What is the meaning of Fraud within the meaning of Section 13 CPC #Indianlaws

It is only when the defendant is taken by surprise of the fraud played by the plaintiff  that he can challenge the decree or foreign judgment on the ground of fraud. 

In the instant matter a notice was taken out under Order 21 Rule 22 (b) of the Code of Civil Procedure, 1908 (CPC) by the Plaintiff / Judgment Creditor (JC) for execution of a decree of the High Court of the Republic of Singapore (the Court) as the reciprocating territory filed under Section 44A of the CPC. The contentions in law taken up were to determine as to why the decree of the foreign Court cannot be enforced as a foreign judgment under Section 13 of the CPC.

The Defendant (Judgment Debtor/ JD) was the Chief Financial Officer of the JC. Certain irregularities in his work were noticed and pursuant to audit carried out of JC’s accounts, the report alleged JD of siphoning off of funds by the JD over a period of relevant time and said amount was deposited in various companies incorporated by the JD and his wife. Proceedings were initiated on the ground of fraud having been committed by the JD by way of misappropriation and siphoning off the funds of the JC under the specified transactions for which damages were claimed against the JD. The judgment, passed in the absence of the JD, was resisted on the ground that it was not passed on merits, but obtained by fraud and the same cannot be executed. The JC claimed that these grounds were taken by the JD in the Court in the USA where the said judgment was sought to be executed and thus the plea would be barred by principles of res judicata on the question of fraud.

In the relevant court proceedings, JD had failed to appear despite service. The judgment passed recorded that the JC had obtained an interlocutory judgment against the JD for damages to be assessed before the Assistant Registrar of the Court. The witnesses were examined and it was thereafter specifically recorded that the JD would pay the JC specified amounts of damages as granted alongwith interest and costs. The evidence of the witnesses remained completely uncontroverted for want of appearance of the JD. 

The Court had to determine in the above circumstances as to whether the judgment was given on merits of the case of JC and to arrive at conclusion, the Court referred the judgment passed by the Supreme Court in the case of M/s. International Woolen Mills Ltd vs. M/s. Standard Wool (UK) Ltd. (MANU/SC/0304/2001) wherein it was held that whether or not a judgment is on merits would be apparent from the judgment itself. It is not enough if there is decree or decision of the Court. It has to be a judgment. The judgment must have directly adjudicated the question arising between the parties.

The Court should have applied its mind and considered the evidence in which case there would be adjudication on merits. The plaintiff should have adduced evidence in support of the claim so that the Court duly considered such evidence instead of passing a decree merely on default of appearance of the defendant. In the former case there is judgment on the merits of the case; in the latter case when the decree is upon default of appearance the judgment is not on merits. Hence whether or not it is ex parte it can be a judgment on merits upon the aforesaid tests. Thus:
a) If the judgment is solely on account of the default of the defendant without considering whether the claim is well founded or not and whether there is evidence to sustain it, it could be a decree passed by way of penalty.
b) If there is an application of mind by the Court it would be a judgment on merits. If it is without any evidence of any kind but passed only on the pleadings it cannot be a decision on merits.

c) If the judgment is passed as matter of course or by way of penalty it would not be a judgment on merits. If it is passed on consideration of the truth or otherwise of the plaintiff’s claim it is on merits.

In the instant case, the judgment was passed upon considering the assessment of damages before the Assistant Registrar. The Court had received in evidence three affidavits of examination in chief. The judgment indicated that the counsel of the plaintiff was heard. Thereafter the claim was decreed for specified amount of damages, interests and costs. The judgment thus was not merely on account of the default of the appearance of the defendant. Consequently it was not by way of penalty and also not without evidence of any kind and not passed only on pleadings. It was not passed as matter of course by way of penalty. Since there was no controversy raised by the defendant, what was stated by the plaintiff had to be accepted. 

It was accordingly held that based upon the test led down by the Supreme Court, the judgment would fall within the parameters of the case decided on merits and not simply upon the default of the defendant, pleadings of the plaintiff’s, documents of the plaintiff or as matter of course by way of penalty. Hence, it was held that the JD cannot be permitted to claim that the decree is not on merits and take advantage of his own wrong in not defending the suit and accordingly the same cannot be challenged under Section 13(b) of the CPC as the judgment which is not conclusive between the parties.

