LAW FOR ALL

Saturday, September 18, 2021

Order XI Rule 1 as applicable to the commercial suits by which Civil Procedure Code has been amended with respect to the suits before the commercial court and in view of the Section 16 of the Commercial Courts Act, Order VII Rule 14 (3) of the CPC shall have no application at all. After the Order XI Rule 1 has been amended with respect to the suits before the commercial courts and a specific provision/procedure has been prescribed 12 with respect to the suits before the commercial division and before the commercial court, the provision of the Code of Civil Procedure as has been amended by the Commercial Courts Act, 2015 shall have to be followed and any provision of any rule of the jurisdiction of the High Court or any amendment to the Code of Civil Procedure by the State Government which is in conflict of the Code of the Civil Procedure as amended by Commercial Courts Act, the provision of the Code of the Civil Procedure as amended by the Commercial Courts Act shall prevail. Therefore, Order XI Rule 1 as amended by the amendment in the Commercial Courts Act, with respect to the suits before the commercial division and the commercial court, the provisions of Order VII Rule 14 (3) shall not be applicable at all.= In view of the above and for the reasons stated above, the present appeal is partly allowed. The impugned judgment and order passed by the High Court confirming the order passed by 26 the learned Commercial Court dismissing the application submitted by the plaintiff to rely on/produce the documents mentioned in application dated 13.09.2019, as additional documents is quashed and set aside to the extent not granting leave to the appellant herein – original plaintiff to rely on/produce the invoices mentioned in the application dated 13.09.2019 and consequently the leave is granted to the appellant herein – original plaintiff to produce/rely on the invoices mentioned in the application as additional documents. Rest of the order not granting leave to appellant herein – original plaintiff to rely on/produce the documents other than the invoices as observed hereinabove, as additional evidence is hereby confirmed.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5620 OF 2021

(Arising out of SLP (C) No. 13082 OF 2021)

SUDHIR KUMAR @ S. BALIYAN .. APPELLANT (S)

VERSUS

VINAY KUMAR G.B. .. RESPONDENT (S)

J U D G M E N T

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment

and order dated 06.04.2021 passed by the High Court of Delhi

at New Delhi in C. M. (M) No.181 of 2021, by which the High

Court has dismissed the said petition preferred by the appellant

herein – original plaintiff and has confirmed the order dated

13.11.2019 passed by the learned Commercial Court,

dismissing the application filed by the appellant under Order

VII Rule 14 (3) of the Code of Civil Procedure (hereinafter

referred to as the Code) seeking leave of the court to place

additional documents on record, the original plaintiff has

preferred the present appeal.

2. The appellant herein – original plaintiff filed the commercial

suit before the Commercial Court pending in the court of

learned Additional District Judge (Central) 10, being T.M.

No.123 of 2019 interalia for claiming a decree of permanent

injunction against the defendant from using the Trade Mark

“INSIGHT”, “INSIGHT ACADEMY”, “INSIGHT IAS ACADEMY”

and “INSIGHT PUBLICATIONS”. At this stage, it is to be noted

that the appellant filed the earlier suit being Trade Mark Suit

No.236 of 2018, claiming such adoption and use of the

trademark. However, subsequently the same came to be

withdrawn on 27.07.2019, as the same was not filed in

conformity with the provisions of the Commercial Courts Act,

2015 (hereinafter referred to as the Commercial Courts Act) and

subsequently filed the present suit on 31.08.2019. In the suit it

is alleged that the adoption and use of the trademark by it is

since 2006. As per the provisions of Order XI Rule 1 applicable

to the suits before the commercial division of a High Court or a

commercial court, the plaintiff was required to file a list of all

documents and photocopies of all documents, in its power,

possession, control or custody, pertaining to the suit, along

with the plaint or certain documents including the invoices,

were not produced along with the plaint and therefore the

appellant herein filed the application under Order VII Rule 14

(3) read with Section 151 of CPC, seeking leave of the court to

file additional documents.

2.1 By order dated 13.11.2019, the learned Commercial Court

dismissed the said application seeking leave of the court to file

additional documents, filed by the appellant. That thereafter

the defendant filed the written statement on 06.01.2020. As per

Order XI Rule 7 even the defendant was required to file the list

of all documents, photocopies of all documents, in its power,

possession, control or custody, pertaining to the suit, along

with the written statement or with its counter claim, if any.

However, some documents were not produced by the defendant

along with the written statement and therefore the defendant

filed an application under Order XI Rule 1 (10) of the CPC

seeking leave of the court to produce additional documents as

set out in the said application, however, the commercial court

partly rejected the said application vide order dated

08.10.2020.

The respondent herein – original defendant preferred an appeal

against the order dated 08.10.2020 before the Delhi High

Court. The Delhi High Court vide order dated 07.12.2020

allowed the said appeal taking on record all the documents filed

by the defendant. That thereafter the learned Commercial Court

dismissed the interim injunction application filed under Order

XXXIX Rule 1 and 2 of the CPC of the plaintiff vide order dated

16.01.2021.

2.2 That thereafter the appellant herein – original plaintiff filed CM

(M) No.181 of 2021 before the High Court of Delhi challenging

the order dated 13.11.2019, dismissing the application seeking

leave of the court to file additional documents filed by the

plaintiff. By the impugned judgment and order, the High Court

has dismissed the said CM (M) No. 181 of 2021 and has

confirmed the order passed by the learned Commercial Court

dismissing the application seeking leave to file additional

documents filed by the plaintiff.

3. Feeling aggrieved and dissatisfied with the impugned judgment

and order passed by the High Court, the original plaintiff has

preferred the present appeal.

4. Shri Sachin Datta, learned Senior Advocate appearing on behalf

of the appellant has vehemently submitted that in the facts and

circumstances of the case, the application submitted by the

plaintiff to file/produce on record the additional documents, as

mentioned in the application submitted under Order XIV Rule 3

ought to have been allowed.

4.1 It is vehemently submitted that as such the documents which

are sought to be relied upon and sought to be produced on

record are very much necessary for the purpose of just decision

of the suit.

4.2 It is submitted that when the defendant was permitted to

produce on record the additional documents along with the

written statement in exercise of powers under Order XI Rule 1

(10) of the CPC, similarly the plaintiff also ought to have been

permitted to place on record the additional documents which as

such are very much necessary for just decision of the suit.

4.3 It is further submitted that by Shri Datta, learned Senior

Advocate appearing on behalf of the appellant that the High

Court ought to have appreciated the application to file

additional documents was filed by the plaintiff within 10 days

of filing of the suit. It is submitted that as such therefore the

High Court has erred in holding that the additional documents

were produced by the plaintiff at a belated stage. It is further

submitted that the High Court has also materially erred in

observing that the explanation for nonfiling of additional

documents is an afterthought and when the application for

interim injunction under Order XXXIX Rule 1 was kept for

orders.

4.4 It is submitted that the High Court has at all not appreciated

the fact that the application seeking leave of the court to

produce the additional documents was filed within 30 days of

filing of the suit and therefore the requirement under Order XI

Rule 1 (4) of the CPC was satisfied.

4.5 It is further submitted that even the High Court has erred in

not appreciating that the additional documents are in support

of the pleadings already made in the plaint.

4.6 It is further submitted that even the High Court has erred in

not appreciating that the learned Trial Court/Commercial Court

erred in holding that the documents are suspicious because the

plaintiff did not mention about the existence of the said

documents in the plaint. It is submitted that at the stage of

production of the additional documents, the learned Trial

Court/Commercial Court was not at all required to consider the

genuineness of the documents sought to be produced, which

otherwise are required to be decided or considered during the

trial of the suit.

4.7 It is further submitted that even otherwise so far as the

invoices, which are sought to be produced, are concerned, it

was specifically stated that the said documents were not

available or in possession of the plaintiff at the time when the

suit was filed and the same were discovered subsequently.

4.8 It is further submitted by the counsel appearing on behalf of

the appellant that cogent reasons were given by the plaintiff for

not producing the additional documents other than the

invoices, along with the suit. It is submitted that as such there

was no other malafide intention and/or negligence on the part

of the plaintiff for not producing along with the plaint the

additional documents other than the invoices. It is submitted

that the suit was filed on an urgent basis seeking an exparte

ad interim injunction and therefore the additional documents

other than the invoices, which were bulky were not produced

along with the plaint. It is submitted that therefore when the

application for leave to produce the additional documents was

filed within a period of 10 days from the date of filing of the suit

i.e. without any undue delay, the said application ought to have

been allowed and the plaintiff ought to have been permitted to

produce the additional documents as mentioned in the

application.

5. The present appeal is vehemently opposed by Ms. Kruttika

Vijay, learned Advocate appearing on behalf of the respondent

herein – original defendant.

5.1 It is submitted that in the facts and circumstances of the case

and considering the object and purpose of Order XI Rule 1 as

applicable to the suits before the commercial court and

considering the said provisions, both the learned Trial

Court/Commercial Court as well as the High Court have rightly

dismissed the application filed by the plaintiff under Order VII

Rule 14 (3) of the CPC.

5.2 It is submitted that as such no cogent reasons were given by

the plaintiff for not producing additional documents along with

the plaint. It is submitted that in the absence of any cogent

reasons, the application submitted by the plaintiff for seeking

leave of the court to produce the additional documents is

rightly dismissed. It is submitted that the order rejecting the

application of the plaintiff seeking leave of the court to produce

on record the additional documents is absolutely in consonance

with the provisions of the Order XI Rule 1 (4) and Order XI Rule

1 (5) of the CPC.

5.3 It is further submitted by the learned counsel appearing on

behalf of the respondent herein–original defendant that in view

of the specific provision by way of amendment in the CPC,

amending Order XI Rule 1 of the CPC w.r.t. the suits before the

commercial court, considering Section 16 of the Commercial

Courts Act, Order VII Rule 14(3) shall not be applicable at all

and what shall be applicable would be Order XI Rule 1 of the

CPC as applicable to the suits before the commercial court.

5.4 It is further submitted that as such the application submitted

by the plaintiff lacked bonafides as having realized during the

course of the hearing of the interim injunction application

under Order XXXIX Rule 1 that non production of the

documents which subsequently are sought to be produced may

come in their way and the interim injunction application was

kept for orders and as an afterthought the application was

given. It is further submitted by the learned counsel appearing

on behalf of the respondent herein original defendant that so

far as the cause/reason shown in not producing the additional

documents other than the invoices, namely, as the documents

were bulky and therefore they were not produced, cannot be a

ground, subsequently to permit the plaintiff to place on record

the additional documents which as such were in possession of

the plaintiff at the time of filing of the plaint/suit.

6. Making the above submissions, it is prayed to dismiss the

present appeal.

7. We have heard the learned counsel appearing on behalf of the

respective parties at length.

7.1 By the impugned judgment and order, the High Court has

dismissed the petition confirming the order passed by the

learned Commercial Court dated 13.11.2019, dismissing the

application filed by the appellant herein – original plaintiff

seeking leave of the court to place additional documents on

record. That by the said application the plaintiff prayed to

permit him to place on record the invoices as mentioned in

paragraph 3 of the application and also certain other additional

documents. That the plaintiff stated in the application for leave

to place on record additional documents in paragraph 3 and 4

as under:

“3. That the accompanying documents along with the present

application in particular invoice dated 03.05.2005, invoice

dated 08.07.2005, invoice dated 10.08.2005, invoice dated

22.02.2006, invoice dated 10.04.2006, 1nvo1ce dated

05.06.2006, invoice dated 15.07.2006, invoice dated

10.01.2007, invoice dated 14.03.2007, invoice dated

19.05.2007, invoice dated 08.07.2007, invoice dated

06.09.2007, invoice dated 14.03.2007, invoice dated

01.10.2007 could not be filed along with plaint being very old

and not in possession of the plaintiff at the time of filing the

plaint. Now the plaintiff has found the same from the Shivalik

Graphics.

4. That the documents other than above said documents

could not be filed due to voluminous records pertaining to

plaintiff case could not be filed at the time of filing of case but

the same are very important for the adjudication of dispute

between the parties.”

The aforesaid application has been dismissed by the learned

Commercial Court, which has been confirmed by the High

Court by the impugned judgment and order.

