Hardesh
Ores Pvt. Ltd Vs. M/S. Hede and Company [2007] Insc 577 (15 May 2007)
B.P. SINGH & HARJIT SINGH BEDI
CIVIL APPEAL NO. 2517 OF 2007 (Arising out of SLP(C) No. 106 of 2007) WITH
CIVIL APPEAL NO. 2518 OF 2007 (Arising out of SLP(C) No. 640 of 2007) Sociedade
de Fomento Industrial Pvt. Ltd. Appellant Versus M/s. Hede and Company Respondent
B.P. SINGH, J.
1. Special Leave granted.
2. These appeals have been filed by the appellants against the common
judgment and order of the High Court of Judicature at Bombay dated 20.10.2006
in First Appeal Nos. 138 and 139 of 2006 whereby the High Court has affirmed
the order of the Trial Court dismissing the suits filed by the appellants under
Order VII Rule 11 of the Code of Civil Procedure holding that the suits are
barred by limitation.
3. The representative facts giving rise to these appeals are taken from the
pleadings in suit filed by Hardesh Ores Pvt. Ltd. The appellants herein,
namely, Hardesh Ores Pvt. Ltd. in civil appeal arising out of SLP(C) No. 106/2007
(for short 'Hardesh') and Sociedade de Fomento Industrial Pvt. Ltd. in civil
appeal arising out of SLP(C) No. 640/2007 (for short 'Fomento') respectively
entered into two agreements with the respondent Hede & Co. (for short
'Hede') on 23.10.1996. The agreement with Hardesh was for extraction of ore
from the mine in question whereas the agreement with Fomento was for purchase
of minerals extracted from the mine. Both the agreements contained similar
terms and conditions. As per Clause 2.1 of the Agreement, the agreement though
executed on 23.10.1996 was to come into force from 1.1.1997 and was to remain
in force for a period of 5 years from such date.
Clause 2.2 of the agreement provided that on the expiry of every 5 years the
agreement shall stand renewed for further periods of like duration at the sole
option of Hardesh on the same terms and conditions as contained in the original
agreement. Hardesh was entitled to exercise its option during the entire period
of lease in respect of the said mine and renewals thereafter, and until such
time as remaining deposits of ore in the said mine could be economically
exploited. Clause 2.3 gave the right to Hardesh to terminate the agreement by
giving two calendar months prior notice in writing to the respondent-Hede of
its intention to do so. Clause 2.5 of the agreement provided inter alia that in
case Hardesh was forced to abandon work in the said mine/land on account of any
lawful or legal claim made and/or objection raised by any person including the
holder of surface right or on account of any injunction being passed by any
Court of Law or on account of any fault of the respondent, the agreement shall
not stand terminated but the operation thereof shall stand suspended for such
time. In the event such a condition/situation continued to exist for a period
exceeding six calendar months, Hardesh shall be entitled to terminate the
agreement after giving 30 days notice in writing. Clause 9.2 of the agreement
ensured that the respondent shall not in any manner interfere or obstruct
Hardesh from carrying on the work of extraction, raising, loading or delivering
the ore and its other functions under and in accordance with the agreement.
Clause 15 of the agreement provided that during the subsistence of the
agreement, Hardesh shall solely be entitled to extract and deliver the ore from
the said mine and the respondent shall not be entitled to authorise or permit
any other person for that purpose nor shall the respondent either themselves or
through their servants and/or agents, extract, raise, remove, load, transport
or deliver the ore from the said mine unless expressly authorised or approved
by Hardesh in writing.
Under Clause 20 of the agreement the respondent covenanted unto the
appellant that during the pendency of the indenture they shall not enter into
any agreement, understanding or arrangement with any other party for working
the said mine/lease for carrying on any other operation whatsoever in the said
mine/lease.
The agreement with Fomento is more or less in the same terms though with
Fomento it is for the purchase of the iron ore extracted and to be extracted
from the said mine.
4. Two suits for injunction were filed by the appellants herein on
4.10.2005. The reliefs claimed in the suit of Hardesh were as follows:- (i) The
defendants their agents or representatives be restrained from in any manner
stopping and/or obstructing the Plaintiff from entering upon the said mine
and/or carrying on the work of extraction, raising, loading and/or delivering
the ore from the said mine to Fomento and/or from doing any activities
ancillary thereto which the Plaintiff is empowered to do under the 23.10.1996
Extraction Agreement.
(ii) The Defendants their agents or representatives be restrained from
entering into the mine and doing any work for extracting, raising, removing,
loading, transporting, selling or delivering to any other persons iron ore from
the said mine either by themselves or through their servants and/or agents.
(iii) The Defendants their agents or representatives be restrained from
entering into any contract/agreements and/or understanding with third parties
for prospecting and/or extracting and/or raising any iron ore from the said
mine or selling the ore from the said mine to any third party.
(iv) That the Defendant be directed to give effect to the negative covenant
contained in clause 15 and 20 of the Extraction Agreement dated 23.10.1996.
5. In the plaint reference was made to the agreements that were entered into
between the parties. It was also stated that there were privately owned lands
comprised within the said mine and no consent had been obtained from the
surface right owners by the respondent and the same was to be obtained
subsequently, which necessitated the incorporation of Clause 2.5 in the agreement.
