CRITERIA OF Relinquishment or Release Deed- stamp duty or impounding

 

CRITERIA OF Relinquishment or Release Deed- stamp duty or impounding

 

Whether a Relinquishment deed can be impounded on account of deficient stamp duty and can that be treated as a gift deed? If, so, what are the circumstances? The moot point is whether the relinquishment deed can be treated as gift and hence, for want of payment of stamp duty, whether the instrument could be impounded? What are the pre-requisites of a relinquishment deed so as to pass muster as such? In other words, whether Relinquishment deed in all cases shall be treated as gift deed or there are certain criteria laid down in this regard shall need deliberation. In order to find the answer and without detaining us further on the aspect, judgments/precedents laid down shall have to be analaysed and at the very onset and straightway a recent judgment of the hon’ble Division bench of Dehi High Court captioned as Ramesh Sharma Vs Government of NCT of Delhi & Ors bearing no. LPA 346/2020 (decided on 08.10.2025) shall be worthy of reference and prior thereto, in addition thereto, a matter reported as Anita Kumar Vs Ajay Kumar since deceased Through LRs & Ors FAO (OS) 130/2024 shall also be very pertinent in this context.

In Ramesh Sharma (Supra), broad contour of the case being same, in order to appreciate the matter, it may be pertinent to refer to the facts of the case in that case.

(i) The dispute related to a property of Greater Kailash, New Delhi (suit property) and parents of the appellant jointly owned the suit property in 50:50 ratio.

(ii) The father of appellant however had executed a registered Will and he bequeathed his entire share in the suit property in favour of the appellant son.

(iii) The father of appellant died on 31.10.2003 leaving behind his widow, appellant son and Five (5) daughters.

(iv) The suit property was thus jointly owned by the appellant and his Mother with half share each. As on 20.03.2013, the Mother also died, thereby leaving behind the appellant son and Five (5) daughters as class 1 legal heirs.

(v) On 03.07.2012 itself (When Mother was alive), three daughters had executed three separate Relinquishment deeds in favour of the appellant and presented the same before the Sub-Registrar V-A, Mehrauli, New Delhi on 06.07.2012. Similarly, the remaining two daughters also had executed Relinquishment deed in favour of the appellant on 17.07.2012 and it was presented before the Sub Registrar on the said date.

(vi) The Sub-Registrar on 17.07.2012 had informed the Collector of Stamps, Hauz Khas, Mehrauli, New Delhi about impounding of the instruments i.e Relinquishment deeds (RDs) and the appellant had thus come to know about this.

(vii) Subsequently, the SDM, Kalkaji on 01.03.2013 after perusing the written explanations from the appellant had concluded that all Five RDs shall be subject to payment of stamp duty in accordance with Section 23 of the Schedule I of Indian Stamp Act 1899.

(viii) Pursuant thereto, acting on the valuation report submitted by the Tehsildar, Kalkaji vide order dated 15.05.2013 imposed the stamp duty of approximately Rs 6,50,000/- along with a penalty of Rs 1,00,000/- imposed on the appellant.

(ix) The appellant had deposited the said sum with a view to avoid immediate attachment of the property under protest vide challan dated 29.05.2013.

(x) RTI application was also filed before the SDM, Hauz Khas, whereby details of RDs impounded between 01.01.2012 and 30.04.2012 on the premise that the instrument of RDs shall tantamount to a gift and were not sufficiently stamped. No satisfactory reply was allegedly received and even the appeal before the RTI appellate authority was filed, but the Sub-Registrar had failed to provide the information.

(xi) In the above backdrop, the appellant had preferred a writ petition bearing no. W.P (C) 3560/2018 before the ld Single Judge of Delhi High Court impugning therein, orders dated 01.03.2013 & 15.05.2013 passed by SDM Kalkaji and unsatisfactory response to various RTI applications.

                             The findings of ld Single Judge

The ld Single judge had dismissed the writ petition on the following premise:

(i) All the Five (5) RDs formed part of a single transaction and merely because the Five RDs were filed on different dates, that in itself shall not be a determinative factor.

(ii) The rights were relinquished only in favour of brother, leaving behind the Mother (As she was alive then) and hence, the RDs shall have to be treated as Gift Deeds and not Release Deeds.

(iii) The RDs cannot be treated a family settlement as no reference to the Will executed by the Father of the appellant, nor any purported family settlement existed.

(iv) The perusal of recitals of RDs and covenants contained therein clearly reflected that RDS are documents of conveyance and thus it cannot be treated as Release Simplicter.

In a similar writ petition being W.P( C) 9193/2013 captioned as Tripta Kaushik Vs Sub Registrar VI-A Delhi & Anr was clubbed together and heard by ld Single Judge as common question of law arose in both the judgments. It is pertinent to point out that the ld Single Judge was pleased to allow WP (C) 9193/2019 on account of peculiar facts of the case. In the said writ, the RD was executed by a co-owner in favour of only existing other co-owner and hence, it was held to be a Release Deed and falling within the ambit of Article 55 of Schedule I-A (for Delhi) of the Stamp Act 1899.

The issues and decision by the Division BeNCH

The moot point is whether the RDs can be treated as a Gift Deed and that too in all circumstances? It this follows that whether for the purpose of the Indian Stamp Act 1899, the relinquishment of rights in a property by the sisters/co-owners in favour of their brother/co-owner can be treated as Gifts?

The appellant has contended that RDs cannot be treated as gift deed, based on the following reliance:

(i) Smt G. Subbalakshmi Visweswara Rao Vs Secretary to Government, Revenue Department & Ors 2011 SCC OnLine AP 1093;

(ii) Maddula Girish Kuma & Anr Vs The Commissioner of Survey, Settlement of Land Records and Anr 1992 SCC OnLine AP 125;

(iii) The Board of Revenue, Hyderabad Vs Valivety Rama Krishnnaiah 1972 SCC OnLine AP 155

The respondent however relied upon the following judgments in support of their contentions that RDs herein shall have to be treated as gift deed.

(i) The Board of Revenue, ( The Chief Controlling Revenue Authority) Vs V,M Murugesa Mudaliar of Gudiyatham AIR 1955 Mad 641;

(ii)Narinder Kaur & Anr Vs Amarjeet Singh Sethi & Anr (2000) 54 DRJ 53;

(iii)Javer Chand & Ors Vs Pukhraj Surana AIR 1961 SCC 1655;

(iv) Tripta Kaushik Vs Sub Registrar VI-A & Anr 2020 SCC OnLine Del 2748;

(v) Neeraj Arya Vs Rakesh Arya & Anr 2023 SCC OnLine Del 7816.

It is worth mentioning that the term “relinquishment deed” does not find mention in Indian Stamp Act 1899 and has not been referred to in Schedule I-A (for Delhi) of the Stamp Act 1899. Although, the reference of Release deed existed in Article 55 and the stamp duty payable in the release deed has been duly mentioned therein.  

The hon’ble Division bench of Delhi High Court in Ramesh Sharma (Supra) placed reliance on a full bench judgment of Madras High Court in a matter reported as Chella Subbanna & Anr Vs Chella balasubbareddi & Ors 1945(1)MLJ 140 wherein it was held:

“The relinquishment by one coparcener of his interest in the family estate in favour of the member of coparcenary does not amount to an alienation, it merely amounts to an extinction of his interest in favour of the others”.  

Yet again, the reliance was placed on another full bench judgment of Madras High Court in Reference under Stamp Act 46 ILR 18, Madras 233 wherein it is held that:

“ we can see no difference in principle between such a document as between members of a coparcenary and the document in question, which is a document between co-owners”.

The Division bench therefore held in Ramesh Sharma (Supra) as under:

“19. Therefore, upon perusal of the above mentioned judgments, it is reiterated that Relinquishment does not tantamount to an alienation of rights, and RD between the co-owners holds equal force as an RD between the coparceners”.

