Shree Pushkar Chemicals & Fertilizers Ltd. v. Huntsman (International) India Pvt. Ltd.

Hundred and Thirteen Only) with further interest on the amounts due and payable at the rate of 18% p.a. from the date of filing the above Suit till payment and/or realisation and the costs of the Suit.

2. After the writ of summons was served on the Defendant, the Defendant entered appearance through its Advocates. The Plaintiff therefore took out the above Summons for Judgment seeking a decree in the sum of Rs. 7,96,94,113/- with further interest on the amounts due and payable at the rate of 18% p.a. from the date of filing of the above Suit till payment and/or realisation and the costs of the Suit.

3. The Defendant filed an Affidavit seeking unconditional leave to defend the Summary Suit. The Plaintiff filed an Affidavit in Rejoinder and the Defendant filed an Affidavit in Sur Rejoinder.

4. The Plaintiff is a Public Limited Company registered under the provisions of the Companies Act, 1956. The Plaintiff claims to be one of India's leading manufacturers of dyestuffs, dye intermediates, fertilizers, sulphur base acids, animal feed additives etc. The Defendant is a Private Limited Company incorporated under the provisions of the Companies Act, 1956, and is, inter alia, engaged in the business of manufacturing of textile reactive dyes.

5. According to the Plaintiff, in accordance with the prices negotiated between the parties, the Defendant issued Purchase Orders to the Plaintiff commencing from 24th December, 2015 , and the Plaintiff acting upon those Purchase Orders supplied H-Acid, K-Acid and Vinyl Sulphone to the Defendant under separate delivery

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challans and goods consignment notes. The Plaintiff also raised separate invoices for each such delivery. For the sake of convenience, the Plaintiff has tabulated the details in relation to the outstanding invoices in paragraph 4 of its Written Submissions. The same is reproduced hereunder:

Sr. Invoice Date Item Quantity Amount No. No. Name (Rupees)

Purchase Order No.4400559318 dated December 24, 2015 (Ex.C to Plaint at pp.42-45)

1. 80002 April 4, H Acid 7,220.25 31,13,056 (Ex.F - 2016

p.50)

2. 80037 May 10, H Acid 7,438.13 32,06,994 (Ex.J - 2016

p.54)

3. 80041 May 17, H Acid 3,200.00 13,79,700 (Ex.N - 2016

p.58)

Purchase Order No. 4400559407 dated December 28, 2015 (Ex.R to Plaint at pp.65-68)

4. 80017 April 18, K Acid 5,660.00 16,04,610 (Ex.U- 2016

p.71)

5. 80031 May 6, K Acid 7,505.13 21,27,703 (Ex.Y- 2016

p.75)

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Purchase Order No. 4400560688 dated January 5, 2016 (Ex.BB to Plaint at pp.80-83)

6. 80016 April 16, H Acid 7,221.38 32,84,146 (Ex.EE- 2016

p.86)

7. 80026 May 2, H Acid 11,216.50 51,01,054 (Ex.II - 2016

p.90)

8. 80033 May 8, H Acid 11,200.00 50,93,551 (Ex.MM 2016

-p.94)

9. 80036 May 10, H Acid 3,780.00 17,19,074 (Ex.QQ- 2016

p.98)

10. 80042 May 17, H Acid 8,030.25 36,52,007 (Ex.UU- 2016

p.102)

11. 80044 May 22, H Acid 11,214.90 51,00,326 (Ex.YY- 2016

p.106)

Purchase Order No. 4400563396 dated January 14, 2016 (Ex.A3 to Plaint at pp.117-120)

12. 80182 March 13, Vinyl 12,960.00 26,48,456 (Ex.A6 2016 Sulphone

- p.123) Ester

13. 80185 March 17, Vinyl 15,360.00 31,38,911 (Ex.A10 2016 Sulphone

- p.127) Ester

14. 80001 April 3, Vinyl 15,360.00 31,38,911

4

5

- p.171) Ester

25. 80043 May 22, Vinyl 15,360.00 31,38,911 (Ex.A58 2016 Sulphone

- p.175) Ester

Purchase Order No. 4400588429 dated April 26, 2016 (Ex.A62 to Plaint at pp.181-184)

26. 80045 May 27, Vinyl 15,360.00 45,36,000 (Ex.A65 2016 Sulphone

- p.187) Ester

Total 7,96,94,113

6. According to the Plaintiff, the Defendant received the goods under all the aforestated 26 invoices and also consumed the goods without raising any dispute in relation to the quality or quantity of the goods supplied or the amounts charged for the same. Since the Defendant was not making payment in respect of the goods for which the credit period had lapsed, the Plaintiff was constrained to stop further supplies under the last Purchase Order dated 26th April, 2016 and issue several emails between the period 8th June, 2016 and 6th July, 2016 requesting the Defendant to make payment of the price of the goods supplied, aggregating to Rs. 7,96,94,113/-.

7. According to the Plaintiff, the Defendant through its Advocate's Letter dated 8th July, 2016, refused to pay for the goods sold, supplied and delivered by claiming a set off against a disputed claim for damages made in a Suit filed and pending before the Delhi High Court being CS (Comm.) No. 619 of 2016. The Plaintiff

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submitted that the purported set- off claimed by the Defendant was not an equitable set off.

8. The Plaintiff, therefore, filed the above Summary Suit under the provisions of Order XXXVII of the Code of Civil Procedure, 1908 to recover a sum of Rs.7,96,94,113/- on the basis of the aforementioned 5 Purchase Orders issued by the Defendant and 26 invoices raised by the Plaintiff for the goods supplied to the Defendant.

9. The Defendant -- Huntsman International (India) Pvt. Ltd. has submitted that the Defendant is a part of Huntsman Corporation's Group of Companies ('Huntsman Corporation'). It is submitted that Huntsman Corporation is a global manufacturer and marketer of differentiated chemicals. Huntsman Corporation operates more than 100 manufacturing, research and development facilities in more than 30 countries and employs approximately 15,000 associates within its 5 distinct business divisions i.e. textile effects, performance products, advanced materials, polyurethanes and pigments and additives. The textile effects division of the Huntsman Corporation, of which the Defendant forms a part, is engaged in the supply of dyes and chemicals to textile mills for production of textile fabric. The Defendant is a pioneer in this particular segment of its operations and provides world class technology and products to its customers in India. It is submitted by the Defendant that it is a current market leader owing to its significant investment of over USD 50 million in its business in India.

