Rajasthan High Court - Jaipur
A.C. Traders vs Nawal Kishore on 5 February, 1987
Equivalent citations: AIR1988RAJ118, 1987(2)WLN375
ORDER Navin Chandra Sharma, J.
1. This is a revision by the defendants against the order of the Additional District Judge, Barmer, dt/- Sept. 27, 1986, whereby in civil suit No. 9 of 1980 filed by the non-petitioner Nawal Kishor in its court for the recovery of an amount of Rs. 83,700/- as principal and 11,700/- as interest, in all Rs. 95,400/- instituted against the petitioners on the basis of an alleged Khata executed by petitioner 2 on behalf of the partnership firm petitioner 1 on April 2, 1985 after going through the accounts of various amounts alleged to have been advanced by plaintiff non-petitioner to the petitioner by various demand drafts dt/-June 18,1984andJune28, 1984. This suit was filed under Order XXXVII of Civil P.C. In accordance with Sub-rule (i) of Rule 3 of Order XXXVII, the plaintiff non-petitioner served upon the defendants-petitioners a copy of the plaint and annexures thereto together with the summons under Rule 2 of the said Order. The defendants-petitioners entered their appearance before the Additional District Judge, Barmer on May 3, 1986 and filed his address for service of notices on them. The plaintiff's counsel was then directed to serve on the defendants-petitioners a summons for judgment in form No. 4A in Appendix B. In pursuance thereof the defendants made an application under Order XXXVII, Rule 5 of the Civil P.C. for leave to defend the suit instituted by the non-petitioner. In his application for leave to defend, the petitioner 2 had requested that leave may be granted without attaching any condition of giving security. The Additional District Judge, Barmer by his order dated Sept. 27, 1986, decided this application and granted leave to the petitioners to defend the aforesaid suit filed by the non-petitioner. The Additional Distrct Judge, however, imposed a condition that the petitioners shall give security within 10 days to the effect that in case the plaintiffs suit was decreed, the surety would also be liable to pay the decretal amount. It is against this order of imposing the condition of giving security that the defendants have come in revision to this Court.
2. I have heard Mr. Suresh Shrimali appearing for petitioners.
3. At the outset, I may mention the reasons given by the Additional District Judge, Barmer in his impugned order for imposing the condition of giving security on the petitioners. The defendants while disclosing facts sufficient to entitle them to defend, mentioned in their application under Order XXXVII Rule 5 of the Code that the Khata dt/- April 2, 1985 on the basis of which the suit had been filed by the non-petitioner was forged one and has been fabricated in collusion and that it does not bear the signatures of Arjundas defendant 2. The Additional District Judge observed that on Sept. 11, 1986 a Police Inspector of Police Station Halol in Gujarat had come to the court in connection with a case lodged with regard to the fabrication of this document and had, with the permission of the court, taken a photo-copy of the document. He then proceeded on to state that although this fact does not affect the merits of the case, but the plea of the petitioners that the document was a result of some conspiracy or was fabricated would be a matter which would be clear only after the evidence is recorded. According to him in case where there is no substantial defence, leave to defend should be granted on giving of security by the defendant. On this basis, the Additional District Judge imposed the condition on the defendants to furnish the security as aforesaid. This matter had come for consideration in the case of Sundaram Chettiar v. Valli Ammal reported in AIR 1935 Mad 43. In that case Valli Ammal respondent had filed a suit on promissory note against Sundaram Chettiar claming Rs. 3150/-, the face value of the promissory note being Rs. 4,000/-. She was unable to produce the promissory note and sued for the lesser amount upon the ground that the defendant had made a part payment of Rs. 1,000/-. As regards inability to produce the promissory note she stated that she had parted with the promissory note because the defendant took it away in order to get the endorsement of the payment of Rs. 1000/-and he refused to return it to her. The defendant put an application for leave to defend supported by an affidavit wherein he raised a plea that he had made a part payment of Rs. 950/- only and not Rs. 1000/- and the same had been accepted by the plaintiff in full satisfaction of the promissory note for the reason that the plaintiff together with a number of other creditors of the defendants had agreed to accept payment of four annas in the rupee which was having by a written composition. The Master was of the opinion that this defence was not bona fide or he had doubts as to the bona fide nature of it and he accordingly gave a conditional leave to defend that condition being that the defendant should within one week of the date of the order pay into court the full amount claimed in the Court. His Lordship Beasley C.J. who delivered the judgment of the Bench referred to two English decisions reported in (1901) 85 LT 262 and (1932) 2 KB 353 and also earlier decision of the Madras High Court in AIR 1924 Mad 612 and observed as under : --
"The position to my mind is clear although it may be one which leads to an unfortunate result in some cases. If a defendant sets up a defence in his affidavit in support of his application for leave to defend which if he could succeed in proving would entitle him to succeed in the suit, then the Master of the Court before whom the application comes has no discretion whatsoever in the matter and any conditional leave to defend must be granted. A triable issue in such a case has been raised by the defendant and it is not open to the Master or anybody else other than the trial Judge to go into the merits and discover whether that case is true one........ The defendant denies this and says that by agreement the part payment was accepted by as complete discharge and that in consequence of this arrangement in part payment he got possession of the promissory note. Clearly there are two issues to be tried. I am, therefore, of the opinion that orders made by the learned Master and by Sen, J. were wrong and that any conditional leave to defend ought to have been given.
