Impleadment of Assignee After 27 Years Denied: Supreme Court on Specific Performance Suits – LIC vs. Sanjeev Builders (24 October 2017)

LEGAL ISSUE: Whether an assignee can be impleaded in a suit for specific performance after an inordinate delay. CASE TYPE: Civil – Specific Performance. Case Name: Life Insurance Corporation of India vs. Sanjeev Builders Pvt. Ltd. And Ors. [Judgment Date]: 24 October 2017

Date of the Judgment: 24 October 2017

Citation: Civil Appeal No. of 2017 (Arising out of SLP(C) No.614 of 2015)

Judges: Kurian Joseph, J., R. Banumathi, J. The judgment was authored by R. Banumathi, J.

Can a party be added to a lawsuit after a very long delay, especially when it’s a case about enforcing a contract? The Supreme Court of India recently addressed this important question in a case involving the Life Insurance Corporation of India (LIC) and a real estate company. The core issue was whether a third party, who claimed to have acquired rights to a property involved in a lawsuit, could be added as a plaintiff after a delay of 27 years. This case clarifies the rules for adding parties to ongoing lawsuits, particularly in cases about specific performance of contracts.

Case Background

In 1979, Life Insurance Corporation of India (LIC) allegedly agreed to sell a property to Sanjeev Builders Pvt. Ltd. (Respondent No. 1). However, LIC claimed that this agreement was canceled in 1984. In 1986, Sanjeev Builders filed a lawsuit against LIC, seeking specific performance of the sale agreement or, alternatively, a refund with interest. Later, Sanjeev Builders assigned its interest to another company, Kedia Construction Company Limited (Respondent No. 3), in 1987. For many years, the case remained pending. In 2014, Kedia Construction sought to be added as a plaintiff to the suit, claiming rights through the assignment.

Timeline:

Course of Proceedings

The Single Judge of the High Court allowed Kedia Construction to be added as a plaintiff, stating that the issue of whether the rights could be transferred would be decided during the trial. The court also noted that there was no requirement for permission from LIC for the assignment and that delay cannot be a ground for not impleading a party. The Single Judge relied on judgments of the Madras High Court in *Mrs. Saradambal Ammal v. E. R. Kandasamy Goundar and Others (1947) 2 MLJ 374* and the Bombay High Court in *Jawaharlal v. Smt. Saraswatibai Babulal Joshi and Others AIR 1987 Bom. 276*. The Division Bench of the High Court upheld this decision, stating that the amendment did not affect LIC’s case and that LIC could challenge the assignment after the final decree. LIC then appealed to the Supreme Court.

Legal Framework

The Supreme Court considered Order XXII Rule 10 of the Code of Civil Procedure (CPC), which deals with situations where an interest in a lawsuit is assigned or transferred during the pendency of the suit. Order XXII Rule 10 CPC states:

“10. Procedure in case of assignment before final order in suit.− (1) In other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved.”

The court noted that this rule allows the person who has acquired an interest in the subject matter of the litigation to apply to the court for leave to continue the suit. The court emphasized that the decision to grant leave is not automatic and must be exercised judiciously.

Arguments

Appellant (LIC)’s Arguments:

• LIC argued that allowing the impleadment of Kedia Construction after a delay of 27 years was an abuse of the law.
• They contended that the High Court overlooked the significant delay and failed to consider that the original agreement with Sanjeev Builders was terminated in 1984.
• LIC argued that the order allowing impleadment affected their valuable rights and was therefore a “judgment” that could be appealed.

Respondents’ (Sanjeev Builders and Kedia Construction) Arguments:

• The respondents argued that the order allowing impleadment was an interim order and did not finally determine the rights of the parties, therefore, a Letters Patent Appeal would not lie.
• They claimed that Kedia Construction, as an assignee, had the right to continue the suit, and the order allowing impleadment did not affect the rights of the parties.
• They further argued that the right to sue under the agreement of sale was transferable, and the assignee acquired this right during the pendency of the suit.
• They submitted that the provisions of Order XXII Rule 10 of the Code of Civil Procedure (CPC) allow the assignee to apply to the court to be impleaded as a party, and the provisions of the Limitation Act do not apply to such applications.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the order of the Single Judge allowing the application for impleadment was a ‘judgment’ that could be appealed under the Letters Patent.
2. Whether the High Court was right in allowing the impleadment of Respondent No. 3 as Plaintiff No. 3 under Order XXII Rule 10 of the Code of Civil Procedure (CPC) after a delay of 27 years.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Shah Babulal Khimji v. Jayaben D. Kania and Anr. (1981) 4 SCC 8 – Supreme Court of India: The court discussed the nature of ‘interlocutory orders’ and ‘judgments’ under the Letters Patent, stating that an order affecting valuable rights of a party is a ‘judgment’.
• Vidur Impex and Traders Private Limited and Others v. Tosh Apartments Private Limited and Others (2012) 8 SCC 384 – Supreme Court of India: The court laid down the principles for impleadment of parties in a suit for specific performance, emphasizing the need for applications to be filed within a reasonable time.
• Mrs. Saradambal Ammal v. E. R. Kandasamy Goundar and Others (1947) 2 MLJ 374 – Madras High Court: The court held that assignment of contractual rights was permissible under Order XXII Rule 10 CPC.
• Jawaharlal v. Smt. Saraswatibai Babulal Joshi and Others AIR 1987 Bom. 276 – Bombay High Court: The court held that a detailed inquiry was not needed under Order XXII Rule 10 CPC, and only a prima facie satisfaction of assignment was required.

Legal Provisions:

• Order XXII Rule 10 of the Code of Civil Procedure (CPC): This provision allows for the continuation of a suit by or against a person who has acquired an interest in the subject matter of the suit during its pendency.

Judgment

The Supreme Court held that the Single Judge’s order allowing the impleadment of Kedia Construction was indeed a ‘judgment’ because it affected the valuable rights of LIC. The Court noted that the High Court was wrong in holding that the mere alleged transfer/assignment of the agreement was sufficient to grant leave to Kedia Construction to continue the suit. The Supreme Court emphasized that the application for impleadment was filed after an inordinate delay of 27 years, which was not explained and that the High Court did not consider the valuable right of defense that had accrued to the appellant. The Court also noted that the application was not filed under Order XXII Rule 10 CPC seeking leave of the court to continue the suit, but was instead filed as a Chamber Summons praying to amend the suit.

How each authority was viewed by the Court?

• The Supreme Court relied on *Shah Babulal Khimji v. Jayaben D. Kania and Anr. (1981) 4 SCC 8* to determine that the order allowing impleadment was a ‘judgment’ as it affected the appellant’s valuable rights.
• The Supreme Court followed *Vidur Impex and Traders Private Limited and Others v. Tosh Apartments Private Limited and Others (2012) 8 SCC 384* to emphasize the need for impleadment applications to be filed within a reasonable time.
• The Supreme Court distinguished the Madras High Court judgment in *Mrs. Saradambal Ammal v. E. R. Kandasamy Goundar and Others (1947) 2 MLJ 374* and the Bombay High Court judgment in *Jawaharlal v. Smt. Saraswatibai Babulal Joshi and Others AIR 1987 Bom. 276*, which were relied on by the Single Judge. The Supreme Court held that these judgments did not apply to the facts of the case due to the inordinate delay.
• The Supreme Court interpreted Order XXII Rule 10 of the Code of Civil Procedure (CPC) to mean that the court has the discretion to grant or refuse leave to continue the suit, and that such discretion must be exercised judiciously.

What Weighed in the Mind of the Court?

The Supreme Court was primarily concerned with the inordinate delay of 27 years in filing the application for impleadment. The Court emphasized that such a delay prejudiced the appellant by depriving them of valuable defenses that had accrued over time. The Court also noted that the application was not filed under Order XXII Rule 10 CPC seeking leave of the court to continue the suit, but was instead filed as a Chamber Summons praying to amend the suit. The Court was of the view that the High Court had not correctly applied the principles of law regarding impleadment in specific performance suits, particularly in cases with significant delays.

Logical Reasoning

The Court reasoned that allowing the impleadment after such a long delay would defeat the valuable right of defense that had accrued to the appellant. It emphasized that the discretion to implead parties must be exercised judiciously, especially in cases of specific performance. The Court also noted that the application was not filed under Order XXII Rule 10 CPC seeking leave of the court to continue the suit, but was instead filed as a Chamber Summons praying to amend the suit.