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10. The Defendant has further submitted as follows:-

10.1 That admittedly since 2009, the Plaintiff has been supplying certain chemicals to the Defendant which are used as raw materials for manufacturing of dyes. These chemicals include H-Acid, K-Acid, Vinyl Sulphone, Sulpho VS and MUA. In the course of the said dealings with the Plaintiff over several years, the Defendant came to trust the Plaintiff as a valuable partner for business, whom the Defendant believed would conduct itself with integrity and good faith. Consequently, in the last three years the Defendant placed substantial orders of high volume for purchase of raw materials with the Plaintiff. The Defendant had also disclosed to the Plaintiff a number of its trade secrets, technology particulars and business strategies. A confidentiality clause was incorporated in each of the Purchase Orders placed on the Plaintiff, which is extracted below:

"14. CONFIDENTIALITY: Except to the extent required for the purposes of performing its obligations under the Contract, the Seller will not use and/ or make available at any time during and after the Purchase Order execution to any third party any information and know-how relating to the business or affairs of the Buyer which is disclosed or otherwise is in its possession under/or in respect of the Purchase Order, including the Contract and its subject matter. Seller shall not, without obtaining our written consent in any manner advertise, publish, communicate or otherwise divulge the fact that the Seller has contracted to furnish the Product to the Buyer. Seller shall be responsible for matters within its control for the safeguarding of all information that is non-public, confidential or proprietary in nature regarding Buyer and the use and/or application of Buyer's products that is disclosed or developed in connection with the work under this contract. Buyer shall be entitled to equitable relief, including injunction and specific performance, in the event of any breach or threatened breach of this clause by the Seller. Such remedies shall not be

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deemed to be exclusive remedies of Buyer, but shall be in addition to all other remedies available at law or in equity"

10.2 That some time in January, 2015, the Plaintiff approached the Defendant with a proposal of exploring the setting up of a collaborative venture whereunder the Plaintiff would exclusively manufacture dyes for the Defendant at their dye manufacturing plant which the Plaintiff represented was a newly established facility with adequate technological and financial capability, and supply such dyes on a regular basis to the Defendant at attractive prices. The proposal of the Plaintiff not only included manufacture and supply of certain dyes, but it also envisaged that the raw materials that the Plaintiff otherwise supplied to the Defendant would henceforth be supplied by the Plaintiff on preferred commercial terms. The Defendant agreed to explore the feasibility of the Plaintiff's proposal and continued further discussions with two of the Plaintiff's Directors viz. Puneet Makharia and Gautam Makharia. In view thereof, on 3rd August, 2015, the Plaintiff and the Defendant executed a Confidential Disclosure Agreement ('CDA') which inter alia envisaged that the Defendant would provide certain confidential and proprietary information about its requirements of raw materials and production of dyes to the Plaintiff. The relevant portion of the CDA is reproduced hereunder:

"Confidential information" shall mean the proprietary information that the Disclosing Party discloses during the Disclosure Period and that is within the description below.

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Huntsman: Commercial, business, technical information, and data relating to the manufacture, processing, composition, sale, marketing, and use of various chemicals and products, including, without limitation, colorants, whiteners, and finishing chemicals, formulated systems based on any of the foregoing, and method useful in manufacturing or synthesizing such materials."

……

"General. Confidentiality. The Receiving Party agrees, with respect to the Disclosing Party's Confidential Information, that it: (i) shall not disclose such Confidential Information to any third party except as expressly permitted in this agreement; (ii) shall not use such Confidential Information other than for the Purpose; and (iii) shall secure and prevent unauthorised access to such Confidential Information. Confidential Information of the Disclosing Party may include samples and other materials (collectively, "Samples"). The Receiving Party agrees that it should not analyse the composition of any such Samples or materials made therefrom except as specifically authorised in writing by the Disclosing Party. The Receiving Party shall not disclose any information or data it generates by using or analysing the Disclosing Party's Confidential Information, or any products made directly or indirectly therefrom, in any application for a patent or similar right."

10.3 The Plaintiff was required to, inter alia, ensure that the Defendant's confidential and proprietary information were not used for any purpose other than evaluation of potential future collaboration between the parties for supply of raw materials (H-Acid, K-Acid, VS, Gamma Acid, MUA, PCVS etc.) and use by the Defendant of the Plaintiff's dye manufacturing facility. Subsequently, the representatives of the Defendant and the Plaintiff held several rounds of discussions including face to face meetings in Mumbai. However, the discussions between the parties remained inconclusive and no binding arrangement for exclusive or strategic

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usage of the dye manufacturing facility established by the Plaintiff was agreed upon between the parties.

10.4 Notwithstanding the inconclusive status of the discussions, the Defendant continued to place purchase orders to buy a significant share of their requirements in respect of raw materials from the Plaintiff. The Defendant also invited the representatives of the Plaintiff to visit the Defendant's state of the art manufacturing facility at Baroda and in October, 2015, representatives of the Plaintiff visited the Baroda Plant of the Defendant at which point, detailed information about the requirements of raw materials and production of dyes (which are otherwise confidential and proprietary in nature) were provided to the representatives of the Plaintiff.

10.5 That even though no binding arrangement for supply of dyes was executed between the parties, the Defendant demonstrated their willingness to trust the Plaintiff as a valuable business partner and as such on multiple occasions, at the request of the Plaintiff, facilitated testing of the Plaintiff's sample commodity dyes at the laboratories of the Defendant in order to determine the suitability of dye samples manufactured by the Plaintiff from the perspective of requirements of the Defendant.

10.6 That towards the end of April, 2016, an employee whistle-blower, disclosed to the Defendant that the Plaintiff had apparently entered into a conspiracy to set up a competing business by illegally obtaining and using confidential and proprietary

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information of the Defendant. Following such revelation, the Defendant launched an internal investigation and audit, and based on the preliminary findings of such investigation, on 20th May, 2016, the Defendant filed a Suit being CS (Comm.) No. 619 of 2016 before the Delhi High Court ('Delhi Suit') inter alia against the new Company incorporated by the Plaintiff i.e. Abiss Textile Solutions Pvt. Ltd., the Plaintiff, its Promoters and certain ex-employees of the Defendant, for reliefs claimed therein, which included damages in the sum of Rs.3 Crores.

10.7 The investigations which immediately commenced and continued even after the Delhi Suit, was filed by the Defendant inter alia brought to light the following facts pertaining to the dishonest, mala fide and fraudulent conduct of the Plaintiff:

(i) That some time in 2015, the Plaintiff which had hitherto been a manufacturer of raw materials for the dye industry decided to foray into the reactive dyes manufacturing business. However, as the Plaintiff had no know-how to set up a successful commercial dye business, it reached an understanding with certain ex- employees of the Defendant to obtain commercially sensitive proprietary information of the Defendant which would give a head start to the Plaintiff's new business in the highly competitive and specialised sector of dyes.

