The Supreme Court of India, in a significant ruling on procedural law in commercial disputes, has held that a defendant’s right to cross-examine the plaintiff’s witnesses is not taken away merely because a written statement was not filed within the statutory period. The Court also reiterated that the extension of limitation periods granted during the COVID-19 pandemic is applicable to the filing of written statements in commercial suits.
A division bench of Justice Aravind Kumar and Justice N.V. Anjaria set aside a judgment and decree of the Karnataka High Court and a Commercial Court in Bengaluru. The Supreme Court remanded the matter back to the trial court, allowing the appellant, M/s Anvita Auto Tech Works Pvt. Ltd., to file its written statement and cross-examine witnesses, subject to payment of costs. The judgment emphasized that “procedural law is not to be a tyrant but a servant, not an obstruction but an aid to justice.”
Background of the Dispute
The case originated from a commercial suit filed by M/s Aroush Motors (Plaintiff) against M/s Anvita Auto Tech Works Pvt. Ltd. (Defendant No. 1) and M/s Conair Equipment Pvt. Ltd. (Defendant No. 2). Defendant No. 1 had appointed the Plaintiff as a dealer for its “CFMOTO” brand of motorcycles in Bengaluru in 2019.
The Plaintiff claimed to have paid a security deposit of Rs. 20 lakhs, incurred expenses on a showroom, and paid Rs. 70 lakhs for spare parts and initial stock. An additional Rs. 5 lakhs was allegedly remitted to Defendant No. 1, and Rs. 7,06,900 to Defendant No. 2 for service centre equipment.
The dispute arose after the government imposed a ban on the sale of BS-IV category vehicles on April 1, 2020. The Plaintiff alleged that Defendant No. 1 failed to provide promised upgrade kits for the unsold BS-IV motorcycles, stalling the business and causing substantial loss. Consequently, the Plaintiff terminated the dealership on September 14, 2020, and filed Commercial Original Suit No. 372 of 2021, seeking recovery of Rs. 1,78,03,090 from Defendant No. 1 and Rs. 7,06,900 from Defendant No. 2, with 18% interest.
Defendant No. 1 appeared in court on August 7, 2021, but failed to file its written statement within the mandatory 120-day period prescribed under the Commercial Courts Act, 2015, which expired on November 14, 2021. Its application to file the written statement with a condonation of delay was rejected by the trial court on March 22, 2022. Subsequently, the trial proceeded, and on August 19, 2022, the cross-examination of the plaintiff’s witness (PW1) by the defendant was taken as “Nil” on the ground that the written statement was not filed.
On November 15, 2022, the trial court partly decreed the suit in favor of the Plaintiff. An appeal by Defendant No. 1 to the High Court of Karnataka (Commercial Appeal No. 19 of 2023) was dismissed, leading to the present appeal before the Supreme Court.
Submissions of the Parties
Shri Pb. Suresh, Senior Counsel for the Appellant (Defendant No. 1), argued that the lower courts had ignored the Supreme Court’s suo motu order in In Re: Cognizance for Extension of Limitation, which excluded the period from March 15, 2020, to February 28, 2022, for computing limitation due to the COVID-19 pandemic. He contended that even without a written statement, the right to cross-examine survives and that a decree cannot be passed automatically under Order VIII Rule 10 of the Code of Civil Procedure (CPC) without the court satisfying itself that a prima facie case is made out.
Per contra, Shri Balaji Srinivasan, counsel for the Respondent (Plaintiff), submitted that the right to cross-examination was forfeited by the non-filing of the written statement. He argued that the appellant had shown a consistent pattern of “dilatory tactics” and had acquiesced to the trial court’s order closing the stage for cross-examination by not challenging it at the appropriate time.
Court’s Analysis and Decision
The Supreme Court bench, led by Justice Aravind Kumar, framed the central issue as: “Whether the High Court was correct in observing that on account of non-filing of written statement by the defendant, his right to cross-examination is taken away?”
The Court first examined the timeline for filing the written statement. The 120-day statutory period began on July 18, 2021, and ended on November 14, 2021. The Court noted that these dates “fell within the sweep of period between 15.02.2020 to 28.02.2022,” which was excluded for limitation purposes by the Supreme Court’s COVID-19 orders. Citing its own precedents in Aditya Khaitan & Ors. v. IL & FS Financial Services Limited and Prakash Corporates v. Dee Vee Projects Limited, the Court held that the High Court ought to have excluded this period and permitted the defendant to file the written statement.
The Court then turned to the denial of the right to cross-examine. It found the trial court’s reasoning—that the right was lost due to the failure to file a written statement—to be “absolutely perverse and is contrary to the right of defence available to the defendant.”
The judgment unequivocally stated, “When the WS was not allowed to be taken on record, the denial of the right to cross-examine cannot be taken away by leaving the defendant in lurch and this has acted as final nail in the coffin to defendant’s right of defence.”
The bench relied on its recent decision in Ranjit Singh v. State of Uttarakhand (2024), quoting it to clarify the legal position:
“Even if a defendant does not file a written statement and the suit is ordered to proceed ex-parte against him, the limited defence available to the defendant is not foreclosed. A defendant can always cross-examine the witnesses examined by the plaintiff to prove the falsity of the plaintiff’s case.”
Concluding that substantial justice was at stake, the Court allowed the appeal. It set aside the judgments of the High Court and the trial court concerning the appellant and remanded the suit for fresh disposal. The appellant was permitted to file its written statement and cross-examine witnesses, subject to a cost of Rs. 1,00,000. The trial court was directed to dispose of the suit, preferably within six months.
