Supreme Court Restricts Amendment of Pleadings to Challenge Mortgages: Asian Hotels (North) Ltd. vs. Alok Kumar Lodha & Ors. (2022)

LEGAL ISSUE: Whether a plaintiff can amend their suit to challenge mortgages on a property when their original suit concerns the revocation of a license agreement. CASE TYPE: Civil. Case Name: Asian Hotels (North) Ltd. vs. Alok Kumar Lodha & Ors. [Judgment Date]: 12 July 2022

Date of the Judgment: 12 July 2022
Citation: Not available in the provided document.
Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a licensee, whose license has been revoked, challenge the mortgages on the property they occupy by amending their suit? The Supreme Court of India recently addressed this question, setting aside the High Court’s decision that had allowed such amendments. The core issue revolved around whether a licensee could expand the scope of their suit, which was originally about license revocation, to include a challenge to mortgages created by the licensor. The Supreme Court, in a judgment authored by Justice M.R. Shah, held that such amendments are not permissible, thereby restricting the scope of civil suits.

Case Background

The case involves a dispute between Asian Hotels (North) Ltd. (the appellant), who are the licensors, and various shopkeepers (the respondents), who are the licensees. The appellant had granted licenses for individual shops within their premises starting from 1983. On 29 May 2020, the appellant served notices revoking these licenses. The licensees then filed suits in the High Court of Delhi, seeking a declaration that their licenses were irrevocable and perpetual.

The licensees also sought a declaration that they have an unfettered right to occupy and use the premises until the transfer documents are executed by the licensor. The appellant raised a verbal objection citing Section 8 of the Arbitration and Conciliation Act, 1996, leading to the dismissal of the suits, with liberty to avail arbitration. However, the Division Bench of the High Court remanded the matter, granting the appellant the liberty to file an application under Section 8 of the Arbitration and Conciliation Act, 1996, which is pending adjudication.

During the pendency of the suit, the licensees filed applications to amend their plaints, challenging the mortgages created by the appellant in favor of various banks. They also sought to implead these banks as defendants, arguing that the mortgages were illegal to the extent they encumbered the licensees’ interests in the premises from 2 September 1991. The appellant opposed these applications, arguing that the licensees had no right to challenge the mortgages and that the suit was not maintainable due to the arbitration clause.

Timeline:

Course of Proceedings

The High Court initially dismissed the suits based on the arbitration clause in the license agreement. However, the Division Bench remanded the matter, allowing the appellant to file an application under Section 8 of the Arbitration and Conciliation Act, 1996. Subsequently, the licensees filed applications to amend their plaints and implead the mortgagee banks. The High Court allowed these applications, relying on the principle that a plaintiff is the dominus litus (master of the suit) and that amendments should be liberally allowed. The High Court cited the cases of Kasturi v. Iyyamperumal & Ors (2005) 6 SCC 733 and Revajeetu Builders and Developers vs. Narayanaswamy and Sons & Ors (2009) 10 SCC 85.

Legal Framework

The judgment primarily revolves around the interpretation of Order 6 Rule 17 and Order 1 Rule 10 of the Code of Civil Procedure (CPC). Order 6 Rule 17 of the CPC deals with the amendment of pleadings, allowing a party to alter or modify their claims or defenses. Order 1 Rule 10 of the CPC pertains to the addition or deletion of parties to a suit. The Supreme Court also considered Section 8 of the Arbitration and Conciliation Act, 1996, which deals with the power of a judicial authority to refer parties to arbitration.

The Court also discusses the relevance of Section 125 and 126 of the Companies Act, 1956 and Section 80 of the Companies Act, 2013, which deal with the registration of charges and constructive notice of such charges. The Court also considers Article 58 of the Schedule I of the Limitation Act, which deals with the limitation period for seeking a declaration.

Arguments

Appellant’s Arguments (Asian Hotels (North) Ltd.):

• The appellant argued that the High Court erred in allowing the amendment and impleadment applications.
• The appellant contended that the licensees do not have the right to challenge the mortgages created in favor of banks, as they are strangers to the mortgage agreements and their rights are subject to the pre-existing charges on the property.
• They argued that the challenge to the mortgages was barred by limitation, delay, and laches, as the mortgages were created in 1982 and the licensees had knowledge of these mortgages through Clause 13 of the License Agreement and through statutory presumption.
• The appellant submitted that the suits were not maintainable due to the arbitration clause in the license agreement and the application under Section 8 of the Arbitration and Conciliation Act, 1996, was pending.
• The appellant stated that the amendment applications were filed mala fide to circumvent the pending adjudication under Section 8 of the Arbitration and Conciliation Act, 1996.
• The appellant highlighted that the High Court passed the judgment without giving the appellant an opportunity to file a reply, thus violating the principles of natural justice.
• The appellant argued that the High Court’s decision resulted in a misjoinder of causes of action and parties.
• The appellant cited Ashutosh Chaturvedi v. Prano Devi (2008) 15 SCC 610, T.N. Alloy Foundry Co. Ltd vs. T.N. Electricity Board and Ors (2004) 3 SCC 392 and L.J.Leach & Co Ltd vs. M/s. Jardine Skinner & Co. AIR 1957 SC 357 in support of their arguments on limitation.