The Division bench had also referred to Smt G.Subbalakshmi (Supra) with approval, whereby the Andhra Pradesh High Court has held as under:

“10. Therefore, the principle that emerges is that by executing a release deed, one of the coparceners is merely separating himself from the joint family, while the others continue as members of the 14 1945 (1) MLJ 140. 15 I.L.R. 18 Madras 233. same undivided family. The estate of the coparceners, in law, is liable to be treated as held in entirety without recognition of identifiable shares. By executing a release deed, one or more coparceners are merely renouncing or extinguishing his or their interests in the estate without, in any manner, affecting the status of the remaining members of the joint family. Therefore, a release deed is not required to be executed by all the coparceners joining the same deed or the release deed is required to be executed in favour of the remaining coparceners either. The principle is, to the extent the coparceners have relinquished their respective rights, the release of the document derives a corresponding benefit of increased proportion in the estate. Therefore, I have no hesitation to hold that the view taken by the Collector as well as the Chief Controlling Revenue Authority in the instant case, is unsustainable in law and the two documents bearing Nos. 80/2002 and 713/2002, are rightly treated by the Sub Registrar concerned as release deeds and they have not suffered any deficit stamp duty.”

The reliance was also placed on the judgment rendered by the Special Bench of Andhra Pradesh High Court in Madula Girish Kumar (supra), whereby a reference was made under Section 57 of the Stamp Act, by the Chief Controlling Revenue Authority and Commissioner of Survey, Settlements and Land Records, Hyderabad, regarding stamp duty payable on the two documents executed by the mother, on behalf of her two minor sons, relinquishing their respective shares in the joint family movable and immovable properties in favour of their father. The Joint Registrar of Machilipatnam impounded those two documents, treating them as documents of conveyance on sale. While relying on the judgments in Chella Subbanna (supra) and V. M. Murugesa Mudaliar (supra), it was held that the two documents are deeds of release.

Similarly, reliance was placed upon the judgment rendered by the Full bench of the Andhra Pradesh High Court in Valivety Rama Krishnaiah (supra), whereby, the Court relied on the judgments rendered in Chief Controlling Revenue Authority v. Patel AIR 1968 Mad 159 and Kuppuswami Chettiar v. Arumuga Chettiar AIR 1967 SC 1395 and Reference under Stamp Act Section 46 (supra), which is reproduced below:

“10. The question that fell for determination before the Full Bench was whether the instrument in question fell within the definition of a conveyance under Article 19 of the Schedule I-A of the Madras Stamp Act. Their Lordships were of opinion that it was not a conveyance. It was observed that the property in question was owned by the parties to the instrument as co-owners, the executants being entitled to a 3/5th share and the other two being entitled to the other 2/5th share. They laid stress on the fact that there was no division of the property by metes and bounds at any time anterior in accordance with their respective shares. In such circumstances, the document in question was a release within the meaning of Article 44 of the Madras Stamp Act.

“11. Reference was made by the Full Bench to a decision in “Reference under Stamp Act Section 46‟ (1895) 18 Mad 233 (FB). The said Full Bench in a reference under Section 46 of the then Stamp Act had to consider the question of a document executed by a Hindu son in favour of his father representing the other members of the family relinquishing his rights in the property of the family in consideration of certain lands being allotted to him for life and also certain debts incurred by him being paid. The learned Judges observed that it was a deed by which one co-owner renounced his claim for partition against the family property in consideration of a certain income to be enjoyed by him for his life out of certain lands over which he had no power of alienation. It was held that the instrument in question was a release and should be stamped as such. The principle enunciated therein was in relation to a Hindu joint family and a relinquishment by one coparcener in favour of the others in consideration of some benefit conferred on the relinquishing coparcener. Such an instrument was held to be a release deed. The principle decided in “Reference under Stamp Act, Section 46” (1895) 18 Mad 233 (FB), was applied by the later Full Bench to the case of Co-owners and a release by one or more of them in favour of the others for a stated consideration. The Full Bench held that the document in question was a release deed and that it was neither a deed of dissolution of partnership nor a conveyance”.

12. In another Full Bench decision of the Madras High Court in Chief Controlling Revenue Authority v. Patel, AIR 1968 Mad 159, a somewhat similar question had arisen. That again was a reference under Section 57 of the Stamp Act and the question was whether the instrument in the case before the Full Bench was a release of conveyance amounting to a transfer of property for value. The Full Bench considered the essential ingredients of a release. They quoted with approval the observations from the Full Bench decision in AIR 1955 Mad 641 (FB) and held that the instrument before them was a release. In support of their conclusion, they referred to a decision of their Lordships of the Supreme Court in Kuppuswami Chettiar v. Arumuga Chettiar, AIR 1967 SC 1395. The Supreme Court was concerned with a document of release. It was observed by the Supreme Court that a release deed could only feed title, but could not transfer title and that renouncement must be in favour of a person who had already title to an estate, the effect of which was only to enlarge the right”.

13. Now adverting to the document in the present case before us we have no manner of doubt that it is a release deed. We, therefore, unhesitatingly hold that the document has been correctly stamped as a release deed.”

After placing reliance on the aforesaid judgments and discussion as entailed thereunder in Ramesh Sharma (Supra), the Division bench has held as under:

“23. From the abovementioned discussion, it is observed that the release deed can only feed title but cannot transfer title. In this case, the Appellant, his mother, and the five sisters all became co-sharers in the suit property on the death of the father. The transaction was between the family members, wherein the chances of economic consideration are remote. Hence, in the present matter, the RDs have only added a title to the already existing title of the Appellant. Therefore, an error was committed in the Impugned Order by treating the RDs as deeds of gift for the purposes of the Stamp Act and upholding its impounding”.

The Division bench has categorically held that the order passed by the single judge in Ramesh Sharma (Supra) while upholding the impounding of relinquishment deed have relied upon the judgment in V.M Murugesa Mudaliar ( Supra) passed by the full bench of Madras High Court, but, that was, while, considering a document, whereby, three persons had renounced all their interest in the property of the partnership firm in favour of two remaining partners for some consideration. In that context the document was held to be a release deed within the meaning of Article 44 (B) of Schedule-I A (For Andhra Pradesh) of the Stamp Act 1899. It was categorically observed therein as under:

“In the case of co-owners, there need be no conveyance as such by one of the co-owners in favour of the other co-owners as each co owner in theory is entitled to enjoy the entire property in part and in whole and it is not necessary for one of them to convey his interest to another. It is sufficient if he releases his interest, the result of which would be the enlargement of the share of another. There can however, be no release by one person in favour of another, who is not already entitled to the property as a co-owner.”

The Division bench in Ramesh Sharma (Supra) had also referred to a judgment rendered by the division bench itself, earlier in a matter reported as Anita Kumar Vs Ajay Kumar since deceased Through LRs & Ors FAO(OS) 130/2024 and in the said case it was held as under:

“25. It is noted that the purpose of the Stamp Act is to collect revenue. The nomenclature of a document is not decisive for the purpose of adjudicating the liability to pay stamp. This Bench has made a sincere attempt to trace the source of the extracted observations, however failed to find one. In any case, the ratio of the judgment passed by the Court is binding. However, before the Full Bench of the Andhra Pradesh High Court, a different question was referred for decision, and hence, the aforementioned observations are not the ratio of the judgment.

26. Therefore, laying down, as an abstract proposition of law, all the relinquishment deeds executed by a particular co-sharer(s) in favour of another co-sharer or some of the co-sharers, while excluding the remaining co-sharers are not relinquishment deeds, but gift deeds, would not be appropriate.”

What clearly emerges, therefore, according to the Division bench in Ramesh Sharma (Supra) that reliance in V.M Murugesa Mudaliar (Supra) to buttress the point in the context of the Stamp Act 1899 and to the effect that RD executed in favour of one or more co-owners and not in favour of all the co-owners cannot be said to be a release, clearly lacks substance, since, in the present case (Ramesh Sharma), all the sisters had executed RDs in favour of their brother.