The Supreme Court in Santosh Kumar v. Bhai Mool Singh reported in AIR 1958 SC 321 observed through his Lordship Vivian Bose, J. that it is always undesirable and indeed impossible to lay down hard and fast rules in matters that affected discretion. But it is necessary to understand the reason for a special procedure of this kind in order that the discretion may be properly exercised. His Lordship referred to the decision of the Madras High Court in Sundaram Chettiar's case (supra) and stated that the matter was examined in greater detail in that ease. It was concluded that taken by and large the object is to see that the defendant does not unnecessarily prolong the litiagation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defence in a class of cases where speedy decisions are desirable in the interest of trade and commerce. In general, therefore, the test is too show whether the defence raises a real issue and not of sham one, in the sense that, if the facts alleged by the defendant are established there would be a good, or even a plausible defence on those facts. In Santosh Kumar's case the plea of the defence was that they had paid for the goods by cash payment from time and by other cheques and the cheque in the suit had served its end and should be returned. The defendants set out the exact dates on which according to them the payments had been made and gave the number of cheques. On these facts, their Lordships held that this defence at once raised an issue of fact, the truth and good faith of which could only be tested by going into the evidence and the trial Judge had held that the defence did raise a triable issue. But according to the trial Judge it was not enough for the defendants to take up the assertions with the affidavit and they should have produced writings and documents which were in their possession and which where they asserted would prove that the cheques and payments referred to in their defence were given in payment of the cheque in suit, and in the absence of those documents, the defence of the defendants seemed to be vague. Their Lordships held that the facts given by the defendants in the affidavit were clear and precise and the defence could hardly have been clear. As the ground on which the defendants were required to give security was that the defendants did not prove their assertion before they were allowed to put their defence and as the court at the stage of leave had only to determine whether the facts alleged by the defendants are duly proved, they will afford a good or even a plausible answer to the plaintiffs' claim, the leave cannot be withheld and no question about imposing conditions can arise. His Lordship referred to the decision of the House of Lords in Jacobs v. Booths Distillery Co. (1901) 85 LT 262 wherein their Lordships had said that whenever defence raises a triable issue, leave must be given and latter cases say that when that is the case it must be given unconditionally otherwise the leave may be illusory.