7.2 At the outset, it is required to be noted that as such the said

application for leave to produce on record additional documents

was preferred by the appellant herein – original plaintiff under

Order VII Rule 14 (3) of the CPC. However, considering the

Order XI Rule 1 as applicable to the commercial suits by which

Civil Procedure Code has been amended with respect to the

suits before the commercial court and in view of the Section 16

of the Commercial Courts Act, Order VII Rule 14 (3) of the CPC

shall have no application at all. After the Order XI Rule 1 has

been amended with respect to the suits before the commercial

courts and a specific provision/procedure has been prescribed

with respect to the suits before the commercial division and

before the commercial court, the provision of the Code of Civil

Procedure as has been amended by the Commercial Courts Act,

2015 shall have to be followed and any provision of any rule of

the jurisdiction of the High Court or any amendment to the

Code of Civil Procedure by the State Government which is in

conflict of the Code of the Civil Procedure as amended by

Commercial Courts Act, the provision of the Code of the Civil

Procedure as amended by the Commercial Courts Act shall

prevail. Therefore, Order XI Rule 1 as amended by the

amendment in the Commercial Courts Act, with respect to the

suits before the commercial division and the commercial court,

the provisions of Order VII Rule 14 (3) shall not be applicable at

all. Therefore as such the plaintiff applied the wrong provision

seeking leave of the court to place on record the additional

documents. However, considering the fact that thereafter, both

the learned Commercial Court as well as the High Court treated

and considered and even applied Order XI Rule 1 of the CPC as

amended by the Commercial Courts Act and as applicable to

the suits filed before the commercial division, commercial court,

we proceed to consider the application submitted by the

appellant herein – original plaintiff, as if the same was

submitted under Order XI Rule 1 (4) of the CPC.

7.3 It is true that Order XI Rule 1 of the CPC as applicable to the

commercial suits brought about a radical change and it

mandates the plaintiff to file a list of all documents,

photocopies of all documents, in its power, possession, control

or custody, pertaining to the suit, along with the plaint and a

procedure provided under Order XI Rule 1 is required to be

followed by the plaintiff and the defendant, when the suit is the

commercial suit. Order XI Rule 1, as applicable to commercial

suits reads as under:

ORDER XI DISCLOSURE, DISCOVERY AND INSPECTION

OF DOCUMENTS IN SUITS BEFORE THE COMMERCIAL

DIVISION OF A HIGH COURT OR A COMMERCIAL COURT

1. Disclosure and discovery of documents.—(1) Plaintiff shall

file a list of all documents and photocopies of all documents,

in its power, possession, control or custody, pertaining to the

suit, along with the plaint, including:—

(a) documents referred to and relied on by the plaintiff in the

plaint;

(b) documents relating to any matter in question in the

proceedings, in the power, possession, control or custody of

the plaintiff, as on the date of filing the plaint, irrespective of

whether the same is in support of or adverse to the plaintiff’s

case;

plaintiffs and relevant only––

(i) for the crossexamination of the defendant’s witnesses, or

(ii) in answer to any case set up by the defendant subsequent

to the filing of the plaint, or

(iii) handed over to a witness merely to refresh his memory.

(2) The list of documents filed with the plaint shall specify

whether the documents in the power, possession, control or

custody of the plaintiff are originals, office copies or

photocopies and the list shall also set out in brief, details of

parties to each document, mode of execution, issuance or

receipt and line of custody of each document.

(3) The plaint shall contain a declaration on oath from the

plaintiff that all documents in the power, possession, control

or custody of the plaintiff, pertaining to the facts and

circumstances of the proceedings initiated by him have been

disclosed and copies thereof annexed with the plaint, and that

the plaintiff does not have any other documents in its power,

possession, control or custody.

Explanation.––A declaration on oath under this subrule shall

be contained in the Statement of Truth as set out in the

Appendix.

(4) In case of urgent filings, the plaintiff may seek leave to rely

on additional documents, as part of the above declaration on

oath and subject to grant of such leave by Court, the plaintiff

shall file such additional documents in Court, within thirty

days of filing the suit, along with a declaration on oath that

the plaintiff has produced all documents in its power,

possession, control or custody, pertaining to the facts and

circumstances of the proceedings initiated by the plaintiff and

that the plaintiff does not have any other documents, in its

power, possession, control or custody.

(5) The plaintiff shall not be allowed to rely on documents,

which were in the plaintiff’s power, possession, control or

custody and not disclosed along with plaint or within the

extended period set out above, save and except by leave of

Court and such leave shall be granted only upon the plaintiff

establishing reasonable cause for non–disclosure along with

the plaint.

(6) The plaint shall set out details of documents, which the

plaintiff believes to be in the power, possession, control or

custody of the defendant and which the plaintiff wishes to rely

upon and seek leave for production thereof by the said

defendant.

(7) The defendant shall file a list of all documents and

photocopies of all documents, in its power, possession, control

or custody, pertaining to the suit, along with the written

statement or with its counterclaim if any, including—

(a) the documents referred to and relied on by the defendant

in the written statement;

(b) the documents relating to any matter in question in the

proceeding in the power, possession, control or custody of the

defendant, irrespective of whether the same is in support of or

adverse to the defendant’s defence;

the defendants and relevant only––

(i) for the crossexamination of the plaintiff’s witnesses,

(ii) in answer to any case set up by the plaintiff subsequent to

the filing of the plaint, or

(iii) handed over to a witness merely to refresh his memory.

(8) The list of documents filed with the written statement or

counterclaim shall specify whether the documents, in the

power, possession, control or custody of the defendant, are

originals, office copies or photocopies and the list shall also

set out in brief, details of parties to each document being

produced by the defendant, mode of execution, issuance or

receipt and line of custody of each document.

(9) The written statement or counterclaim shall contain a

declaration on oath made by the deponent that all documents

in the power, possession, control or custody of the defendant,

save and except for those set out in subrule (7) (c) (iii)

pertaining to the facts and circumstances of the proceedings

initiated by the plaintiff or in the counterclaim, have been

disclosed and copies thereof annexed with the written

statement or counterclaim and that the defendant does not

have in its power, possession, control or custody, any other

documents.

(10) Save and except for subrule (7) (c) (iii), defendant shall

not be allowed to rely on documents, which were in the

defendant’s power, possession, control or custody and not

disclosed along with the written statement or counterclaim,

save and except by leave of Court and such leave shall be

granted only upon the defendant establishing reasonable

cause for nondisclosure along with the written statement or

counterclaim.

(11) The written statement or counterclaim shall set out

details of documents in the power, possession, control or

custody of the plaintiff, which the defendant wishes to rely

upon and which have not been disclosed with the plaint, and

call upon the plaintiff to produce the same.

(12) Duty to disclose documents, which have come to the

notice of a party, shall continue till disposal of the suit.

Order XI Rule 1 (3) provides that the plaint shall contain a

declaration on oath from the plaintiff that all documents in the

power, possession, control or custody of the plaintiff, pertaining

to the facts and circumstances of the proceeding initiated by

him have been disclosed and copies thereof annexed with the

plaint, and that the plaintiff does not have other documents in

its power, possession, control or custody. As per the

explanation under Order 11 Rule 1 (3) a declaration on oath

under this subrule shall be contained in the Statement of

Truth as set out in the Appendix. Appendix I with respect to the

statement of truth reads as under:

‘‘APPENDIXI

STATEMENT OF TRUTH

(Under First Schedule, Order VIRule 15A and Order XI Rule

I the deponent do hereby solemnly affirm and declare as

under:

1. I am the party in the above suit and competent to swear

this affidavit.

2. I am sufficiently conversant with the facts of the case and

have also examined all relevant documents and records in

relation thereto.

3. I say that the statements made in paragraphs are true

to my knowledge and statements made in paragraphs are

based on information received which I believe to be correct

and statements made in paragraphs are based on legal

advice.

4. I say that there is no false statement or concealment of any

material fact, document or record and I have included

information that is according to me, relevant for the present

suit.

5. I say that all documents in my power, possession, control

or custody, pertaining to the facts and circumstances of the

proceedings initiated by me have been disclosed and copies

thereof annexed with the plaint, and that I do not have any

other documents in my power, possession, control or custody.

6. I say that the abovementioned pleading comprises of a

total of pages, each of which has been duly signed by me.

7. I state that the Annexures hereto are true copies of the

documents referred to and relied upon by me.

8. I say that I am aware that for any false statement or

concealment, I shall be liable for action taken against me

under the law for the time being in force.

Place:

Date:

DEPONENT

VERIFICATION

I, ………………………. do hereby declare that the statements

made above are true to my knowledge.

Verified at [place] on this [date]

DEPONENT.”.]

Therefore, the declaration on oath shall be part of the plaint.

The plaintiff has to declare on oath that all documents in

its/his power, possession, control or custody, pertaining to the

facts and circumstances of the proceedings, initiated by him/it

have been disclosed and the copies thereof annexed with the

plaint, and that he does not have any other documents in his

power, possession, control or custody. Therefore as such it is

mandated by Order XI Rule 1 for the plaintiff to disclose and

produce all the documents in his power, possession, control or

custody, pertaining to the facts and circumstances of the

proceedings.

7.4 However, the additional documents can be permitted to be

bought on record with the leave of the court as provided in

Order XI Rule 1 (4). Order XI Rule 1 (4) provides that in case of

urgent filings, the plaintiff may seek leave to rely on additional

documents as part of the above declaration on oath [as

provided under Order 11 Rule 1 (3)] and subject to grant of

such leave by Court, the plaintiff shall file such additional

documents in Court, within thirty days of filing the suit, along

with a declaration on oath that the plaintiff has produced all

documents in its power, possession, control or custody,

pertaining to the facts and circumstances of the proceedings

initiated by the plaintiff and that the plaintiff does not have any

other documents, in its power, possession, control or custody.

7.5 Order XI Rule 1 (5) further provides that the plaintiff shall not

be allowed to rely on documents, which were in the plaintiff’s

power, possession, control or custody and not disclosed along

with plaint or within the extended period set out above, save

and except by leave of Court and such leave shall be granted

only upon the plaintiff establishing reasonable cause for non

disclosure along with the plaint. Therefore on combined reading

of Order XI Rule 1 (4) read with Order XI Rule 1 (5), it emerges

that (i) in case of urgent filings the plaintiff may seek leave to

rely on additional documents; (ii) within thirty days of filing of

the suit; (iii) making out a reasonable cause for non disclosure

along with plaint.

7.6 Therefore a further thirty days time is provided to the plaintiff

to place on record or file such additional documents in court

and a declaration on oath is required to be filed by the plaintiff

as was required as per Order XI Rule 1 (3) if for any reasonable

cause for non disclosure along with the plaint, the documents,

which were in the plaintiff’s power, possession, control or

custody and not disclosed along with plaint. Therefore plaintiff

has to satisfy and establish a reasonable cause for non

disclosure along with plaint. However, at the same time, the

requirement of establishing the reasonable cause for non

disclosure of the documents along with the plaint shall not be

applicable if it is averred and it is the case of the plaintiff that

those documents have been found subsequently and in fact

were not in the plaintiff’s power, possession, control or custody

at the time when the plaint was filed. Therefore Order XI Rule 1

(4) and Order XI Rule 1 (5) applicable to the commercial suit

shall be applicable only with respect to the documents which

were in plaintiff’s power, possession, control or custody and not

disclosed along with plaint. Therefore, the rigour of

establishing the reasonable cause in non disclosure along with

plaint may not arise in the case where the additional

documents sought to be produced/relied upon are discovered

subsequent to the filing of the plaint.

8. Having considered the statutory provisions in detail, the order

passed by the learned Commercial Court, confirmed by the

High Court, rejecting the application of the plaintiff for leave to

rely on the additional documents is required to be tested and

considered.