Respondents’ Arguments (Licensees):

• The respondents argued that the High Court’s order was just and proper, as it was necessary to implead the banks who are mortgagees of the suit property.
• They contended that the trial had not yet commenced and the suit was at a preliminary stage, so no prejudice would be caused to the appellant if the applications were allowed.
• The respondents argued that the plaintiff is the dominus litus and the court should not interfere with the plaintiff’s choice of parties.
• They stated that the appellant themselves had argued that the suit was bad for non-joinder of parties without the banks being parties.
• The respondents argued that the court should not be concerned with the merits and demerits of the amendments at the stage of allowing the amendment.
• The licensees argued that the amendments did not seek any direct injunctions against the banks but only sought reliefs against the defendant hotel.
• They contended that they were seeking perpetual ownership rights in the premises and therefore, it was necessary to challenge the mortgages to protect their rights.
• The respondents relied upon Kasturi v. Iyyamperumal & Ors (2005) 6 SCC 733, Rajesh Kumar Aggarwal & Ors vs. K.K.Modi & Ors AIR 2006 SC 1647 and Revajeetu Builders and Developers Vs. Narayanaswamy and Sons & Ors (2009) 10 SCC 84 to support their arguments.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the Court addressed was:

• Whether the High Court was justified in allowing the applications for amendment of the plaint and impleadment of parties, thereby permitting the licensees to challenge the mortgages created by the licensor.

A sub-issue that the court dealt with was:

• Whether a licensee can challenge the mortgages created by the licensor when the original suit was for revocation of license.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Kasturi v. Iyyamperumal & Ors (2005) 6 SCC 733 – The High Court relied on this case to support the principle that the plaintiff is the dominus litus. The Supreme Court distinguished this case, stating that it was related to a suit for specific performance where subsequent purchasers of the same property were necessary parties.
• Revajeetu Builders and Developers vs. Narayanaswamy and Sons & Ors (2009) 10 SCC 85 – The High Court relied on this case to support the principle that amendments should be liberally allowed. The Supreme Court did not directly address this case but held that the amendment should not change the nature of the suit.
• Rajesh Kumar Aggarwal & Ors vs. K.K.Modi & Ors AIR 2006 SC 1647 – The High Court relied on this case to support the principle that the court should not go into the correctness or falsity of the amendment at the stage of allowing the amendment. The Supreme Court did not directly address this case but held that the amendment should not change the nature of the suit.
• Ashutosh Chaturvedi v. Prano Devi (2008) 15 SCC 610 – The appellant relied on this case to support their argument on the limitation period.
• T.N. Alloy Foundry Co. Ltd vs. T.N. Electricity Board and Ors (2004) 3 SCC 392 – The appellant relied on this case to support their argument on the limitation period.
• L.J.Leach & Co Ltd vs. M/s. Jardine Skinner & Co. AIR 1957 SC 357 – The appellant relied on this case to support their argument on the limitation period.

Legal Provisions:

• Order 6 Rule 17 of the Code of Civil Procedure (CPC) – Pertains to the amendment of pleadings.
• Order 1 Rule 10 of the Code of Civil Procedure (CPC) – Pertains to the addition or deletion of parties to a suit.
• Section 8 of the Arbitration and Conciliation Act, 1996 – Deals with the power of a judicial authority to refer parties to arbitration.
• Section 125 of the Companies Act, 1956 – Deals with the registration of charges.
• Section 126 of the Companies Act, 1956 – Deals with the constructive notice of registered charges.
• Section 80 of the Companies Act, 2013 – Deals with the constructive notice of registered charges.
• Article 58, Schedule I of the Limitation Act – Deals with the limitation period for seeking a declaration.

Authorities Considered by the Court

Judgment

How each authority was viewed by the Court?

• The Court distinguished Kasturi v. Iyyamperumal & Ors (2005) 6 SCC 733*, stating that it was not applicable to the present case as the facts were different.
• The Court did not directly address Revajeetu Builders and Developers vs. Narayanaswamy and Sons & Ors (2009) 10 SCC 85 and Rajesh Kumar Aggarwal & Ors vs. K.K.Modi & Ors AIR 2006 SC 1647, but held that the amendment should not change the nature of the suit.
• The Court followed Ashutosh Chaturvedi v. Prano Devi (2008) 15 SCC 610, T.N. Alloy Foundry Co. Ltd vs. T.N. Electricity Board and Ors (2004) 3 SCC 392 and L.J.Leach & Co Ltd vs. M/s. Jardine Skinner & Co. AIR 1957 SC 357 to support their argument on the limitation period.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The nature of the original suits was to challenge the revocation of licenses, and the proposed amendments to challenge mortgages altered the fundamental nature of the suits.
• The licensees were aware of the mortgages through Clause 13 of the License Agreement and through statutory presumption, and their rights were subject to these pre-existing charges.
• The principle of dominus litus does not allow a plaintiff to add any party as a defendant, especially when they are not necessary or proper parties.
• The challenge to the mortgages was barred by limitation, delay, and laches.