4. In Milkhi Ram (India) P. Ltd. v. Chamanlal Bros, reported in AIR 1965 SC 1698, the trial court had granted leave to the appellants to defend this suit based upon promissory notes executed by the appellant 1 on the condition that the appellant deposited security to the extent of Rs. 70,000/-. The procedure followed in the case was that set out in Order XXXVII of the Civil P.C. Rules 2 and 3 of the said Order as had been amended by the Bombay High Court. The respondent had alleged in their suit that they had, from time to time, advanced the money to the appellant and obtained promissory note from them. The total amount advanced under promissory note was Rs. 3,45,000/-. The defendants had admitted the execution and consideration for these promissory notes. In Milkhi Ram's case the plaintiffs had obtained leave to reserve their claim based upon an agreement before they took out summons for judgment under Order XXXVII, Rule 2 Sub-rule (2) and that order had become final. His Lordship Mudholkar, J. observed that the observations in Jacobs v. Booth Distillery Co. (1901) 85 LT 262 and the observations of Chagla C.J. in (1958) 60 Bom LR 1373 may well be borne in mind by the Court sitting in appeal upon the order of te trial Judge granting conditional leave to defend. It is not easy to say in many cases whether the defence is a genuine one or not and, therefore, it should be left to the discretion of the trial Judge who has experience of such matters both at the Bar and the Bench to form his own tentative conclusion about the quality or nature of the defence and determine the condition upon which leave to defend may be granted. If the Judge is of the opinion that the case raises a triable issue then leave should ordinarily be granted unconditionally. On the other hand, if he is of opinion that the defence raised is frivolous or false or sham, he should refuse leave to defend altogether. Unfortunately it was observed, in majority of cases it cannot be dealt with in clear-cut way like this and the judge may entertain a genuine doubt on the question as to whether the defence is genuine or sham or, in other words, where it raises a triable issue or not. It is to meet such cases that amendment to Order XXXVII, Rule 2 made by the Bombay High Court contemplates that even in cases where apparently triable issues are raised the Judge may impose conditions in granting leave to defend. Thus this is a matter of discretion of the trial Judge and in dealing with it, he had to exercise his discretion judiciously. Care, must be taken to see that the object of the rule to ensure the expeditious disposal of commercial cases to which the order applies, is not defeated. Care must also be taken to see that real and genuine issues are not shut out by unduly severe order as to deposit. It was concluded that in a matter of this kind, it would be undesirable and inexpedient to lay down any rule of general application. Their Lordships upheld the order of the trial Judge granting conditional leave to defend.
5. The matter again came to the Supreme Court in Mechalec Eng. and Manf. v. Basic Eq. Corporation reported in AIR 1977 SC 577. In Mechalec Eng. and Manf.'s case, the Additional District Judge had granted unconditional leave to the defendant to defend the suit. On revision Delhi High Court set aside the order of the Additional District Judge and granted leave to the defendant on their paying into court the amount mentioned in the order. In that case the plaintiff sued the defendant for recovery of certain amount on the strength of a cheque drawn by the defendant on the State Bank of India which on presentation was dishonoured. The plaintiff alleged that the cheque was given as a price of goods supplied. The defendant admitted issue of the cheque by its managing partner but it denied any privity of the contract with the plaintiff firm. The defendant had its own version as to the reason and purpose for which the cheque was drawn. His Lordship Beg, J. quoted in extenso the principles applicable to cases covered by Order XXXVII as stated by Das J. in Smt. Kiranmoyee Dassi v. Dr. J. Chatterjee, (1945) 49 Cal WN 246 at p. 253 and concluded that the case before them did not fall within the category of cases where it could be said that the defence was illusory or sham or practically moon shine, the judgment of the High Court was set aside and the order of the Additional District Judge granting conditional leave was restored. This High Court had also examined the question in case of Fatehlal v. Sunder Lal reported in AIR 1980 Raj 220. In Fatehlal's case the plaintiff Sunderlal had filed a suit on the basis of certain cheques and promissory notes executed by the defendant. The plaintiff had stated that after the execution of the cheques and the promissory note the defendant had entered into an agreement on Oct. 26, 1975 whereby he acknowleged the debt payable by him and agreed to pay the amount in instalments. On filing of the suit under Order XXXVII the defendant filed an application under Order XXXVII, Rule 3(5) for leave to defend the suit. The defendant stated in his application that the agreement dated Oct. 29, 1975 on the basis of which the suit was filed was a forged document and that it did not bear his signatures and that on the date of the execution of the agreement, the defendant was not in Udaipur. The District Judge, Udaipur granted leave to the defendant to defend the suit on the condition that he deposited in court the amount claimed in the suit. The defendant came in revision to this Court. His Lordship after review of all the authorities which I have referred to above held that the order of the District Judge cannot be sustained and remanded the case to the District Judge to consider and decide the application filed by the defendant for leave in the light of the observations contained in the order. The reason which led his Lordship S.C. Agarwal, J. to do so was that the District Judge had given no reason for imposing the condition of giving security while granting leave. The District Judge simply granted leave and imposed the condition. It was urged before his Lordship Agarwal, J. that the subordinate court is bound to give reasons for the order passed by him under Order XXXVII, Rule 3, C.P.C. He relied upon the observations of the Supreme Court in Siemens Engg. and Mfg. Co. v. Union of India, reported in AIR 1976 SC 1785, wherein it had been laid down that it is now well settled that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons to support the order it makes. Every quasi-judicial order must be supported by reasons. The rule requiring reasons to be given in support of an order is like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere prudence of compliance with it would not satisfy the requirement of law.