8.1 It emerges from the record that the first suit was filed by the

plaintiff in the month of October, 2018, bearing TM No.236 of

2018, restraining the defendant from infringing and passingoff

plaintiff’s Trade Marks. That an exparte interim injunction was

passed in favour of the plaintiff by order dated 29.10.2018. It

appears having realized and found that the earlier suit was not

in consonance with the provisions of the Commercial Courts

Act, the plaintiff withdrew the said suit being TM No.236 of

2018 on 27.07.2019 with liberty to file a fresh suit as per the

Commercial Courts Act, 2015. Therefore, the second suit was

filed on 31.08.2019 and within a period of thirty days from

filing of the second suit the appellant herein – original plaintiff

preferred the present application seeking leave of the court to

file additional documents. In the application, it was specifically

mentioned that so far as the invoices are concerned, the same

were not in its possession at the time of the filing of the plaint

and so far as the other documents are concerned they were not

filed due to they being voluminous. Therefore, so far as the

invoices sought to be relied on/produced as additional

documents ought to have been permitted to be relied

on/produced as it was specifically asserted that they were not

in his possession at the time of filing of the plaint/suit.

8.2 The submissions on behalf of the defendant that the cause

shown for non production was an afterthought cannot be

accepted for the simple reason that the application was filed

within a period of thirty days from the date of filing of the

second suit and at the time when the application for interim

injunction under Order XXXIX Rule 1 was not fully heard and

kept for orders.

8.3 Even the reason given by the learned Commercial Court that

the invoices being suspicious and therefore not granting leave

to produce the said invoices cannot be accepted. At the stage of

granting leave to place on record additional documents the

court is not required to consider the genuineness of the

documents/additional documents, the stage at which

genuineness of the documents to be considered during the trial

and/or even at the stage of deciding the application under

Order XXXIX Rule 1 that too while considering prima facie case.

Therefore, the learned Commercial Court ought to have granted

leave to the plaintiff to rely on/produce the invoices as

mentioned in the application as additional documents.

8.4 Now, so far as the other documents sought to be relied

on/produced as additional documents other than the invoices

are concerned the same stands on different footing. It is not

disputed and in fact it was specifically admitted and so stated

in the application that those additional documents other than

the invoices were in their possession but not produced being

voluminous and that the suit was filed urgently. However, it is

to be noted that when the second suit was filed, it cannot be

said to be urgent filing of the suit for injunction, as the first suit

was filed in the month of October, 2018 and there was an exparte ad interim injunction vide order dated 29.10.2018 and

thereafter plaintiff withdrew the said first suit on 27.07.2019

with liberty to file a fresh suit as per the Commercial Courts Act

and the second suit came to be filed on 31.08.2019 after period

of one month of the withdrawal of first suit. Therefore the case

on behalf of the plaintiff that when the second suit was filed, it

was urgently filed therefore, the additional documents sought to

be relied upon other than the invoices were not filed as the

same were voluminous cannot be accepted. And therefore as

such Order XI Rule 1 (4) shall not be applicable, though the

application was filed within thirty days of filing of the second

suit. While seeking leave of the court to rely on documents,

which were in his power, possession, control or custody and not

disclosed along with plaint or within the extended period set

out in Order XI Rule 1 (4), the plaintiff has to establish the

reasonable cause for non disclosure along with plaint.

8.5 In view of the facts and circumstances narrated hereinabove

and in view of the filing of the first suit in the month of October,

2018; the exparte ad interim injunction order in favour of the

plaintiff dated 29.10.2018; withdrawal of the first suit on

27.07.2019 and subsequently the filing of the second suit on

31.08.2019, non filing of the additional documents other than

the invoices on the ground of they being voluminous cannot be

said to be a reasonable cause for non disclosure/filing along

with plaint. There was sufficient time gap between the filing of

the first suit and filing of the second suit i.e. approximately 10

months and therefore when the second suit was filed the

plaintiff was having sufficient time after filing of the first suit, to

file the additional documents other than the invoices at the

time when the second suit was filed. Therefore as such, both

the courts below have rightly not permitted the plaintiff to rely

upon the documents, other than the invoices as additional

documents in exercise of the powers under Order XI Rule 1 (4)

read with Order XI Rule 1 (5).

9. In view of the above and for the reasons stated above, the

plaintiff can be permitted to rely on the documents in the form

of invoices as mentioned in the application as additional

documents. However, such production shall not affect the

outcome of interim injunction application submitted under

Order XXXIX Rule 1 of the CPC, which as such is reported to be

kept for orders.

10. In view of the above and for the reasons stated above, the

present appeal is partly allowed. The impugned judgment and

order passed by the High Court confirming the order passed by

the learned Commercial Court dismissing the application

submitted by the plaintiff to rely on/produce the documents

mentioned in application dated 13.09.2019, as additional

documents is quashed and set aside to the extent not granting

leave to the appellant herein – original plaintiff to rely

on/produce the invoices mentioned in the application dated

13.09.2019 and consequently the leave is granted to the

appellant herein – original plaintiff to produce/rely on the

invoices mentioned in the application as additional documents.

Rest of the order not granting leave to appellant herein –

original plaintiff to rely on/produce the documents other than

the invoices as observed hereinabove, as additional evidence is

hereby confirmed. The present appeal is accordingly partly

allowed to the aforesaid extent. No costs.

…………………………………J.

(M. R. SHAH)

…………………………………J.

(ANIRUDDHA BOSE)

New Delhi,

September 15, 2021

whether the terms and conditions of the tender have been tailor-made to suit a person/entity.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.4862-4863 OF 2021

UFLEX LTD. … Appellant

Versus

GOVERNMENT OF TAMIL NADU

& ORS. …Respondents

J U D G M E N T

SANJAY KISHAN KAUL, J.

1. The enlarged role of the Government in economic activity and its

corresponding ability to give economic ‘largesse’ was the bedrock of

creating what is commonly called the ‘tender jurisdiction’. The objective

was to have greater transparency and the consequent right of an

aggrieved party to invoke the jurisdiction of the High Court under Article

226 of the Constitution of India (hereinafter referred to as the

‘Constitution’), beyond the issue of strict enforcement of contractual

[1]

rights under the civil jurisdiction. However, the ground reality today is

that almost no tender remains unchallenged. Unsuccessful parties or

parties not even participating in the tender seek to invoke the jurisdiction

of the High Court under Article 226 of the Constitution. The Public

Interest Litigation (‘PIL’) jurisdiction is also invoked towards the same

objective, an aspect normally deterred by the Court because this causes

proxy litigation in purely contractual matters.

2. The judicial review of such contractual matters has its own

limitations. It is in this context of judicial review of administrative

actions that this Court has opined that it is intended to prevent

arbitrariness, irrationality, unreasonableness, bias and mala fide. The

purpose is to check whether the choice of decision is made lawfully and

not to check whether the choice of decision is sound. In evaluating

tenders and awarding contracts, the parties are to be governed by

principles of commercial prudence. To that extent, principles of equity

and natural justice have to stay at a distance.1

3. We cannot lose sight of the fact that a tenderer or contractor with a

grievance can always seek damages in a civil court and thus, “attempts

by unsuccessful tenderers with imaginary grievances, wounded pride and

Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.

[2]

business rivalry, to make mountains out of molehills of some

technical/procedural violation or some prejudice to self, and persuade

courts to interfere by exercising power of judicial review, should be

resisted.”2

4. In a sense the Wednesbury principle is imported to the concept,

i.e., the decision is so arbitrary and irrational that it can never be that any

responsible authority acting reasonably and in accordance with law

would have reached such a decision. One other aspect which would

always be kept in mind is that the public interest is not affected. In the

conspectus of the aforesaid principles, it was observed in Michigan

Rubber v. State of Karnataka3

as under:

“23. From the above decisions, the following principles emerge:

(a) the basic requirement of Article 14 is fairness in action by the

State, and non-arbitrariness in essence and substance is the

heartbeat of fair play. These actions are amenable to the judicial

review only to the extent that the State must act validly for a

discernible reason and not whimsically for any ulterior purpose. If

the State acts within the bounds of reasonableness, it would be

legitimate to take into consideration the national priorities;

(b) fixation of a value of the tender is entirely within the purview

of the executive and courts hardly have any role to play in this

process except for striking down such action of the executive as is

Id.

(2012) 8 SCC 216

[3]

proved to be arbitrary or unreasonable. If the Government acts in

conformity with certain healthy standards and norms such as

awarding of contracts by inviting tenders, in those circumstances,

the interference by Courts is very limited;

and awarding a contract, greater latitude is required to be conceded

to the State authorities unless the action of tendering authority is

found to be malicious and a misuse of its statutory powers,

interference by Courts is not warranted;

(d) Certain preconditions or qualifications for tenders have to be

laid down to ensure that the contractor has the capacity and the

resources to successfully execute the work; and

(e) If the State or its instrumentalities act reasonably, fairly and in

public interest in awarding contract, here again, interference by

Court is very restrictive since no person can claim fundamental

right to carry on business with the Government.”

5. One other aspect examined by this Court is whether the terms and

conditions of the tender have been tailor-made to suit a person/entity. In

fact, this is what is sought to be contended in the facts of the present case

by the respondents who were the original petitioners before the Court. In

order to award a contract to a particular party, a reverse engineering

process is evolved to achieve that objective by making the tender

conditions such that only one party may fit the bill. Such an endeavour

[4]

has been categorized as “Decision Oriented Systematic Analysis” (for

short ‘DOSA’).4

6. The burgeoning litigation in this field and the same being carried

to this Court in most matters was the cause we set forth an epilogue in

Caretel Infotech Ltd. v. Hindustan Petroleum Corporation Limited &

Ors.5

Even if it amounts to repetition, we believe that it needs to be

emphasized in view of the controversy arising in the present case to

appreciate the contours within which the factual matrix of the present

case has to be analysed and tested.

“37. We consider it appropriate to make certain observations in

the context of the nature of dispute which is before us. Normally

parties would be governed by their contracts and the tender terms,

and really no writ would be maintainable under Article 226 of the

Constitution of India. In view of Government and public sector

enterprises venturing into economic activities, this Court found it

appropriate to build in certain checks and balances of fairness in

procedure. It is this approach which has given rise to scrutiny of

tenders in writ proceedings under Article 226 of the Constitution of

India. It, however, appears that the window has been opened too

wide as almost every small or big tender is now sought to be

challenged in writ proceedings almost as a matter of routine. This

in turn, affects the efficacy of commercial activities of the public

sectors, which may be in competition with the private sector. This

could hardly have been the objective in mind. An unnecessary,

close scrutiny of minute details, contrary to the view of the

tendering authority, makes awarding of contracts by Government

4 Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors, 2013 SCC OnLine Del 563.

(2019) 14 SCC 81.

[5]

and Public Sectors a cumbersome exercise, with long drawn out

litigation at the threshold. The private sector is competing often in

the same field. Promptness and efficiency levels in private

contracts, thus, often tend to make the tenders of the public sector a

non-competitive exercise. This works to a great disadvantage to

the Government and the public sector.

38. In Afcons Infrastructure Limited v. Nagpur Metro Rail

Corporation Limited & Anr.6

, this Court has expounded further on

this aspect, while observing that the decision-making process in

accepting or rejecting the bid should not be interfered with.

Interference is permissible only if the decision-making process is

arbitrary or irrational to an extent that no responsible authority,

acting reasonably and in accordance with law, could have reached

such a decision. It has been cautioned that Constitutional Courts

are expected to exercise restraint in interfering with the

administrative decision and ought not to substitute their view for

that of the administrative authority. Mere disagreement with the

decision-making process would not suffice.

39. Another aspect emphasised is that the author of the

document is the best person to understand and appreciate its

requirements. In the facts of the present case, the view, on

interpreting the tender documents, of Respondent No.1 must

prevail. Respondent No.1 itself, appreciative of the wording of

Clause 20 and the format, has taken a considered view.

Respondent No.3 cannot compel its own interpretation of the

contract to be thrust on Respondent No.1, or ask the Court to

compel Respondent No.1 to accept that interpretation. In fact, the

Court went on to observe in the aforesaid judgment that it is

possible that the author of the tender may give an interpretation

that is not acceptable to the constitutional Court, but that itself

would not be a reason for interfering with the interpretation given.

We reproduce the observations in this behalf as under:

(2016) 16 SCC 818.

[6]

“15. We may add that the owner or the employer of a project,

having authored the tender documents, is the best person to

understand and appreciate its requirements and interpret its

documents. The constitutional courts must defer to this

understanding and appreciation of the tender documents, unless

there is mala fide or perversity in the understanding or

appreciation or in the application of the terms of the tender

conditions. It is possible that the owner or employer of a project

may give an interpretation to the tender documents that is not

acceptable to the constitutional courts but that by itself is not a

reason for interfering with the interpretation given.”

