“Limitation Runs from Default, Not from Declaration as Defaulter” : Bombay High Court Rejects MCX Appeal, Finds Suit “Ex Facie Barred” Under Article 113
Safiya Malik
The Bombay High Court, Division Bench comprising Justice G. S. Kulkarni and Justice Advait M. Sethna, has dismissed a commercial appeal filed by Multi Commodity Exchange of India Ltd. (MCX) against a decision of the City Civil Court, Dindoshi, which had dismissed MCX’s suit for recovery of Rs.12,12,980/- on the grounds of limitation. The Bench recorded, “the right to sue would accrue when a cause of action arises” and declined to accept the appellant’s contention that the period of limitation should begin from the date of the respondents’ declaration as a defaulter. The Court upheld the trial court’s finding that the suit was barred under Article 113 of the Limitation Act, 1963, and dismissed the appeal.
The appellant, MCX, a company engaged in online trading, clearing, and settlement of commodity derivatives, filed the appeal against M/s. Madhya Bharat (International) Pvt. Ltd. and its directors. The respondents, as a registered member of the appellant exchange, allegedly failed to pay dues including membership fees, penalties, and charges from the period 2008-2009 to 2015-2016.
MCX, through its counsel Mr. Siddhesh Bhole, contended that the trial court had erroneously dismissed the suit as time-barred. The appellant argued that the limitation period should run from 8 March 2018, the date on which the respondents were declared as defaulters under the Rules of Multi Commodity Exchange of India Ltd. (“MCX Rules”) framed under Section 4(5) read with Section 7(A) of the Securities Contract (Regulation) Act, 1956.
The appellant’s plaint stated that multiple notices were issued between April 2017 and December 2018 to the respondents, demanding outstanding payments towards annual membership fees, VSAT charges, penalties, and submission of annual compliance reports. Despite these communications, no response was received, leading to the issuance of a show cause notice on 2 January 2018, and eventually, the respondents were declared defaulters on 8 March 2018.
The respondents, represented by Mr. Sunil Chaturvedi, submitted that the cause of action arose when the alleged default occurred between 2008 and 2016, and not when the respondents were later labelled as defaulters. It was argued that the declaration of default was an independent event under the internal MCX Rules and did not reset or delay the accrual of the cause of action for the purposes of limitation under Article 113 of the Limitation Act.
The key factual matrix established that dues related to annual fees, penalties, and other charges arose between 2008 and 2016. It was not disputed that the suit was filed by MCX in 2019.
The Court meticulously examined the provisions of Article 113 of the Limitation Act, 1963, which prescribes a limitation period of three years from the date the right to sue accrues. The Bench recorded that the default occurred during the period 2008-2009 to 2015-2016 and the suit was filed only in 2019, well beyond the three-year statutory period.
The Court stated, “the right to sue would emanate from and depend upon the cause of action arising in the facts and circumstances of each case. The given facts, bring out that such cause of action arose upon the default by the respondents in making payment towards the membership fee and other charges for the period 2008-2009 to 2015-16.”
Relying on the Supreme Court decisions in State of Punjab v. Gurdev Singh, Shakti Bhog Food Industries Ltd. v. Central Bank of India, and Indian Evangelical Lutheran Church Trust Association v. Sri Bala & Co., the Bench clarified that under Article 113, the right to sue accrues when the cause of action arises and not when any subsequent internal process, such as declaration of default, takes place.
It was further observed, “default and defaulter cannot be intermingled or confused with one another, in the manner the appellant would want us to do.” The Court distinguished between the substantive right to sue for recovery of money and the procedural internal step of declaring a member as a defaulter under the MCX Rules.
The Court stated, “Such right to sue would necessarily fall back on the default by the respondents which gave rise to the cause of action in favour of the appellant to sue the respondents.” The Bench found that the internal governance framework of the MCX Rules cannot extend or postpone the statutory limitation period prescribed under the Limitation Act.
The Court held, “We are bound to confine ourselves to the averments in the plaint and the reliefs which are purely in the nature of money recovery. The suit does not seek any declaratory reliefs to declare the defaulting respondents as defaulters under the institutional paradigm of MCX Rules.”
The Bombay High Court, after careful examination of the materials on record and the submissions made by both parties, dismissed the appeal and upheld the trial court’s conclusion on limitation. The Bench specifically recorded that the trial court was correct in deciding the issue of limitation as a preliminary issue under the provisions of the Civil Procedure Code. The Court ordered, “The learned trial Judge in the given facts was justified in deciding the issue of limitation as preliminary issue as provided under Order XIV, Rule 2 of the Code of Civil Procedure, 1908.”
The Bench confirmed the trial court’s view that the appellant’s suit was filed beyond the three-year limitation period stipulated under Article 113 of the Limitation Act, 1963, as the cause of action arose when the alleged defaults occurred between 2008-2009 to 2015-2016. The Court concluded, “The appellant (plaintiff) having instituted the suit belatedly in the year 2019 was not within the prescribed period of limitation of three years as stipulated under Article 113 of the Limitation Act.”
The Court rejected the appellant’s contention that the declaration of the respondents as defaulters in March 2018 extended or deferred the limitation period. The Bench observed, “We cannot countenance a situation which would result in a departure from the clear and unambiguous purport of Article 113 of the Limitation Act, whereby the right to sue would necessarily fall back on the default by the respondents (defendants) which gave rise to the cause of action in favour of the appellant (plaintiff) to sue the respondents (defendants).”
In dismissing the appeal, the Court expressly stated, “The appeal is misconceived and is devoid of merit.” The Bench concluded with a direction, “The Appeal is dismissed. No costs.”
Advocates representign the parties:
For the Appellant: Mr. Siddhesh Bhole, Mr. Ashwin Pimpale, and Mr. Apoorva Kulkarni i/b SSB Legal & Advisory.
For the Respondents: Mr. Sunil Chaturvedi i/b Chiyarajawala & Co.
Case Title: Multi Commodity Exchange of India Ltd. v. M/s. Madhya Bharat (International) Pvt. Ltd. & Ors.
Neutral Citation: 2025:BHC-AS:11944-DB
Case Number: Commercial First Appeal No.17 of 2024
Bench: Justice G. S. Kulkarni and Justice Advait M. Sethna
[Read/Download order]