On the issue of binding effect of foreign judgment, it was observed that the principles set out are that the foreign judgment would be binding upon the defendant who is subject of foreign country in which a judgment has been obtained against him on prior occasions or where he is a resident or where that person selects the foreign court or where he voluntarily appears or where he contracts to submit himself as in those cases he would be amenable to the jurisdiction of the foreign Court. There would be other cases also where foreign Court would have jurisdiction based upon the cause of action in the suit and it would have to be seen from the law of the country as to whether that was the Court of proper law of contract, where also a foreign judgment could be passed and which would be enforceable under Section 13 of the CPC in India. If the judgment is based upon some evidence which the Court has received, it would be upon the consideration of such evidence and not merely upon the default of the defendant as in the present case. It was accordingly held that the judgment in question was passed on merits of the JC/ plaintiff’s claim by the Court.

The second issue arose was whether the Judgment in question was obtained by fraud. The JD claimed that the he had paid off the amounts claimed to have been misappropriated prior to the filing of the civil action and this fact was suppressed and hence the judgment was obtained by playing a fraud and the JD also showed documents to prove his claim. JC contended that the Court should not take these documents on record as it would tantamount to going behind the decree which is not permitted to be done by the executing Court. 

It was observed that the defendants cannot ask for retrial of the issue of fraud as between him and the plaintiff on facts known to them at the date of the earlier judgment. To successfully prevent the foreign judgment from being executed it has to be a case of a fraud not on the defendants but a fraud upon the Court and to see that the Court was deceived in which case alone the issue could be retried. If a fraud was alleged by the perjury it would tantamount to retrial of the issue which would be res judicata and which could not be opened under the guise of impugning the judgment as procured by fraud and hence the perjury constituting fraud must be established by evidence not known to the parties at the time of the former trial.

The defendant is obliged to bring forth that defence to the Court since it was known to the defendant. The Court would then not be misled. The defendant cannot allow the Court to be misled by its absence and this is the main characteristic of an adversarial trial. The plaintiff files his action in law. It may be truthful or perjurial or even fraudulent. The defendant is given notice of the action. He is served the summons. He is called upon to answer the plaintiff’s claim. The Court is prepared to hear the defendant and to dismiss the plaintiff’s claim if it is fraudulent or perjurial. It is, therefore, not only the defendant’s right to get the action of the plaintiff dismissed if perjurial or fraudulent, but also its duty to bring perjurial act constituting fraud to the notice of the Court if it is known to the defendant at the time of the trial. If that is not done then and sought to be done later after the judgment is passed, it would constitute a retrial of that issue which is forbidden by the salutary principle of res judicata. If permitted it would allow all defendants not to defend the claim and allow any decree to be passed which can be challenged whilst being executed. 

The ultimate principle laid down by the Supreme Court in the aforesaid case of Sankaran (Supra) is, therefore, that the fraud which is stated to have been perpetrated, is the fraud not known to the defendant when the decree was passed. It is only when the defendant is taken by surprise of the fraud played by the plaintiff when the defendant is served the notice of execution that he can challenge the decree or foreign judgment on the ground of fraud. That would be fraud not in suing but in obtaining the decree. The defendant had well known the cause of action in the suit. The defendant would not know how the decree came to be passed. Defendant would show the fraud perpetrated upon the defendant under the decree and successfully resist its execution. Thus if the Court was mistaken in passing the judgment, the executing Court cannot look into it.

In the present case the JD claimed that he had made payments earlier, which was known to the plaintiff and yet the decree was obtained and was hence obtained by perjury. This perjury could have been prevented. The Court would have been mistaken in passing the decree but was not misled. Hence the judgment was not imposed upon the defendant. The judgment had to be passed. The fraud, if any, was prior to the action. The fraud was known at the time of trial. The defendant had noticed it and could have defended it. To allow the defendant to defend it now would cause retrial, which is forbidden. 

The objections as raised were accordingly dismissed.

[Masterbaker Marketing Ltd. vs. Noshir Mohsin Chinwalla]
(Bombay HC, 13.03.2015)
Exec. Application No. 265/2011 
In Suit No. 238/2009/D (Singapore)