40. We may also refer to the judgment of this Court in Nabha

Power Limited (NPL) v. Punjab State Power Corporation

Limited (PSPCL) & Anr.,7

authored by one of us (Sanjay Kishan

Kaul, J.). The legal principles for interpretation of commercial

contracts have been discussed. In the said judgment, a reference

was made to the observations of the Privy Council in Attorney

General of Belize v. Belize Telecom Ltd.8

as under:

“45. … 16. Before discussing in greater detail the reasoning

of the Court of Appeal, the Board will make some general

observations about the process of implication. The court has

no power to improve upon the instrument which it is called

upon to construe, whether it be a contract, a statute or

articles of association. It cannot introduce terms to make it

fairer or more reasonable. It is concerned only to discover

what the instrument means. However, that meaning is not

necessarily or always what the authors or parties to the

document would have intended. …”

.... .... .... .... ....

(2018) 11 SCC 508.

(2009) 1 WLR 1988.

[7]

“19. .....In Trollope & Colls Ltd. v. North West

Metropolitan Regional Hospital Board9

Lord Pearson, with

whom Lord Guest and Lord Diplock agreed, said:

“…the court does not make a contract for the parties.

The court will not even improve the contract which

the parties have made for themselves, however

desirable the improvement might be. The court’s

function is to interpret and apply the contract which

the parties have made for themselves. If the express

terms are perfectly clear and free from ambiguity,

there is no choice to be made between different

possible meanings: the clear terms must be applied

even if the court thinks some other terms would have

been more suitable. An unexpressed term can be

implied if and only if the court finds that the parties

must have intended that term to form part of their

contract: it is not enough for the court to find that

such a term would have been adopted by the parties as

reasonable men if it had been suggested to them: it

must have been a term that went without saying, a

term necessary to give business efficacy to the

contract, a term which, though tacit, formed part of

the contract which the parties made for themselves.”

41. Nabha Power Limited (NPL)10 also took note of the earlier

judgment of this court in Satya Jain v. Anis Ahmed Rushdie11

which discussed the principle of business efficacy as proposed by

Bowen, L.J. in the Moorcock12. It has been elucidated that this test

requires that terms can be implied only if it is necessary to give

business efficacy to the contract to avoid failure of the contract and

only the bare minimum of implication is to be there to achieve this

(1973) 1 WLR 601 (HL).

10 Nabha (supra).

11 (2013) 8 SCC 131.

12 (1889) LR 14 PD 64 (CA).

[8]

goal. Thus, if the contract makes business sense without the

implication of terms, the courts will not imply the same.

42. The judgment in Nabha Power Limited13 concluded with the

following observations in para 72:

“72. We may, however, in the end, extend a word of caution.

It should certainly not be an endeavour of commercial courts

to look to implied terms of contract. In the current day and

age, making of contracts is a matter of high technical

expertise with legal brains from all sides involved in the

process of drafting a contract. It is even preceded by

opportunities of seeking clarifications and doubts so that the

parties know what they are getting into. Thus, normally a

contract should be read as it reads, as per its express terms.

The implied terms is a concept, which is necessitated only

when the Penta-test referred to aforesaid comes into play.

There has to be a strict necessity for it. In the present case,

we have really only read the contract in the manner it reads.

We have not really read into it any ‘implied term’ but from

the collection of clauses, come to a conclusion as to what the

contract says. The formula for energy charges, to our mind,

was quite clear. We have only expounded it in accordance to

its natural grammatical contour, keeping in mind the nature

of the contract.”

43. We have considered it appropriate to, once again, emphasise

the aforesaid aspects, especially in the context of endeavours of

courts to give their own interpretation to contracts, more

specifically tender terms, at the behest of a third party competing

for the tender, rather than what is propounded by the party framing

the tender. The object cannot be that in every contract, where

some parties would lose out, they should get the opportunity to

13 Nabha (supra).

[9]

somehow pick holes, to disqualify the successful parties, on

grounds on which even the party floating the tender finds no

merit.”

7. It may also be pertinent to note the principles elucidated in the case

of Tata Cellular v. Union of India:

“94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administrative

action.

(2) The court does not sit as a court of appeal but merely reviews

the manner in which the decision was made.

(3) The court does not have the expertise to correct the

administrative decision. If a review of the administrative decision

is permitted it will be substituting its own decision, without the

necessary expertise which itself may be fallible.

(4) The terms of the invitation to tender cannot be open to judicial

scrutiny because the invitation to tender is in the realm of contract.

Normally speaking, the decision to accept the tender or award the

contract is reached by process of negotiations through several tiers.

More often than not, such decisions are made qualitatively by

experts.

14 Caretel (supra).

[10]

(5) The Government must have freedom of contract. In other

words, a fair play in the joints is a necessary concomitant for an

administrative body functioning in an administrative sphere or

quasi-administrative sphere. However, the decision must not only

be tested by the application of Wednesbury principle of

reasonableness (including its other facts pointed out above) but

must be free from arbitrariness not affected by bias or actuated by

mala fides.

(6) Quashing decisions may impose heavy administrative burden

on the administration and lead to increased and unbudgeted

expenditure.”15

8. On having set forth the contours of our analysis we now proceed to

deal with the factual matrix so that we do not deviate from the path we

have set for ourselves aforesaid.

The facts:

9. On 24.08.2020 vide G.O. (Ms.)/No.23 (for short ‘G.O.’) issued by

the Government of Tamil Nadu inter alia appointed the Joint

Commissioner-II as the Tender Inviting Authority while the

15 (1994) 6 SCC 651.

[11]

Commissioner of Prohibition and Excise was appointed as the Tender

Accepting Authority apart from the appointment of a Technical

Specification Committee (for short ‘TSC’) and a Tender Scrutiny and

Finalisation Committee (for short ‘TSFC’) for purposes of production

and supply of polyester based hologram excise labels on turnkey basis.

The stickers were to be pasted across the caps of bottles of liquor sold by

the State Government through one of its instrumentalities, the Tamil

Nadu State Marketing Corporation (for short ‘TASMAC’). The tender

required the prospective bidders and existing suppliers of hologram

excise labels to submit necessary documents on the label features and

security standard by 07.09.2020.

10. The first meeting of the TSC was held on 09.09.2020 where it was

inter alia decided that it would be appropriate to have technical

specifications which are generic in nature so as to ensure wider

participation by incorporating those features that are available with at

least three bidders. In the second meeting held on 18.09.2020, three

technical specifications for non-holographic features along with hidden

text on colour change background were formulated, which read as under:

[12]

i. A stripe of design transferred, but not laminated, on the top

of the hologram with visual holographic design on top;

ii. Hidden texts/images encrypted on second layer on different

colour background; and

iii. The hidden colour should change at every 45 degree angle,

this hidden text “Tamil Nadu Excise” should be visible only

through a special Polaroid identifier.

11. The TSC thereafter sought to determine the eligibility criteria for

the commercial bid in addition to the already existing criteria so as to

“enhance the security features, ensure better participation, and to restrict

fly-by-night operators.” Thus, in the third meeting held on 23.09.2020 it

was recommended that supplier should have been continuously doing

business activities in the same field for the past 8 to 10 years. The draft

tender document consisting of technical specification, product

specification, eligibility criteria and general terms and conditions was

approved in the fourth meeting held on 24.09.2020 and a Notice Inviting

Tender (for short ‘NIT’) was issued on 01.10.2020 with various technical

specifications and eligibility criteria. The pre-bid meeting was held on

08.10.2020 wherein the respondents before us conveyed their objections

[13]

and concerns highlighting that wider participation as mandated by the

G.O. should be adhered along with making a grievance about some

arbitrary conditions in the tender notice.

12. However, without waiting for the final decision in respect of the

aforesaid, two of the prospective tendering parties, viz., M/s. Kumbhat

Holographics (for short ‘Kumbhat’) and M/s. Alpha Lasertek India LLP

(for short ‘Alpha’) filed writ petitions in October, 2020 where

intervention was also permitted by two other parties. These petitions

were dismissed by the learned single Judge vide order dated 10.02.2021.

13. The material aspect to be taken note of is that there were certain

developments during the pendency of the petition. But we must note

what is the principal grievance made by these parties before the learned

single Judge. The primary contention both by Kumbhat and Alpha was

that the terms of the tender were skewed in favour of Uflex Limited (for

short ‘Uflex’) and Montage Enterprises Private Limited (for short

‘Montage’). The grievance which was made was that certain

requirements were introduced in the tender to ensure that only Uflex and

Montage would be able to qualify under the tender requirements, i.e.: (i)

requirement of 8 years of experience in the field of manufacture of

[14]

security holograms; (ii) requirement of bidders to have supplied full

polyester based security hologram labels to the tune of at least Rs. 20

crores to any state excise department during any one of the last three

financial years (with additional requirement under Clause 4.6 in Part 4 of

the NIT that the said supply should only have been made to any of the

state excise departments to be considered valid for this purpose); and (iii)

the bidders should also submit a satisfactory performance certificate from

the competent authority or the end user.

14. The other aspect was the grievance made about the technical

requirement of a “Hidden Text on Colour Change Background” feature

stated to be based on a patented technology. Holograms with this feature

were supplied to other public sector undertakings such as the IRCTC in

the past by the suppliers other than Uflex and Montage. However, those

suppliers had never supplied to any State excise department and, thus,

could not meet the two conditions cumulatively. Montage and Uflex

were alleged to be the only two bidders who would qualify under the

existent tender conditions as they held the license to use the patented

technology. The writ petition was resisted by the State inter alia on the

ground of bona fide exercise and the factum of a clarification being

[15]

issued on 27.10.2020 on the objections of Kumbhat and Alpha, petition

having been filed even without waiting for the clarification to be issued.

Corrigendum 2 to the tender conditions was issued whereby the condition

as to the identification of hidden text by special Polaroid identifier was

relaxed by providing that in addition to Polaroid identifier, the hidden

text could also be identified by film. The grievance about only limited

companies being permitted to participate was also met by permitting

LLPs to participate in the tender.

15. In the course of scrutiny by the learned single Judge, the

respondents were permitted to accept the bids from prospective bidders

and process the same with the report being submitted with details of

qualified bidders under the technical specifications of the tender. The

report of the TSC dated 24.12.2020 was, thus, submitted, which recorded

that among the three bidders who had submitted the bids, all three

satisfied all the technical and product specifications as per NIT including

Uflex and Montage. The High Court while dismissing the writ petition

noted that the requirement of having minimum three successful bidders

was thus satisfied.

Writ Appeal Round:

[16]

16. The aforesaid conclusion by the learned single Judge in the

conspectus of facts gave rise to writ appeals being filed by Kumbhat and

Alpha impugning the order dated 10.02.2021.

17. The grievance inter alia was that a copy of the report dated

24.12.2020 had not been furnished to either Kumbhat or Alpha depriving

them of the opportunity to scrutinize the report. In effect, the allegation

of DOSA qua Uflex and Montage was once again made while alleging

that there had been deviations from the mandate of setting generic

technical specification as per the G.O.

18. The financial structure of Uflex and Montage was sought to be

examined by lifting the corporate veil and contending that the annual

report of Uflex for 2019-20 showed that it had invested approximately

Rs.152 crores in preference share capital of Montage and thus exercised

considerable influence in the affairs of Montage. The third bidder who

constituted the Trimurti along with Uflex and Montage was Hololive

Corporation Industries (for short ‘Hololive’). It was actually not eligible

to participate on multiple parameters as it was a partnership firm

registered on 01.07.2017 and thus did not meet the requirement of being

either a limited company or an LLP.

[17]

19. The report called for by the learned single Judge was on technical

specifications and, thus, while Hololive fulfilled those technical

specifications, it had not qualified as per commercial terms on the

aforesaid account. Further, Kumbhat being a partnership firm, sought to

contend that the exclusion of partnership firms was arbitrary. The

relationship between Uflex and Montage was in breach of the spirit of

Rule 15 of the Tamil Nadu Transparency in Tender (Public-Private

Partnership Procurement) Rules, 2012 (hereinafter referred to as the

‘Rules’), which pertains to conflict of interest even though the Rules did

not apply to the facts of the case. The said Rule reads as under:

“15. Conflict of Interest.- (1) It shall be the responsibility of

Tender Inviting Authority and Tender Accepting Authority to

ensure that the prospective tenderers do not have a conflict of

interest that affects the Tender Proceedings.