(ii) That as early as September, 2015, the Plaintiff's Directors and Shareholders namely Mr. Puneet Makharia and Mr. Gautam Makharia, acting in concert with certain ex-employees of the Defendant (who were under full time employment with

12

the Defendant at the relevant time) conspired to launch a sabotage operation against the Defendant whereby some of these employees of the Defendant started illegally passing on confidential and proprietary information of the Defendant to the Plaintiff. It was a part of the conspiracy that some of these ex-employees after discharging their role of illegally passing on confidential and proprietary information, would resign from the employment of the Defendant at a point of time and join the new Company incorporated by the Plaintiff i.e. Abiss Textile Solutions Pvt. Ltd. to aid the Plaintiff's Shareholders and Directors, whereas certain other ex-employees were to temporarily remain with the Defendant and continue to provide the Plaintiff and the Directors of the new entity, Abiss Textiles Solutions Pvt. Ltd. with the confidential and proprietary information of the Defendant. At all times, the Plaintiff was aware that both, the regular sale and purchase transactions between the Defendant and the Plaintiff pursuant to the purchase orders, as well as the on-going discussions between the two entities for the purpose of the proposed strategic collaboration could be used as a legitimate cover for some of the conspiring employees to remain with the Defendant and continue passing on confidential and proprietary information to the Plaintiff, its Directors and Abiss Textiles Solutions Pvt. Ltd.

(iii) That while the Defendant continued to place trust in the Plaintiff (including in respect of their compliance with the CDA and other covenants of the purchase orders) by placing significant volume of orders with the Plaintiff and sharing its

13

confidential information with the Plaintiff to drive the discussions on collaboration as well as to raise the Plaintiff's technical capabilities in certain areas of manufacturing of dyes, certain ex employees of the Defendant acting in concert with the Plaintiff on more than one occasion, illegally used the resources of the Defendant's laboratories to test the competing products manufactured by the Plaintiff for and on behalf of and for sale of the Directors new entity. The purpose of the test was to access various attributes of such new entity's competing products against the standard products of Defendant so that the final products manufactured by the new entity/the Plaintiff (as the case may be), can practically be a replica of the products of the Defendant.

(iv) The repeated testing of the competing products of the Plaintiff and Abiss Textiles Solutions Pvt. Ltd. in the Defendant's Laboratory in Mumbai and Basel using the Defendant's resources and the Defendant's own products as reference samples, clearly reflects the Plaintiffs and its Directors' deep rooted conspiracy to illegally benefit from the resources of and confidential and proprietary information of the Defendant.

(v) That in exchange for the aforesaid illegal sharing of information by Defendant's certain ex-employees (who were in full time employment with the Defendant at the relevant time) with the Plaintiff, its Directors and Abiss Textiles Solutions Pvt. Ltd. , such employees were promised illegal gratification including equity stakes and profit sharing in Abiss Textiles Solutions Pvt. Ltd., positions of

14

Directors in that Company, agency commissions and other commercial benefits. In consideration of the illegitimate gratification and in furtherance of the conspiracy described above, these ex-employees, who were then in full time employment with the Defendant, took various steps to influence the course of business dealings between the Defendant and some of its customers in order to create a competitive advantage for the Plaintiff, its Directors and the said Abiss Textiles Solutions Pvt. Ltd. Illustratively some of the ex-employees (while they were in full time employment with the Defendant) have approached and coaxed exclusive distributors to breach their agreements with the Defendant, some others have sought to influence the price of business contracts with a key distributor in order to materially gain the competing business set up by the Plaintiff and yet some other ex-employees have spread allegations and malicious rumours about the Defendant to influence certain customers to seek discounts in respect of prices at which such customers currently purchase goods from the Defendant.

(vi) That the Plaintiff continued to suppress the aforesaid facts depicting their illegal and mala fide acts, solely with a view to induce the Defendant to continue to place the purchase orders for raw materials and dyes in favour of the Plaintiff. Such continued business on the part of the Defendant provided twin benefits to the Plaintiff viz. it allowed the Plaintiff to make profits from the goods supplied to the Defendant as well as it allowed the Plaintiff to keep the regular communication channel with some of the conspiring employees open to facilitate illegal exchange of

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confidential and proprietary information. The Plaintiff had no intention of performing several material covenants of the CDA as well as the purchase orders (including with respect to confidentiality and prevention of illegal gratuities) and the Plaintiff was also aware that if the Defendant came to know of their real intention, the Defendant would immediately call off the entire business relationship and initiate legal proceedings against the Plaintiff. The Plaintiff actively suppressed this information from the Defendant since action on the Defendant's part would have seriously impaired the Plaintiff's plan on the one hand to continue earning illegitimate profits and on the other hand continue to illegally procure confidential and proprietary information of the Defendant.

(vii) That on 24th May, 2016, the Delhi High Court after being satisfied that the Defendant had been able to establish a prima facie case against the Defendants therein including the Plaintiff herein, passed an ex parte ad-interim order of injunction against the Defendants. The Order of injunction restricts the Plaintiff Company from:

(i) using, imparting, disclosing, copying, storing on any medium Huntsman's confidential and proprietary information; and

(ii) using Huntsman's confidential and proprietary information for manufacturing , marketing and/or selling any product manufactured by the defendants. The Court also granted permission for Officers of the Court to access the Plaintiff's Office and Factory Premises and search for Defendant's confidential and proprietary information, which search was conducted on 2nd June, 2016. From the search, the

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Court Officers found instances of the Defendant's confidential information amongst others being in the possession of the Plaintiff when it ought not to have been so.

10.8 The Defendant therefore by its Advocate's Letter dated 8th July, 2016, recorded the aforestated facts and informed the Plaintiff that in the light of the fraudulent conduct, and consequently the claims of the Defendant against the Plaintiff, the Defendant does not admit that any amount whatsoever are payable to the Plaintiff any longer and as a victim of the fraudulent actions and misdeeds of the Plaintiff, the Defendant not only declares each and every transaction of sale and purchase of goods between the Plaintiff and the Defendant taking place on or after the date on which the Plaintiff entered into conspiracy with its ex-employees as void, but also reserves its right to claim compensation in respect of each such transaction. The Defendant further recorded that, "In the Civil Suit, Huntsman has claimed against your company, preliminary damages of Rs.3,00,00,000/- (Rupees Three Crores Only) and has sought leave to increase the amount once final assessment and computation of damages are completed. Based on an assessment made till the date of this letter, Huntsman has assessed that you are liable to compensate Huntsman for at least a further sum of Rs.15,00,00,000/- (Rupees Fifteen Crores Only) in respect of the damages suffered by Huntsman on account of your fraudulent conduct. Without prejudice to any other remedy that Huntsman has against you, you are required to immediately indemnify Huntsman for such amount and Huntsman hereby calls upon you to do so. Failing your immediate compliances of the requirement to indemnify Huntsman for such amounts, Huntsman will

17

seek leave from the Hon'ble High Court of Delhi to enlarge the claim against you in the said Civil Suit to include the aforementioned sum of Rs.15,00,00,000/- (Rupees Fifteen Crores only) and such other amounts which are finally assessed and computed by Huntsman as damages suffered by it in respect of your illegal and fraudulent conduct". The Defendant therefore cancelled all the purchase orders with immediate effect and reserved its right to claim appropriate damages against the Plaintiff for being compelled to cancel the purchase orders.

