Court Would Not Be Justified In Allowing The Amendment Of A Plaint, If The Nature Of The Suit Is Likely To Be Changed: Supreme Court

Case title:
Asian Hotels (North) Ltd. Vs Alok Kumar Lodha

Date of Order:
July 12, 2022

Bench:
Hon’ble Justice MR Shah and Hon’ble Justice BV Nagarathna

Parties:
Appellant- Asian Hotels (North) Ltd.
Respondent- Alok Kumar Lodha

SUBJECT

In an appeal against a decision by the Delhi High Court, the apex court held that the High Court made a significant error in permitting the application under Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure by enabling the parties to amend their plaint, including the prayer clause and allowing the respondents to join/implicate the various banks / financial institutions as party defendants. The Supreme Court stated that enabling the amendment of the plaint is not justifiable if the nature of the action is likely to change. Just because the parties are the dominus litus, does not imply that they can be authorized to add any party as a defendant who may not be required and/or suitable parties at all.

IMPORTANT PROVISIONS

• Order 1 Rule 10, Code of Civil Procedure, 1908- This rule allows the court to add any individual as a party at any stage of the proceedings if the person's presence before the court is required in order for the court to adjudicate and resolve all questions properly and thoroughly.
• Order 6 Rule 17, Code of Civil Procedure, 1908- The provision stipulates that the court will not allow modification after the trial has begun unless the court concludes that the party did not raise the relevant facts prior to the start of the trial.
• Section 8 of the Arbitration and Conciliation Act of 1996- The section is authoritative in nature. It states that a judicial authority may direct the parties to proceed to arbitration based on the arbitration agreement between them.

OVERVIEW

• From 1983 to the present, the appellant provided licenses for separate businesses on their property to numerous shopkeepers, including the respondent. The respondent was served a license revocation notification on 29.5.2020.
• As a result, the relevant licensees filed suits against the appellant in the Delhi High Court, pursuing a decree declaring that the license in favor of the respondent with respect to the premises is irrevocable and permanent, and the purported revocation by the appellant is void.
• A decree also was sought for a declaration confirming that the respondent had the unfettered right to occupy and use the said property as per the irreversible license until the documents of transfer were executed.
• The appellant objected orally to the claim that the complaint was not maintainable as per Section 8 of the Arbitration and Conciliation Act of 1996.
• On the verbal plea, the High Court dismissed the claims, leaving the parties open to seeking arbitration under the arbitration clause in the licensing agreement. The decision was the subject of an appeal before the Division Bench, which granted the appeal and remanded the case.
• During the pendency of the aforementioned complaint, the respondent filed an amendment of the plaint under Order 6 Rule 17 of the Code of Civil Procedure, proposing to modify the suit contesting different mortgages made by the appellant's hotel in favor of particular banks.
• It was the respondent's argument that the mortgages made by the appellant in favor of the Financial Institutions/Banks were illegal and void ab initio to the extent that they restrict the respondent's interests in the aforementioned premises.
• As a result, significant adjustments relevant to the respondent's rights were requested. By the said application, the prayer clause also was pursued to be amended in order to obtain a decree of declaration against the appellant that the mortgages executed in favor of the Banks were void and illegal to the extent that they constricted the respondent's right, title, and interest in the premises.
• The respondent also filed an application under Order 1 Rule 10 of the Code of Civil Procedure, seeking to add the Banks and Financial Institutions as defendants in the case.
• The appellant opposed both applications on the basis that (i) there was no challenge to the said mortgage in the existing suit and thus the same cannot be allowed presently; (ii) the respondent has no right against the financial institutions and thus the amendment application cannot lie; and (iii) the respondent's prayer for relief of declaration and rights in the suit property must first be adjudicated before any relief can be granted.
• Placing reliance on the cases of Kasturi v. Iyyamperumal&Ors [(2005) 6 SCC 733] and Revajeetu Builders and Developers vs. Narayanaswamy and Sons &Ors [(2009) 10 SCC 85], the High Court allowed both the applications. Dissatisfied with this decision, the present appeal was filed in the Supreme court.

ISSUES RAISED

Whether the decision of the High Court to allow the applications under Order 1 Rule 10 and Order 6 Rule 17 of the Code of Civil Procedure, was justified?

ARGUMENTS ADVANCED BY THE APPELLANT

• It was argued that the High Court made a significant error in permitting the applications enabling the respondents to amend their corresponding plaints to declare void ab initio all mortgages/charges on the entire property and implicate the mortgagee banks / financial institutions in the case.
• The counsel for the appellant asserted that Article 13 of the License Agreement acknowledged and safeguarded the appellant's ability to issue and maintain mortgages. It was claimed that clause 13 was constantly renewed (every five years) and that as a result, licensees have continually ratified all mortgages since 1982 by signing the License Agreement and subsequent renewals.
• It was claimed that the appellant cancelled licenses on 29.5.2020. It was argued that at this late point, it was not possible for the respondents, who were just licensees whose licenses were cancelled, to contest the appellant's mortgages established in favor of numerous banks/financial institutions which have been ongoing since 1982.
• It was further argued that, because of the arbitration clause in the licensing agreement, lawsuits were disallowed under Section 8 of the Arbitration and Conciliation Act, and the original plaintiff's attempt to halt the claims was pending determination. As a result, the aforementioned application/s under Section 8 of the Arbitration and Conciliation Act must have been resolved first.
• The appellants challenged the High Court's verdict and order primarily on the following grounds:

I. The impugned judgement had resulted in the misjoinder of legal claims and actions of parties;

II. Respondents did not have the locus or right to contest the mortgages/charges;

III. The challenge to the mortgage was barred by limitation, delay, and laches; reliance was placed on the decisions of Ashutosh Chaturvedi v. Prano Devi [(2008) 15 SCC 610], and T.N. Alloy Foundry Co. Ltd vs. T.N. Electricity Board and Ors [(2004) 3 SCC 392]

IV. The amendment applications were mala fide lodged only to sidestep adjudication awaiting Section 8 of the Act;

V. The contested decision was rendered in contravention of natural justice principles;

• It was finally submitted that when the first License Agreement was formed in 1983, the premises were already mortgaged, and the respondents were aware of this fact, as evidenced by Clause 13 of the License Agreement.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondent's counsel argued that in the facts and circumstances of the case, the contested order is both reasonable and appropriate.
• It was asserted that since the respondents were claiming an ownership interest in the property and the trial had not yet begun, with the suit at the initial stage where the appellant had not even submitted its written statement, no prejudice could be said to be induced to the appellant if the applications for amendment and impleadment were allowed. They maintained that the High Court made no mistakes in light of the unique facts and circumstances of the case.
• It was submitted that the respondent was said to be the dominus litusin the case. That, in light of the law, the petitions presented by the respondents under Order 1 Rule 10 of the Code of Civil Procedure may not be tampered with by the Court. The decision of the Court in Kasturi v. Iyyamperumal & Ors [(2005) 6 SCC 733] was relied upon.
• It was further argued that the High Court provided compelling reasons for granting the petitions, which are summarised below:

I. That the banks that were mortgagees on the suit property in which the Plaintiffs claim ownership interest must be challenged;

II. The trial had not yet begun and the suit was in the initial phase where the Appellant had not submitted its written statement;

III. No prejudice could be said to be induced to the Appellant if the above-mentioned applications were allowed;

IV. The fact that the Appellant themselves pleaded before the Hon'ble High Court that the suit was negative for nonjoinder of parties without the banks being parties;

V. It was essential that the courts be liberal in their perspective of amendment of pleadings, particularly when the parties were required to be present to safeguard the subject matter of the relief;

• It was submitted that, as noted and held by the Court in the case of Rajesh Kumar Aggarwal & Ors vs. K. K. Modi & Ors [AIR 2006 SC 1647] while evaluating whether an application for amendment should or should not be granted, the Court should not go into the rightness or falsity of the case in the amendment. It was further recognized and ruled that it should not record a decision on the merits of the amendment, and the merits thereto sought to be integrated by means of the amendment weren't to be adjudicated at the stage of admitting the petition for amendment.
• Furthermore, it was submitted that the amendments did not pursue direct injunctions against the banks for the establishment of the mortgage, but merely redressal against the appellant hotel whose estate is mortgaged to the banks.
• It was argued that because the respondents paid the premium at the time of the Licensing Agreement's completion, it was not a case of a simple licence but of an irrevocable and permanent licence. As a result, the High Court made no mistakes in issuing the challenged decisions and granting the petitions under Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure.

JUDGEMENT ANALYSIS

• The court was of the opinion that the respondents were unconcerned about the appellant's mortgages, which were essential for the hotel's ongoing expansion. They claimed that the amendment requests that the appellants declare all charges created on the property void ab initio as a prayer may be considered too vague.
• It was noted that even under the License Agreement (clause 13), it was stated that the Licensor shall have the right to generate charges/mortgages on its establishments and the buildings constructed in favour of banking institutions as protection for their terms loan advanced for the implementation of its hotel project.
• The bench stated that the respondents, as the licensee, were aware that charges/mortgages would be imposed on the whole premises and properties, including the businesses. In that regard, they could not now, after several years, contest the mortgages/charges established on the entire property, including stores.
• It was held that the High Court, in exercising its powers under Order 6 Rule 17 of the Code of Civil Procedure, did not adequately recognise and/or consider the fact that, by awarding such an amendment and authorising respondents to amend the plaints integrating the prayer clause to proclaim the respective charges/mortgages void abinitio, the nature of the suits would be changed. It would also lead to a misjoinder of causes of action.
• According to the challenged ruling of the High Court, the bench noted that what had resonated with the High Court was that respondents were the dominus litus, and considerable emphasis was put on the judgment of Kasturi. The notion that the plaintiffs were the dominus litus, on the other hand, would apply only where the parties seeking to be added as defendants were essential and/or suitable parties. The respondents could not be allowed to add any party as a defendant who may not be essential and/or suitable parties.
• It was noted that the respondent's licences were cancelled. As a result, in an action contesting the cancellation of the relevant licences, the respondents could not be allowed to challenge the mortgages/charges established on the entire property as void abinitio. The impugned High Court rulings granting the application were unsustainable, both on facts and in law.

CONCLUSION

The court held that all of the appeals were successful in light of multiple reasons, the main one being, the nature of the suit being changed as a result of the amendment to the plaint. The High Court's rulings permitting applications under Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure in separate cases submitted by the respondents were thus quashed and set aside.

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