The agreement was to commence from January 01, 1997 but on 12.12.1996 in view
of an order of the Supreme Court dated 12.12.1996 prohibiting mining operations
in the authorised area, mining operations could not be commenced. In view of
the situation that arose on account of the order of Supreme Court which
necessitated permission being sought from the Central Government for commencing
mining operations, as also in view of the fact that the consent of the surface
right owners had not been obtained, on the proposal of the respondent, the
appellants exercising their right under Clause 15 of the agreement authorised
the respondent to carry on extraction operation in the pits already opened. It
is the case of the appellant that appellant had taken possession of the mine
immediately after coming into effect of the contract on 1.1.1997. The
respondent extracted the ore from the mine already opened pursuant to the
authorisation given as per Clause 15 of the Agreement. This arrangement was of
a temporary nature. Some obstruction was raised by the surface right owners in
January, 1998 which was reported to the respondent. The respondent promised to
sort out the problem with the surface right owners by getting their consent in
writing. It is admitted in the plaint that although the said agreements were to
come into force on 1.1.1997 no mining operations could be commenced in view of
the order of the Supreme court dated 12.12.1996.
6. The case of the appellant in the plaint is that the extraction agreement
was initially for a period of five years from 1.1.1997 with a right of renewal
at the option of the appellant on the same terms and conditions. In view of the
original period of 5 years coming to an end on 31.12.2001, in terms of clause
2.2 of the agreement appellant Hardesh exercised its option to renew the said
agreement for further period of 5 years. This was conveyed to the respondent
vide letter date 4.12.2001 which was received by it on 7.12.2001. According to
the appellant with the exercise of option by appellant Hardesh the agreement
stood renewed upto 31.12.2006. However, the appellant Hardesh received a letter
dated 29.12.2001 from the respondent alleging that the plaintiff-appellant was
not entitled to exercise the option for renewal. The letter dated 4.12.2001
annexed to the plaint has been marked as Exh. 41 and its reply dated 31.12.2001
has been marked as Exh. 43.
7. The appellant came to learn that the respondent was conducting the
extraction in the private area where the surface rights were held by Salgaonkar
sisters. This led the appellant to believe that the problem may have been
sorted out with the surface right owners, namely, Salgaonkar sisters. If that
was so, it was incumbent upon the respondent to inform the appellant so that
the appellant could undertake the extraction work itself. The appellant had
also come to learn that the first stage clearance had been granted in respect
of the said mine on 17.10.2003 by the Ministry of Environment and Forest under
the Forest Conservation Act, 1980 but the second stage clearance was yet to be
obtained without which it was not possible to commence work.
8. In this background the appellant issued a notice dated 27.4.2005 to the
respondent requesting them to furnish to the appellant within 15 days of the
receipt of the notice the documents evidencing the consent obtained from
Salgaonkar sisters. The notice also stated as follows :- "Kindly note that
if no documents as aforesaid are furnished to us within a period of 15 days
from the receipt of this notice, or if no reply is received from you we shall
presume that such consent has been obtained since you are doing the extraction
in the area of the captioned mining lease wherein surface rights are held by
Salgaonkar sisters, pursuant to the authorization granted to you, in terms of
clause 15 of the Extraction Agreement dated 23.10.1996."
9. The said letter was annexed as Exh. 48. The respondent failed to furnish
the documents, as requested, and, therefore the appellant issued notice dated
17.5.2005 withdrawing the authorization granted by the appellant under clause
15 of the Extraction Agreement and called upon the respondent to resist from
doing any extraction or selling ore to any party within 30 days of service of
notice failing which the appellant asserted its right to enter into the mine to
give effect to the agreement.
The respondent replied by its letter dated 24.6.2005 refusing to comply with
the demand contained in the notice. The appellant asserted that in view of
Clauses 15 and 20 of the agreement the appellant had exclusive right to carry
on extraction and not the respondent. It was also stated in the plaint that
there were valid, subsisting and binding agreements between the plaintiffs
(Hardesh and Fomento) and the defendant- respondent and that Hardesh and
Fomento were at all material times and even today ready and willing to perform
the terms of the agreement. It was asserted that the plaintiffs-appellants had
performed their obligations under the agreements. The Extraction Agreement was
specifically enforceable and the appellant had performed its obligations and
were willing to fully carry out its obligations as per the said agreement. In
the circumstances, it was submitted that the appellant was entitled to an order
of preventive injunction and as also temporary injunction in the manner prayed
for in the suit.
It is the case of the appellant-plaintiff that the cause of action arose to
the plaintiff with the expiry of notice period dated 17.5.2005. On such pleas
the prayers which have been extracted in earlier part of the judgment were made
in the suit.
10. An application was filed on behalf of the respondent under Order VII
Rule 11 of the Code of Civil Procedure submitting that there was absence of
cause of action and also the plaint was barred by limitation.
Subsequently, the plea of absence of cause of action was given up and only
the plea of bar of limitation under the Limitation Act was pressed. It was
submitted that Article 54 of the Limitation Act applied and that a suit for
specific performance of the contract should have been filed within 3 years from
the date the appellant-plaintiff had notice that the renewal of the agreement
was refused by the respondent. In the instant case the refusal was communicated
on 29.12.2001 and, therefore, the suit should have been filed within 3 years
thereafter.