The hon’ble Division bench thereafter in Ramesh Sharma (Supra) had dealt with the reliance placed by the respondents in support of their case in a manner as reproduced under:

“21. Further, the learned counsel representing the Appellant has relied upon a celebrated judgment passed by a four-Judge Bench in Javer Chand (supra). In this judgment, the Supreme Court decided as to whether or not two hundies sued upon were admissible in evidence. Since this judgment is not with regard to a relinquishment deed or a release deed, the ratio of the same does not apply to the present case”.

23. Further, in Narinder Kaur (supra), which appears to be the first judgment from this Court, the release deed was executed by the son in favour of his father, who had no subsisting share in the property. The Court was examining an application filed under Order XXXIX, Rules 1 and 2 of the CPC, to grant an injunction or not. Multiple relinquishment deeds were executed between the family members. In para 3, the Court has observed as under:

“Para 3.…At this stage I would only mention the basic legal fallacy in the document is that a Relinquishment perforce cannot be in favour of any particular co sharer; if it is to operate in favour of a particular party it amounts to a transfer and must be effected either by Sale Deed or by a Gift Deed, depending entirely on whether there was any consideration for such a transfer.”

24. The source of such observations appears to be the full bench judgment of the Andhra Pradesh High Court in The Board of Revenue (The Chief Controlling Revenue Authority) (supra)….

25.…….However, before the Full Bench of the Andhra Pradesh High Court, a different question was referred for decision, and hence, the aforementioned observations are not the ratio of the judgment.”

The division bench in Ramesh Sharma (Supra) has thus held as under:

“28. Therefore, the answer to the issue before us is in negative. Thus, the relinquishment of rights in a property by the sisters (co-owners) in favour of their brother (another co-owner) cannot be said to be a Gift for the purposes of the Stamp Act”.

“29. Further, it is emphasised here that the procedure contemplated by the Stamp Act, facilitates the collection of revenue for the State. The nomenclature of a document is not decisive for the purpose of adjudicating the liability to pay stamp”.

If the RDs are read even cursorily, it may appear that there is no economic consideration in executing RDs by the sisters and the sisters had plainly released their shares in favour of their brother. What may be noted further that even as per the Will executed by the deceased father, Ramesh Sharma had already become owner to the extent of 50% of the suit property and by way of RDs basically, the said fact was acknowledged. Moreover, as recitals of all RDs were identical and styled as release deeds in as much as the sisters through separate RDs had agreed to relinquish their respective rights in the suit property in favour of their brother and there was hardly time gap in executing all RDs. It was thus held as the RDs form part of a single transaction, and hence cannot be a single determinative factor for the RDs to be considered as Gift Deeds.

The appeal in Ramesh Sharma (Supra) was therefore allowed and order of ld Single Judge impugned before the Division bench in Ramesh Sharma (Supra) was thus, set aside.

In Anita Kumar (Supra) also, the FAO (OS) 130/2024 the correctness of order passed by the ld single judge, whereby, the relinquishment deed executed by the Mother in favour of her son on account of deficient stamp duty by treating that as a gift deed  was assailed before the Division bench. The main premise of the impugned order was to the effect that if a co-owner releases his or her share in favour of one of the co-owners, in the eventuality where there is more than one co-owner, then such a release can only be done through a gift deed.

In order to appreciate the whole gamut of the case vis a vis law it is deemed appropriate to narrate facts of the Anita Kumar (Supra) in nutshell.    

(1) The historical perspective of the suit property is as under:

(i) Shri V.K Gupta and Smt Saroj Gupta were the joint owner of the suit property;

(ii) On account of demise of shri V.K Gupta his share in the suit property was mutated in favour of the following Legal Heirs:

                    (a) Smt Saroj Gupta (wife)

(b) Shri Uday K Gupta (Son)

(c) Shri Sanjay Kumar (Son)-Husband of Ms Anita Kumar

(d) Shri Ajay Kumar (Son)

(2) Smt Saroj Gupta, vide a registered relinquishment deed had relinquished her 12.5% in favour of her son Sanjay Kumar and as such Sanjay Gupta after relinquishment held 25% share in suit property.

(3) Sanjay Kumar had breathed his last on 25.08.2013, but before that he had executed a registered Will dated 23.08.2013 in favour of his wife Smt Anita Kumar (Appellant/plaintiff)

(4) On account of dispute and efforts of co-owner in seeking to evict Smt Anita Kumar and her children from the possession of the suit property, thus, a suit for partition and injunction bearing CS (OS) No. 2104/2013 before Delhi High Court and a restraint order was passed. The aforesaid persons were the defendants in the said suit.

(5) The defendants in the suit after 10 years of pendency of suit had filed application u/s 33,35 and 38 of Indian Stamp Act, 1899 read with section 151 of Code of Civil Procedure seeking examination and impounding of the relinquishment deed as the same was allegedly in the nature of a gift deed and hence insufficiently stamped.

(6) According to the plaintiff, since, the defendants had raised objection after 10 years of filing of suit and after the said relinquishment deed was admitted into evidence and after admission/denial of documents and that the defendants cannot renege from their stated position.

The ld single judge had allowed the application, directing impounding of the document inter alia on the following grounds:

(i) The evidence in the case was yet to be recorded and hence, the defendants cannot be precluded from raising admissibility of document;

(ii) If a co-owner releases her share in favour of one co-owner, excluding other co-owner/s, then, such a release can only be done through a gift deed.

The appellant thus, being aggrieved, preferred appeal against the order passed by the ld single judge before the division bench on the following premise:

(i) The document had already been admitted in evidence and it was duly exhibited;

(ii) In view of Section 36 of Stamp Act, 1899, the admission of document cannot be questioned;

(iii) In view of judgments rendered in Hari Kapoor  (details below) a relinquishment deed cannot be treated as gift deed.

The respondent contended that merely, because admission/denial was conducted, a bar u/s 36 of Stamp Act shall not be attracted, since, the plaintiff was yet to lead evidence. Further , marking of document as “exhibit” in itself is not sufficient and cannot be treated as admission as per GM Sahul case (details below).

It may be apt to refer to the following issues framed by the Division Bench of Delhi High Court, craving for adjudication in Anita Kumar (Supra):

i. Whether a relinquishment/release deed executed by a mother, relinquishing some part of her share in favour of one of her sons, amounts to a gift deed attracting corresponding stamp duty as prescribed in the Indian Stamp Act ,1999?

ii. If the answer to the aforementioned issue is positive, then whether such a relinquishment deed is liable to be impounded under Section 35 of the Stamp Act,1899, by treating it as gift deed?

 

 

In Anita Kumar (Supra) with a view to make reference of law , it is apt to refer to the following judgments/precedents were referred to by the parties:

Reliance by the Petitioner

(i) Hari Kapoor Vs South Delhi Municipal Corporation 2019 SCC OnLine Delhi 11153;

(ii) Srichand Badlani Vs Govt of NCT of Delhi & Ors (2013) SCC OnLine 5128

Reliance by the Respondent

(i) G.M Shahul Hameed Vs Jayanthi R. Hegde (2024) 7 SCC 719;

(i) Javer Chand & Ors Vs Pukhraj Sharma AIR 1961 SCC 1655,

(iii) Avinash Kumar Chauhan Vs Vijay Krishna Mishra (2009) 2 SCC 532

(iv) Neeraj Arya Vs Rakesh Arya & Anr 2023 SCC OnLine Delhi 7816.

