary judgment in a matter involving a commercial dispute. The
said issue is squarely covered by the decision of this Court in Surya
Foods and Agro Limited v. Om Traders & Anr.: RFA(OS)(COMM)
28/2019, decided on 20.01.2023. This Court had noted that Order
XIII-A of the CPC as applicable to commercial suits, enables the
courts to decide a claim in respect of a commercial dispute without

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recording oral evidence. However, it is necessary that the conditions

as specified under Order XIII-A of the CPC are duly satisfied.

17. It is relevant to refer to Order XIII-A of the CPC and the same
is set out below:

“ORDER XIII-A
SUMMARY JUDGMENT
1. Scope of and classes of suits to which this Order
applies.—(1)This Order sets out the procedure by
which Courts may decide a claim pertaining to any
Commercial Dispute without recording oral evidence.
(2) For the purposes of this Order, the word ―claim
shall include—
(a) part of a claim;

(b) any particular question on which the claim (whether

in whole or in part) depends; or
(c) a counterclaim, as the case may be.
(3) Notwithstanding anything to the contrary, an
application for summary judgment under this
Order shall not be made in a suit in respect of any
Commercial Dispute that is originally filed as a
summary suit under Order XXXVII.
2. Stage for application for summary judgment. – An
applicant may apply for summary judgment at any time
after summons has been served on the defendant:
Provided that, no application for summary judgment
may be made by such applicant after the Court has
framed the issues in respect of the suit.
3. Grounds for summary judgment.— The Court may give
as summary judgment against a plaintiff or defendant
on a claim if it considers that––

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(a) the plaintiff has no real prospect of succeeding on

the claim or the defendant has no real prospect of
successfully defending the claim, as the case may
be; and
(b) there is no other compelling reason why the claim
should not be disposed of before recording of oral
evidence.
4. Procedure. – (1) An application for summary judgment
to a Court shall, in addition to any other matters the
applicant may deem relevant, include the matters set
forth in sub-clauses (a) to (f) mentioned hereunder:—
(a) the application must contain a statement that it is
an application for summary judgment made under
this Order;
(b) the application must precisely disclose all material
facts and identify the point of law, if any;
(c) in the event the applicant seeks to rely upon any
documentary evidence, the applicant must,––
(i) include such documentary evidence in its
application, and
(ii) identify the relevant content of such
documentary evidence on which the applicant
relies;
(d) the application must state the reason why there
are no real prospects of succeeding on the
claim or defending the claim, as the case may
be;
(e) the application must state what relief the
applicant is seeking and briefly state the
grounds for seeking such relief.
(2) Where a hearing for summary judgment is
fixed,therespondent must be given at least thirty
days’ notice of:—
(a) the date fixed for the hearing; and

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(b) the claim that is proposed to be decided by the

Court at such hearing.
(3) The respondent may, within thirty days of the
receipt of notice of application of summary
judgment or notice of hearing (whichever is
earlier), file a reply addressing the matters set
forth in clauses (a) to (f) mentioned hereunder in
addition to any other matters that the respondent
may deem relevant:—
(a) the reply must precisely––
(i) disclose all material facts;

(ii) identify the point of law, if any; and

(iii) state the reasons why the relief sought by

the applicant should not be granted;
(b) in the event the respondent seeks to rely upon
any documentary evidence in its reply, the
respondent must—
(i) include such documentary evidence in its
reply; and
(ii) identify the relevant content of such
documentary evidence on which the
respondent relies;
(c) the reply must state the reason why there are
real prospects of succeeding on the claim or
defending the claim, as the case may be;
(d) the reply must concisely state the issues that
should be framed for trial;
(e) the reply must identify what further evidence
shall be brought on record at trial that could
not be brought on record at the stage of
summary judgment; and
(f) the reply must state why, in light of the
evidence or material on record if any, the

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Court should not proceed to summary

judgment.
5. Evidence for hearing of summary judgment. – (1)
Notwithstanding anything in this Order, if the
respondent in an application for summary judgment
wishes to rely on additional documentary evidence
during the hearing, the respondent must:—
(a) file such documentary evidence; and
(b) serve copies of such documentary evidence on
every other party to the application at least
fifteen days prior to the date of the hearing.
(2) Notwithstanding anything in this Order, if the
applicant for summary judgment wishes to rely on
documentary evidence in reply to the defendant‘s
documentary evidence, the applicant must:—
(a) file such documentary evidence in reply; and
(b) serve a copy of such documentary evidence on
the respondent at least five days prior to the
date of the hearing.
(3) Notwithstanding anything to the contrary, sub-
rules (1) and (2) shall not require documentary
evidence to be:—
(a) filed if such documentary evidence has already
been filed; or
(b) served on a party on whom it has already been
served.
6. Orders that may be made by Court.– (1) On an
application made under this Order, the Court may
make such orders that it may deem fit in its discretion
including the following:—
(a) judgment on the claim;
(b) conditional order in accordance with Rule 7
mentioned hereunder;
(c) dismissing the application;

