Rejection Of Plaint Not Automatic Upon Finding Of Deficit Court Fee: Supreme Court

The Apex Court was considering an appeal filed against an order of the Madras High Court whereby the revision preferred by the respondents was allowed, the order rejecting the application under Order VII Rule 11 of the Code of Civil Procedure was set aside, and the plaint was rejected.

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held, “A plain and conjoint reading of clauses (b) and (c) of Order VII Rule 11 of the Code makes it abundantly clear that the power to reject a plaint on the grounds enumerated therein, is not to be exercised in the first instance, without affording an opportunity to the plaintiff. The statutory scheme contemplates a two-step process. Firstly, the Court must form an opinion that the relief claimed is undervalued or that the court fee paid is insufficient. Secondly, upon such determination, the Court is obligated to require the plaintiff to correct the valuation and/or supply the requisite court fee within a time to be fixed by it. It is only upon failure of the plaintiff to comply with such direction within the stipulated time,that the consequences of rejection of the plaint can ensue. Thus, the rejection of a plaint under Order VII Rule 11(b) or (c) is not automatic upon a finding of undervaluation or deficit court fee; rather, it is conditional upon non-compliance with the opportunity so granted by the Court.”

Senior Advocate Madhavi Divan represented the Appellant, while Advocate Pooja Lakshmi represented the Respondent.

Factual Background

The appellant is a company engaged in real estate development. By a registered sale deed, the appellant purchased land, obtained necessary statutory approval and constructed a multistoried commercial IT building known as “Digital Zone-I” (subject property), comprising multiple floors. When it was unable to service its loan obligations, the Bank classified the loan account as Non-performing Assets (NPAs), and issued a demand notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Thereafter, in 2021, the Bank filed an Original Application before the Debt Recovery Tribunal, Chennai, seeking recovery of Rs.72.63 crores. The appellant and the Bank entered into a one-time settlement (OTS) whereby the appellant was required to pay a sum of Rs 55 crore. The appellant paid a sum of Rs 27 crore, but failed to pay the balance of Rs 28 crore within the stipulated time. The parties entered into an MoA whereby it was agreed that the subject property was to be sold through eight separate sale deeds for a consideration of Rs 58.60 crore, including Rs.6.60 crore towards stamp duty. Upon receipt of Rs 32.50 crores, the Bank handed over the title deeds to the respondents. Thereafter, the appellant and the respondents executed eight separate sale deeds.

In June, 2024, the appellant instituted a civil suit seeking the relief of a mandatory injunction directing the respondents to execute the MoA on the ground that the respondents had failed to fulfil their obligations particularly with regard to the execution of the MoA and the payment of the balance consideration. The respondents filed an application under Order VII Rule 11 of the Code, seeking rejection of the plaint on the grounds that it did not disclose a cause of action, the relief claimed was undervalued, and the plaint was insufficiently stamped. The Trial court held that the plaint disclosed a cause of action and rejected the application. When the matter reached the High Court, the High Court concluded that the pleadings did not disclose a legally sustainable cause of action, while allowing the revision and setting aside the Trial Court’s order. Aggrieved thereby, the appellant approached the Apex Court.

Reasoning

The Bench, at the outset, explained that Order VII Rule 11 of the Code empowers the court to summarily reject the plaint at the threshold on the grounds specified therein. The Bench further enumerated the following guidelines governing the exercise of power under Order VII Rule 11 of the Code:

• The object underlying Order VII Rule 11 is to ensure that a litigation which is frivolous or is bound to fail does not occupy the judicial time.
• The test for exercise of power under Order VII Rule 11 is whether the averments made in the plaint are taken in entirety, in convention with documents relied upon, would result in a decree being passed.
• Whether a plaint discloses a cause of action is essentially a question of fact, to be determined on a holistic reading of the plaint itself. It is impermissible to isolate a sentence or a passage and to read it out of context.
• If the averments made in the plaint prima facie show the cause of action, the court cannot embark upon an enquiry whether the averments are correct.
• The exercise of power under Order VII Rule 11 of the Code is mandatory in nature, and the court must ascertain whether the plaint discloses a real cause of action or something merely illusory.
• The power under Order VII Rule 11 of the Code may be exercised at any stage of the suit.

Coming to the facts of the case, the Bench noted that paragraph 19 of the plaint delineated the cause of action with sufficient clarity and specificity. It traced the accrual of cause of action to identifiable events, including forwarding of the MoA for execution, failure of the defendants to return the signed MoA, execution of the sale deeds, continued communications and subsequent refusal to honour obligations.

“This articulation satisfies the legal requirement that a cause of action must comprise a bundle of facts giving rise to a right to sue. In this backdrop, it cannot be said that the plaint fails to disclose a cause of action. On the contrary, the pleadings disclose a triable issue as to whether the MoA formed part of a binding and enforceable commercial arrangement and whether the defendants have failed to perform obligations arising therefrom”, it stated.

The Bench also reaffirmed that at the stage of Order VII Rule 11 CPC, the Court can neither embark upon an inquiry into the enforceability or validity of the MoA, nor can it assess the sufficiency of evidence or the probability of success of the claim. The Bench further stated that the High Court had merely recorded a conclusion that the suit was undervalued, without undertaking the necessary exercise of determining what, in its view, would constitute the proper valuation of the suit or the court fee payable in accordance with law. In the absence of such a finding, the direction, if any, to correct the valuation could not have been meaningfully complied with by the plaintiff. As per the Bench, the failure to record such a determination further vitiated the impugned order.

Thus, setting aside the impugned order of the High Court, the Bench directed the Trial Court to afford an opportunity to the appellant to correct the valuation and to pay the requisite court fees within such time limit as may be fixed by it.

Cause Title: M/s. Marg Limited v. Sushil Lalwani (Neutral Citation: 2026 INSC 402)

Appearance

Appellant: Senior Advocate Madhavi Divan, Advocates Devesh Tripathi, Kaustubh Seth, AOR Mohd Faraz Anees, Advocates Kartik Vashisht, Mukeshwar Nath Dubey, Epsita Agastya, Ajay Kumar, Abhishek Yadav, Divesh, Mahima Anand, Anand, Abhishek Dwivedi, Yash Singh

Respondent: Advocates Pooja Lakshmi, K Balambihai, AOR B. Karunakaran, Advocates B Karunakaran, Sivaraman, Pooja Lakshmi, AOR S. Gowthaman, Advocate M.R. Sivaraman

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