10.9 That the following extracts from some of the e-mails exchanged between the Plaintiff and the errant employees support the aforestated facts narrated by the Defendant:

I. Email dated 28 November, 2015 addressed by Ajay Kanwar (ex- employee of the Defendant) to Punit Makharia and Gautam Makharia (Promoter Directors of the Plaintiff ) among others titled Abiss Textile Solutions (ATS):

"…Glad to inform you that PunitJi got clearance for new name and ATS will be registered soon along with related domains. I had discussions with PunitJi and Gautam Ji and actions are progressing fast as briefed to each of you.

Let us make all efforts to give good shape to ATS from now till End FEB and make launch in Istanbul."

NOTE : Attachments to the said email include files named Dyes BOM.xls and Product list and volumes. xls BOMs are the recipes of the products of the Defendant.

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II. Email addressed by Ajay Kanwar (ex-employee of the Defendant) to Punit Makharia and Gautam Makharia (Promoter Directors of the Plaintiff ) among others titled ATS Governance Decisions:

"…The most critical is funding of ATS and due to strategic reasons there is difference in Ownership and profit/loss sharing. As already briefed to you over phone and in meetings, the following decisions are taken.

Ownership:

SPCFL: 51%

Rest: 49% (SMI/SR/BRM 11% each and AK 16%)

Profit sharing:

SPCFL: 45%

Rest: 55% (SMI/SR/BRM 12% each and AK 19% each) Being majority shareholder, SPCFL will nominate Board chairman and all operational decisions will be taken by me as … of ATS… Please spend 20% of your time for ATS planning and executions from

tomorrow. Huntsman sales will be disturbed partly and that's OK. We need to think on…

…Let us pledge to make ATS a grand success!!!'"

NOTE : The acronyms SPCFL, SMI, SR BRM and AK refer to the Plaintiff and the ex-employees of the Defendant i.e. Syed Mohd. Ismail, Biswaranjan Mukherjee and Ajay Kanwar.

III. Email dated 30 November, 2015, addressed by Ajay Kanwar (ex-

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employee of the Defendant) to Punit Makharia and Gautam Makharia (promoter directors of the Plaintiff ) among others titled, ' Re: Product List and Volumes':

"Please find attached priority table as well to start with… Dyes

Novacron Yellow S-3R

Novacron Orange W-3R

Novacron Deep Red C-D

Novaycron Navy S-GI

Naovacron Deep Night S-R

Novacron Black NN

Novacron Super Black G

Novacron Ruby S-3B

Novacron Red WIN

Novacron Drak Blue W-R

Novacron Turquoise GN

Novacron Blue KN - RN

Novacron Lemon S-3G

Novacron Navy WB

Novacron Blue TS-GC

Novacron Dark Blue S-GL"

NOTE : Novacron is one of the flagship product ranges of the Defendant.

IV. Email dated 1 December, 2015, addressed by Tirtha Ghosh (ex- employee of the Defendant) to Punit Makharia and Gautam Makharia (Promoter Directors of the Plaintiff ) among others titled Re: Product

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Specs and MSDS:

"Now I attach the Product Specifications. I am in the process of getting patent information of the products. Hopefully will be able to get anytime this week. As soon as I get I will forward."

NOTE : The attachments to the email include the internal Product Specifications and Material Safety Data Sheets (MSDS) of Novacron Black NN_MSDS, Novacron Black NN_SPECS, Novacron Dark Blue S-GL_SPECS, Novacron Dark Blue WR_SPECS, Novacron Deep Night SR_SPECS, Novacron Deep Red CD_SPECS,

Novacron Navy SG_SPECS, Novacron Navy S-GL_SPECS,

Novacron Navy W-B SPECS, Novacron Orange W-3R_SPECS, Novacron Red WIN_SPECS, Novacron Ruby S-3B_SPECS,

Novacron Super Black G_SPECS, Novacron Turquoise GN_SPECS and Novacron Yellow S-3R_SPECS.

10.10 That as earlier pointed out the Delhi High Court had appointed Local Commissioners to visit and take search of the laptops and computer resources of the Plaintiff and the new entity Abiss Textiles Solutions Pvt. Ltd. The Defendant has annexed to their Affidavit in Reply, the Reports of the Local Commissioners which, inter alia show that the said Local Commissioners accompanied by the representatives of the Plaintiff were initially refused entry and made to wait for about two hours before finally being allowed entry and inspection. Thereafter they made discovery of various documents, confidential and proprietary information and database, related both to the confidential proprietary information of the Defendant

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on the laptops and computer resources of the Plaintiff and the said Abiss Textiles Solutions Pvt. Ltd. The Commissioner further noticed and noted instances of data and e-mail correspondence being remotely accessed and deleted from the laptops and computer resources, so as to prevent discovery by the Commissioners. In fact the third Local Commissioner was not granted access to the premises being the manufacturing facility of the Plaintiff.

10.11 That in view of the decisions in State Bank of Hyderabad V/s. Rabo Bank¹;

Raj Duggal V/s. Ramesh Kumar Bansal;²and Standard Chartered Bank V/s. ICICI Lombad General Insurance Co. Ltd.³, the Court ought to grant unconditional leave, in a case where the Defendant has alleged fraud and sought to defend the claims of the Plaintiff on the ground of such fraud.

11. The Learned Senior Advocate appearing for the Plaintiff submitted that Clause 14 of the Purchase Order relates only to confidentiality of the information disclosed by the Defendant to the Plaintiff, or in the possession of the Plaintiff under the Purchase Order; however, no such confidential information was disclosed by the Defendant to the Plaintiff in relation to or under the Purchase Orders; the Defendant has not provided particulars of the so called confidential information furnished by the Defendant to the Plaintiff under the Purchase Orders; according to the Defendant themselves, the alleged proprietary and confidential information pertains

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to reactive dyes which are indisputably generic products and are manufactured by hundreds of manufacturers across the world; the composition and manufacturing process of these dyes is freely and widely available in the public domain and the material safety sheet data are also available on the Defendant's own website; even the CDA would be applicable only to confidential information disclosed by the Defendant thereunder; no such information is disclosed and the Defendant has not even shown that the purported proprietary information was used for a purpose other than specified under the CDA; even assuming that such illegal transfer was done through the employees, it would not amount to the information being disclosed by the Defendant and the CDA is therefore inapplicable; the Plaintiff had engaged consultants and employees much prior to the execution of the CDA for developing and setting up its reactive dye manufacturing business and, therefore, the Defendant's contention that the Plaintiff had used its Confidential Information to set up the said business is entirely false and baseless. The Defendant has not incurred any damages on account of the supply of the goods and no fraud that has been alleged, is in respect of the goods supplied. The Defendant's claim therefore does not arise out of the same transaction. Therefore, it cannot be alleged by the Defendant in the present case that a fraud has been perpetrated on the Defendant by the Plaintiff.