 

DISCUSSION ON IMPOUNDING OF DOCUMENT

Reference may be have to para no. 15 , 18 and 19 of Anita Kumar (Supra):

15. It is to be noted that the purpose of section 33 of Stamp Act, 1899, is to ensure payment of stamp duty for collecting revenue for the State. It is a curable defect, subject to making good the deficient stamp duty along with a penalty. In the present case, the suit property was jointly purchased by the Late Shri V.K Gupta and Late Smt Saroj Gupta. On the death of Late Shri V.K Gupta, his 50% share was inherited by his four class I heirs, including his widow and his three sons. Late Smt Saroj Gupta became the owner of 62.5% share as she was already a co-owner to the extent of 50% , whereas each son had acquired a share of 12.5.% % in the suit property. Late Smt Saroj Gupta relinquished 12.5% share in favour of Sanjay Kumar, one of her son vide a relinquishment deed dated 07.10.2009. After the unfortunate demise of Late Sanjay Kumar, his widow Smt Anita Kumar filed a suit for partition apart from other reliefs in the year 2013. The defendant in the year 2023, filed an application for impounding the Relinquishment Deed by treating it as gift deed. The ld single judge accepted the prayer and directed the plaintiff to produce the original relinquishment deed, which has been impounded during the pendency of the appeal.   

18. On a plain reading of the Relinquishment Deed, it becomes evident that the mother executed the Relinquishment Deed to release1/8 share in favour of her son, Late Sh Sanjay Kumar, and there was no economic consideration/transaction exchanged at the time of execution. Thus, Late Smt Saroj Gupta has, out of love and affection, relinquished her 1/8^th share in the suit property in favour of Late Sh Sanjay Kumar.

19. In the present case, the transaction in question does not fall within the definition of Article 23 A. If a person renounces a claim upon another person or against any specified property , the stamp duty of rs 100/- is payable, if the amount exceeds Rs 1000/- The release deed has been executed on a non judicial stamp paper of Rs 100/- which was registered on 07.10.2009 without any objection as a Relinquishment Deed by the Registering Authority.”

The Division bench in Anita Kumar (Supra has also distinguished Tripta Kaushik (Supra) in the following words:

.           20. For impounding the document, the ld Single Judge has relied upon Tripta Kaushik (Supra). In this case, a writ petition was filed under Article 226 of the Constitution of India, challenging the order passed by the Registering Authority on 05.03.2019, while impounding the relinquishment deed executed on 01.03.2019 by the son of the petitioner, shri Kapil Kaushik, in her favour. After discussing various judgments passed, the Court came to the conclusion that where the relinquishment of right by the co-owner is only in favour of one or more co-owners and not in favour of all, then, the document would be one of the gift/conveyance and not of release. The ld single judge further relied on Narinder Kaur (Supra), wherein the Court held that unless the relinquishment deed is properly stamped as a gift deed, it cannot be read in evidence.   

On the basis of discussion in Anita Kumar (Supra) it is held as under:

26.Therefore, laying down, as an abstract proposition of law, all the relinquishment deeds executed by a particular co-sharer(s) in favour of another co-sharer or some of the co-sharers, while excluding the remaining co-sharers are not relinquishment deeds, but gift deed, would not be appropriate.

28. From the abovementioned discussion, it is observed that the release deed can only feed title but cannot transfer title. In this case, late Sh. Sanjay Kumar became a co-sharer in the property on the death of his father, late Sh V.K Gupta in the year 2001.Hence, he had a title in the property. Similarly, his mother, Late Smt Saroj Gupta was also a co-owner. The transaction was between mother and son. Since, it was between the family members, the chances of economic consideration are remote. Hence, in this case, the Relinquishment Deed has only added a title to the already existing title of late Sanjay Kumar, Therefore, an error was committed in the impugned order by treating the Relinquishment Deed to be a deed of gift and directing it to be impounded.

It was also held in Anita Kumar (Supra) that declaring Relinquishment Deed as a Gift Deed for the purpose of payment of stamp duty without permitting the parties to lead evidence would not be appropriate.

The appeal was thus allowed by setting aside the order of ld Single Judge and reliance of Anita Kumar (Supra) was placed on a subsequent judgment of the hon’ble Division bench of Delhi High Court in Ramesh Sharma (Supra) with the similar result. What therefore emerges, clearly, is that the notion as emanated from the earlier judgments rendered by the single judge of Delhi High Court that relinquishment deed by one of the co-owner of a property to other co-owner or co-owners, while excluding some other co-owner or co-owners shall not be a relinquishment deed but shall be a Gift Deed necessitating payment of stamp duty is not correct. However, a caveat was added by the Division bench in Anita Kumar (Supra) that concluding a relinquishment deed as a gift deed prior to leading of evidence shall not be correct, thus, the element of leading evidence and thereafter coming to a proper conclusion has also been the essence of the division bench judgment.  

                                                -----

                                      Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

Family Settlement: registration, enforceability & stamp duty

 

Family Settlement: registration, enforceability & stamp duty

The family settlement, to many, would appear to be a vexed issue and that is not without reason, in as much as, the legal aspect of the family settlement as evolved over the years have also faced some collateral situations, leading to ambiguity. For instance, whether a family settlement, shall require registration, as a mandate of law or a family settlement can also be executed and enforced without registration? If stamp duty is payable on a family settlement, whether any exception is carved out when no stamp duty is payable, if so, what are those circumstances? What are oral family settlement and its legal implication? These are some aspects which shall be delved, deliberated and the answers shall be found out.   

In the very anvil a judgment of Delhi High Court captioned as Himani Walia Vs Hemant Walia bearing no. Ex P 26/2019 is worthy of reference.   

The fact of Himani Walia (Supra) in nutshell may be culled out as under:

(i) The execution petition emanated from a judgment and decree in a suit seeking partition and other reliefs, being CS (OS) No. 442/2018 in respect of estate of Late Sh. S.S. Walia , filed by his legal heirs.

(ii) The deceased had a large number of moveable and immovable assets which included the business of a petrol station, export business, various immovable properties  in prime localities in Delhi and Noida, fixed deposit receipts and bank accounts, paintings, antiques, artworks, shares in various companies and vehicles, etc.

(iii) During the pendency of the suit itself, the three children and the wife of the deceased with the assistance of their Counsels had arrived at a settlement.

(iv) The terms of settlement were incorporated into the ‘Memorandum of Family Settlement and Arrangement’.

(v) The settlement which was agreed upon by the parties had merely been put into writing in the said ‘Memorandum of Family Settlement and Arrangement’ dated 16th October, 2018.

(vi) The said family settlement was approved and a decree in terms thereof was passed by the Delhi High, vide order dated 16th October, 2018.

(vii) The family settlement and order passed in this regard clearly reflected that the parties had orally agreed to partition and the manner thereof, are set out below:

‘Memorandum of Family Settlement and Arrangement’ dated 16th October, 2018: “AND WHEREAS for the sake of records and to serve as an aid memoir, the parties hereto have decided to execute these presents to reduce the decisions taken by them with regard to the inter se distribution and allocation of the property and assets in writing.”

(viii) While decree sheet was being prepared, the Registry of the High Court called upon the decree holder to furnish valuation reports of the assets for the purpose of calculating the stamp duty.

(ix) The decree holder was seeking waiver of payment of stamp duty in respect of the assets inherited by the various parties from the estate of Late Sh. S.S. Walia and his sister Dr. Urmila Walia.

(x) The applicant/DH had received notices from the Registry of the High Court of Delhi, as also from the Office of the Assistant Collector (Kalkaji), New Delhi for payment of stamp duty and according to decree holder the notices should be cancelled.

The hon’ble Delhi High Court in Himani Walia (Supra) has noted that the legal heirs of the deceased persons became part owners of the assets belonging to the two deceased individuals i.e., Mr. S.S. Walia and Dr. Urmila Walia, immediately upon their demise. The said assets were not transferred to the legal heirs, but have been inherited by them upon the demise of Mr. S.S. Walia and Dr. Urmila Walia. The ‘Memorandum of Family Settlement and Arrangement’ dated 16th October, 2018, was merely a record of the oral agreement as to the mode and manner of partition. Thus. it was in the nature of a family settlement which was arrived at between the parties. The partition had been agreed upon between the parties by way of oral agreement with the intervention of their counsels. The memorandum of settlement does not itself partition the properties, but only records the same as an aid of memory.