(2) An Applicant or prospective tenderer shall be deemed to have a

Conflict of Interest, if,-

(a) any other prospective tenderer or a member of consortium or

any associate or constituent thereof have common controlling

shareholders or other ownership interest; or

(b) a constituent of such prospective tenderer is also a constituent

of another prospective tenderer.

Provided that ‘constituent’ in such cases will not include the

provider of a proprietary technology to more than one applicant; or

[18]

has received any direct or indirect subsidy, grant, concessional loan

or subordinated debt from any other Applicant or Respondent, or

any associate thereof has provided any such subsidy, grant,

concessional loan or subordinated debt to any other Applicant or

Respondent, its member or any associate thereof; or

(d) such prospective tenderer has the same legal representative for

purposes of the Tender Proceedings as any other prospective

tenderer; or

(e) such prospective tenderer, its member or any associate thereof,

has a relationship with another prospective tenderer, or any

associate thereof, directly or through common third party/ parties,

that puts either or both of them in a position to have access to each

other’s information about, or to influence the Response of either or

each other; or

(f) such prospective tenderer, its member or any associate thereof,

has participated as a consultant to the Tender Inviting Authority

and Tender Accepting Authority in the preparation of any

documents, design or technical specifications of the Public Private

Partnership (PPP) Project; or

(g) if any legal, financial or technical advisor of the Tender

Inviting Authority and Tender Accepting Authority in relation to

the Project is engaged by the prospective tenderer, its member or

any associate thereof, as the case may be, in any manner for

matters related to or incidental to the Project:

Provided that this clause shall not apply where such advisor was

engaged by the Applicant or Respondent, its member or associate

in the past but such engagement expired or was terminated 6 (six)

months prior to the date of issue of concerned Tender Document or

where such advisor is engaged after a period of 3(three) years from

the date of commercial operation of the Project.”

[19]

20. An alternative argument which Kumbhat sought to develop was

that it is registered as a Small Industry in terms of the classification under

the Micro, Small and Medium Enterprises Development Act, 2006 (for

short ‘MSMED Act’) and, thus, qualifies as a domestic enterprise as

defined in the Tamil Nadu Transparency in Tenders Act, 1998 (hereinafter

referred to as the ‘Tender Act’). Thus, as per proviso to sub-section 2 of

Section 10 of the Tender Act, it was entitled to be called upon to supply a

maximum of 25% of the total procurement if it was willing to match the

price of the lowest bidder. Rule 30-A of the Tamil Nadu Transparency in

Tender Rules, 2000 (hereinafter referred to as the ‘Tender Rules’) was

also relied upon to contend that the purchase preference is required to be

extended to domestic enterprises.

21. On the other hand, it was urged by Uflex that Alpha and Kumbhat

lack the locus as they did not even participate in the tender. Alpha did

not qualify as it did not have the requisite experience in supplying

holograms and its business was actually in the nature of trading. In one

of the relevant financial years, the income and expenditure statement

showed a zero turnover from the sale and manufacture of goods. The

participation by LLPs was permitted which enabled Alpha to bid but in

[20]

case of Kumbhat it was only a partnership firm without being an LLP. It

was sought to be contended that it was justifiable for a Government entity

to procure goods exclusively from corporate entities so as to ensure

stability and existence of such entities.

22. The grievance regarding patented technology, Uflex contended,

does not subsist in view of the corrigendum having been issued whereby

film could be used for identification of the hidden text in addition to

Polaroid. The technology of producing latent images which are invisible

to the naked eye and can be viewed only through polarizer is generic and

Uflex and Montage do not have a monopoly over the same. Technology

not infringing the patent could be deployed, thereby meeting the

technical requirements.

23. The other aspect arising from lifting the corporate veil and

referring to the investment of Uflex in Montage was dealt with by the

submission that the investment was in redeemable, non-voting, nonparticipating preference shares of Montage and, thus, Uflex was neither a

holding company nor an associate company of Montage.

24. Insofar as the rejection of the bid of Hololive was concerned, the

counsel for the State sought to explain the same by submitting that the

[21]

bid was only rejected at the second stage against the requirement of Part

4 of the tender.

25. The Division Bench, however, allowed the writ appeal in terms of

the impugned judgment dated 29.04.2021 giving the State four months

time to float a fresh tender while permitting the existing successful

tenderers to continue to provide the supplies under the same terms and

conditions. The fresh tender was directed to be floated with technical

specifications that are generic so as to ensure wider participation or, if the

State was of the view that the technical specifications are at the heart of

the tender, opt for a single source procurement, albeit by adhering strictly

to the requirements of the Tender Act, which has been enacted to provide

transparency in public procurement and to regulate the procedure in

inviting and accepting the tenders and matters connected therewith or

incidental thereto.

26. The rationale of the judgment of the Division Bench can be

summarized as under:

a. The Government Order had stated that technical specification

should be such that “multiple vendors” qualify whereas the

Commissioner of Prohibition and Excise has used the phrase

[22]

“more than three bidders”. The phrase “multiple vendors” was

used as a rough equivalent of expression of “more than three

bidders” and the minutes of the second and third meeting did not

contain any discussion as to whether the proposed changes would

make the technical specification non-generic. Thus, TSC was held

to have deviated from the mandate of prescribing generic technical

qualifications.

b. The technical requirements as per NIT had features which were not

noticeable from specifications as was explained by the patenting

process. However, it was noticed that wherever technical

specifications were substantially if not wholly similar to the

impugned specifications, the successful bidder was always Uflex

or Montage.

c. The material on record supported an inference that the impugned

technical specifications, when coupled with the requirements of

having made such supplies of a specified minimum value to a State

Excise Department in any of the preceding three years had the

effect of eliminating all bidders other than Uflex or Montage.

[23]

Thus, eliminating reasonable competition came within the domain

of judicial review.

d. Technical bid evaluation was done on the same day as the report

dated 24.12.2020 but yet the learned single Judge was not

informed that Hololive did not fulfill all the technical

specifications. Had the single Judge been aware of this a different

view may have been taken by the learned single Judge who

proceeded on the premise of three eligible bidders.

e. Uflex and Montage were not sister or associate companies in the

technical sense. However, the High Court proceeded to examine

the nexus between the two entities and whether the same would

impair the integrity of the tender process. Montage’s total equity

share capital was about Rs.6 crore and Uflex’s investment of about

Rs.152 crore in preferential share capital of Montage brought in

the possibility of Uflex exercising influence over Montage, which

could not be disregarded. Uflex was a public listed company and

Montage was one of Uflex’s top non-promoter shareholders with a

holding of approximately 4%.

[24]

f. Uflex and Montage both derived their technology for producing

the latent image from a common source, i.e., patented technology

of ATB Latent Export Import Limited (for short ‘ATB’). This

aspect had to be read with what has been stated aforesaid.

g. The existing records result in a definitive conclusion that tender

conditions were tailor-made in favour of Uflex and Montage and,

thus, judicial review was necessary and in public interest and the

same undermining the tendering process.

Contentions before us:

Submissions on behalf of Uflex:

27. The broad contours of the submissions advanced on behalf of

Uflex assailing the impugned order are as under:

i. Learned counsel for the appellant relied on the judgment in Tata

Cellular v. Union of India16 to submit that Alpha and Kumbhat have

failed to demonstrate any public interest, any flaw in the tender process

or for that matter any mala fide or arbitrariness. In the face of this

submission, the terms of the NIT were not open to judicial scrutiny and

the Court can only review the decision-making process.

16 Id.

[25]

ii. The endeavour of Alpha and Kumbhat is an attempt to use the

judicial process to somehow frustrate the award of the tender to Uflex,

having not succeeded as a competitive commercial enterprise. The same

was true not only in this case but even in other tenders, as is reflected

from their submission that Uflex has been successful in a number of

tenders across the country. Their endeavour to challenge the tender on

similar grounds was unsuccessful in Writ Appeal No.509/2016 before the

Madras High Court itself against which the Special Leave Petition was

dismissed. A similar fate was met in their endeavour before the Madhya

Pradesh High Court in WP No.4448/2016 where also the SLP was

dismissed.

iii. The petitioner has invested a huge amount of about Rs. 10 crore

and has employed 87 people after the grant and issuance of work order.

The adjudication of a civil dispute, the present one being really akin to

the same, is based on the preponderance of probabilities. The impugned

order visits Uflex with adverse civil consequences based on some

“justifiable doubts” as is found in the impugned judgment. In this behalf,

reference was invited to para 47 of the impugned judgment opining so,

i.e., “the evidence on record is insufficient to draw the definitive

[26]

conclusion that the tender conditions were tailored to suit only the two

eligible bidders, although there is sufficient basis for justifiable doubts on

that count.”

We may note that these observations have, however, been followed

by observations to the effect that evidence was sufficient to conclude that

the tender specifications were not generic and had, thus, not been

prepared with the mandate of the G.O.

iv. The approach adopted by the Division Bench of the High Court in

what may be categorized as lifting the corporate veil and then

endeavouring to threadbare scrutinize the business relations of the two

companies, i.e., Uflex and Montage, is not an appropriate approach. Not

only that, the alleged nexus had been examined by the Madhya Pradesh

High Court in WP No.4448/2016 and judgment was pronounced on

06.09.2016 opining that Uflex and Montage are neither a holding –

subsidiary company nor associate company. The SLP filed against the

same, as noted above was dismissed.

[27]

v. There was a failure on part of Alpha and Kumbhat to establish that

the technical specifications were patented and Uflex and Montage had

monopoly over the same.

vi. The counsel for Uflex placed reliance on the judgment in Tata

Cellular17 and the principles culled out hereinabove at the inception

while submitting that this view has been followed in various judicial

pronouncements, viz., Air India v. Cochin International Airport18

Raunaq International Ltd. v. IVR Construction Ltd.19, Master Marine

v. Metcalfe and Hodkinson20, Michigan Rubber21 and Bharat Cooking

Coal v. AMR Dev22

Submissions on behalf of Montage:

28. Montage sought to support the plea of Uflex largely aggrieved by

the High Court’s findings to the effect that Uflex and Montage are related

entities as it may have an adverse impact on Montage in other contractual

and tender matters. This is more so in the context that in various tenders

these two companies have actually competed against each other

17 (supra)

18 (2000) 2 SCC 617.

19 (1999) 1 SCC 492.

20 (2005) 6 SCC 138.

21 (supra).

22 (2020) 16 SCC 759.

[28]

successfully. Damaging observations were made to the effect that even

the qualification under the NIT was restricted to the two eligible bidders.

This raises questions as to the integrity and reliability of the NIT, which

has thus seriously been assailed.

The observations of the Madhya Pradesh High Court referring to

aforesaid holding that Uflex and Montage are separate legal entities was

again emphasized. Uflex had made a financial investment of about

Rs.152 crore worth of preference shares in Montage due to Montage’s

acquisition of Uflex’s subsidiary, Utech Developers Limited. These

preference shares are 7.50% redeemable, non-cumulative, nonparticipating, non-convertible preference shares and the same does not

allow Uflex to exert any influence on Montage.

29. Similarly, supporting the plea of Uflex, Montage also contended

that the allegation of common source of patent technology through ATB

has no basis as Montage does not have any license arrangement with the

said Company nor had it paid any license fee to ATB. It has, however,

access to technology to produce latent images because it procured the

requisite machinery.