The Court emphasized that the factual aspects of the case were important, but the legal principles were more influential in its decision.

“The High Court while allowing the amendment application in exercise of powers under Order 6 Rule 17 of the Code of Civil Procedure has not properly appreciated the fact and/or considered the fact that as such, by granting such an amendment and permitting plaintiffs to amend the plaints incorporating the prayer clause to declare the respective charges/mortgages void ab-initio, the nature of the suits will be changed.”

“Even otherwise, High Court has materially erred in relying upon the decision in the case of Kasturi (supra). In the case of Kasturi (supra) before this Court the suit was for specific performance of the agreement to sell and the subsequent purchasers purchased the very property for which decree for specific performance was sought. Therefore, on facts said decision is not applicable to the facts of the case on hand.”

“Therefore, in a suit challenging revocation of the respective licenses, the plaintiffs cannot be permitted to challenge the respective mortgages/charges created on the entire premises as void ab-initio.”

Logical Reasoning

Key Takeaways

• Licensees cannot challenge mortgages on a property in a suit primarily concerning the revocation of their licenses.
• Amendments to pleadings should not fundamentally alter the nature of the original suit.
• The principle of dominus litus does not allow a plaintiff to add any party as a defendant, especially when they are not necessary or proper parties.
• Parties are deemed to have constructive notice of registered charges on a property.
• Challenges to mortgages must be made within the prescribed limitation period.

Directions

The Supreme Court set aside the High Court’s orders allowing the amendment and impleadment applications. The Court allowed the appeals, quashing the High Court’s orders.

Development of Law

The ratio decidendi of this case is that a licensee cannot challenge the mortgages created by the licensor in a suit challenging the revocation of the license. This judgment clarifies the limitations on amending pleadings and the scope of the principle of dominus litus. The Supreme Court has reinforced that amendments should not change the fundamental nature of the suit and that parties cannot be added if they are not necessary or proper for the adjudication of the core issue.

Conclusion

The Supreme Court’s judgment in Asian Hotels (North) Ltd. vs. Alok Kumar Lodha & Ors. restricts the ability of licensees to challenge mortgages on a property by amending their suits, particularly when the original suits are regarding the revocation of licenses. The Court emphasized that amendments should not alter the fundamental nature of the suit and that parties cannot be added if they are not necessary or proper for the adjudication of the core issue. This ruling reinforces the importance of maintaining the original scope of a suit and the limitations on amending pleadings.

Category

• Civil Law
  • Code of Civil Procedure, 1908
    • Order 6 Rule 17, Code of Civil Procedure, 1908
    • Order 1 Rule 10, Code of Civil Procedure, 1908
  • Arbitration and Conciliation Act, 1996
    • Section 8, Arbitration and Conciliation Act, 1996
  • Companies Act, 1956
    • Section 125, Companies Act, 1956
    • Section 126, Companies Act, 1956
  • Companies Act, 2013
    • Section 80, Companies Act, 2013
  • Limitation Act, 1963
    • Article 58, Schedule I, Limitation Act, 1963

FAQ

Q: Can a tenant challenge a mortgage on the property they rent?

A: Generally, a tenant cannot directly challenge a mortgage on the property they rent, especially if their tenancy agreement does not grant them such rights. The Supreme Court has clarified that a licensee cannot challenge a mortgage in a suit regarding license revocation.

Q: What is the meaning of dominus litus?

A: Dominus litus means “master of the suit.” It refers to the plaintiff’s right to control the proceedings of their suit. However, this right is not absolute, and the court can intervene to ensure fairness and prevent misuse of the process.

Q: What is the limitation period for challenging a mortgage?

A: The limitation period for challenging a mortgage depends on the specific circumstances and the nature of the challenge. Generally, for seeking a declaration, the limitation period is prescribed under Article 58 of the Schedule I of the Limitation Act, 1963. It is advisable to consult a legal professional to determine the applicable limitation period.

Q: What does “constructive notice” mean in the context of property mortgages?

A: Constructive notice means that a person is legally presumed to have knowledge of a fact, even if they do not have actual knowledge. In the context of property mortgages, if a mortgage is registered with the relevant authorities, it is considered that everyone has constructive notice of that mortgage, even if they are not directly informed about it.