                                Discussion & Law

As per the settled proposition of law as regards a family settlement if an understanding has been arrived at between the parties previously, and it is only written down in a document after the settlement has been arrived at, the same would not require registration. The reference in this regard could be of Kale & Ors. v. Deputy Director of Consolidation & Ors. [3 (1976) 3 SCC 119].

The Supreme Court after placing reliance on Kale (Supra) in Sita Ram Bhama v. Ramvatar Bhama [AIR 2018 SC 3057] has categorically held as under:

“10. The only question which needs to be considered in the present case is as to whether document dated 09.09.1994 could have been accepted by the trial court in evidence or trial court has rightly held the said document inadmissible. The Plaintiff claimed the document dated 09.09.1994 as memorandum of family settlement. Plaintiff's case is that earlier partition took place in the life time of the father of the parties on 25.10.1992 which was recorded as memorandum of family settlement on 09.09.1994. There are more than one reasons due to which we are of the view that the document dated 09.09.1994 was not mere memorandum of family settlement rather a family settlement itself. Firstly, on 25.10.1992, the father of the parties was himself owner of both, the residence and shop being self-acquired properties of Devi Dutt Verma. The High Court has rightly held that the said document cannot be said to be a Will, so that father could have made Will in favour of his two sons, Plaintiff and Defendant. Neither the Plaintiff nor Defendant had any share in the property on the day when it is said to have been partitioned by Devi Dutt Verma. Devi Dutt Verma died on 10.09.1993. After his death Plaintiff, Defendant and their mother as well as sisters become the legal heirs under Hindu Succession Act, 1955 inheriting the property being a class I heir. The document dated 09.09.1994 divided the entire property between Plaintiff and Defendant which document is also claimed to be signed by their mother as well as the sisters. In any view of the matter, there is relinquishment of the rights of other heirs of the properties, hence, courts below are right in their conclusion that there being relinquishment, the document dated 09.09.1994 was compulsorily registrable Under Section 17 of the Registration Act”.

It is sufficient to refer to the judgment of this Court in Kale and Ors. v. Deputy Director of Consolidation and Ors. MANU/SC/0529/1976 : (1976) 3 SCC 119. The propositions with regard to family settlement, its registration were laid down in paragraph 10:

“10. In other words to put the binding effect and the essentials of a family settlement in a concretised form, the matter may be reduced into the form of the following propositions:

(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family;

(2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence;

(3) The family arrangement may be even oral in which case no registration is necessary;

(4) It is well settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of Section 17(2) of the Registration Act and is, therefore, not compulsorily registrable;

(5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the courts will find no difficulty in giving assent to the same;

(6) Even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement”.

The Division Bench of Delhi High Court has held in Nitin Jain v. Anuj Jain & Anr. [ILR (2007) II DELHI 271] that a memorandum recording an oral family settlement which has already taken place is not an instrument dividing or agreeing to divide property and is therefore, not required to be stamped. The relevant observations from the said judgment have been extracted below:

“6. A Partition Deed is an instrument of partition and has been defined in Section 2(15) of the Stamp Act. The said investment is chargeable to duty as per Schedule 1. Article 45 of the Stamp Act. Stamp duty payable on an instrument of partition is @ 1% of the value of the property. A decree of partition passed by a Court is also an instrument of partition as defined in Section 2(15) of the Stamp Act, which reads as under: "2(15). "Instrument of partition" means any instrument whereby co-owners of any property divide or agree to divide such property in severalty, and includes also a final order for effecting a partition passed by any revenue-authority or any Civil Court and an award by an arbitrator directing a partition."

According to Delhi High Court, though, the Courts have recognised oral partitions in cases of joint families. An oral partition is not an instrument of partition as contemplated under Section 2(15) of the Stamp Act. As it is not an instrument, thus, on an oral partition no stamp duty is payable. It is thus held in Himani Walia (Supra) as under:

“8. The Courts have recognised that it is legally permissible to arrive at an oral family settlement dividing/partitioning the properties and thereafter record a memorandum in writing whereby the existing joint owners for the sake of prostriety record that the property has been already partitioned or divided. The memorandum does not by itself partition the properties but only records for information what has already been done by oral partition. The memorandum itself does not create or extinguish any rights. A record of oral partition in writing is created. The writing records a pre existing right and does not by itself partition the properties for the first time. As the memorandum only records oral partition which has already taken place but does not in praesenti create any right, it cannot be treated as an instrument creating partition. [Refer. Tek Bahadur Bhujil v. Debi Singh Bhujil and others reported in AIR 1966 SC 292), Bakhtawar Singh v. Gurdev Singh reported in (1996) 9 SCC 370, Kale v. Dy. Director Consolidation reported in (1976) 3 SCC 119, Roshan Singh v. Zile Singh reported in AIR 1988 SC 881 and Bachan Singh v. Kartar Singh and others reported in 2001 (10) JT (SC) 64.]”.

It was thus concluded in Himani Walia (Supra) as under:

9. In view of the legal position explained above. it follows that a decree of partition is an instrument of partition and therefore is required to be stamped under Schedule I of Article 45 r/w Section 2(15) of the Stamp Act. However, an oral family settlement dividing or partitioning the property is not required to be stamped. Similarly, a memorandum recording an oral family settlement which has already taken place is not an instrument dividing or agreeing to divide property and is therefore not required to be stamped.”

“10. Thus, it is clear that family settlements are not required to be compulsorily registered, and stamp duty is not required to be compulsorily paid in respect of the same, when the settlement has been arrived at initially as an oral partition and is thereafter put into writing for the purpose of information. Considering the said position, it is clarified that there is no requirement of valuation of the suit properties in the present case. The payment of stamp duty by the legal heirs of Late Sh. S.S. Walia and Dr. Urmila Walia shall stand waived. Notices issued by the various authorities shall also stand cancelled and withdrawn, without any further orders”.

As illustrated above and as is held in several judgments referred to above, the parameter of family settlement its enforceability and whether or not it is liable to be registered and its effect has been answered in clear terms.

                                      ------

                             Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

 

Commercial Courts Act- Invocation of section 12 A IS mandatory for a counter claim?

 

Commercial Courts Act- Invocation of section 12 A IS mandatory for counter claim?

The Commercial Courts Act 2015 (In short referred to as “CCA”) has its own rigour and with a view to ensure speedy trial in such cases, the compliance of its terms is perceived to be mandatory. The aim and object of the CCA is too obvious to need any further elucidation herein. The Section 12 A of CCA entails mandate of pre-litigation mediation, in case, the suit contemplated to be preferred does not seek urgent relief. Even the urgent relief sought to be prayed for, should be emanating from the plaint as such and it should not merely be a ritualistic exercise, if a plaintiff seeks to extricate itself from the rigour of Section 12 A of CCA 2015. In all cases, where no urgent relief is prayed for, the invocation of section 12 A of CCA is held to be mandatory. The underlying object, of course, in the context is to explore the possibility of the prospective resolution of dispute. However, interesting situation herein as emerged is what if the counter claim is filed by the defendant in a commercial suit? Whether a counter claim which is to be registered as a separate suit by the mandate of law, in the context of section 12 A of CCA, whether at that stage, also, the pre-litigation mediation shall be compulsory? Or, the requirement of pre-litigation mediation, as contained in section 12 A of CCA shall only relate to filing of a suit and not to a counter claim?

 

Statement of Objects and Reasons

The Statement of Objects and Reasons of the Amending Act which brought into existence section 12-A of Commercial Courts Act 2015.

“Statement of Objects and Reasons. —The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 was enacted for the constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High Courts for adjudicating commercial disputes of specified value and for matters connected therewith or incidental thereto.