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(d) dismissing part of the claim and a judgment on

part of the claim that is not dismissed;
(e) striking out the pleadings (whether in whole or
in part); or
(f) further directions to proceed for case
management under Order XV-A.
(2) Where the Court makes any of the orders as set
forth insub-rule (1) (a) to (f), the Court shall
record its reasons formaking such order.
7. Conditional order. – (1) Where it appears to the Court
that it is possible that a claim or defence may succeed
but it is improbable that it shall do so, the Court may
make a conditional order as set forth in Rule 6 (1) (b).
(2) Where the Court makes a conditional order, it
may:—
(a) make it subject to all or any of the following
conditions:—
(i) require a party to deposit a sum of money
in the Court;
(ii) require a party to take a specified step in
relation to the claim or defence, as the
case may be;
(iii) require a party, as the case may be, to
give such security or provide such surety
for restitution of costs as the Court deems
fit and proper;
(iv) impose such other conditions, including
providing security for restitution of
losses that any party is likely to suffer
during the pendency of the suit, as the
Court may deem fit in its discretion; and
(b) specify the consequences of the failure to
comply with the conditional order, including

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passing a judgment against the party that have

not complied with the conditional order.
8. Power to impose costs. – The Court may make an order
for payment of costs in an application for summary
judgment in accordance with the provisions of sections
35 and 35A of the Code.”

18. Sub-rule (3) of Rule 1 of Order XIII-A of the CPC contains a

non-obstante clause, which expressly provides that the provisions of
Order XIII-A of the CPC would not be applicable in respect of any
commercial dispute that was originally filed as a summary suit under
Order XXXVII. Thus, in the present case, the suit could not have been
disposed of by a summary judgment under Order XIII-A of the CPC.

19. Order XIV of the CPC expressly requires the court to, at the
first hearing of the suit, after completion of the pleadings and after
examination under Order X Rule 2 of the CPC, ascertain material
propositions of fact and law in respect of which parties are at variance.
The court is thereafter required to strike the issues in respect of the
matters in which the parties are at variance. However, prior to striking
of the issues, any of the parties can apply to the court for a summary
judgment if the conditions as stipulated under Order XIII-A of the
CPC are met.

20. In terms of Order XV-A of the CPC, the court is required to

hold a Case Management Hearing and the court can, at the said
hearing, hear and decide any application filed by the parties for a
summary judgment.

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21. As stated above, in the present case, the suit could not be
disposed of by a summary judgment in view of the express provisions
of Sub-rule (3) of Rule 1 of Order XIII-A of the CPC.

22. Rule 1 of Chapter X-A of the Delhi High Court (Original Side)
Rules, 2018, which empowers the court to suo moto render a summary
judgment, is clearly in conflict with the provisions of Order XIII-A of
the CPC. By virtue of Section 16(3) of the Commercial Courts Act,
2015, the provisions of the CPC, as amended by the Commercial
Courts Act, 2015, would necessarily prevail in case of any conflict
with any provision or rule made by the concerned High Court or any
amendment to the CPC made by the State. Thus, as held by this Court
in Surya Foods and Agro Limited v. Om Traders & Anr. (supra), the
provisions of Order XIII-A of the CPC would override the provisions
of Rule 1 of Chapter X-A of the Delhi High Court (Original Side)
Rules, 2018.

23. This Court is also of the view that clearly there were disputes of
facts that also arose in the suit. As pointed out by the learned counsel
for the appellants, the appellants had denied the amount claimed by
IFL and it was, thus, necessary for IFL to prove the same. As noted
above, the impugned judgment was rendered before the parties had
completed the admission and denial of the documents of the other
party to the suit. It is necessary for the courts to strike the issues, as
required under Order XIV of the CPC, before proceeding further to
decide the same. It is clearly not open for the court to avoid the said
procedure.

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24. In Bright Enterprises Private Limited & Anr. v. MJ Bizcraft

LLP & Anr.: 2017 SCC OnLine Del 6394, a Division Bench of this
Court had noted that the provisions relating to a summary judgment,
which enable the court to decide commercial disputes without
recording oral evidence, are exceptional in nature and it is essential for
the court to ensure that all stipulations under the said provisions are
followed scrupulously. The Division Bench had faulted the procedure
of delivering a suo moto summary judgment without following the
elaborate procedure as provided under Order XIII-A of the CPC.

25. In view of the above, the impugned judgment is set aside and
the suit is restored to the stage as obtaining on 05.09.2019. It is further
directed that the suit be listed before the concerned Commercial Court
on 27.03.2023 for further proceedings.

26. The appeal is allowed in the aforesaid terms.

VIBHU BAKHRU, J

AMIT MAHAJAN, J
MARCH 7, 2023
RK

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