6. I would like to observe that the provisions of Sub-rules (2) and (3) of Order XXXVII as amended by the Bombay High Court and dealt with in Milkhi Ram's case (AIR 1965 SC 1698) were not exactly identical with the provisions contained in Sub-rules (4) and (5) of Rule 3 of Order XXXVII of the Civil P. C. as amended by Amending Act of 1976. There, are some material changes in Order XXXVII, Rules 3 and 6 of the Civil P. C. as amended by the Amending Act of 1976 which make them different from those which existed in Order XXXVII of the Civil P. C. as amended by Bombay High Court and dealt with in Milkhiram's case and eferred to in Fatehlal's case (AIR 1980 Raj 220). I may high light the differences. In the Civil P. C. as amended by Amending Act of 1976, there is a proviso to Sub-rule (5) of Rule 3 of Order XXXVII which did not exist in Order XXXVII as amended by the Bombay High Court which was under consideration in Milkhi Ram's case. Then there is Sub-rule (6)(b) in Rule 3 of Order XXXVII in the Civil P. C. as amended by Amending Act of 1976. There was no such corresponding provision in Order XXXVII of the Code as amended by the Bombay High Court. I cannot, therefore, say that the provisions of Section 3 as were applicable in Bombay and as substituted in the Civil P. C. as amended by Central Act of 1976 are exactly in pari materia. The important change is that proviso to Sub-rule (5) of Rule 3 of Order XXXVII provides that leave to defend shall not be refused unless the court is satisfied that the facts disclosed by the defendant do not indicate that he has a substantial defence to raise or that the defence intended to be put up by the defendant is frivolous or vexatious. Again Sub-rule (4)(b) of Rule 3 of Order XXXVII as was applicable in Bombay is not identical with Sub-rule 6(b) of Rule 3 of Order XXXVII of the Civil P. C. as amended by Central Act of 1976. Sub-rule (6)(b) contains a substantive provision and not a procedural provision as was contained in Sub-rule (4)(b) in the Civil P. C. applicable in Bombay at the relevant time. Sub-rule (6)(b) of Rule 3 of Order XXXVII states that at the hearing of such summons for judgment, if the defendant is permitted to defend as to the whole or any part of the claim, the Judge of the Court may direct him to give such security and within such time as may be fixed by the court for judge and that on failure to give such security, within the time specified by the court or Judge or to carry out such other direction as may have been given by the court or Judge of the court the plaintiff shall be entitled to judgment forthwith. In my view, there cannot be two security orders one under Sub-rule (5) of Rule 3 of Order XXXVII and another under Sub-rule 6(b) of Rule 3 of Order XXXVII. Looking to the scheme of Rule 3 of O.XXXVII in the Civil P. C. 1908 as amended by Act of 1976 the occasion for directing the defendant to give security arises only at the hearing of summons for judgment and not at a prior stage. Looking to the scheme of Rule 3, the terms which the court can impose under Sub-rule (5) of Rule 3 of Order XXXVII will be different and apart from that of giving of the security. The stage of making any directions regarding the giving of security would only arise after the defendant is permitted to defend the whole or any part of the claim and at the hearing of summons for judgment. In the instant case, the Additional District Judge has imposed the condition of giving security simultaneously with leave to defend the suit. The words 'at the hearing of such summons for judgment' are important when we take into consideration the fact that by virtue of Rule 7 of Order XXXVII save as provided by this order, the procedure in suits under Order XXXVII shall be the same as the procedure in suits instituted in ordinary manner. So far the defendants have even not filed the written statement and it was premature for the Additional District Judge, Banner to impose a condition about giving of security at the stage of granting leave to defend: the suit.
7. In this view of the matter, while maintaining the order of the Additional District Judge, Banner granting leave to the petitioners to defend the suit instituted by the non-petitioner, I set aside that part of his order whereby he has imposed a condition that the defendants-petitioners shall furnish security specified in his order. It may be concluded that the stage for any direction regarding security would come 'at the hearing of summons for judgment' under Sub-rule (6)(b) of Rule 3 of Order XXXVII and at that time the Additional District Judge would be free, after giving the parties an opportunity of being heard, to give any direction as may be permitted by law. The parties are directed to appear before the Additional District Judge, Barmer on March 17, 1987.