The global economic environment has since become increasingly competitive and to attract business at international level, India needs to further improve its ranking in the World Bank “Doing Business Report” which, inter alia, considers the dispute resolution environment in the country as one of the parameters for doing business. Further, the tremendous economic development has ushered in enormous commercial activities in the country including foreign direct investments, public private partnership, etc. which has prompted initiating legislative measures for speedy settlement of commercial disputes, widen the scope of the courts to deal with commercial disputes and facilitate ease of doing business. Needless to say that early resolution of commercial disputes of even lesser value creates a positive image amongst the investors about the strong and responsive Indian legal system.

It is, therefore, proposed to amend the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

As Parliament was not in session and immediate action was required to be taken to make necessary amendments in the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, to further improve India's ranking in the “Doing Business Report”, the President promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018 on 3-5-2018. It is proposed to introduce the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Bill, 2018 to replace the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018, which inter alia, provides for the following namely—

(i) to reduce the specified value of commercial disputes from the existing one crore rupees to three lakh rupees, and to enable the parties to approach the lowest level of subordinate courts for speedy resolution of commercial disputes;

(ii) to enable the State Governments, with respect to the High Courts having ordinary original civil jurisdiction, to constitute commercial courts at District Judge level and to specify such pecuniary value of commercial disputes which shall not be less than three lakh rupees and not more than the pecuniary jurisdiction of the district courts;

(iii) to enable the State Governments, except the territories over which the High Courts have ordinary original civil jurisdiction, to designate such number of Commercial Appellate Courts at district judge level to exercise the appellate jurisdiction over the commercial courts below the district judge level;

(iv) to enable the State Governments to specify such pecuniary value of a commercial dispute which shall not be less than three lakh rupees or such higher value, for the whole or part of the State; and

(v) to provide for compulsory mediation before institution of a suit, where no urgent interim relief is contemplated and for this purpose, to introduce the pre-institution mediation and settlement mechanism and to enable the Central Government to authorise the authorities constituted under the Legal Services Authorities Act, 1987 for this purpose.

Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018

In conjunction with the provision as contained in Section 12 A of CCA 2015, the rules framed under the CCA 2015 may also have to be referred to for true import.

Rule 3. Initiation of mediation process.—

(1) A party to a commercial dispute may make an application to the Authority as per Form 1 specified in Schedule I, either online or by post or by hand, for initiation of mediation process under the Act along with a fee of one thousand rupees payable to the Authority either by way of demand draft or through online;

(2) The Authority shall, having regard to the territorial and pecuniary jurisdiction and the nature of commercial dispute, issue a notice, as per Form 2 specified in Schedule I through a registered or speed post and electronic means including e-mail and the like to the opposite party to appear and give consent to participate in the mediation process on such date not beyond a period of ten days from the date of issue of the said notice.

(3) Where no response is received from the opposite party either by post or by e-mail, the Authority shall issue a final notice to it in the manner as specified in sub-rule (2).

(4) Where the notice issued under sub-rule (3) remains unacknowledged or where the opposite party refuses to participate in the mediation process, the Authority shall treat the mediation process to be a non starter and make a report as per Form 3 specified in the Schedule I and endorse the same to the applicant and the opposite party.

(5) Where the opposite party, after receiving the notice under sub-rule (2) or (3) seeks further time for his appearance, the Authority may, if it thinks fit, fix an alternate date not later than ten days from the date of receipt of such request from the opposite party.

(6) Where the opposite party fails to appear on the date fixed under sub rule (5), the Authority shall treat the mediation process to be a non starter and make a report in this behalf as per Form 3 specified in Schedule I and endorse the same to the applicant and the opposite party.

(7) Where both the parties to the commercial dispute appear before the Authority and give consent to participate in the mediation process, the Authority shall assign the commercial dispute to a mediator and fix a date for their appearance before the said mediator.

(8) The Authority shall ensure that the mediation process is completed within a period of three months from the date of receipt of application for pre-institution mediation unless the period is extended for further two months with the consent of the applicant and the opposite party.

As regards the definition of “opposite party” the same finds mention in Rule 2(g) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018. The Opposite Party means a party against whom relief is sought in a commercial dispute‖. Palpably, the scheme of the Rules and the intent of the Legislature was never to oust the requirement of pre-institution mediation and settlement for any party and wherever there is a commercial dispute, the concerned applicant must initiate mediation process against the “opposite party” within the definition in Rule 2(g) in a procedure laid out in Rule 3 of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.

The Delhi High Court in a matter captioned as Aditya Birla Fashion and Retail Ltd Vs Mrs Saroj Tandon CM(M) 459/2023 had the occasion to comprehensively deal with the issue and adjudicated it. The original plaintiff before the District Judge (Commercial Courts) had raised the plea of rejection of plaint (counter claim), under Order VII Rule 11 of Code of Civil Procedure, for want of mandatory compliance as envisaged under Section 12 A CCA 2015, on the premise that a counter claim is registered as a suit and therefore, pre-institution mediation shall be a must. The ld District Commercial Court, however, had dismissed the plea of original plaintiff. The original plaintiff, thus, had approached the high court under Article 227 of the Constitution of India, impugning the said order, while contending that even in counter claim, the pre-litigation mediation shall be obligatory.

 

Whether counter claim shall be treated as a separate suit?

In the context as set out above, it is imperative to reproduce the provisions as contained in Order VIII Rule 6A CPC and that reads as under: ―

(1) A defendant in a suit may, in addition to his right of pleading a set off under rule 6, set up, by way of a counter claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit, but, before the defendant has delivered his defence or before the time limited for delivering his defence has expired, whether such counterclaim is in the nature of a claim for damages or not;

Provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court.

(2) Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim. (3) The plaintiff shall be at liberty to file a written statement in answer to the counter-claim of the defendant within such period as may be fixed by the Court.

(4) The counter claim shall be treated as a plaint and governed by the rules applicable to plaints.

The Order IV Rule 1 & 2 CPC requires every plaint to be registered by the Court. The said provision reads as under: ―

1. Suit to be commenced by plaint –

(1) Every suit shall be instituted by presenting a plaint in duplicate to the Court or such officer as it appoints in this behalf.

(2) Every plaint shall comply with the rules contained in Orders VI and VII, so far as they are applicable.

(3) The plaint shall not be deemed to be duly instituted unless it complies with the requirements specified in subrules (1) and (2)

2. Register of suits-

The Court shall cause the particulars of every suit to be entered in a book to be kept for the purpose and called the register of civil suits. Such entries shall be numbered in every year according to the order in which the plaints are admitted.

From a bare perusal of the aforesaid provisions leaves no scope of doubt that a counter-claim is also a suit in its individual and distinct capacity. No doubt, a counter claim shall be predicated on the confines of order VIII Rule 6A CPC. Once, a counter claim is lodged it has to be treated as a regular suit for all practical and procedural purposes. In commercial suits also, it makes no difference, since a counter claim shall continue to be a counter claim in a nature of separate suit. What thus emerge is that any such counter-claim, pertaining to a commercial dispute has to, mandatorily, follow the rules and procedures prescribed for a commercial suit. Therefore, like any other commercial suits, a counter claim shall also have to mee the stipulated rigors scrupulously, as may be prescribed for any general commercial suit. Thus, no exception could be carved out on a counter claim, simply because, it is a counter-claim and therefore, it cannot be relieved of adhering to any such legal obligation. What is also implicit is that once a counter claim is filed, the rules and procedures for filing written statement, prescribed time-line for filing the same, mode and manner of filing the same and the mandate of filing requisite affidavit and all other stipulations such as declaration in the nature of statement of truth and admission denial affidavits would also be required to be adhered to, with no exception, by the defendants  concerned in the counter claim. Needless to say that the Commercial Courts Act 2015 and Civil Procedure Code (CPC) do not contain any provision providing for any different treatment for such counter-claim and even during the trial till its final adjudication, the rules shall have to remain the same and similar for any plaint and counter claim, as the case may be.