11. The Trial Court by its order of 23.2.2006 allowed the application and
dismissed the suit as barred by limitation. It observed that from a mere
perusal of the pleadings contained in paragraphs 47 to 51 of the plaint it
appeared that the appellant had asserted that the agreements were specifically
enforceable. A reading of the plaint established that the foundation of the
appellant's suit was for specific performance of the renewal of the agreement dated
23.10.1996, the cause of action for which arose on 29.12.2001 when they
received reply of the respondent denying that the agreement stood renewed.
Since the suit was filed much after the expiry of 3 years from that date, it
was hopelessly barred by limitation.
12. Aggrieved by the order of the Trial Court the appellants preferred two
appeals before the High Court which have been dismissed by the impugned order.
Before the High Court it was urged that in deciding an application under Order
VII Rule 11 of the CPC the contentions raised in defence or submissions
advanced by the respondent-defendant about their case need not be considered
and the matter must be decided on the basis of averments in the plaint and the
documents annexed with the plaint.
The Trial Court had fallen into an error when it referred to the defence of
the defendant to determine as to whether the plaint was liable to be rejected
as barred by limitation. It also noticed the submission urged on behalf of the
appellant that the question of limitation was a mixed question of law and fact
and, therefore, such a question could be adjudicated only in the trial.
13. On the other hand the appellants contended that the case was squarely
covered by the ratio laid down by this Court in the case of N.V.
and Others : (2005) 5 SCC 548. By the device of clever drafting of the
plaint the question of limitation was sought to be got over by camouflaging the
real issue in the suit and making it appear as if it was merely a suit for
perpetual injunction.
14. The High Court after appreciating the averments contained in the plaint
observed that this was not merely a suit for perpetual injunction insisting
upon performance of the negative covenants as contained in Clauses 15 and 20 of
the agreement. The plaint clearly showed that the plaintiff's suit was in
effect a suit for specific performance of the renewal of the agreement dated
23.10.1996. The cause of action for such a suit arose on 29.12.2001 when the
respondent by its letter refuted the claim of the appellants for renewal w.e.f.
1.1.2001 for a period of 5 years. After considering the judgment of this Court
in Srinivasa Murthy's case (supra) the High Court concluded that the ratio laid
down therein was squarely applicable to the instant case. It recorded a finding
that the suit for injunction simplicitor was nothing but a camouflage to get
over the bar of limitation, which, in fact, showed that specific performance
was implicit in the pleadings contained in the plaint itself. The suit though
styled as 'suit for injunction' was, in fact, a suit for specific performance
for the renewal of the agreement dated 23.10.1996 for which the cause of action
had arisen on 29.12.2001. It negatived the contention urged on behalf of the
appellants relying on the judgment of this Court in 2006 (5) SCC, 638 Ramesh B.
Desai holding that in the instant case without going to the pleadings and the
documents filed on behalf of the defence, the plaint itself and the documents
annexed therewith showed that in fact it was a suit for specific performance of
the agreement between the parties which appeared to be barred by the law of
limitation. Accordingly it dismissed the appeals preferred by the appellants.
15. Mr. Soli J. Sorabjee, learned senior counsel appearing on behalf of the
appellants in Civil Appeal arising out of SLP(C) No. 106/2007 submitted that in
dealing with an application under Order VII Rule 11 the court must go by the
averments in the plaint. The plaint must be read as a whole. The mere use of
words like "readiness" and "willingness" to perform the
agreement by themselves do not make it a case of specific performance of
agreement. Those averments in the instant case were necessary for enforcing the
negative covenants contained in Clauses 15 and 20 of the agreement. He,
therefore, submitted that the trial court was entirely wrong in construing the
instant suit as a suit for specific performance of the agreement, whereas it
was essentially a suit for perpetual injunction seeking enforcement of the
negative covenants contained in the agreement in Clauses 15 and 20 thereof. He
further submitted that the question of limitation was a mixed question of law
and fact and could be decided only in the suit.
16. Mr. R.F. Nariman, learned senior counsel appearing on behalf of the
appellant in civil appeal arising out of SLP(C) No. 640/2007 submitted that
clause 2.2 of the agreement provided for a renewal every 5 years at the option
of the lessee till the mine was exhausted. The use of the words "stand
renewed", "further periods" and "sole option of
Hardesh" were indicative of the fact that there was automatic renewal of
the lease once the option was exercised by Hardesh and such renewals took place
as and when options were exercised in future till such time as the mine got
exhausted. He submitted that there were inbuilt provisions of pricing in the
agreement itself which were dependent on export price.