[29]

Submissions on behalf of Kumbhat:

30. On the other hand, Kumbhat sought to emphasise the following

aspects in support of the impugned judgment:

i. The mandate of the G.O. stipulated that technical specifications

have to be generic in nature to ensure wider participation by

incorporating those features which are available with more than three

bidders and the same was accepted by the Government by reiterating that

there must be multiple bidders. The factum of Hololive disqualification

on certain conditions of the NIT was not raised before the learned single

Judge and, thus, erroneous conclusion was arrived at as there were less

than three bidders. There were only two eligible bidders.

ii. The scenario of there being only two eligible bidders and award

going to the same party is apparent from the award of tenders with same

specifications by four other States. Thus, Uflex and Montage seem to be

monopolizing the business.

iii. The two bidders are closely related to each other as found by the

Division Bench and even in income tax proceedings before the High

[30]

Court of Delhi in the order dated 06.09.2018, Montage had taken the plea

that Uflex was a sister company.

iv. The earlier judgment of the Madras High Court in Writ Appeal

No.509/2016 was not relevant as there were five qualified bidders and the

tender had dissimilar conditions. There was also a subsequent

amendment to the Tender Act, 2017 by introduction of Section 2(aa) read

with the proviso to Section 10(2), which introduced the participation by

Domestic Enterprises. In this behalf, the relevant provisions are

reproduced hereinunder:

“2. Definitions.- In this Act, unless the context otherwise requires,-

xxxx xxxx xxxx xxxx xxxx

[(aa) ‘Domestic Enterprise’ means any micro and small enterprise

as defined in the Micro, Small and Medium Enterprises

Development Act, 2006 (Central Act 27 of 2006), which

manufactures or produces goods, provides or renders services

within the State and filed Part II of the Entrepreneurs

Memorandum in the District Industries Centres or filed Udyog

Aadhaar portal.]”

.... .... .... .... .... ….

“10. Evaluation and Acceptance of Tender.-

xxxx xxxx xxxx xxxx xxxx

(2) After evaluation and comparison of tenders as specified in subsection (1), the Tender Accepting Authority shall accept the lowest

tender ascertained on the basis of objective and quantifiable factors

[31]

specified in the tender document and giving relative weights

among them:

[Provided that the Tender Accepting Authority shall accept the

tender of domestic enterprises, not being the lowest tender, upon

satisfaction of such conditions as may be prescribed, in respect

only of goods manufactured or produced and services provided or

rendered by them, and only to the extent of not exceeding twenty

five per cent of the total requirement in that procurement, if such

domestic enterprise is willing to match the price of the lowest

tender:

Provided further that the Tender Accepting Authority shall accept

the tender of a department of Government, Public Sector

Undertaking, Statutory Board and other similar institutions as may

be notified, not being the lowest tender, upon satisfaction of such

conditions as may be prescribed, in respect only of goods

manufactured or produced and services provided or rendered by

them, and only to the extent of not exceeding forty per cent of the

total requirement in that procurement, if such tenderer is willing to

match the price of the lowest tender:

Provided also that in case of a single procurement, the total

procurement under the above two provisos shall not exceed forty

percent of the total requirement in that procurement.]”

Kumbhat being an MSME, thus, seeks a right to participate in

tenders in Tamil Nadu.

31. We may note at this stage that Kumbhat did not even apply and

could not have applied being a partnership firm while Alpha could have

applied being an LLP but did not apply.

[32]

Submissions on behalf of Alpha:

32. Alpha sought to reiterate the submissions made by Kumbhat and

sought to give examples from other States to support its adequacy of

manufacturing capacity: L-3 in 2019 in Chhattisgarh tender, L-2 in Tamil

Nadu in 2011 and 2015 tenders, and L-3 in 2021 in Andhra Pradesh

tender. These tenders had generic specifications unlike the present

tender. Alpha only got disqualified due to the technical specifications

and its past experience, i.e. clauses 4.6(b) and 4.6(c), which serve to

eliminate all bidders except two.

33. Alpha sought to emphasise the aspect of public interest as a ground

for judicial intervention by relying upon certain judicial pronouncements,

viz., Monarch Infrastructure v. Ulhasnagar Municipal Corp.23 and

Jagdish Mandal24

Submissions on behalf of the Government of Tamil Nadu:

34. Let us now turn to the most important stand which is of the Tamil

Nadu Government, which is the tendering entity. In this behalf what has

23 (2000) 5 SCC 287.

24 (supra).

[33]

been sought to be emphasized at the threshold is public interest itself as

the tender conditions seek to prevent spurious liquor being pushed into

the market. Since 1999, only one supplier, Holostik India, had been

successful in all tenders except the present tender where it chose not to

participate despite having the technical capability to do so and three firms

ultimately participated, i.e., Uflex, Montage and Hololive.

35. The State of Tamil Nadu sought to emphasise the importance of

transparency of the decision-making process. The TSC comprised of

eminent scientists in holography and printing technology and the NIT

was formulated after their deliberations and after receiving input from

prospective bidders. The non-holographic feature of ‘hidden text on

colour change background’ was suggested by technical experts from IIT

and Anna University as the same is the latest and most secure feature.

The objective was to reduce chances of the hologram being counterfeited.

36. On the aspect of clauses 4.1, 4.5, 4.6(a) and 4.6(b), which formed

part of the general terms and the conditions of the technical bid and dealt

with the aspect of the past experience in supply and turnover, it was

submitted that these very conditions formed a part of the 2015 tender as

well. These were challenged by Kumbhat and the writ appeal was

[34]

dismissed, and this order was affirmed in the SLP, as already set out

hereinbefore.

37. It was emphasized that Alpha’s grievance qua the door being shut

on them was addressed through corrigendum 2, which permitted LLPs to

participate in the tender. The same very corrigendum addressed the issue

relating to hidden text being visible only through Polaroid by adding

film. It was submitted that the Division Bench wrongly noted that the

hidden colour specification was patented and there were no eligible

bidders who would qualify the same as the counter affidavit contains a

list of tenders which had similar conditions and parties had succeeded in

the same. For example, the 2019-22 Excise Department Chhattisgarh

tender had similar conditions and Prizm Holography succeeded. The

same tender had two other entities who had qualified, including Alpha.

38. On the aspect of tender conditions being tailor-made and the

principles of DOSA applying, it was submitted that the latitude must be

greater where such high security features are involved.25

39. Lastly it was submitted that there was nothing so extraordinary or

unique which was being done by the respondents and the practice

followed were similar to the practices of other States. The impugned

25 Association of Registration Plates v. Union of India (2005) 1 SCC 679.

[35]

technical specifications have been utilized by several states and public

sector undertakings in the past and the tenders were awarded to other

players also apart from Uflex and Montage. This would belie the

contention that the technology was patented and only a few selected

companies were eligible. Not only that, in view of corrigendum 2, colour

change background viewable with film as an identifier did not attract the

rigour of a patented technology. In almost an identical tender floated by

the State of Chhattisgarh, Uflex and Montage did not succeed during the

tendering process.

Conclusion:

40. We must begin by noticing that we are examining the case, as

already stated above, on the parameters discussed at the inception. In

commercial tender matters there is obviously an aspect of commercial

competitiveness. For every succeeding party who gets a tender there may

be a couple or more parties who are not awarded the tender as there can

be only one L-1. The question is should the judicial process be resorted

to for downplaying the freedom which a tendering party has, merely

because it is a State or a public authority, making the said process even

[36]

more cumbersome. We have already noted that element of transparency

is always required in such tenders because of the nature of economic

activity carried on by the State, but the contours under which they are to

be examined are restricted as set out in Tata Cellular26 and other cases.

The objective is not to make the Court an appellate authority for

scrutinizing as to whom the tender should be awarded. Economics must

be permitted to play its role for which the tendering authority knows best

as to what is suited in terms of technology and price for them.

41. The present dispute has its history in many prior endeavours by the

original petitioners which have proved to be unsuccessful. It does appear

that in a competitive market they have not been so successful as they

would like to be. Merely because a company is more efficient, obtains

better technology, makes more competitive bids and, thus, succeeds more

cannot be a factor to deprive that company of commercial success on that

pretext. It does appear to us that this is what is happening; that the two

original petitioners are endeavouring to continuously create impediments

in the way of the succeeding party merely because they themselves had

not so succeeded. It is thus our view that the Division Bench has fallen

26 (supra).

[37]

into an error in almost sitting as an appellate authority on technology and

commercial expediency which is not the role which a Court ought to play.

42. The checks and balances before the tendering process itself has

been provided by constitution of the various committees, more

specifically the TSC and the TSFC. The objective is to keep the role of

these Committees separately defined.

43. We are concerned with sale of liquor. The objective has been set

out by the State Government, i.e., use of such technology as would

prevent spurious liquor from being sold. It is a well-known fact that a

large revenue collection comes in Tamil Nadu through sale of liquor. It

thus must be left to the State Government to see how best to maximize its

revenue and what is the technology to be utilized to prevent situations

like spurious liquor, which in turn would impede revenue collection,

apart from causing damage to the consumers.

44. A grievance was made about what was stated to be “patented

technology”. At the stage when the concerned committees were still

looking to the objections/suggestions of the parties, Kumbhat and Alpha

rushed to the Court. The State Government did provide relief by issuing

a corrigendum to address the issue relating to hidden text being visible

[38]

only through Polaroid, as colour change background viewable with film

as an identifier did not attract the rigour of this stated patented

technology. The issue was actually over with that corrigendum.

45. Insofar as the participating entities are concerned, it cannot be

contended that all and sundry should be permitted to participate in

matters of this nature. In fact, in every tender there are certain qualifying

parameters whether it be technology or turnover. The Court cannot sit

over in judgment on what should be the turnover required for an entity to

participate. The prohibition arising from only a Limited company being

permitted to participate was again addressed by the corrigendum

permitting LLPs to participate. If entities like Kumbhat and Alpha want

to participate they must take some necessary actions. Alpha is already an

LLP. Kumbhat cannot insist that it will continue to be a partnership alone

and, thus, that partnerships must necessarily be allowed to participate.

46. Insofar as Kumbhat’s plea based on the Tender Act is concerned, a

reading of the provisions would show that some benefit is sought to be

given to MSMEs to the extent of 25% of the order based on their

willingness to match the price of the lowest tender. However, to be able

to avail of that benefit, it must be an entity which is capable of bidding in

[39]

terms of the tender conditions. There is no prohibition against limiting

the participation to Limited companies of LLPs. Domestic enterprise in

the Tender Act is defined to mean any micro and small enterprise as

defined in the MSMED Act. This argument also appears to be an

afterthought, as it is not as if Kumbhat participated claiming such right as

an MSME.

47. Now coming to the issue of the requirement of three bidders or

more than three bidders, the factual position is that there were three

bidders and that one of them met the technical specifications but did not

succeed further on financial issues and turnover under Part 4 of the NIT.

The same cannot be used to nullify the whole tendering process. We are

dealing with a tender of a nature where there cannot be a vacuum. If

there is less participation than necessary, it cannot be said that ipso facto

the terms and conditions of tender have followed a DOSA, and to

somehow give the tender to one of the parties. Similar terms have been

set out in many tenders of different States and there have been varying

succeeding parties. No doubt, the success rate of the two successful

parties before us is definitely higher but we fail to appreciate how that

can form the basis to come to a conclusion that something must be done

[40]

to let other people get a tender. If one may say, it will then become a

DOSA to see that the most competitive party does not succeed in the

tender but that other parties who keep approaching the Court must get

some share of the pie. This cannot be the objective.

48. We have also noticed the submissions based on the fact that

repeated endeavours of Alpha and Kumbhat have failed not only before

the Madras High Court but before different High Courts based on a

similar challenge. Broadly, similar tender conditions have been upheld. It

cannot be that every time a tender is floated, Kumbhat and Alpha would

be permitted to seek a toehold on one pretext or the other. As noticed, it

is not really the function of the Court to vet the terms of the NIT, as it is

the decision-making process which can be reviewed in judicial scrutiny.27

49. A lot of emphasis has been placed by the Courts below in seeking

to go into the financial linkages between the two companies, i.e., Uflex

and Montage. The correct way of examining this issue should have been

that whether under the terms of the NIT, any of the aspects which were

examined by the Courts could be said to be a disqualification. In our

view, the answer to the same was in the negative. One company had

invested in another through certain preference shares without having any

27 Tata Cellular (supra).

[41]

controlling interest, this cannot be the basis of judicial scrutiny. The

present case is not one of an intercorporate battle or of minority

shareholders claiming the rights or any debts due, where the principle of

lifting the corporate veil should be applied. What one may have said in

some income tax proceedings, whether a small percentage of the funds of

one company have been utilized as investment in the other are hardly the

principles which should come into play in such a tender matter.

50. We are thus unequivocally of the view that the impugned order

cannot be sustained for all the aforesaid reasons and must be set aside

and the appeals are accordingly allowed.