The Court considered alternative interpretations of Order XXII Rule 10 of the Code of Civil Procedure (CPC) but rejected them, stating that the rule cannot be used to defeat the rights of the other party by allowing impleadment after an unreasonable delay. The Court held that the High Court did not apply the correct principles of law while allowing the impleadment application.

The Supreme Court’s decision was clear: the delay of 27 years was unacceptable. The Court emphasized that while amendments are generally allowed to avoid multiplicity of litigation, they cannot be allowed if they cause serious prejudice to the other party and take away their substantial rights of defense. The Court held that the High Court should have considered the inordinate delay and the prejudice caused to the appellant.

The Supreme Court quoted the following from the judgment:

• “The High Court was not right in holding that mere alleged transfer/assignment of the agreement would be sufficient to grant leave to respondent No.3 to continue the suit.”
• “In a suit for specific performance, application for impleadment must be filed within a reasonable time.”
• “In such facts and circumstances, the amendment prayed in the Chamber Summons filed under Order XXII Rule 10 CPC ought not to have been allowed, as the same would cause serious prejudice to the appellant.”

There was no minority opinion in this case. The decision was unanimous.

Key Takeaways

• An assignee cannot be automatically impleaded in a suit for specific performance. The court has the discretion to grant or refuse leave to continue the suit.
• Applications for impleadment must be filed within a reasonable time, especially in suits for specific performance.
• Inordinate delays in filing impleadment applications can prejudice the other party and may not be allowed by the court.
• The court must consider the valuable rights of defense that have accrued to the other party while considering impleadment applications.

Directions

The Supreme Court set aside the judgment of the High Court and dismissed Chamber Summons No.187 of 2014 in Suit No.894 of 1986.

Development of Law

The ratio decidendi of this case is that in suits for specific performance, applications for impleadment must be filed within a reasonable time and inordinate delays can be a valid ground for rejecting such applications. This decision reinforces the principle that the court must exercise its discretion judiciously while considering impleadment applications, especially when such applications are filed after a long delay. This case also clarifies that an order allowing impleadment can be considered a ‘judgment’ if it affects the valuable rights of a party.

Conclusion

The Supreme Court’s decision in this case underscores the importance of timely action in legal proceedings. The Court held that a party cannot be impleaded in a suit for specific performance after an inordinate delay of 27 years, as it would prejudice the other party and defeat their valuable rights of defense. This judgment serves as a reminder that while amendments are generally allowed to avoid multiplicity of litigation, they cannot be allowed if they cause serious prejudice to the other party.

Category: Civil Law, Specific Performance, Code of Civil Procedure, 1908, Order XXII Rule 10, Impleadment of Parties, Assignment of Rights, Limitation, Letters Patent Appeal

Category: Code of Civil Procedure, 1908, Order XXII, Code of Civil Procedure, 1908, Order XXII Rule 10

FAQ

Q: What is an “impleadment” in a lawsuit?

A: Impleadment is the process of adding a new party to an existing lawsuit, either as a plaintiff or a defendant.

Q: What does “specific performance” mean in a legal context?

A: Specific performance is a legal remedy where a court orders a party to fulfill their obligations under a contract, rather than just paying damages.

Q: What is Order XXII Rule 10 of the Code of Civil Procedure (CPC)?

A: Order XXII Rule 10 of the Code of Civil Procedure (CPC) deals with situations where an interest in a lawsuit is assigned or transferred during the pendency of the suit. It allows the assignee to seek permission from the court to continue the suit.

Q: Why did the Supreme Court reject the impleadment in this case?

A: The Supreme Court rejected the impleadment because there was an inordinate delay of 27 years in filing the application, which prejudiced the other party’s rights.

Q: What is a “Letters Patent Appeal”?

A: A Letters Patent Appeal is an intra-court appeal within the High Court, where a decision of a Single Judge is appealed to a Division Bench of the same court.

Q: What is the significance of this judgment?

A: This judgment clarifies that applications for impleadment in suits for specific performance must be filed within a reasonable time, and inordinate delays can be a valid ground for rejecting such applications. It also clarifies the nature of orders that can be appealed under the Letters Patent.