11.1 I have considered the above submissions made on behalf of the Plaintiff. The

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Defendant has in its pleadings/affidavits categorically stated that since the year 2009, the Plaintiff has been supplying certain chemicals to the Defendant which are used as raw material for manufacturing of dyes; over the years the Defendant came to trust the Plaintiff as a valuable partner for business, and the Defendant therefore believed that the Plaintiff would conduct itself with integrity and good faith, and thus disclosed to the Plaintiff a number of its trade secrets, technology particulars and business strategies; in fact, a confidentiality clause (Clause 14) was incorporated in each of the purchase orders placed on the Plaintiff which is extracted in paragraph

10.1 above. In January, 2015, the Plaintiff approached the Defendant with a proposal of exploring setting up of a collaborative venture where under the Plaintiff would exclusively manufacture dyes for the Defendant at their dye manufacturing plant, which the Plaintiff represented was a newly established facility with adequate technological and financial capability, and supply such dyes on a regular basis to the Defendant at attractive prices. The Defendant agreed to explore the feasibility of the Plaintiff's proposal and executed a Confidential Disclosure Agreement on 3rd August, 2015 which inter alia envisaged that the Defendant would provide certain confidential and proprietary information about its requirements of raw materials and production of dyes to the Plaintiff, relevant clauses of which are set out in clause

11.2 above; though no binding agreement for supply of dyes was executed between the parties, in October 2015, the Defendant invited representatives of the Plaintiff to its state of the art manufacturing plant/facility at Baroda, when detailed

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information about the requirements of raw materials and production of dyes (which are otherwise confidential and proprietary in nature) were provided to the representatives of the Plaintiff. The Defendant on multiple occasions, at the request of the Plaintiff, also facilitated testing of the Plaintiff's sample commodity dyes at the laboratories of the Defendant in order to determine the suitability of dye samples manufactured by the Plaintiff from the perspective of the Defendant's requirements .

11.2 If the Plaintiff would have been correct in their submissions that no confidential material/information was disclosed to the Plaintiff under the Purchase Order or the CDA and that all the material is available in the public domain including the website of the Plaintiff, both the parties would not have repeatedly incorporated and agreed to adhere to the Confidentiality Clause found in each and every Purchase Order placed by the Defendant on the Plaintiff. Also, no confidential disclosure agreement would have been executed by the parties and the Plaintiff would not have conspired with the ex-employees and fraudulently obtained further confidential information belonging to the Defendant from them, by offering various incentives to them, which facts are clearly brought out by the e-mails as well as the reports of the Court Commissioner produced by the Defendant. In fact, the Delhi High Court upon being prima facie satisfied with the contentions of the Defendant has restrained the Plaintiff from using, imparting, disclosing, copying and storing on any medium, the Defendant's confidential and proprietary information, and using the

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Defendant's confidential and proprietary information for manufacturing, marketing and/or selling any product manufactured by the Plaintiffs. The contention of the Plaintiff that they had engaged consultants and employees much prior to the execution of the CDA also cannot be accepted, since if services of consultants/employees equipped to develop and set up the Plaintiff's reactive dye manufacturing business were indeed engaged, the Plaintiff would certainly not have indulged in the dishonest conduct of conspiring and fraudulently obtaining confidential information belonging to the Defendant, from the employees of the Defendant. The submission of the Plaintiff that the Defendant has not provided particulars of the confidential information shared with the Plaintiff does not assist the Plaintiff, since the same would constitute the evidence of the Defendant, details of which would be produced and established at the time of the trial, if this Court in the present Summons for Judgment arrives at a conclusion that the Defendant has raised a triable issue or a reasonable defence.

11.3 The Plaintiff's contention that the Confidentiality Clause in the Purchase Orders as well as in the CDA would apply only if such confidential material is received by them from the Defendant and not through the employees of the Defendant, also cannot be accepted. In my view, the said Clauses would not only apply to information which was actively provided, but would also apply to information which had been illegally obtained by the Plaintiff.

11.4 From the aforestated submissions of the Defendant and the documents

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produced by them, it is prima facie clear that much before the subject Purchase Orders were placed by the Defendant on the Plaintiff in December, 2015, the Plaintiff had conspired to set up a competing business, and as a part of such conspiracy had approached the Defendant in January, 2015 with a request to exclusively manufacture dyes for the Defendant at the dye manufacturing plant, which the Plaintiff represented was a newly established facility with adequate technological and financial capability to manufacture and supply such dyes on a regular basis at attractive prices. The Defendant reposing full trust in the Plaintiff agreed to explore the feasibility of the Plaintiff's proposal and started discussions with the Directors of the Plaintiff and also executed the CDA with the Plaintiff on 3rd August, 2015. Thereafter, as set out hereinabove, the Plaintiff's Directors and Shareholders viz. Mr. Puneet Makharia and Mr. Gautam Makharia, acting in concert with certain ex- employees of the Defendant (who were under full time employment with the Defendant at the relevant time) conspired to launch a sabotage operation against the Defendant, whereby some of the employees of the Defendant started illegally passing on confidential and proprietary information of the Defendant to the Plaintiff. In return, such conspiring employees were promised illegal gratification including equity stakes and profit sharing in the competing business started by the Directors of the Plaintiff i.e. Abiss Textile Solutions Pvt. Ltd., as also position of Directors in that Company, agency commissions and other common benefits. As submitted by the Defendant, it is prima facie clear that the Plaintiff was well aware that both, the

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regular sale and purchase transactions between the Defendant and the Plaintiff pursuant to the Purchase Orders as well as the ongoing discussions between the Plaintiff and the Defendant for the purpose of the proposed collaboration, could be used as a legitimate cover for some of the conspiring employees to remain in the Defendant and continue passing of confidential and proprietary information to the Plaintiff, its Directors and the new entity - Abiss Textiles Solutions Pvt. Ltd. set up/proposed to be set up by the Plaintiff. The Plaintiff continued to suppress from the Defendant, the correct facts depicting their dishonest conduct, solely with a view to induce the Defendant to continue to place the purchase orders for raw material and dyes in favour of the Plaintiff. Such continued business on the part of the Defendant provided twin benefits to the Plaintiff viz. it allowed the Plaintiff to make profits from the goods supplied to the Defendant as well as it allowed the Plaintiff to keep the regular communication channel with some of the conspiring employees open to facilitate illegal exchange of confidential and proprietary information. As correctly submitted by the Defendant, if the Defendant would have come to know of this conspiracy evolved by the Plaintiff, they would certainly not have placed any purchase orders with them. Therefore it prima facie certainly appears that the Plaintiff has perpetrated a fraud on the Defendant and as a part of their fraudulent design induced them to place purchase orders on the Plaintiff, and using that as a cover for legitimate business relationship, gained entry in the business of the Defendant and have by setting up the new entity to start competing business, not

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only misused the confidential information shared with them in good faith by the Defendant, but have also with mala fide and dishonest intention procured confidential information pertaining to the Defendant's business through their employees. I am prima facie of the view that the Plaintiff therefore cannot be heard to say that the fraud that is alleged is not in respect of the goods supplied or is independent of the purchase orders placed by the Defendant on the Plaintiff pursuant to which the goods were supplied by the Plaintiff to the Defendant or that the Defendant's claim does not arise out of the same transaction.