                        SECTION 12 A OF CCA & ITS APPLICABILITY

As it is made abundantly clear that there is a pre-requisite to abide by the mandatory provision of Section 12-A of the Commercial Courts Act, prior to the filing of the counter-claim and hence, the moot question is can it be given a go bye?

Section 12-A of Commercial Courts Act reads as under: -

12-A. Pre-institution mediation and settlement.

(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.

(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):

Provided that the period of mediation may be extended for a further period of two months with the consent of the parties: Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963).

(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of Section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).‖

RELIANCE ON PATIL AUTOMATION

No doubt, counter claimant shall have an indefeasible legal right to participate in mediation‟ prior to the institution of counter-claim. The Hon‟ble Supreme Court in Patil Automation Private Limited v. Rakheja Engineers Private Limited: 2022 SCC OnLine SC 1028 has, categorically held that the process is mandatory and its non- compliance would entail rejection of the plaint. The relevant pars read as under: -

“48. In contrast, Section 12-A cannot be described as a mere procedural law. Exhausting pre-institution mediation by the plaintiff, with all the benefits that may accrue to the parties and, more importantly, the justice delivery system as a whole, would make Section 12-A not a mere procedural provision. The design and scope of the Act, as amended in 2018, by which Section 12-A was inserted, would make it clear that Parliament intended to give it a mandatory flavour. Any other interpretation would not only be in the teeth of the express language used but, more importantly, result in frustration of the object of the Act and the Rules….”

74. It is noteworthy that Section 12-A provides for a bypass and a fast track route without for a moment taking the precious time of a court. At this juncture, it must be immediately noticed that the lawgiver has, in Section 12-A, provided for pre-institution mediation only in suits, which do not contemplate any urgent interim relief. Therefore, pre-institution mediation has been mandated only in a class of suits. We say this for the reason that in suits which contemplate urgent interim relief, the lawgiver has carefully vouchsafed immediate access to justice as contemplated ordinarily through the courts. The carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law. The load on the Judges is lightened. They can concentrate on matters where urgent interim relief is contemplated and, on other matters, which already crowd their dockets.

83. We may proceed on the basis that if the suit is brought without complying with Section 12-A, where no urgent interim relief is sought, may not in one sense, affect the legal right of the defendant. But this argument overlooks the larger picture which is the real object of the law. This object is not to be viewed narrowly with reference to the impact on the parties alone. This is apart from also remembering that if the parties were to exhaust mediation under Section 12-A, the opposite side may be, if mediation is successful, saved from the ordeal of a proceeding in court, which, undoubtedly, would entail costs, whereas, the mediation costs, as we have noticed, is minimal, and what is more, a one-time affair, and still further, to be shared equally between the parties. Each time the plaintiff is compelled to go in for mediation under Section 12-A there is a ray of hope that the matter may get settled. The chief advantage and highlight of mediation is that it is a win-win for all sides, if the mediation is successful. Therefore, it cannot, in one sense, be argued that no legal right of the defendant is infracted.”

113.1. We declare that Section 12-A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12-A must be visited with rejection of the plaint under Order 7 Rule 11. This power can be exercised even suo motu by the court as explained earlier in the judgment. We, however, make this declaration effective from 20-8-2022 so that stakeholders concerned become sufficiently informed. Still further, we however direct that in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration. Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff.

113.2. Still further, we however direct that in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration. Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff.

113.3. Finally, if the plaint is filed violating Section 12-A after the jurisdictional High Court has declared Section 12-A mandatory also, the plaintiff will not be entitled to the relief.

114. In civil appeal arising out of SLP (C) No. 14697 of 2021 taking note of the fact that it is a case where the appellant would have succeeded and the plaint rejected, it is also necessary to order the following. The written statement filed by the appellant shall be treated as the application for leave to defend filed within time within the meaning of Order 37 and the matter considered on the said basis.

CONTENTIONS OF THE PARTIES &

FINDING OF THE HIGH COURT

The finding of the Delhi High Court in Aditya Birla Fashion and Retail Ltd (Supra) based on the rival contentions are as under:

The contentions of defendant/counter claimant:

(i) Though, it was contended by the defendant/counter claimant in the above case that both the parties have already mediated the matter at the stage of institution of the originally filed suit and such process proved to be unsuccessful or non-starter, the same parties cannot be compelled to go through the entire process of mediation all over again and then to wait for another report unnecessarily which would be, in all probabilities, the same one, as was in the earlier round.

(ii) Moreover, such a compulsion would only lead to absurdity and undue harassment for the parties, thereby defeating the intention behind the provision. Thus, in any such situation, the gates of mediation should be deemed to be closed, thereby making provision of pre-institution mediation an optional ritual.

(iii) To initiate pre-institution mediation before filing of a counter-claim may be akin to a futile exercise and may run counter to the objective of speedy trial and, therefore, the provision cannot be stretched to be interpreted to be made applicable for counter claim and the provision is required to be read in its liberal sense.

FINDINGS OF THE HIGH COURT

(i) Admittedly, before filing of any commercial suit, which does not contemplate any urgent relief, the concerned plaintiff has to mandatorily go through the process of pre-institution mediation. During such process, the opposite side may or may not appear. The eventual outcome may be either that of “non-starter‟ or it may be settled.

(ii) During the first process of mediation, the process was sent to counter-claimant twice to participate, but, it did not choose to appear and, therefore, it was returned as a non starter‟.

(iii) The said counter claimant who avoided the process of prior institution cannot be oblivious to the same requirement i.e the obligatory requirement, when it comes to his own suit, on the pretext that such remedy has been exhausted.

(iv) Though, it may be reflective of total disinclination of the defendant/counter claimant, towards any settlement, still, the indispensable provision cannot be kept aside on whims and fancies of a party to the lis.

(v) Merely because, such option was availed/ attempted to be availed in the initial stage and proved to be unsuccessful or returned non-starter, would not suggest and signify that any counter-claimant can straightaway file a commercial suit, not contemplating any urgent relief.

(vi) It is difficult to fathom that in counter-claim, the nature of relief can be dissimilar and the subject matter may also be somewhat different. The approach of the original plaintiff in the main suit cannot be anticipated in a mechanical manner. Merely because the defendant, in the earlier round, did not show any interest in settling the matter would not ipso facto mean that either such defendant (counter claimant) is relieved of availing such mandate of law or that it would be an illusory exercise on the assumption that its adversary may also, in all likelihood, adopt similar approach or tactic and may not participate in such process. The state of mind of any such party cannot be decoded mechanically.

(vii) The mere fact that the same parties had already participated or had opportunity to participate in the pre-institution mediation would not render the provision nugatory in the context of any such counter-claim, not contemplating any urgent relief.

(viii)  It may also happen that main suit might be contemplating some urgent relief, whereas, the counter-claim, emanating from such suit, may not. Thus, in such a situation, in a main suit, whereas pre-institution mediation may not be necessary, it would, nevertheless, become obligatory for the counter-claimant to exhaust such process first and then to file.

(ix) In a given situation, a suit may, though, not get settled but a counter-claim, emanating from there, may get settled during mediation process and presumption of foreclosing the option is not warranted.

In the perspective as set out above, the Delhi High Court in Aditya Birla Fashion and Retail Ltd (Supra) has held as under:

“50. All in all, merely because the parties had earlier opportunity would pale into significance, particularly in view of the fact that the subject matter of counter-claim cannot always be envisioned during the earlier round of pre-institution mediation. The nomenclature of the parties gets reversed and the issues may also be diverse. Of course, when parties participate, they can settle their disputes in a comprehensive manner and can, very well, go even beyond. But, in that case, when there is a comprehensive settlement, there is, virtually, no chance of any counter claim being filed”.

The objective behind pre-institution mediation is a benevolent one. It is thus held:

54. It does not frustrate speedy trial at all. On the contrary, it aims and visualizes a situation where there may not be institution of any fresh case, once the matter is settled through such pre-institution mediation. 55. Thus, it cannot be labelled as a futile exercise.

