The Supreme Court of India has held that the rejection of a plaint under Order VII Rule 11(b) or (c) of the Code of Civil Procedure (“the Code”) on the grounds of undervaluation of the relief claimed or deficiency in court fee is not automatic. The Court held that before proceeding to reject the plaint on such grounds, the Magistrate is obligated to afford the plaintiff an opportunity to cure the defect, and it is only upon the plaintiff’s failure to comply with such direction within the stipulated time that the consequences of rejection can ensue. The judgment was delivered by a Bench comprising Hon’ble Mr. Justice Pamidighantam Sri Narasimha and Hon’ble Mr. Justice Alok Aradhe, while allowing the appeal filed against the order dated July 28, 2025, passed by the High Court of Judicature at Madras.

The Appellant, M/s. Marg Limited, a company engaged in real estate development, had purchased land at Karapakkam Village, Chennai, upon which it constructed a multistoried commercial IT building known as “Digital Zone-I”. Due to financial difficulties, the appellant availed loans from Standard Chartered Bank, creating an equitable mortgage over the subject property. Upon classification of the loan account as a Non-Performing Asset, a One Time Settlement was arrived at between the appellant and the Bank, requiring payment of Rs. 55 crores, of which Rs. 27 crores was paid. Simultaneously, the appellant entered into negotiations with the Respondents, which culminated in a Memorandum of Agreement (“MoA”) dated March 17, 2023, drafted by the Respondents’ own counsel, under which the subject property was to be sold through eight separate sale deeds for a total consideration of Rs. 58.60 crores, with Rs. 32.50 crores payable directly to the Bank. In furtherance of this arrangement, the Respondents incorporated several Special Purpose Vehicles between March 9 and 15, 2023, to act as nominees for purchasing different portions of the subject property. On April 3, 2023, upon receipt of Rs. 32.50 crores, the Bank handed over the title deeds to the Respondents, and eight separate sale deeds were executed and subsequently registered on April 19, 2023. However, the MoA was signed only by the Appellant and was never executed by the Respondents, nor was the balance consideration of approximately Rs. 53 crores paid thereunder.

The Appellant instituted a civil suit in June 2024 seeking a mandatory injunction directing the Respondents to execute the MoA, and in the alternative, reconveyance of the subject property, along with a permanent injunction restraining the Respondents from alienating or interfering with the Appellant’s possession. The Respondents filed an application under Order VII Rule 11 of the Code seeking rejection of the plaint on the grounds that it did not disclose a cause of action, the relief was undervalued, and the plaint was insufficiently stamped. The Trial Court rejected this application, holding that the plaint disclosed a cause of action and the issues raised required adjudication on merits after a full trial. The Respondents preferred a revision before the High Court, which was allowed. The High Court held that the MoA did not constitute a concluded contract enforceable in law, that upon execution of the sale deeds no independent cause of action survived, and that the suit was in substance a claim for recovery of approximately Rs. 53 to 55 crores requiring payment of ad valorem court fees, which had not been paid. Accordingly, the High Court rejected the plaint. Aggrieved, the Appellant approached the Supreme Court.

On the question of whether the plaint disclosed a cause of action, the Supreme Court held that the High Court committed a serious error by examining the enforceability of the MoA and concluding that no cause of action survived. The Court held that such an approach amounted to conducting a mini-trial, which is impermissible at the stage of Order VII Rule 11. The Court observed that “the Court, at this stage, is required to assume the averments in the plaint to be true and determine whether they disclose a right to sue; it is not open to the Court to test their correctness or to weigh them against the defence.” On a holistic reading of the plaint, the Court found that it clearly disclosed the existence of a negotiated commercial arrangement, its partial implementation through execution of sale deeds, the subsistence of reciprocal obligations, and the alleged breach thereof by the Respondents — constituting a complete and intelligible cause of action warranting adjudication in a full-fledged trial rather than summary rejection.

On the issue of undervaluation and deficit court fee, the Supreme Court laid down the law with clarity. The Court held that a plain and conjoint reading of clauses (b) and (c) of Order VII Rule 11 of the Code makes it abundantly clear that the power to reject a plaint on such grounds is not to be exercised in the first instance without affording an opportunity to the plaintiff. The Court observed that “the statutory scheme contemplates a two-step process. Firstly, the Court must form an opinion that the relief claimed is undervalued or that the court fee paid is insufficient. Secondly, upon such determination, the Court is obligated to require the plaintiff to correct the valuation and/or supply the requisite court fee within a time to be fixed by it. It is only upon failure of the plaintiff to comply with such direction within the stipulated time, that the consequences of rejection of the plaint can ensue.” Accordingly, the Court held that “the rejection of a plaint under Order VII Rule 11(b) or (c) is not automatic upon a finding of undervaluation or deficit court fee; rather, it is conditional upon non-compliance with the opportunity so granted by the Court.”

The Supreme Court further noted that the High Court had merely recorded a conclusion that the suit was undervalued, without undertaking the necessary exercise of determining what would constitute the proper valuation or the court fee payable. The Court held that “in the absence of such a finding, the direction, if any, to correct the valuation could not have been meaningfully complied with by the plaintiff. The failure to record such a determination further vitiates the impugned order.” The Court also held that the requirement to grant an opportunity to cure such a defect is not a mere procedural formality but a substantive safeguard, observing that “the deficiency in valuation or court fee does not, by itself, render the suit non-maintainable at the threshold. It is a defect which is capable of being remedied, and the law expressly provides a mechanism for such rectification. The High Court, in overlooking this statutory requirement, has effectively denied the appellant an opportunity to cure the defect, thereby defeating the very object underlying clauses (b) and (c) of Order VII Rule 11.”

The impugned order of the High Court was accordingly quashed and set aside. The Trial Court was directed to afford the Appellant an opportunity to correct the valuation and pay the requisite court fee within such time as may be fixed by it. The appeal was disposed of with no order as to costs.

Cause Title: M/s. Marg Limited v. Sushil Lalwani & Ors. | Case No.: Civil Appeal No. of 2026 (@SLP (C) No. 25132 of 2025) | Coram: Hon’ble Mr. Justice Pamidighantam Sri Narasimha & Hon’ble Mr. Justice Alok Aradhe | Date of Decision: April 21, 2026

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