11.5 The Defendant is therefore correct in submitting that it has a genuine defence and the issues raised by it namely, whether the Plaintiff has perpetrated a fraud on the Defendant and whether in view of such fraud the Defendant is justified in declaring each and every transaction of sale and purchase of goods between the Plaintiff and the Defendant taking place on or after the date on which the Plaintiff entered into conspiracy with its ex-employees, as void, and taking a stand that no amount whatsoever is payable to the Plaintiff under such transactions, are bona fide triable issues.

12. On behalf of the Plaintiff, it is also submitted that admittedly the Defendant came to know about the conspiracy/fraud in late April, 2016, however, the Defendant has placed orders on the Plaintiff by issuing a Purchase Order as late as on 26^thApril, 2016 and has caused the Plaintiff to act upon the purchase orders and completely perform the Plaintiff's obligations thereunder. The Defendant has

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received goods worth Rs. 5.45 crores under the purchase orders till 27^thMay, 2016, which was even after the termination of services of the Defendant's erstwhile employees on 10^thMay, 2016, and filing of the Delhi Suit on 20 ^thMay, 2016 and have also made payment of Rs. 80,98,458/- on 6^thJune, 2016 through Genpact to the Plaintiff in respect of some of the goods supplied. Relying on Section 19 of the Contract Act and the decisions in the cases of Broadway Centre vs. Gopaldas Bagri⁴ and Thomas Clarke vs. Samuel Dixon⁵, the Plaintiff submitted that the Defendant therefore chose to affirm the purchase orders and consequently lost its right to subsequently rescind the purchase orders.

12.1 The Defendant has explained that after coming to know about certain facts from the whistle blower, they have not placed any further orders on the Plaintiff. The Defendant has submitted that since the fraud in the present case was a conspiracy in which some of the employees of the Defendant were involved, as in the case of most conspiracies which are hatched in secret, the full details regarding the same became known to the Defendant in bits and pieces and at different stages. Since in the middle of May, 2016, the Defendant received details of certain shocking emails by which the errant employees of the Defendant had passed the Confidential Information to the Plaintiff, the Defendant based on the said allegations moved the Delhi High Court for interim relief which was granted on 24 May, 2016.

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12.2 As further explained by the Defendant, the averments in the plaint filed before the Delhi High Court itself clearly states that the same was being filed on the basis of information then available and that further facts and claims could be disclosed / made at a later date. The Defendant's apprehension that the Plaintiff was illegally siphoning of the data simultaneously while the Defendant was placing its purchase orders on the Plaintiff was confirmed by the reports made by the independent lawyers who were appointed as Court Commissioners by the Delhi High Court and who visited the premises of the Plaintiff on 2^ndand 3^rdJune, 2016 respectively. These Reports read in full, prima facie confirm the veracity and correctness of the Defendant's case as regards the fraud and conspiracy of the Plaintiff. These Reports reveal that during the search process, despite the Plaintiff deleting those e-mails that contained the Defendant's confidential and proprietary information, the Court Commissioner's found several records comprising such information in the devices operated by the Plaintiff in its premises. Relying on the decision of Privy Council in Atureliya Walendagodage Henry Senanayake vs. Annie Yeo Siew Cheng⁶it is correctly submitted on behalf of the Defendant that at law the Defendant is entitled to carefully review and consider the material indicating fraud before declaring any contract void. The Defendant therefore after receiving all the relevant material, the independent findings of the Court Commissioners, including indicating that a fraud has been perpetrated on them by the Plaintiff, proceeded to terminate the contracts with the Plaintiff. It is

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submitted on behalf of the Defendant that it has not delayed in declaring the contracts for sale and purchase of goods void and that even if there is any delay, such delay would not preclude the Defendant from declaring the contracts void, and in any event, such delay cannot be viewed as the Defendant's affirmation of the contracts of sale and purchase of goods. I am in agreement with the explanations / submissions advanced on behalf of the Defendant and I am therefore prima facie of the view that it cannot be held at least at this stage that the Defendant has affirmed the contracts as alleged. I am also of the view that considering the facts in the present case, the case law relied upon by the Plaintiff would not lend any assistance to them.

13. It is further submitted on behalf of the Plaintiff that assuming without admitting for the sake of argument that the Defendant was entitled to rescind the purchase orders and though validly rescinded, the Defendant would have to restore the benefits that it has received thereunder to the Plaintiffs. In support thereof, the Plaintiff has relied on Section 64 of the Indian Contract Act, 1872 which reads thus:

"Consequences of rescission of voidable contract - When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received."

13.1 The Plaintiff relied on the decision of Crompton J. in the case of Clarke vs. Dickson (supra) wherein the Learned Judge held :

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"when once it is settled that a contract induced by fraud is not void, but voidable at the option of the party defrauded, it seems to me to follow that, when that party exercises his option to rescind the contract, he must be in a state to rescind; that is, he must be in such a situation as to be able to put the parties in the original state before the contract."

Relying upon the forgoing, it was submitted on behalf of the Plaintiff that the Defendant having used the goods can no longer rescind the contracts for sale and purchase.

13.2 I am in agreement with the submission of the Defendant that the principle in Clarke vs. Dickson is no longer good law in light of the subsequent Judgment of the House of Lords and the Court of Appeal. In the year 1878, the House of Lords delivered its Judgment in Emile Erlanger vs. The New Sombro Phosphate Company⁷. In that case, after referring to and considering the Judgment of Crompton J. in Clarke vs Dickson (Supra), Lord Blackburn held:

"But a Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract"

13.3 Further, in the year 1899, Lindley M.R while delivering the Judgement of the

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Court of Appeal (Chancery Division) in the case of Lagunas Nitrate Company vs. Lagunas Syndicate⁸ held:

"A fifth principle is that a voidable contract cannot be rescinded or set aside after the position of the parties has been changed, so that they cannot be restored to their former position. Fraud may exclude the application of this principle, but I know of no other exception…."

