In a civil appeal filed before the Supreme Court of India (Supreme Court) by Frost International Limited (Appellant / Defendant No 1) v M/s Milan Developers and Builders (Respondent No 1 / Plaintiff) & Shri Dillip Das (Respondent No 2 / Defendant No 2), the Supreme Court held, in an order dated 1 April 2022, that no plaintiff can be permitted to seek relief in a suit which would frustrate the defendants right to initiate a prosecution against the plaintiff or to seek any other remedy available in law.
It is often noticed that when owners of trademark rights issue cease-and-desist notices to infringers, declaratory suits are filed seeking a declaration of non-infringement (which is a proceeding that the Trade Marks Act, 1999 does not contemplate). In effect, these suits are pre-emptory suits filed in the garb of a declaratory suit to prevent a trademark rights owner from enforcing their rights. The Supreme Court's decision does not relate to an intellectual property dispute, but rather rules on an identical situation / issue that arose in the context of a monetary claim arising out of dishonor of a cheque, and the decision would be relevant and useful in most frivolous declaratory proceedings which seek to foreclose the enforcement of a legitimate right.
For the sake of clarity, the parties to the proceeding have been referred to in this article as 'Plaintiff' and 'Defendant(s)', as per their status before the trial court (and not as before the Supreme Court).
The Plaintiff had filed a suit against the Defendants before the trial court, when a cheque issued by the Plaintiff in the name of Defendant No 1, was dishonored on account of 'stop payment' instructions issued to the bank, by the Plaintiff. It was the Plaintiff's contention that the said cheque was handed over to Defendant No 2 as a security against certain contractual obligations between the Plaintiff and Defendant No 1. The Plaintiff contended that the Defendant No 1 had not carried out its contractual obligations and therefore, the question of encashment of the cheque did not arise. Accordingly, upon receipt of a notice under section 138 of the Negotiable Instruments Act, 1881 (NI Act) for dishonor of the cheque, the Plaintiff was aggrieved and filed a suit before the trial court against the Defendants, inter alia, seeking declarations that the cheque was handed over by the Plaintiff to Defendant No 2 as a security, and that Defendant No 1 had not acquired any right over the cheque in the facts and circumstances of the matter as pleaded.
In the trial court suit, Defendant No 1 filed an application under Order VII Rule 11 (O7R11) of the Code of Civil Procedure, 1908 (CPC) seeking rejection of the plaint on the ground that the suit was not maintainable. The Defendant in the said application for rejection of plaint, contended that the suit was barred under the provisions of the Specific Relief Act, 1963 and also contended that that the suit was frivolous and was instituted to defeat a legitimate claim of the Defendant and/or for taking away its right to sue (for recovery of monies). The trial court rejected the Defendant's application under O7R11. Aggrieved by this, the Defendant preferred a revision petition before the court of the District Judge, Khurda at Bhubhaneshwar (District Court) under Section 115 of the CPC. The District Court allowed the Defendant's application under O7R11 and rejected the plaint, setting aside the order of the trial court. Aggrieved by the order rejecting the plaint, the Plaintiff filed a writ petition before the High Court of Orissa at Cuttack (High Court). The High Court set aside the order of the District Court (revision court) and remanded the matter back to the District Court for fresh consideration, holding that the revision court had exceeded its jurisdiction in rejecting the plaint. Accordingly, an appeal was filed before the Supreme Court by Defendant No 1 seeking restoration of the order of the District Court, allowing the application under O7R11 and rejecting the plaint.
Issues and Decision
The Supreme Court observed that the question was whether the High Court was justified in setting aside the order passed by the District Court in revision, thereby remanding the matter back to the District Court for reconsideration. The Supreme Court, after analyzing relevant provisions of the CPC including the express proviso to Section 115 (Orissa Amendment), held that the High Court was incorrect in holding that the District Court (revision court) had no jurisdiction to reject the plaint filed under O7R11 of the CPC. The Supreme Court noted that as per the proviso to Section 115 (Orissa Amendment), the revision court, being the District Court or the High Court as the case may be, can reverse an order, which would finally dispose off the suit or other proceeding. This is exactly what had been done by the revision court (being the District Court).
The Supreme Court held that on a reading of the plaint and the reliefs, the suit was barred by law. It held that no person can be permitted to seek relief in a suit which seeks to frustrate another person's right to initiate a prosecution against the prior person or seeking any other remedy available in law. The Supreme Court held that the attempt made by the Plaintiff to seek such a declaratory relief is, in substance, a relief of injunction against the Defendant initiating action, but was instead framed in the nature of a declaratory relief. The declaratory reliefs sought by the Plaintiff in respect of the dishonored cheque would, in substance, frustrate the right of Defendant No 1 to take steps to recover monies under the provisions of the NI Act through the available civil or criminal remedies.
Reliance was placed, inter alia, upon the Supreme Court's judgement in Cotton Corporation of India Limited vs. United Industrial Bank Limited and Ors. [(1983) 4 SCC 625], which observed that when anyone having a right or a legally protected interest complains of its infringement and seeks relief through a court, they must have an unhindered, uninterrupted access to law courts, and that such access to justice must not be hampered even at the hands of the judiciary.
Accordingly, the Supreme Court set aside the order of the High Court and rejected the plaint under O7R11 of the CPC. The court held that the District Court was justified in rejecting the plaint before it. It was clarified that rejection of the plaint would not come in the way of the Plaintiff filing a suit against Defendant No 1 for seeking appropriate reliefs in accordance with law, if so advised.
It can be said that almost all declaratory reliefs, by their very nature, have the tendency to impede an anticipated claim or proceeding and take away some right of the concerned defendant, including at times, the possibility to pursue a legal action / claim. As stated above, often when owners of trademark rights issue cease-and-desist notices to infringers, similar declaratory suits are filed seeking a declaration of ownership / non-infringement. However, declaratory reliefs are discretionary in nature and the exercise of such discretion by the courts depends on the facts and circumstances of each case. An overview of some decisions relied upon by the Supreme Court in this case indicates that suits seeking to restrain one from initiating criminal proceedings are not maintainable and that it has been held time and again, that the hands of the criminal court cannot be fettered by a civil court. Further, declarations which appear to be contrary to the provisions of any law or where the court is of the opinion that the matter in dispute ought to be adjudicated in appropriate legal proceedings under a specific statutory regime, declaratory reliefs are kept at bay. Thus, in effect it is safe to say that a balance is sought to be achieved by courts from time to time between granting declaratory reliefs and protecting one's right to pursue appropriate legal remedies as available, ensuring that such rights are not fettered by the courts.
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