There was an inbuilt mechanism for escalation of price which supported his
contention that the lease stood renewed from time to time on option being
exercised by Hardesh. He also submitted that the subject matter of the lease
was divided into two parts. So far as the forest land was concerned the cause
of action had not even arisen and, therefore, there was no question of
dismissing the entire suit. He drew our attention to clause 2.5 of the
agreement and contended that the aforesaid clause provided for suspension of
the agreement and not its termination in the eventualities enumerated in that
clause. According to him Article 54 of the Limitation Act was not at all
applicable and, if at all, Article 113 may apply since there was no specific
article prescribing a period of limitation for the enforcement of positive or
negative covenants. The article was elastic enough to include a case where the
party unequivocally threatened the plaintiff's right and the same need not be
the first threat. Referring to Article 58, he submitted that the limitation is
to be computed from the date when the right to sue first accrued whereas under
Article 113 the threat giving rise to the cause of action need not be the first
threat. In the instant case the defendant had started mining in the area
including the land which were in dispute on account of the fact that the
surface right owners had not given them permission to do so. It was in these
circumstances that the respondent was called upon to disclose the documents, if
any, evidencing grant of permission by the surface right owners. He relied upon
a decision of this Court reported in Union of SCC 747 highlighting the
difference between Article 58 and Article 113 of the Limitation Act. He further
submitted that Srinivasa Murthy's case (supra) was misapplied since the fact
situation in the instant case was different from that in Srinivasa Murthy's
case. The High Court fell into an error in looking at the defence of the
respondent to come to the conclusion that the suit was barred since there was
no valid renewal. Mr.
Nariman, however, did not dispute that reference to "law" in Order
VII Rule 11 of the CPC included a law relating to limitation such as the
Limitation Act.
17. Mr. Mukul Rohtagi, learned senior counsel appearing for the respondent
in civil appeal arising out of SLP(C) No. 106/2007 submitted that the High
Court was fully justified in coming to the conclusion that the clever drafting
of the plaint purporting to be a suit for injunction was merely to camouflage
the real issue. He did not dispute that the plaint must be read as a whole and
one must look to the substance rather than the form. He submitted that the
appellant's case that there was automatic renewal after the original term
expired on mere exercise of option by the appellant was not legally tenable.
According to him the renewal of a mining lease must be evidenced by the
execution of a deed evidencing renewal, or a fresh mining lease, and such a
document must incorporate the negative covenants as were sought to be enforced.
According to him if the submission urged on behalf of the appellants is to be
accepted, by mere exercise of option and without execution of an actual
agreement, a renewed agreement comes into existence with the same negative
covenants which gave a right to the appellant to enforce the newly born
negative covenants. According to him where an option is to be exercised by the
lessee, he must insist upon the execution of an actual physical agreement
evidencing renewal of the original term. If the promisor refused to execute
such a document, the appellants should have sought the assistance of the Court
and ought to have moved the Court claiming a relief against the promisor for
execution of a document evidencing renewal of the lease. That should have been
done within a period of 3 years from the date on which the promisor rejected
the claim of the appellant that the lease stood renewed by mere exercise of
option by it. If no suit is filed and no agreement executed by the parties,
there can be no question of a fresh agreement coming into existence and
consequently no question of enforcement of a negative covenant in such a
non-existent agreement. He further submitted that the 1996 agreement was a
lease for a period exceeding 11 months and, therefore, required compulsory
registration in view of the provisions of Sections 17 and 49 of the
Registration Act. It, therefore, cannot be read as evidence in the suit and
consequently no rights under such an agreement can be claimed. He further
submitted that even renewal of such a lease required registration.
According to him the appellants were trying to side step something which was
imperative and which had necessarily to be asked for in the suit, which had not
been asked for. Therefore, applying the principle laid down in Srinivasa
Murthy's case (supra) the suit must fail because the appellants should have
asked for a declaration under Order II Rule 2 to the effect that the agreement
stood renewed and the respondent's denial was unlawful. Rather than doing that,
the appellants have sought only the end relief which could not be asked for
without first asking for a declaration that the lease deed stood renewed on
mere exercise of option without the execution of an indenture evidencing
renewal of the lease.
Only in such a renewed lease a negative covenant could have been
incorporated which could have been enforced. Since such an agreement never came
into existence and a suit for declaration stood barred by time, the appellant
cannot get over the limitation and seek the remedy of injunction by way of
enforcement of the negative covenants in an agreement which never came into
existence. In sum and substance he submitted that without first getting a
renewed lease deed executed in physical form or getting a declaration from a
Court of Law that lease stood renewed as contended by them, the appellant
cannot seek a relief by way of injunction by filing a suit for enforcement of
negative covenants.
He further submitted that the appropriate Article which applied in the facts
of this case was Article 54. Since the respondent denied the fact that the
lease stood automatically renewed, the limitation commenced from that day and,
therefore, a suit for declaration and/or specific performance was barred after
3 years from the date of refusal, i.e., 29.12.2001.
Articles 58 and 113 did not apply to the facts of this case.
18. Mr. Ranjeet Kumar, learned senior counsel appearing on behalf of the
respondent in civil appeal arising out of SLP(C) No. 640/2007 relied Through
Lrs. : (2004) 1 SCC 1 and Provash Chandra Dalui and another contended that
there was a vital distinction between extension of a lease and renewal of a
lease. The law is well settled that in case of renewal a fresh agreement has to
be executed. He also relied upon decision of this to contend that even renewal
of a lease amounted to a fresh grant of lease.
He also contended that the plaint itself disclosed that the appellant-
plaintiff had never worked the mine and it was the respondent-defendant who was
working the mine.
