Suit Barred By Order II Rule 2(3) CPC Must Be Rejected At The Threshold, Even Without Trial: Calcutta HC [Read Judgment]

Kolkata: The Calcutta High Court has held that a suit for cancellation of share transfer agreements was barred by Order II Rule 2(3) of the Code of Civil Procedure and the Doctrine of Election, and that the plaint ought to have been rejected outright, while also holding that a dispute arising out of a share purchase agreement with a stranger to the company is not a "commercial dispute" under Section 2(1)(c)(xii) of the Commercial Courts Act, 2015, as it is not a shareholders' agreement.

A Division Bench of Justice Sabyasachi Bhattacharyya and Justice Sandip Kumar De, allowed A.P.O. Nos. 84 and 85 of 2021, filed by Funidea Projects Private Limited and another against a judgment dated 05.03.2021 of a Single Judge in C.S. No. 250 of 2015. Orders were reserved on 09.09.2026 and the judgment was delivered on 07.10.2026. The Single Judge had dismissed the appellants' application, G.A. 2 of 2015, for dismissal of the suit or rejection of the plaint on the ground of Order II Rule 2, and had directed transfer of the suit to the Commercial Division under Section 15 of the Commercial Courts Act. A.P.O. No. 84 of 2021 challenged the former part and A.P.O. No. 85 of 2021 the latter.

The suit was filed by the respondent nos. 1 and 2, Dr. Dilip Kumar Ghosh and Kamala Ghosh, the sole directors and entire shareholders of Venkateswar Medicare Private Limited (defendant no. 3), seeking cancellation of agreements dated 16.05.2012 and 10.04.2013 on the allegation of fraud by the appellants, who were defendant nos. 1 and 2, including the issue of unallotted shares of the company to 28 entities (defendant nos. 6 to 33). The plaintiffs had earlier filed a suit for specific performance and Money Suit No. 101 of 2015 at Barasat for the balance consideration.

On the commercial dispute issue, the appellants relied on a Karnataka High Court ruling in Bhaskar Naidu v. Aravind Yadav, distinguishing a shareholders' agreement from a share purchase agreement, while the plaintiffs relied on the definition in Vodafone International Holdings v. Union of India. The Bench held that a shareholders' agreement must be executed between existing shareholders, and that since the appellants were outsiders holding no shares when the agreements were executed, the threshold test was not met. The transfer to the Commercial Division was held unsustainable.

The Bench further held that the transfer order is a "judgment" appealable under Clause 15 of the Letters Patent, because once a dispute comes within the Commercial Courts Act, the paradigm of adjudication becomes restrictive. It noted, for instance, that Section 12A mandates pre-litigation mediation and that the scope of defence is curtailed, directly affecting defendants' rights. A.P.O. No. 85 of 2021 was allowed.

The Bench next examined whether the suit was one for land outside the Original Side's territorial limits under Clause 12 of the Letters Patent. It agreed that shareholding per se does not confer title to a company's assets, as held in Bacha F. Guzdar v. Commissioner of Income Tax, but found that the facts compelled it to go further. Reading the two agreements, it noted that the plaintiffs signed both as directors on behalf of the company and as its only shareholders, that the company was a party, and that the agreements dealt with the leasehold plot and building at Salt Lake, including release of title deeds, powers of attorney and permissions for change of user. It held that the transfer of the entire shareholding in the company in favour of the defendants/appellants was only a route of transferring the title of the company in the assets of the company. Cancellation would therefore directly affect rights in land and buildings situated outside its jurisdiction, so the plaint ought to have been rejected or at least returned.

The operative ground, however, was Order II Rule 2. The Bench held that the bar under sub-rule (3), which prevents a plaintiff who omits a relief without leave from afterwards suing for it, is a bar on the plaintiff to sue and therefore a "bar of law" for Order VII Rule 11(d). It noted that the plaint itself refers to the earlier suits, that the allegations of deception in transferring unallotted shares to 28 entities were pleaded in the money suit as well, and that the cause of action in both suits was identical. It also found that the plaint's statements that fraud had been committed "from the very inception" and had "now become clear" were contradictory, as the facts were known when the money suit was filed. Leave under Order II Rule 2 had not been obtained, the application for leave in the money suit having been filed only after the present suit and not granted.

The Bench held that the money claim was, in the garb of a money decree, a relief for specific performance, so the plaintiffs had consciously relinquished cancellation and chosen what it called a "diametrically opposite, mutually exclusive, and contradictory relief", attracting the Doctrine of Election. Impleadment of the 28 transferees was held incidental, since they were alleged beneficiaries of the same fraud and bound by the outcome against the appellants.

Dealing with the Supreme Court's decisions in Cuddalore Powergen Corporation v. Chemplast Cuddalore Vinyls and S. Valliammai v. S. Ramanathan, the Bench held that the test of different evidence for the two claims, borrowed from Brunsden v. Humphrey, applies to sub-rules (1) and (2) and not to sub-rule (3), which deals with different reliefs on the same cause of action. As to Valliammai's statement that Order II Rule 2 cannot be a ground for rejection under Order VII Rule 11(d), it applied Goodhart's test and Wambaugh's Inversion test to confine the ratio to the facts, where the High Court had appreciated evidence at the plaint stage. It held that, where a plain reading of the plaint and the documents it relies on discloses the ingredients of the bar, no evidence is needed, since there is no conceivable reason as to why a defendant should be compelled to wait till the end of the suit and participate in a futile and vexatious litigation, and the suit is liable to be nipped in the bud.

In conclusion, the Bench held that the suit does not involve a commercial dispute and should not have been transferred, and that the plaint should have been rejected as barred by Order II Rule 2(3) and the Doctrine of Election, and as vexatious and harassive. A.P.O. No. 85 of 2021 was allowed and the transfer set aside, A.P.O. No. 84 of 2021 was allowed and G.A. 2 of 2015 was allowed, rejecting the plaint, and G.A. No. 2 of 2026 was disposed of. There was no order as to costs.

Appearances:

For the Appellants: Mr. Suman Dutt, Senior Advocate, with Ms. Nilanjana Adhya and Mr. Subhransu Ganguly, Advocates.

For Respondent Nos. 1 and 2: Mr. Aniruddha Mitra, Senior Advocate, with Ms. Dipika Banu and Mr. Subhadip Chakraborty, Advocates.

For Respondent No. 3: Mr. Samriddha Sen, Advocate.

For Respondent Nos. 6 to 33: Mr. Shounak Mukhopadhyay, Advocate.

Case Title: Funidea Projects Private Limited & Another vs. Dr. Dilip Kumar Ghosh & Others, A.P.O. No. 84 of 2021 with A.P.O. No. 85 of 2021 (arising out of C.S. No. 250 of 2015)

[Read Judgment]