SCG Contracts (India) Pvt. Ltd. v. K.S. Chamankar Infrastructure Pvt. Ltd.

The appellant, SCG Contracts (India) Pvt. Ltd., instituted a commercial suit against the respondents, K.S. Chamankar Infrastructure Pvt. Ltd. and others, before the High Court of Delhi on its Original Side, claiming a money decree of approximately ₹10.50 Crores arising out of infrastructure construction sub-contracts. Summons in the commercial suit were duly served upon the principal defendant on July 14, 2017.

Under the amended provisions of Order VIII Rule 1 of the CPC applicable to commercial disputes, the defendant was required to file its written statement within 30 days from service of summons. The 30-day period expired on August 13, 2017. The court possessed statutory discretion to extend the time up to a maximum outer ceiling of 120 days from service of summons, for reasons to be recorded in writing and on payment of appropriate costs. The 120-day maximum outer period expired on November 11, 2017. However, the defendant failed to file any written statement within the 120 days, nor did it apply for extension of time prior to the expiry of the deadline.

Instead, during the interregnum, the defendant filed an application under Order VII Rule 11 CPC on October 6, 2017, seeking rejection of the plaint. The trial court heard arguments on the Order VII Rule 11 application and rejected it on December 5, 2017. Following the dismissal of its rejection application, the defendant finally tendered its written statement on December 15, 2017—exactly 154 days after the service of summons, well beyond the 120-day outer ceiling.

The plaintiff objected vehemently to the written statement being taken on record, pointing to the mandatory proviso to Order VIII Rule 10 CPC which mandates that after 120 days, the defendant forfeits the right to file the written statement. However, the learned Single Judge of the Delhi High Court, by an order dated December 15, 2017, permitted the written statement to be taken on record subject to payment of ₹25,000 as costs, holding that the court could exercise its inherent powers under Section 151 CPC to condone the delay in the interest of substantive justice since an Order VII Rule 11 application was pending. Aggrieved by this departure from the statutory mandate of the Commercial Courts Act, the plaintiff preferred a Special Leave Petition before the Supreme Court.

The Supreme Court framed and resolved the following vital questions of commercial civil procedure:

1. Mandatory Nature of 120-Day Outer Limit: Whether the timeline of 120 days from the date of service of summons prescribed for filing a written statement in commercial suits under the amended Order VIII Rule 1 and the proviso to Order VIII Rule 10 CPC is directory (as in ordinary civil suits) or strictly mandatory.
2. Inherent Powers under Section 151 CPC: Can a court exercising commercial jurisdiction invoke its inherent powers under Section 151 CPC to condone delay beyond the 120-day statutory ceiling and accept a belated written statement on record?
3. Impact of Pending Order VII Rule 11 Application: Does the filing and pendency of an application for rejection of plaint under Order VII Rule 11 CPC suspend, toll, or extend the running of the 120-day period for filing the written statement in a commercial suit?
4. Applicability of Kailash v. Nanhku: Does the earlier landmark decision in Kailash v. Nanhku (2005) 4 SCC 480—which held the timeline under Order VIII Rule 1 to be directory in ordinary suits—continue to apply to suits governed by the Commercial Courts Act, 2015?

The Supreme Court of India allowed the civil appeal and set aside the impugned order of the High Court of Delhi:

• Written Statement Taken Off Record: The order of the Delhi High Court dated December 15, 2017 condoning the delay on payment of costs was set aside; the defendant's written statement was directed to be taken off the record.
• Right to File WS Forfeited: The right of the defendant to file its written statement in the commercial suit was declared conclusively forfeited under the second proviso to Order VIII Rule 1 and the proviso to Order VIII Rule 10 CPC.
• Proceedings to Continue: The High Court was directed to proceed with the commercial suit in accordance with law, treating the suit as undefended by way of written statement.

A comparative juxtaposition of Order VIII provisions between Ordinary Civil Suits and Commercial Suits:

SCG Contracts has become the bedrock precedent strictly enforced in commercial disputes nationwide:

• Desh Raj v. Balkishan (2020) 2 SCC 708: Reiterated the dichotomy established in SCG Contracts, confirming that while non-commercial suits retain the directory regime under Kailash v. Nanhku, commercial suits enforce the absolute forfeiture rule.
• Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP (2020) 15 SCC 158: Applied the strict construction approach of SCG Contracts to the definition of "commercial dispute" under Section 2(1)(c) of the Commercial Courts Act.
• Prakash Corporates v. Dee Vee Projects Ltd. (2022) 5 SCC 112: Acknowledged the mandatory character of SCG Contracts, holding that the only exception to the 120-day rule was the general extension of limitation directed by the Supreme Court during the national COVID-19 lockdown under Article 142.
• Raj Process Equipments v. Hon'ble NCLT (2023) SCC OnLine SC 18: Followed SCG Contracts in analogizing statutory forfeiture rules across specialized commercial tribunals.