19. Replying to the submissions urged on behalf of the respondents, Mr.
Sorabjee, appearing for the appellants submitted that the question as to
whether the agreement was really a mining lease or a mere agreement, and
whether it required registration, has to be gone into in the suit and this
question cannot be urged in an application under Order 7 Rule 11 CPC. At this
stage whatever is stated in the plaint must be accepted. The question of
registration may arise when the document is produced and objected to by the
respondent. In any event, even if the document requires registration, that
cannot be a ground for rejecting the plaint on the ground that the suit is
barred by limitation. Moreover, since the respondents have given up the plea of
absence of cause of action, this matter cannot be investigated at this stage.
He reiterated his submission that under clause 2.2 of the agreement read with
clause 18, by exercise of option claiming renewal, the agreement ipso facto
stands renewed and there is no need to get a fresh agreement executed.
20. We may observe at the threshold that the question as to whether the
agreement required registration is not a question which can be gone into at
this stage particularly in view of the fact that the plaint has been rejected
on the ground of limitation.
21. The language of Order VII Rule 11 CPC is quite clear and unambiguous.
The plaint can be rejected on the ground of limitation only where the suit
appears from the statement in the plaint to be barred by any law. Mr. Nariman
did not dispute that "law" within the meaning of clause (d) of Order
VII Rule 11 must include the law of limitation as well.
It is well settled that whether a plaint discloses a cause of action is
essentially a question of fact, but whether it does or does not must be found
out from reading the plaint itself. For the said purpose the averments made in
the plaint in their entirety must be held to be correct.
The test is whether the averments made in the plaint if taken to be correct
in their entirety a decree would be passed. The averments made in the plaint as
a whole have to be seen to find out whether clause (d) of Rule 11 of Order VII
is applicable. It is not permissible to cull out a sentence or a passage and to
read it out of the context in isolation. Although it is the substance and not
merely the form that has to be looked into, the pleading has to be construed as
it stands without addition or subtraction of words or change of its apparent
grammatical sense. As observed earlier, the language of clause (d) is quite
clear but if any authority is required, one may usefully refer to the judgments
of this court in Liverpool & London Association : (2005) 7 SCC 510.
22. We shall therefore proceed on the basis of averments contained in the
plaint and the documents annexed to it.
23. In the instant case it cannot be disputed that the agreement was acted
upon as stated in the plaint itself. It is averred in the plaint that
possession of the mine was taken in terms of the agreement by the
appellant-plaintiff. The appellant-plaintiff also exercised its right under the
agreement and in terms of clause 15 thereof authorized the respondent-defendant
to carry on mining operations in the pits already opened up. Apart from these
the mere fact that the appellant sought renewal of the lease which was denied
by the respondent, is sufficient proof of the fact that the agreement had been
acted upon by the appellant.
24. The next averment in the plaint which is relevant is paragraph 23
thereof wherein the appellant-plaintiff stated that since the original period
of 5 years was to end on 31.12.2001 in terms of clause 2.2 of the agreement,
the appellant-plaintiff exercised its option to renew the said agreement for
further period of 5 years which was conveyed to the respondent vide its letter
dated 4.12.2001 and which was received by the respondent-defendant on
7.12.2001. In the same paragraph it is stated that the extraction agreement
entered into between the plaintiff-appellant and the defendant-respondent was
operative and stood renewed upto 31.12.2006. A copy of the letter dated
4.12.2001 has been annexed to the plaint and marked as Exh. 41. The plaintiff-appellant
further goes on to say that it received the reply from the defendant-respondent
dated 29.12.2001 alleging that the plaintiff-appellant was not entitled to
exercise the option of renewal. The said letter has been annexed to the plaint
and marked as Exh. 43. A mere perusal of the letter dated 4.12.2001 addressed
by the appellant to the respondent is enought to satisfy the Court that in
terms of clause 2.2 of the agreement the appellant exercised its option to
renew the captioned agreement for a further period of 5 years commencing from
1.1.2002 on the same terms and conditions as contained in the original
agreement. The letter clearly states that after 31.12.2001 the captioned
agreement will stand renewed for the period 1.1.2002 to 31.12.2006. To this the
respondent-defendant replied by its letter dated 29.12.2001, the relevant part
whereof reads as follows :- "We do not agree with your contention in your
letter dated 4/12/1997 that the Agreement in reference stands renewed as
alleged from 1/1/2001 to 31/12/2006 or for any other period whatsoever."
It is thus apparent that the appellant-plaintiff exercised its right under
the agreement to claim a renewal of the term of the lease and the respondent-
defendant refuted that claim and denied the assertion that the agreement stood
renewed as alleged from 1.1.2001 to 31.12.2006 or for any other period
whatsoever. In view of the correspondence exchanged between the parties,
clearly a cause of action accrued to the appellant-plaintiff since its right of
renewal as a matter of course claimed by it was denied by the
respondent-defendant. Whether the denial was justified or not is another
matter. In the facts and circumstances of the case, a right accrued to the
appellant-plaintiff to sue the respondent-defendant and to get a declaration
that the agreement stood automatically renewed for a further period of 5 years.