13.4 I am also not in agreement with the contention of the Plaintiff that irrespective of fraud, an executed contract cannot be rescinded. If such a contention is accepted, it would permit fraud to flourish and go unpunished. The Court of Law in Armstrong vs. Jackson⁹ has held that where fraud is present, the plea of rescission cannot be defeated on the ground of deterioration of the subject matter. In this case the Court held:

"Had, indeed, the plaintiff discovered the fraud at an early date he could have repudiated the transaction whilst the price was still high, and the loss to the defendant would then not have been so great in view of his power to dispose of them on the market. But the plaintiff is in no way to blame, and the considerations of hardship urged before me by Mr. Disturnal were similarly urged in 1856 before Sir John Romilly in a somewhat analogous case. Yet the plea of hardship fails here as it failed sixty years ago. In rejecting the plea of hardship in Blake v. Mowatt (1856) 21 Beav. 603,615 the then Master of the Rolls said: "It is the leading principle of the equity

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administration in this Court, that truth shall govern all transactions, and that one who deludes another in a contract, or permits him to be deluded, and takes advantage of that delusion, cannot afterwards complain, that, if the contract be set aside, he will be in a worse situation than if the contract had never been entered into."

13.5 In the case of Hulton vs. Hulton¹⁰a plea was raised that rescission was not possible on the ground that letters which formed the subject matter of transactions had been completely destroyed. The Court of Appeal rejected this contention and held:

"There remains the last point. It is said that the Court will only rescind the contract if it can put the other party back in the position in which he was before the contract. Courts of Equity, which have long exercised this power of rescission, have endeavoured to do so on the principle that he who seeks equity must do equity, and that he who asks to have a contract rescinded must as far as possible put the parties back into the position in which they were before the contract was made. The passage from Lord Blackburn's opinion in Erlanger v. New Sombrero Phosphate Co . (3 App. Cas. 1278, 1279) , which has been referred to by Swinfen Eady L.J., pointed that out in very clear language. It is said that the Court should not order rescission for two reasons. In the first place it is said that the letters have under the terms of the deed been destroyed, and that as those letters cannot be restored the Court will not decree rescission. Now I must take it on the verdict of the jury that those letters contained misrepresentations by the defendant. I further take into account that it was the defendant who was anxious that those letters should be destroyed. I cannot in these circumstances treat the letters as so important to him that there can be no rescission because they cannot be brought back into existence. Secondly it is said that the plaintiff has been receiving under the deed 500£. a year for over five years, and that if the deed is rescinded the plaintiff ought to be ordered to repay that 500£. a year. A

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Court of Equity has always in such a case, as I understand, endeavoured to do justice between the parties by making each of them return whatever benefit he has received under the deed, and if the benefits on the one side and the other are commensurate there is no question of return, because whatever has been received by the one party has been paid for by the other."

13.6 Therefore, the contention of the Defendant that in view of the fraud perpetrated by the Plaintiff and being able to maintain the cover of legitimate relationship and significantly benefiting from the know-how of the Defendant, as well as from the use of the facilities and laboratories of the Plaintiff, the question of returning the goods received from the Plaintiff or its equivalent amount does not arise, is itself a triable issue to be determined at the trial of the Suit upon evidence to be led both oral and documentary.

14. The Defendant has also correctly submitted that in the light of Section 64 of the Indian Contract Act, 1872, which provides that in case of avoidance of a contract on the ground of fraud, benefit only 'so far as may be' needs to be returned, the determination of benefit and damages under the void contract is made following a full trial. The Defendant submitted that under Section 64 of the Indian Contract Act, 1872, a determination needs to be made of the benefit received by the defrauded party (in this case the Defendant) which he is required to return to the party committing the fraud (i.e. the Plaintiff ). The Defendant relied upon the judgment of Muralidhar Chatterjee vs. International Film Company Ltd.¹¹In this case, the plaintiff

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was in a business relationship with the defendant and was required to pay to the defendant certain sums for delivering prints of cinema films. The plaintiff alleged that the defendant has failed and neglected to perform his part of the contract and demanded refund of Rs. 4000/- (Rupees Four Thousand only) paid on account of supply of cinema films. On trial, it was proved that in fact the plaintiff had broken the contract and it was not the defendant who wrongly terminated the contract. The plaintiff on the basis of Section 64 still claimed return of Rs. 4000/- (Rupees Four Thousand only). It was the case of the plaintiff that even if the defendant was entitled to rescind the contract, the defendant must return 4000/- (Rupees Four Thousand only) being the benefit received under the contract. Lord Rankin, while delivering the Judgment of the Privy Council, held:

"It is at least certain that if the party who rightfully rescinds a contract can recover damages from the party in default and is afforded proper facilities of set-off, the In- dian Legislature may well have thought that his just claims have been met. The fact that a party to a contract is in default affords good reason why he should pay dam- ages, but further exaction is not justified by his default. Where a payment has been made under a contract which has --- for whatever reason --- become void the duty of restitution would seem to emerge. A cross claim for damages stands upon an inde- pendent footing, though it arises out of the same contract and can be set off….. ...Section 64 and 65 do not refer to the words "benefit" and "advantage" to any question of "profit" or "clear profit", nor does it matter what the party receiving the money may have done with it. To say that it has been spent for the purposes of the contract is wholly immaterial in such a case as the present. It means only that it has been spent to enable the party receiving it to perform his part of the contract -- in other words, for his own purposes. If on the footing that all sums received have to

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be returned, the defendants can show that after paying for the positive print, the shipping charges and so forth they have made a loss owing to the refusal of the plaintiff to carry out the contract, then these charges will be reflected in their claim for damages. If on the other hand, the defendants have been so fortunate as to get another person to take the plaintiff's place on terms equally remunerative to them, these payments will not even mean that the defendants have suffered more than nominal damages. On general principles they may set off such damages as they have sustained, but the Act requires that they give back whatever they received un- der the contract.

To give effect to the defendant's right to claim damages and to have an equitable set-off they must be given leave to file a further written statement in the High Court. This pleading should contain particulars of the defendants' claim for dam- ages for the plaintiff's wrongful refusal to carry out the contract, and should be set forth that these are claimed by way of set-off against the plaintiff's claim to recover Rs. 4000 which has been allowed upon the footing that he has wrongfully repudiat- ed the contract and that the defendants lawfully put an end to the contract by their letter of 21st January 1937."

14.1 The Defendant, therefore, submitted that where rescission of a contract on the ground of fraud is an issue, the defrauded party by relying upon section 64 read with the ratio of Muralidhar Chatterjee (supra) should be able in the same suit to file a written statement and prove the damages sustained by it due to the acts of fraud and conspiracy by the Plaintiff and then adjust those damages against the benefits received by the Defendant under the void contract.

14.2 Therefore, in my view, the Defendant is correct in submitting that triable issues viz. the benefits received by the Defendant as well as the damages sustained by it exist in the current case.

