Fact-finding committees cannot substitute full trials in commercial suits where fraud allegations and liabilities are contested.

The Plaintiff (NSEL) filed a suit to recover approximately Rs. 937 crores from Defendant No. 1 (a trading-cum-clearing member) and other defendants described as promoters, directors, and related entities

In a separate representative suit (Suit No. 173 of 2014) filed by investors against NSEL, the Court had passed an order on 02/09/2014 constituting a Three-Member Committee as a fact-finding authority to determine liabilities of defaulters and settle dues

In the present suit, NSEL filed a Notice of Motion seeking to extend this Committee mechanism to the defendants herein or to pass a similar order

Defendant No. 1 resisted the motion, alleging that NSEL had floated illegal "paired contracts" in violation of the Forward Contracts (Regulation) Act (FCRA) and that the claims based on disputed ledger accounts required a full trial rather than a summary fact-finding process

1. Whether the fact-finding and settlement mechanism of the Three-Member Committee constituted in the representative suit (Suit No. 173 of 2014) should be extended to the defendants in the present recovery suit

2. Whether the court should exercise its inherent powers or powers under Order XXVI Rule 11 of the CPC to appoint a commission for the examination of accounts at this stage

The court considered the scope of Section 151 of the Code of Civil Procedure (CPC) regarding inherent powers to meet the ends of justice, noting such powers must be used sparingly

It applied Section 75 and Order XXVI Rule 11 of the CPC, which permit the appointment of a commission to examine or adjust accounts, provided the report remains subject to proof and cross-examination

The court relied on the principle from Immani Appa Rao v. Gollapalli Ramalingamurthi, which dictates that if a cause of action arises from an illegal act (ex turpi causa), the court will not assist the plaintiff, especially where both parties may be confederates in fraud

It further referenced Khurshed Banoo v. Vasant Mallikarjun Manthalkar, holding that a commissioner's report is not evidence per se until proved through established legal procedures

The court distinguished the present suit from the representative suit, noting that while the latter was filed by investors to recover dues from NSEL, the present suit is a bilateral dispute between NSEL and a trading member involving reciprocal allegations of massive fraud

The court observed that the Supreme Court had already noted that NSEL’s "paired contracts" were in breach of the FCRA

Since the defendants denied liability and challenged the authenticity of the ledger accounts, the court reasoned that NSEL must discharge its burden of proof through a full trial rather than an abbreviated committee process

The court found that extending the committee mechanism would be premature as it would bypass the need for NSEL to prove its case and would deny the defendants the right to cross-examine and contest the evidence of fraud

Furthermore, because no investors were parties to this specific suit, the "public interest" justification used in the representative suit was less applicable here

The court dismissed the Notice of Motion

The court concluded that it would not lend its aid to the plaintiff by circumventing regular trial procedures at the pleadings stage, though it reserved the right to consider appointing a court commissioner under Section 75 of the CPC at an appropriate later stage of the trial