It is the admitted position that the appellant-plaintiff did not pursue the
matter further and never sought relief from any court of law of competent
jurisdiction for a declaration that the lease stood renewed automatically upon
the appellant-plaintiff exercising its option under the agreement. It was
contended on behalf of the respondent- defendant that there is no question of
automatic renewal of an agreement or lease by mere exercise of the option which
the appellant-plaintiff may claim under the agreement. The respondent contends
that renewal of an agreement or lease requires execution of another document
evidencing such renewal and, in its absence, it cannot be argued that the
agreement or lease stood automatically renewed. It was also urged relying upon
the Gujarat : 1987 (1) SCC 213 that the grant of renewal is a fresh grant and
must be consistent with law. The respondents relied on the decision of Banerjee
and Another : 1989 (Supp. 1) SCC, 487 wherein this Court considered the
difference between "extension" and "renewal" of a lease.
This Court observed thus :- "14. It is pertinent to note that the word
used is 'extension' and not 'renewal'. To extend means to enlarge, expand,
lengthen, prolong, to carry out further than its original limit.
Extension, according to Black's Law Dictionary, means enlargement of the
main body; addition to something smaller than that to which it is attached; to
lengthen or prolong. Thus extension ordinarily implies the continued existence
of something to be extended. The distinction between 'extension' and 'renewal'
is chiefly that in the case of renewal, a new lease is required, while in the
case of extension the same lease continues in force during additional period by
the performance of the stipulated act."
The same view was reiterated by this Court in the case of State of U.P.
wherein it was observed as under :- "There is a difference between an
extension of lease in accordance with the covenant in that regard contained in
the principal lease and renewal of lease, again in accordance with the covenant
for renewal contained in the original lease. In the case of extension it is not
necessary to have a fresh deed of lease executed, as the extension of lease for
the term agreed upon shall be a necessary consequence of the clause for
extension. However, option for renewal consistently with the covenant for
renewal has to be exercised consistently with the terms thereof and, if
exercised, a fresh deed of lease shall have to be executed between the parties.
Failing the execution of a fresh deed of lease, another lease for a fixed term
shall not come into existence though the principal lease in spite of the expiry
of the term thereof may continue by holding over for year by year or month by
month, as the case may be."
25. Having regard to these decisions we must hold that in order to give
effect to the renewal of a lease, a document has to be executed evidencing the
renewal of the agreement or lease, as the case may be, and there is no concept
of automatic renewal of lease by mere exercise of option by the lessee. It is,
therefore, not possible to accept the submission urged on behalf of the
appellants-plaintiffs that by mere exercise of option claiming renewal, the
lease stood renewed automatically and there was no need for executing a
document evidencing renewal of the lease.
26. We shall now advert to some of the facts stated in the plaint itself.
The case of the appellant-plaintiff is that since it was not possible to
commence mining operation after taking possession of the mine, in exercise of
its right under clause 15 of the agreement, it permitted the respondent to
carry on mining operations confined to the pits already opened up. Its case was
that under its permission the respondents were carrying on limited mining
operation. The appellants were awaiting permission of the Central Government
under the Forest Conservation Act as also consent of the surface right holders permitting
them to carry on mining operations. When the original term of the lease
expired, they exercised their option to get the lease renewed for a further
period of 5 years but the respondents refuted their claim and denied the fact
that the lease stood renewed automatically. The option was exercised by the
appellant and refuted by the respondent in December, 2001. Thereafter nothing
much appears to have happened and during this period the respondent carried on
mining operations. It was only on 15.5.2005 that the appellant Hardesh wrote to
the respondent stating that they had been permitted to extract ore from the
broken pits in the forest area under Clause 15 of the Extraction Agreement. The
appellant also permitted the respondent to sell the ore to others like Dempo or
Chowgules since Fomento was not interested in purchasing the low grade ore. The
communication also referred to the option exercised by the appellant for
renewal for a period of 5 years from 1.1.2002 to which the respondent replied
saying that they were not entitled to exercise any option. The letter then goes
on to say that the appellants were led to believe that the respondent had
obtained the consent from the surface right owners of the privately owned land
within the mining area about which no information had been given to the
appellants. Therefore, by letter dated 27.4.2005 the respondent were called
upon to furnish the documents evidencing consent given by the surface right
owners. It was further stated that if no documents, as aforesaid, were
furnished within a period of 15 days from the date of receipt of this notice or
if no reply was received, the appellants shall presume that such consent had
been obtained since the respondents were doing the extraction in the area of
the captioned mining lease. Since no documents were furnished pursuant to
notice dated 27.4.2005, the appellants assumed that such consent had been
obtained. It, therefore, withdrew the permission given to the respondents under
Clause 15 of the Extraction Agreement so that the appellants could make
preparation to start the extraction work. The last paragraph of this letter
reads as under:- "We, therefore, give you notice to desist from doing any
extraction of ore or doing work of any type in the above mine on the expiry of
30 days from the receipt of this notice failing which we would have no other
alternative than to approach the court to get appropriate relief, including
specific performance against you."
It is not necessary to refer to the correspondence exchanged thereafter.
The suits came to be filed on August 04, 2005 in which a prayer for
injunction was made with a view to enforce the negative covenants contained in
clauses 15 and 20 of the agreement.