Costs:

51. The costs following cause is a principle which is followed in most

countries. There seems to be often a hesitancy in our judicial system to

impose costs, presuming as if it is a reflection on the counsel. This is not

the correct approach. In a tussle for enforcement of rights against a State

different principle apply but in commercial matters costs must follow the

cause.

[42]

52. The aspect of awarding the costs has received consideration of the

Law Commission of India in its Report No.240, specifically in relation to

civil litigation. The trigger for this were the observations of the Supreme

Court in Ashok Kumar Mittal v. Ram Kumar Gupta28 and Vinod Seth v.

Devinder Bajaj29. The judicial pronouncements took note of the levying

meager costs in civil matters which did not act as a deterrent to vexatious

or luxury litigation borne out of ego or greed or resorted to as a ‘buying

time’ tactic. These two judicial pronouncements were followed in

Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust30. In the said

proceeding the Law Commission also presented its views. It is in that

context that this Court observed that appropriate changes in the

provisions relating to costs contained in the report of the Law

Commission of India should be followed up by the Parliament and the

respective High Courts.

53. We may note that the common thread running through all these

three cases is the reiteration of salutary principles: (i) costs should

ordinarily follow the event; (ii) realistic costs ought to be awarded

28 (2009) 2 SCC 656.

29 (2010) 8 SCC 1.

30 (2012) 1 SCC 455.

[43]

keeping in view the ever increasing litigation expenses; and (iii) the cost

should serve the purpose of curbing frivolous and vexatious litigation.31

54. We may note that this endeavour in India is not unique to our

country and in a way adopts the principle prevalent in England of costs

following the event. The position may be somewhat different in the

United States but then there are different principles applicable where

champerty is prevalent. No doubt in most of the countries like India the

discretion is with the Court. There has to be a proportionality to the costs

and if they are unreasonable, the doubt would be resolved in favour of the

paying party32. As per Halsbury’s Laws of England, the discretion to

award costs must be exercised judicially and in accordance with reason

and justice.33 The following principles have been set out therein:

“In deciding what order (if any) to make about costs, the court

must have regard to all the circumstances, including:

(i) The conduct of all the parties;

(ii) Whether a party has succeeded on part of his case, even if he

has not been wholly successful; and

(iii) Any payment into court or admissible offer to settle made by

a party which is drawn to the court’s attention.

31 Report No.240 of the Law Commission of India.

32 U.K. Civil Procedure Rule 44.2.

33 Vol. 10, 4th Ed. (Para 15).

[44]

The conduct of the parties includes:

a. Conduct before, as well as during, the proceedings and in

particular the extent to which the parties followed any relevant

pre-action protocol;

b. Whether it was reasonable for a party to raise, pursue or contest

a particular allegation or issue;

c. The manner in which a party has pursued or defended his case

or a particular allegation or issue; and

d. Whether a claimant who has succeeded in his claim, in whole

or in part, exaggerated his claim.”34

55. We may add that similar principles are followed in Australia, Hong

Kong and Canada largely based on the Common Law principle. In fact

in Canada, the Manitoba Law Commission Report analysed the ‘Costs

Awards in Civil Litigation’ and referred to six broad goals as under:

a. indemnification – successful litigants ought to at least be

partially indemnified against their legal costs;

b. deterrence – potential litigants should carefully assess the merits

of the claim and should refrain from taking any unnecessary legal

actions;

c. rules should be made decipherable and simple to understand;

d. early settlement of disputes should be encouraged;

34 10th Vol. 4th Ed. (Para 17).

[45]

e. the costs regime should facilitate access to justice; and

f. there should be flexibility in rules to ensure that justice can be

done.35

56. We have set forth the aforesaid so that there is appreciation of the

principles that in carrying on commercial litigation, parties must weigh

the commercial interests, which would include the consequences of the

matter not receiving favourable consideration by the courts. Mindless

appeals should not be the rule. We are conscious that in the given facts of

the case the respondents have succeeded before the Division Bench

though they failed before the learned single Judge. Suffice to say that all

the parties before us are financially strong and took a commercial

decision to carry this legal battle right up to this Court. They must, thus,

face the consequences and costs of success or failure in the present

proceedings.

57. The best reflection of what costs have been incurred is what the

parties have paid towards the counsel fee and out of pocket expenses. The

present proceedings do arise from a writ proceeding under Article 226 of

the Constitution but it is really a commercial dispute. Thus, the failing

35 Law Commission (supra).

[46]

party cannot hide behind the veneer of the present dispute being in the

nature of a writ proceeding. The tender jurisdiction was created for

scrutiny of commercial matters and, thus, where continuously parties

seek to challenge award of tenders, we are of the view that the

succeeding party must get costs and the party which loses must pay costs.

This was really a battle between two commercial entities on one side

seeking to get set aside an award of a tender to two other entities. What

else would be commercial interest!

58. It is with the aforesaid objective that we had asked the parties to

file their bill of costs vide order dated 17.08.2021. The objective was to

bring forth this principle into force by quantifying actual costs for the

succeeding party.

59. We have scrutinised the bill of fee and costs. We are inclined to

allow actual costs. However, we have modulated the costs insofar as

appellant is concerned to the extent of the indicated amount of the

Advocate-on-Record and allow 50% of the same. The total costs, thus,

payable to the petitioner/appellant would be Rs.23,25,750/- (Rupees

twenty three lakh twenty five thousand seven hundred fifty only). The

State Government cannot be left behind so far as their compensation of

[47]

costs in defending such a litigation is concerned and we, thus, allow the

costs of Rs.7,58,000/- (Rupees seven lakh fifty eight thousand only).

60. The costs be accordingly paid within a period of four weeks by

Kumbhat and Alpha in equal share to the two parties as aforesaid.

...……………………………J.

[Sanjay Kishan Kaul]

...……………………………J.

[Hrishikesh Roy]

New Delhi.

September 17, 2021.

[48]

has rightly held that from the date of the order dated 4.6.2021, after the withdrawal of CIRP proceedings, the powers and management of the Corporate Debtor were handed over to the Directors of the Corporate Debtor and from that date RP and CoC in relation to the Corporate Debtor had become functus officio. NCLT has rightly disposed of the application filed by D.Ramjee having rendered infructuous.

NONREPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1792 OF 2021

K.N. RAJAKUMAR ...APPELLANT(S)

VERSUS

V. NAGARAJAN & ORS. .... RESPONDENT(S)

WITH

CIVIL APPEAL NO.2901 OF 2021

J U D G M E N T

B.R. GAVAI, J.

1. Both these appeals are being decided by this

common judgment and order.

2. The appellantD. Ramjee in Civil Appeal No.2901

of 2021, who is an exemployee of M/s Aruna Hotels Ltd.

(hereinafter referred to as ‘the Corporate Debtor’) has

approached this Court being aggrieved by the resolution

passed in the 8th Committee of Creditors (hereinafter

referred to as ‘CoC’) meeting dated 25.5.2021; the order

passed by the National Company Law Tribunal, Chennai

(hereinafter referred to as ‘NCLT’ or ‘the Adjudicating

Authority’) dated 4.6.2021 thereby permitting withdrawal of

Corporate Insolvency Resolution Process (hereinafter

referred to as ‘CIRP’) in respect of the Corporate Debtor; and

the order passed by the Adjudicating Authority/NCLT dated

6.7.2021 thereby closing the proceedings initiated by D.

Ramjee.

3. Civil Appeal No. 1792 of 2021 is filed by K.N.

Rajakumar, suspended Director of the Corporate Debtor

(respondent No.1 in Civil Appeal No.2901 of 2021 filed by D.

Ramjee) thereby challenging the order passed by the

National Company Law Appellate Tribunal, Chennai Bench

(hereinafter referred to as ‘NCLAT’) dated 30.4.2021

dismissing the appeal filed by K.N. Rajakumar challenging

the order dated 22.4.2021 passed by NCLT vide which NCLT

had directed the Resolution Professional (hereinafter

referred to as ‘RP’) to convene a meeting of CoC consisting of

the members who constituted CoC originally in the year

2017, soon after the order of admission of CIRP was passed

by NCLT.

4. The facts giving rise to the present appeals have

been taken from Civil Appeal No.2901 of 2021, and are as

under:

The Corporate Debtor was incorporated under the

provisions of the Companies Act, 1956 on 9.9.1960. It had

started various businesses like sugar, distillery, flour mill,

chemical unit, finance company, a 4star hotel etc. in

Chennai, but as on date owns only a hotel in Chennai. The

hotel business of the Corporate Debtor was shut down for

more than 7 years.

D. Ramjee joined the Corporate Debtor as a

Junior Assistant on 11.5.1964. Since D. Ramjee was not

receiving salary regularly, he sought to get relieved from the

services with effect from 30.9.2006 and sought for

settlement of his salary dues. However, it is his case that as

the Corporate Debtor requested him to continue in the

service, he continued to do so on a salary which was much

less than the one he was entitled to. On 31.5.2013, D.

Ramjee officially retired after serving for 49 years.

In February, 2015, the Management of the

Corporate Debtor was taken over by one Subasri Realty

Limited, thereby acquiring the shareholding of the earlier

promoters, M. Sivaram and his family. According to D.

Ramjee, the new Management disowned itself from the

admissions of previous management pertaining to

settlement of arrears of salary.

On 27.2.2017, Ramjee issued a Demand Notice

under Section 271(1)(a) of the Companies Act, 2013 read

with Section 8(1) of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as ‘the IBC’) calling upon the

Corporate Debtor to pay dues of outstanding salary

amounting to Rs.2,60,68,883/ along with interest at the

rate of 12%.

On failure of the Corporate Debtor to comply with

the notice, D. Ramjee filed an application under Section 9 of

the IBC, being C.P. No.478 of 2017 on 3.4.2017 before

NCLT. Two other employees of the Corporate Debtor had

also filed applications under Section 9 of the IBC. Vide

order dated 13.6.2017, the Adjudicating Authority admitted

D. Ramjee’s application under Section 9 of the IBC and

initiated CIRP against the Corporate Debtor. One P. Sriram

was appointed as interim RP and moratorium was declared.

Being aggrieved by the order passed by NCLT

dated 13.6.2017, the Corporate Debtor filed an appeal being

Company Appeal (AT) (Insolvency) No.87 of 2017 before

NCLAT. NCLAT vide order dated 2.8.2017 allowed the said

appeal filed by the Corporate Debtor and set aside the order

dated 13.6.2017 passed by NCLT. NCLAT had also recorded

the assurance given by the Corporate Debtor that they will

be paying three years’ arrears of salary to the three

employees including Ramjee, who had initiated CIRP

proceedings against the Corporate Debtor.

In pursuance to the assurance given to NCLAT,

the Corporate Debtor made payment vide two Demand

Drafts dated 8.8.2017 for a sum of Rs.18,50,000/ to D.

Ramjee along with a letter dated 22.8.2017.

In the meanwhile, one other exemployee of the

Corporate Debtor, N. Subramanian, who is respondent No.3

in both the appeals, also issued a Demand Notice dated

29.6.2017 under Section 8 of the IBC to the Corporate

Debtor. On failure by the Corporate Debtor to comply with

the Demand Notice, N. Subramanian also filed an

application under Section 9 of the IBC being CP/597/

(IB)/CB/2017 on 21.7.2017 before NCLT. NCLT admitted

the said application under Section 9 of the IBC filed by N.

Subramanian vide order dated 17.11.2017.

Being aggrieved by the initiation of CIRP, the

Corporate Debtor filed an appeal being Company Appeal

(AT)(Insolvency) No.290 of 2017 before NCLAT on

24.11.2017. Vide order dated 16.7.2018, NCLAT allowed

the appeal of the Corporate Debtor and set aside the order

dated 17.11.2017 passed by NCLT on the ground of

‘existence of dispute’ about arrears of salary and that N.

Subramanian had not explained the delay from the year

1998 to 2016.

Being aggrieved by the order dated 16.7.2018

passed by NCLAT, N. Subramanian filed Civil Appeal No.187

of 2019 before this Court. This Court vide judgment and

order dated 3.3.2021 set aside the order dated 16.7.2018

passed by NCLAT and restored the order dated 17.11.2017

passed by NCLT admitting the application under Section 9

of the IBC.

It is pertinent to note that D. Ramjee had also

filed an application for permission to file an appeal being D.