56. Moreover, there is no point in construing a mandatory provision liberally. This would rather contradict and undermine the legislative mandate as such (mis)interpretation would transform its nature from “mandatory‟ to “optional‟.

 

The High Court had while adjudicating the petition as per above had also referred as under:

61. This court may, however, usefully refer to Harey Krishna Corporation Versus Servotech Power Systems Ltd. and Another: 2024 SCC OnLine Del 3526. In the above recent pronouncement, the learned Division bench of this Court while referring to other precedents of this court, reiterated the mandatory nature of section 12A of Commercial Courts Act and also held the cut-off date, in context of rejection of suit, as 20^th August, 2022, as stated in Patil Automation Private Ltd. (supra).

62. Therefore, it will be in the fitness of things, if the abovesaid prospective date i.e. 20th August, 2022, as declared in Patil Automation Private Ltd. (supra), is held as cut-off date for the case in hand as well.

It was thus concluded as under:

57. In view of above said discussion, it clearly emerges out that process of pre-institution mediation is mandatory for every suit involving a commercial suit and no distinction can be drawn when it comes to a counter-claim involving a commercial dispute and not contemplating any urgent relief. As per the mandate of Patil Automation Private Ltd. (supra), any such suit, which has been filed without taking recourse of Section 12-A of Commercial Courts Act, needs to be rejected under Order VII Rule 11 CPC”.

Though, the Delhi High Court in a detailed judgment has held that even in counter claim, the pre-institution mediation in terms of Section 12 A of The Commercial Courts Act 2015 (as amended in 2018) shall be mandatory, still, the matter was agitated before the Supreme Court in Special Leave Petition bearing SLP (Civil) No.25893/2024 and the same was dismissed in limine vide order dated November 11^th 2024.

THE DIVISION BENCH RULING

The aforesaid issue remained far from settled, though. The Division bench of Delhi High Court, however, in spite of above, had further deliberated on the aspect.  The hon’ble Division bench in a matter reported as Sanjana Agarwal Vs Namoshivai Apparels Pvt Ltd 2024 SCC Online Del 9272 (judgment rendered on 24^th December 2024) has held that in a counter claim pre-institution mediation shall not be necessary. What may be noted that the though the Supreme Court has earlier upheld the judgment in Aditya Birla Fashion Retail Ltd (Supra), but that was at the stage of granting of leave itself and no order on merit was passed in the context. The Division bench of Delhi High Court has analysed the object and statement of reasons of the CCA and law enunciated in this regard.

Reliance was placed on:

(i) Patil Automation Private Limited v. Rakheja Engineers Private Limited: 2022 SCC OnLine SC 1028 = (2022) 10 SCC 1

(ii) Yamini Manohar vs. T.K.D Keerthi 2024 (5) SCC 815

In para no.23 in Sanjana Agarwal (Supra) the Division bench has observed in the context of pre-institution mediation vis a vis on prayer for urgent/interim relief as under:

23. The Supreme Court in the judgment of Yamini Manohar vs. T.K.D Keerthi, relying on the M/s. Patil Automation case, has held that pre-litigation mediation is mandatory unless the suit contemplates urgent relief. It was further held that a plaintiff should not be permitted to file an application for interim relief as a subterfuge to wriggle out of the requirement of mandatory pre-institution mediation. The Court held that in order that the provision is not bypassed, the learned Commercial Court has a role, although a limited one, to examine whether the suit contemplates an urgent relief so as to keep a check that legislative intent behind the enactment of Section 12A of the CC Act is not defeated. The relevant extract of the decision in Yamini Manohar case is set out below:

“11. Having stated so, it is difficult to agree with the proposition that the plaintiff has the absolute choice and right to paralyse Section 12 A of the CC Act by making a prayer for urgent interim relief. Camouflage and guise to bypass the statutory mandate of pre litigation mediation should be checked when deception and falsity is apparent or established. The proposition that the commercial courts do have a role, albeit a limited one, should be accepted, otherwise it would be up to the plaintiff alone to decide whether to resort to the procedure under Section 12-A of the CC Act. An “absolute and unfettered right” approach is not justified if the pre-institution mediation under Section 12-A of the CC Act is mandatory, as held by this Court in Patil Automation [Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1 : (2023) 1 SCC (Civ) 545].

12. The words “contemplate any urgent interim relief” in Section 12 A(1) of the CC Act, with reference to the suit, should be read as conferring power on the court to be satisfied. They suggest that the suit must “contemplate”, which means the plaint, documents and facts should show and indicate the need for an urgent interim relief. This is the precise and limited exercise that the commercial courts will undertake, the contours of which have been explained in the earlier paragraph(s). This will be sufficient to keep in check and ensure  that the legislative object/intent behind the enactment of Section 12 A of the CC Act is not defeated.”

25. There is no cavil that under the provisions of the Code of Civil Procedure, 1908, a counter-claim is to be treated as a plaint and governed by the rules applicable to plaint. However, in the case of commercial disputes to say that each counter-claim will be subject to pre-institution mediation process separately when the Plaintiff has already exhausted the remedy of pre-institution mediation, may not be apposite. The object of the CC Act is to ensure speedy resolution of commercial disputes to accelerate economic growth and improve the international image of the Indian Justice System and to restore the faith of the investors. Once a party has taken steps to exhaust the remedy of pre-institution mediation to then ask the opposite party in a case where the subject matter of dispute is entirely the same, to once again undertake pre-institution mediation, prior to filing its counter-claim would defeat the very purpose of the CC Act and delay adjudication of the commercial dispute between the parties.

The division bench in Sanjana Agarwal (Supra) has further held as under:

“26. In the present case, non-starter report which is available shows that the service of the pre-institution mediation was done through email to NAPL and that there was no appearance of NAPL leading to the closure of the pre-institution mediation”.

“26.1 There is another reason as well. In the present case as both the plaint and the counter-claim emanate from the same series of transactions between the parties. The dispute revolved around the 5 disputed invoices and to that extent the counter-claim is an integral part of NAPL’s defence to Molmek’s claim as articulated in the plaint. In such a scenario, to relegate the parties a period to a second round of pre institution mediation would be contrary to the object of the CC Act for a speedy resolution of commercial disputes”.

“26.2 In any event, as stated above, although initially an objection on this aspect was taken by Molmek before the learned Commercial Court, Molmek conceded that the remedy of pre-institution mediation prior to filing the counter-claim was not requisite. Thus, Molmek is now precluded from raising such a challenge”.

                                                REMARK

What bears emphasis herein is that the hon’ble Division bench of Delhi High Court in Sanjaa Agarwal (Supra) has categorically held in para 26.1 that it is not worthwhile to relegate the parties for second tier of pre-institution mediation, as regards the counter claim in the above term. That being so, the judgment in Aditya Birla Fashion Retail Ltd (Supra) in essence, appears to have been overruled in as much as it is held that in a counter claim there is no need to go for pre-institution mediation, being not mandatory for the counter claim.

The situation is thus crystal clear. In the event of seeking urgent interim relief, the mandate of Section 12 A of CCA 2015 (as amended in 2018 shall not be applicable, though the relief has to be urgent and emergent and in real sense of term and not just to obviate the rigour of section 12 A of CCA. Secondly, in case, there is no emergent/urgent relief sought in a plaint invocation of pre-institution mediation as contemplated under Section 12 A of CCA shall be mandatory. The counter claim, for all purposes shall have to be treated as a suit and if that is so, even in respect of counter claim, pre-institution mediation may be necessary and it was also held so by the Delhi High Court in Aditya Birla Fashion Retail Ltd (Supra), however, in Sanjana Agarwal (Supra), the Division bench of Delhi High Court has held that in the event of counter claim, the rigour of section 12 A CCA shall not be applicable and hence, as it stands today, the invocation of section 12 A of CCA in counter claim shall not be mandatory in the perspective as set out in Sanjana Agarwal (Supra) case.

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                        Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com