27. The respondent sought rejection of the plaint by filing application
under Order VII Rule 11 CPC contending that the suit was barred by limitation
on the face of it. It was contended before the High Court as also before us
that the plaint has been cleverly drafted to give it the appearance of a simple
suit for injunction to enforce the terms of Clauses 15 and 20 of the agreement
which incorporated negative covenants prohibiting mining operation by anyone
else except the appellant- Hardesh, or without its permission. It was submitted
before us that the law is well settled that the dexterity of the draftsman
whereby the real cause of action is camouflaged in a plaint cleverly drafted
cannot defeat the right of the defendant to get the suit dismissed on the
ground of limitation if on the facts, as stated in the plaint, the suit is
shown to be 1977 (4) SCC 467 this Court observed as under :- "We have not
the slightest hesitation in condemning the petitioner for gross abuse of the
process of the court repeatedly and unrepentently resorted to. From the
statement of the facts found in the judgment of the High Court, it is perfectly
plain that the suit now pending before the First Munsif's Court, Bangalore, is
a flagrant misuse of the mercies of the law in receiving plaints. The learned
Munsif must remember that if on a meaningful - not formal- reading of the
plaint it is manifestly vexatious, and meritless, in the sense of not
disclosing a clear right to sue, he should exercise his power under Order VII
Rule 11, C.P.C., taking care to see that the ground mentioned therein is
fulfilled. And, if clever drafting has created the illusion of a cause of
action, nip it in the bud at the first hearing by examining the party
searchingly under Order X , C.P.C. An activist Judge is the answer to
irresponsible law suits."
Others : 1998(2) SCC 70 this Court noticed the judgment in Arvin and
observed as under :- "16. The question is whether a real cause of action
has been set out in the plaint or something purely illusory has been stated
with a view to get out of Order 7 Rule 11 CPC.
Clever drafting creating illusions of cause of action are not permitted in
law and a clear right to sue should be shown in the plaint. "
28. The respondent strongly relied on the decision of this Court in
Srinivasa Murthy's case (supra). That was a case where the plaintiffs alleged
in the plaint that their father had incurred some debts and had therefore
borrowed a sum of Rs.2000 from the predecessor in title of the defendants. Only
by way of security for the loan advanced, a registered sale deed had been executed
on 5.5.1953 with a contemporaneous oral agreement that on return of the
borrowed sum with interest payable thereon @ 6% per annum a registered
reconveyance deed shall thereafter be executed in favour of the borrower. The
case of the plaintiff was that despite the registered sale deed, the plaintiff
continued to be in possession of the suit lands. The receipt was obtained on
25.3.1987 from the defendants and the original registered sale deed dated
5.5.1953 was returned to the first plaintiff with an oral promise by the
defendants to execute the registered document in favour of the
plaintiff/borrower. On reading of all the averments of the plaint, it appeared
that the cause of action for obtaining a registered reconveyance deed from the
defendants in favour of the plaintiff first arose on 25.3.1987 when the entire
loan amount was alleged to have been paid and an oral promise was given by the
defendants to reconvey the suit lands. In the mutation proceedings an order was
passed in favour of the defendants and the said order was confirmed in appeal
by order of the Assistant Commissioner dated 28.4.1994. The cause of action is
said to have arisen when the appellate authority confirmed the order of the
lower authority directing mutation of the names of the defendants and then
again in the first week of July, 1995 when the defendants were alleged to have
made an attempt to interfere with the plaintiff's possession and enjoyment of
the suit lands. The suit was filed on 26.8.1996 in which the reliefs claimed
were, (a) declaration that the plaintiffs are absolute owners of the suit lands
and (b) permanent injunction restraining the defendants from wrongfully
entering the scheduled property and from interfering with the peaceful
possession and enjoyment of scheduled lands.
29. This Court after examining the pleadings observed that the foundation of
the suit was that the registered sale deed dated 5.5.1953 was in fact only a
loan transaction executed to secure the amount borrowed from the plaintiffs'
predecessor. The amount borrowed was alleged to have been fully paid back on
25.3.1987 and in acknowledgment thereof a formal receipt was obtained. At the
same time there was an alleged oral agreement by the defendants to reconvey the
property to the plaintiffs by registered deed. This Court held that on the
basis of the averments contained in the plaint relief of declaring the
registered sale deed dated 5.5.1953 to be a loan transaction and second relief
of specific performance of oral agreement of recoveyance of property by
registered document ought to have been claimed in the suit. A suit merely for
declaration that the plaintiffs are absolute owners of the suit lands could not
have been claimed without seeking a declaration that the registered sale deed
dated 5.5.1953 was a loan transaction and not a real sale. The cause of action
for seeking such a declaration and for reconveyance deed according to the
plaintiffs own averments arose on 25.3.1987 when the plaintiff is claimed to
have obtained the entire loan amount and obtained a promise from the defendants
to reconvey the property. The mutation proceedings did not furnish any
independent or fresh cause of action to seek a declaration of the sale deed of
5.5.1953 to be merely a loan transaction. The foundation of the suit was
clearly the registered sale deed of 1953 which is alleged to be a loan
transaction and the alleged oral agreement of reconveyance of the property on
return of borrowed amount. This Court went on to observe, "14. After
examining the pleadings of the plaint as discussed above, we are clearly of the
opinion that by clever drafting of the plaint the civil suit which is
hopelessly barred for seeking avoidance of registered sale deed of 5.5.1993,
has been instituted by taking recourse to orders passed in mutation proceedings
by the Revenue Court.