No.34836 of 2018, which came to be rejected by this Court

by the same judgment and order dated 3.3.2021.

In the meantime, Subasri Realty Limited, a major

shareholder of the Corporate Debtor filed a Miscellaneous

Application No. 480 of 2021 in Civil Appeal No.187 of 2019

before this Court seeking to compromise with respondent

No. 3. This Court vide order dated 19.3.2021 granted

liberty to the said applicant to approach CoC for settlement

under Section 12A of the IBC.

Vide order dated 22.4.2021, NCLT directed RP to

convene a meeting of CoC consisting of the members, who

constituted CoC originally in the year 2017.

Being aggrieved thereby, the erstwhile Director of

the Corporate DebtorK.N. Rajakumar, had preferred an

appeal being Company Appeal (AT)(CH)(Ins) No. 48 of 2021

before NCLAT. The said appeal came to be dismissed by

NCLAT vide order dated 30.4.2021, which in turn has been

challenged in Civil Appeal No. 1792 of 2021 and Civil

Appeal No.2901 of 2021.

CoC vide its resolution dated 25.5.2021 passed in

its 8th meeting, unanimously resolved to withdraw CIRP

initiated in respect of the Corporate Debtor.

Vide order dated 4.6.2021, NCLT allowed the

application filed by K.N. Rajakumar for withdrawal of CIRP

in respect of the Corporate Debtor and directed RP to hand

over the management of the Corporate Debtor to the Board

of Directors. The application filed by D. Ramjee seeking to

set aside the resolution dated 25.5.2021 passed in the 8th

CoC meeting thereby approving the withdrawal of CIRP

initiated against the Corporate Debtor was dismissed by

NCLT vide order dated 6.7.2021, having been rendered

infructuous.

Hence Civil Appeal No.2901 of 2021, filed by D.

Ramjee before this Court being aggrieved as aforesaid.

5. In Civil Appeal No. 2901 of 2021, this Court on

23.7.2021 passed the following order:

“Permission to file appeal is

granted.

Issue notice.

In the meantime, there shall be

stay of operation and implementation of

the impugned judgment and stay of

further proceedings taken out in

pursuance of the impugned order.”

6. In Civil Appeal No.1792 of 2021 filed by K.N.

Rajakumar, this Court vide the same order dated 23.7.2021

directed the said appeal to be listed along with Civil Appeal

No.2901 of 2021 filed by D. Ramjee.

7. Subsequently, K.N. Rajakumar filed an

application being I.A. No.87750 of 2021 in Civil Appeal

No.2901 of 2021 seeking vacation of the stay granted by

this Court vide order dated 23.7.2021. When the said I.A.

was listed, we directed the appeals to be heard on merits.

Accordingly, on 1.9.2021 the appeals were heard at

considerable length.

8. We have heard Shri Ritin Rai, learned Senior

Counsel appearing on behalf of D. Ramjee, Shri K.V.

Viswanathan, learned Senior Counsel appearing on behalf

of K.N. Rajakumar and Shri Mohan Chevanan, learned

counsel appearing for HDFC Bank.

9. It is contended on behalf of D. Ramjee that the

provisions of the IBC require the claims of all the creditors

of the Corporate Debtor to be updated by RP from time to

time.

Relying on Regulation 16 of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations 2016 (hereinafter

referred to as ‘2016 Regulations’), it is submitted on behalf

of D. Ramjee that since the matter was settled between the

financial creditors and the Corporate Debtor, CoC was

required to be constituted only of the operational creditors.

Further relying on Section 25(2)(e) of the IBC, it is

submitted that in recognition of the principle that a creditor

must continue to have a valid claim to be a member of CoC,

it is mandated that RP should maintain an updated list of

claims. It is further submitted that Section 24(6) of the IBC

provides that the voting share shall be based on the

financial debts owed.

Relying on various provisions of the IBC and the

2016 Regulations, it is submitted that the composition of

CoC must change on the basis of the updated claims of the

creditors and whenever the claims of the creditors undergo

any change, the composition of CoC must change

accordingly. It is therefore submitted that since the

Corporate Debtor does not have any financial creditors, CoC

ought to have been constituted of operational creditors,

wherein D. Ramjee would have a substantial voting right.

It is further submitted on behalf of D. Ramjee

that the contention of K.N. Rajakumar that since the

Corporate Debtor has taken finance from HDFC Bank

(respondent No.2 in Civil Appeal No.1792 of 2021 and

respondent No.4 in Civil Appeal No.2901 of 2021), CoC

should consist only of HDFC Bank, is without merit,

inasmuch as the finance taken from HDFC Bank was only

an ‘interim finance’ and as such, HDFC Bank could not be

termed as a financial creditor. It is submitted that the view

taken by both NCLT and NCLAT that CoC should constitute

only of financial creditors as on the date of initiation of CIRP

proceedings is untenable.

10. Per contra, it is submitted on behalf of K.N.

Rajakumar that the new Management of the Corporate

Debtor has successfully revived the business by settling the

claims of members of CoC, amounting to

Rs.46,31,16,650/.

It is submitted that order dated 13.6.2017 passed

by NCLT admitting Section 9 application of D. Ramjee

initiating CIRP proceedings was challenged by the Corporate

Debtor before NCLAT. NCLAT vide order dated 2.8.2017

had allowed the appeal and set aside the said order dated

13.6.2017. It is submitted that D. Ramjee did not challenge

the same and as such, said order dated 2.8.2017 had

attained finality.

It is further submitted that D. Ramjee had

received an amount of Rs.18,50,000/ as arrears of salary.

Vide order dated 3.3.2021, this Court had rejected the

application filed by D. Ramjee for permission to file an

appeal. It is submitted that having not challenged the

order dated 2.8.2017 passed by NCLAT allowing the appeal

and setting aside the initiation of CIRP proceedings against

the Corporate Debtor at the behest of D. Ramjee, he did not

have any locus in the proceedings initiated by the Corporate

Debtor for withdrawal of CIRP proceedings.

It is submitted that the new Management of the

Corporate Debtor has taken a loan from HDFC Bank, which

fact has also been acknowledged by NCLT in its order dated

4.6.2021 while permitting withdrawal of CIRP proceedings

under Section 12A of the IBC.

It is the contention of K.N. Rajakumar that as a

matter of fact, NCLT and NCLAT ought to have held that

CoC should consist only of HDFC Bank, which is now the

sole financial creditor.

11. Though, various submissions have been

advanced on behalf of the rival parties, we do not find it

necessary to go into the said issues. It is a settled principle

of law that the Court should not go into the academic issues

and seek to interpret the provisions of law when it is not

necessary for deciding the issues in the appeal(s). Reference

in this regard could be made to the judgments of this Court

in the cases of Vidya Charan Shukla v. Purshottam Lal

Kaushik1 and K.I. Shephard and others v. Union of

India and others2

12. At this juncture, it would be relevant to refer to

Section 12A of the IBC, which reads thus:

“12A. Withdrawal of application

admitted under section 7, 9 or 10.—

The Adjudicating Authority may allow

the withdrawal of application admitted

under section 7 or section 9 or section

10, on an application made by the

applicant with the approval of ninety per

cent voting share of the committee of

creditors, in such manner as may be

specified.”

13. It could thus be seen that the Adjudicating

Authority is entitled to withdraw the application admitted

under Section 7 or Section 9 or Section 10, on an

application made by the applicant with the approval of 90%

voting share of the CoC.

14. It is not in dispute that the resolution of CoC

approving withdrawal of CIRP proceedings was supported by

1 (1981) 2 SCC 84

2 (1987) 4 SCC 431

the requisite voting majority. NCLT after considering the

resolution passed by CoC in its 8th meeting held on

25.5.2021 has allowed the application filed by K.N.

Rajakumar vide order dated 4.6.2021.

15. This Court in the case of Ghanashyam Mishra

and Sons Private Limited through the Authorized

Signatory v. Edelweiss Asset Reconstruction Company

Limited Through The Director and Others3 after

considering the earlier pronouncements of law by this Court

with regard to aims and objects of IBC has observed thus:

“86. As discussed hereinabove, one of

the principal objects of I&B Code is,

providing for revival of the Corporate

Debtor and to make it a going concern.

I&B Code is a complete Code in itself.

Upon admission of petition under

Section 7, there are various important

duties and functions entrusted to RP

and CoC. RP is required to issue a

publication inviting claims from all the

stakeholders. He is required to collate

the said information and submit

necessary details in the information

memorandum. The resolution applicants

submit their plans on the basis of the

details provided in the information

memorandum. The resolution plans

undergo deep scrutiny by RP as well as

3 2021 SCC OnLine SC 313

CoC. In the negotiations that may be

held between CoC and the resolution

applicant, various modifications may be

made so as to ensure, that while paying

part of the dues of financial creditors as

well as operational creditors and other

stakeholders, the Corporate Debtor is

revived and is made an ongoing

concern. After CoC approves the plan,

the Adjudicating Authority is required to

arrive at a subjective satisfaction, that

the plan conforms to the requirements

as are provided in subsection (2) of

Section 30 of the I&B Code. Only

thereafter, the Adjudicating Authority

can grant its approval to the plan. It is at

this stage, that the plan becomes

binding on Corporate Debtor, its

employees, members, creditors,

guarantors and other stakeholders

involved in the resolution Plan. The

legislative intent behind this is, to freeze

all the claims so that the resolution

applicant starts on a clean slate and is

not flung with any surprise claims. If

that is permitted, the very calculations

on the basis of which the resolution

applicant submits its plans, would go

haywire and the plan would be

unworkable.”

16. It could thus be seen that one of the principal

objects of the IBC is providing for revival of the Corporate

Debtor and to make it a going concern. Every attempt has

to be first made to revive the concern and make it a going

concern, liquidation being the last resort.

17. From the order of NCLT dated 4.6.2021, it could

be seen that the Corporate Debtor has already settled the

issue with the erstwhile financial creditors, who have

resolved to withdraw the CIRP proceedings and by virtue of

withdrawal of CIRP proceedings, the Corporate Debtor now

is a going concern.

18. Insofar as the appeal filed by D. Ramjee is

concerned, we have already observed that the order of

NCLAT dated 2.8.2017 allowing the appeal filed by the

Corporate Debtor and setting aside the order dated

13.6.2017 passed by NCLT in D. Ramjee’s application under

Section 9 of the IBC has admittedly not been challenged by

D. Ramjee. In pursuance of the assurance given before

NCLAT, an amount of Rs.18,50,000/ was also paid to D.

Ramjee towards arrears of salary by the Corporate Debtor.

The application for permission to file an appeal filed by D.

Ramjee before this Court has been rejected by this Court

vide judgment and order dated 3.3.2021.

19. In that view of the matter, we find that insofar as

D. Ramjee is concerned, the issue has attained finality as on

2.8.2017 when the appeal filed by the Corporate Debtor

came to be allowed by NCLAT. We find that NCLT vide order

dated 6.7.2021, passed in the application

(I.A.No.540/CHE/2021) filed by D.Ramjee, has rightly held

that from the date of the order dated 4.6.2021, after the

withdrawal of CIRP proceedings, the powers and

management of the Corporate Debtor were handed over to

the Directors of the Corporate Debtor and from that date RP

and CoC in relation to the Corporate Debtor had become

functus officio. NCLT has rightly disposed of the application

filed by D.Ramjee having rendered infructuous.

20. In the result, we find no reason to interfere with

the same. Civil Appeal No.2901 of 2021 filed by D. Ramjee

is therefore dismissed.

21. Insofar as Civil Appeal No.1792 of 2021 filed by

K.N. Rajakumar is concerned, in view of the subsequent

development i.e. withdrawal of CIRP proceedings vide order

dated 4.6.2021, the counsel for the appellant has circulated

a letter dated 23.7.2021, thereby seeking withdrawal of the

appeal leaving the questions of law open. The said appeal

therefore stands disposed of as withdrawn.

22. The appeals are disposed of in the above terms.

All pending applications in both the appeals shall also stand

disposed of.

…….…....................., J.

[L. NAGESWARA RAO]

…….…....................., J.

[B.R. GAVAI]

…….…....................., J.

[B.V. NAGARATHNA]

NEW DELHI;

SEPTEMBER 15, 2021

LAW FOR ALL

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Saturday, September 18, 2021

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