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15. It is submitted on behalf of the Plaintiff that a claim for damages cannot be set off against an ascertained debt. It is also submitted that the Defendant appears to have argued that it could claim a set off on the basis of the facts and circumstances made out in its pleadings, which will be substantiated in its Written Statement, and therefore it is entitled to unconditional leave to defend the present Suit. The Plaintiff submitted that a legal set-off can be claimed only in respect of an ascertained sum of money, which is not the case here. An equitable set-off can be claimed in respect of an unascertained sum of money and the four conditions that are required to be satisfied for the purpose of claiming an equitable set off are as under:

(i) the claim for equitable set off must arise out of the same transaction, which constitute the basis of the plaint;

(ii) The parties to the suit and the set off must fill the same character;

(iii) it would be wholly inequitable to drive the defendant to another suit; and

(iv) The set off should not delay the trial of the original Suit.

15.1. The Plaintiff submitted that in the present case, the claim of the Defendant does not arise out of the same transactions. However, even if the claim arises out of the same transaction, the fact remains that the Defendant has already filed its own suit on the basis of the same allegations before the Delhi High Court and therefore it would not be entitled to claim equitable set off. It would therefore not be inequitable to make the Defendant file a separate suit, since the Defendant has already filed a suit in the Delhi High Court. Again there can be no doubt that by permitting the

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Defendant to file a set off, the trial of the present Suit would be delayed. Though the Defendant has recorded in its Letter dated 8^thJuly, 2016, that based on the assessment made till date, the Plaintiff is liable to compensate the Defendant for atleast a further sum of Rs. 15 Crores in respect of the damages suffered by the Defendant on account of the Plaintiffs fraudulent conduct, the Plaintiff has submitted that the Defendant has already claimed Rs. 3 crores as damages in the Delhi Suit. Assuming that the Defendant succeeds in the Delhi Suit and gets a decree of Rs. 3 crores, it cannot also seek to set off the same in the present Suit. By doing this the Defendant would be getting a double benefit of Rs. 6 crores which cannot and ought not to be done. In support of its submissions, the Plaintiff relied on several judgments set out in paragraph 31 of its written submissions.

15.2. It is clarified on behalf of the Defendant that the defence of the Defendant in this Suit is not set off and it is not resting its argument that a set off will be defeated unless leave to defend is granted. The contention of the Defendant in the present Suit is that the very contracts under which the Plaintiffs make its claims have become void on the ground of fraud and therefore the legal consequence that the Plaintiff should no longer be able to enforce those contracts must be given effect. Therefore the current case needs to be viewed from the perspective of Section 19 read with Section 64 of the Indian Contract Act, 1982 and not necessarily from the principles of set off under the Code of Civil Procedure, 1908. The Defendant submitted that having stated that, it is also important to point out that one of the cases cited by the Plaintiff

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viz., Maheswari Metals and Metal Refinery, Bangalore vs. The Madras State Small Industries Corporation¹² quotes extensively with approval, from the Judgement of Privy Council in the case of Muralidhar Chatterjee (Supra) in order to explain that right of 1 (one) party of a terminated / void contract under Section 64 to return the benefit would be subject to the damages suffered by the other party (if any) under the same contract and both these amounts can be set-off against each other in the same legal proceedings. In my view all these are bonafide issues which can be decided after a trial.

16. The Plaintiff has next contended that as late as on 26th September, 2016 i.e. after the filing of the Defendant's Affidavit in Reply, the Defendant itself carried out a reconciliation of the amounts due to the Plaintiff as on 30th June, 2016 and sent the same to the Plaintiff vide an email dated 26th September, 2016. As per the said reconciliation, the Defendant has unequivocally admitted that an amount of Rs. 7,01,58,000/- is due and payable as per its books of accounts/ records to the Plaintiff. On this ground, the Defendant ought to be directed to deposit at least Rs. 7,01,58,000/- with this Court, in view of the dicta of the Hon'ble Supreme Court of India in Idbi Trusteeship Services Limited v. Hubtown Limited .¹³and the Plaintiff be permitted to unconditionally withdraw the same.

16.1. The Defendant has pointed out that an admission has been alleged merely on the basis of e-mails exchanged by the Plaintiff with the third party service provider of

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the Defendant. The Defendant further submitted that an admission by a third party could be regarded as a proper admission only if a relationship of agency is established and subject to the agent making an admission with the knowledge of the issue at hand. It is further submitted by the Defendant that the third party service provider carried out tasks in an entirely routine manner and they were not privy to the fact that the Defendant vide their Letter dated 8th July 2016 had declared that all the Purchase Orders placed on the Plaintiff and the Contracts for Sale and purchase of goods from the Plaintiff are void from its inception. It is submitted that such a routine statement made by a third party (albeit hired by the Defendant) in ignorance of the dispute between the Plaintiff and the Defendant cannot be regarded as an admission of the nature referred to in said sub-paragraph (f ) of Paragraph 18 of the judgement of IDBI Trusteeship (Supra). The Defendant also pointed out that considering the fraud aspect of the whole matter, it had issued a show cause notice and started an internal investigation against the Head of the Department of the Defendant who co-ordinated with the third party service provider.

16.2. I have considered the submissions of the parties in this regard. Admittedly the Plaintiff has received a Letter from the Defendant dated 8^thJuly, 2016 declaring that all the purchase orders placed on the Plaintiff and the contract for sale and purchase of goods with the Plaintiff are in view of the fraud perpetrated by the Plaintiff on the Defendant void from its inception and therefore the Plaintiff is not entitled to seek or receive any payments in respect thereof from the Defendant. It is therefore clear that

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the third party service provider not being privy to the facts set out and stand taken in the Letter dated 8^thJuly, 2016, carried out its task in an entirely routine manner and has sent an e-mail to the Plaintiff on the basis of which the Plaintiff asserts that the Defendant has admitted the amounts due to the Plaintiff. In my view, considering these facts and circumstances, the e-mail received by the Plaintiff from the third party service provider from the e-mail address of the Defendant cannot be treated as an admission envisaged under sub-paragraph (f ) of para 18 of the Judgment in IDBI Trusteeship Services Ltd. (supra).

17. In my view the case law relied upon by the Plaintiff does not lend assistance to the Plaintiff considering the facts and circumstances of the present case. The submissions of the Plaintiff qua the case law relied upon by the Defendant also cannot be accepted.

18. In light of the above, I am of the view that the Defendant has a substantial defence which, after a full-fledged trial, is likely to be accepted resulting in the Defendant succeeding in the matter. In any event, the Defendant has raised triable issues indicating that the Defendant has a bona fide, fair and reasonable defence. Following the law laid down by the Hon'ble Suprme Court in IDBI Trusteeship Services Ltd. (supra), I am of the view that the Defendant is entitled to unconditional

leave in the Suit. Hence, the following Order :

i. Unconditional Leave is granted to the Defendant to defend the above Suit.

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ii. The Defendant shall file its Written Statement on or before 15th December, 2017.

iii. The hearing of the Suit is expedited and placed for framing of issues on 20th December, 2017.

iv. The Suit shall be decided without being influenced by this Order.

v. The above Summons for Judgment is accordingly disposed of.

( S.J. KATHAWALLA, J. )

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