15. Civil Suit No. 557 of 1990 was pending when the present suit was filed.
In the present suit, the relief indirectly claimed is of declaring the sale
deed of 5.5.1993 to be not really a sale deed but a loan transaction. Relief of
reconveyance of property under alleged oral agreement on return of loan has
been deliberately omitted from the relief clause. In our view, the present
plaint is liable to rejection, if not on the ground that it does not disclose
"cause of action", on the ground that from the averments in the
plaint, the suit is apparently barred by law within the meaning of clause (d)
of Order 7 Rule 11 of the Code of Civil Procedure."
30. Relying upon these decisions it was contended before us that though the
suit is for grant of injunction, real foundation of the suit is that there
exists an agreement containing negative covenants which can be enforced by the
appellant-plaintiff. The relief is sought on the assumption that there is an
existing agreement containing negative covenants in clauses 15 and 20 thereof,
as they were in the original agreement.
Counsel submitted that even the negative covenants in clauses 15 and 20 of
the agreement presuppose the subsistence of the agreement and, therefore,
unless the appellant-plaintiff satisfy the Court that there is a subsisting
agreement, they cannot seek any relief from the Court to enforce the negative
covenants contained therein.
31. On the other hand, it is the case of the appellant-plaintiff that on
mere exercise of option by the appellant-plaintiff claiming renewal the
agreement got renewed automatically.
32. We are of the view that the respondent is right in contending that
enforcement of the negative covenants presupposes the existence of a subsisting
agreement. As noticed earlier, the law is well settled that the renewal of an
agreement or lease requires execution of a document in accordance with law
evidencing the renewal. The grant of renewal is also a fresh grant. In the
instant case, the appellant-plaintiff did exercise their option and claimed
renewal. The respondents denied their right to claim renewal in express terms
and also unequivocally stated that the agreement did not stand renewed as
contended by the appellants. Having regard to these facts it must be held that
a cause of action accrued to the appellant- plaintiff when their right of
renewal was denied by the respondents. This happened in December, 2001 and,
therefore, within three years from that date they ought to have taken
appropriate proceedings to get their right of renewal declared and enforced by
a court of law and/or to get a declaration that the agreement stood renewed for
a further period of 5 years upon the appellants' exercising their option to
claim renewal under the original agreement. The appellants-plaintiffs have
failed to do so.
However, the plaint proceeds on the assumption that the original agreement
stood renewed including the negative covenants contained in clauses 15 and 20
of the original agreement which authorised only the appellants to extract ore
from the mine with an obligation cast on the respondents-defendants not to
interfere with the enjoyment of their rights under the agreement. In the facts
of this case, in the suit prayer for injunction based on negative covenants
could not be asked for unless it was first established that the agreement
continued to subsist. The use of the words "During the subsistence of this
agreement" in clause 15, and "during the pendency of this
indenture" in clause 20 of the agreement is significant. In the absence of
a document renewing the original agreement for a further period of 5 years and
in the absence of any declaration from a court of law that the original
agreement stood renewed automatically upon the appellants exercising their
option for grant of renewal, as is the case of the appellants, they cannot be
granted relief of injunction, as prayed for in the suit, for the simple reason
that there is no subsisting agreement evidenced by a written document or
declared by a Court. If there is no such agreement, there is no question of
enforcing clauses 15 and 20 thereof. The appellants ought to have prayed for a
declaration that their agreement stood renewed automatically on exercise of
option for renewal and only on that basis they could have sought an injunction
restraining the respondents from interfering with their possession and
operation. Having not done so, they cannot be permitted to camouflage the real
issue and claim an order of injunction without establishing the subsistence of
a valid agreement. In the instant suit as well they could have sought a
declaration that the agreement stood renewed automatically but such a claim
would have been barred by limitation since more than 3 years had elapsed after
a categoric denial of their right claiming renewal or automatic renewal by the
respondents- defendants.
33. Mr. Nariman contended that this case was governed not by Article 58 of
the Limitation Act but, if at all, by Article 113 thereof because there is no
specific article provided for enforcement of positive or negative covenants. We
shall assume that he is right in contending that Article 113 may apply where
enforcement of a positive or negative covenant is sought in a suit for
injunction. However, in this case we have found that the real foundation for
the suit was that the earlier agreement stood renewed automatically containing
the same terms and conditions as in the original agreement including the
negative covenants. There is neither a document to prove that the agreement stood
renewed nor is there a declaration by a court that the agreement stood renewed
automatically on exercise of option for renewal by the appellants. The basis
for claiming the relief of injunction, namely, a subsisting renewed agreement
did not exist in fact. In its absence, no relief as prayed for in the suit
could be granted by the clever device of filing a suit for injunction, without
claiming a declaration as to their subsisting rights under a renewed agreement,
which is apparently barred by limitation.
34. We are, therefore, satisfied that the Trial Court as well as the High
Court were justified in holding that the plaint deserved to be rejected under
Order VII Rule 11 CPC since the suit appeared from the statements in the plaint
to be barred by the law of limitation. We, therefore, find no merit in these
appeals and the same are accordingly dismissed. No order as to costs.
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