Gujarat High Court
Dineshkumar Madhavlal Patel vs M/S Ami Corporation on 27 September, 2018
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SA/190/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SECOND APPEAL NO. 190 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to No
see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law No
as to the interpretation of the Constitution of India or any
order made thereunder ?
Circulate this judgement in the subordinate judiciary.
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DINESHKUMAR MADHAVLAL PATEL
Versus
M/S AMI CORPORATION
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Appearance:
MR. ARCHIT P JANI(7304) for the PETITIONER(s) No. 1
MR. JAIMIN R DAVE(7022) for the RESPONDENT(s) No. 1
RULE UNSERVED(68) for the RESPONDENT(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 27/09/2018
ORAL JUDGMENT
1. This second appeal under section 100 of the CPC is at the instance of the original defendant No.2 and is directed against Page 1 of 66 C/SA/190/2018 JUDGMENT the judgment and order dated 11th December, 2017 passed by the Principal District Judge, Mehsana in the Regular Civil Appeal No.90 of 2005 arising from the judgment and decree passed by the Civil Judge (S.D.), Mehsana dated 16 th March, 2000 in the Special Summary Suit No.3 of 1999.
2. For the sake of convenience, the appellant herein shall be referred to as the original defendant No.2, the respondent No.1 shall be referred to as the original plaintiff and the respondent No.2 shall be referred to as the original defendant No.1.
3. The case of the defendant No.2, in his own words, as pleaded in the memo of the second appeal, is as under;
"2.1 The appellant states that the appellant is the resident of Visnagar. The opponent No.1 is the partnership firm which is based at Visnagar. The respondent no.2 used to live at Visnagar.
2.2 The respondent no.2 had borrowed the amount from respondent no.1, which was not paid by the respondent no.1. The cheques issued by the respondent no.1 to the respondent no.2 were dishonoured. The respondent no.1 had borrowed the amount of Rs.30,000/- on 11.01.1996, for which, the discount voucher was issued by the firm.
2.3 As per the plaint, the agreement was executed between the respondents no.1 and 2, wherein the respondent no.2 was allowed to withdraw the amount upto Rs.1 lac with the rate of interest of 25%. The said agreement was purportedly executed on 17.03.1997. 2.4 The appellant is shown as the guarantor of the said amount, which was borrowed by the respondent no.2, which is denied by the appellant.
2.5 The respondent no.2 had also withdrawn the amount of Rs.55,000/- on 17.03.1997. The said amounts were paid by the respondent no.2 by issuing cheque Page 2 of 66 C/SA/190/2018 JUDGMENT drawn on the Visnagar Nagrik Sahkari Bank Ltd. Visnagar by cheque no.278797 dated 05.06.1998 for Rs. 30,000/- and cheque no.283605 dated 05.06.1998 for Rs.55,000/- 2.6 The respondent firm had issued the demand notice to the respondent no.1 since the cheques were dishonoured, however, the respondent no.2 did not pay the said amount, which constrained the respondent no.1 to institute the Summary Suit against the respondent no.2. The suit was instituted for the amount of Rs.1,15,095/- before the learned Civil Judge (SD), Mehsasna under the provisions of Order XXXVII of the Code of Civil Procedure, 1908.
2.7 The appellant states that the Civil Suit was heard by the learned Judtge without affording an opportunity to the appellant to grant leave to defend. There were many grounds raised by the appellant raising the issue of maintainability of the Suit, which were not decided. The learned Judge had passed the judgment and decree on 16.04.2000, wherein the defendants were ordered to pay Rs.1,15,097/- with the running interest of 21% from the date of judgment till realization of the decreetal amount. 2.8 The appellant states that the respondent no.2 even being the principal debtor, did not challenge the said judgment dated 16.03.2000. The appellant challenged the said judgment and decree before the Hon'ble Court by way of filing First Appeal No.2916 of 2000. The order was passed in the First Appeal on 25.07.2005, wherein the suit was transferred to the District Court, Mehsana pursuant to the enactment of Gujarat Civil Courts Act, 2005 and for the reason that the claim in the suit was less than Rs. 5 lacs.
2.9 The Suit was transferred to the learned Principal District Judge, Mehsana, wherein it was numbered as Regular Civil Appeal No.90 of 2005. The appeal was heard and decided by the learned Principal District Judge, Mehsana on 11.12.2017, wherein the learned Principal District Judge was pleased to confirm the judgment and decree passed by the learned Civil Judge (JD), Mehsana on 16.06.2000."
4. Thus, it appears from the materials on record that the original defendant No.1 borrowed an amount of Rs.1,15,097-50 Page 3 of 66 C/SA/190/2018 JUDGMENT paisa from the plaintiff. The defendant No.1 executed a promissory note, duly signed by him in favour of the plaintiff of the requisite amount by way of a security. The appellant herein-original defendant No.2 stood as a guarantor on behalf of the defendant No.1. It appears from the materials on record that the defendants Nos.1 and 2 are neighbours. In such circumstances, the defendant No.2. i.e, the appellant herein executed a deed in writing in the nature of guarantee dated 17th March, 1997 duly signed by him. It also appears that the principal borrower had issued cheques of the requisite amount in favour of the plaintiff and those cheques came to be dishonoured as no sufficient funds were there in the Bank account maintained by the principal borrower.
5. In such circumstances, referred to above, the plaintiff was left with no other option but to file a Special Summary Suit No.3 of 1999 in the court of the Civil Judge (SD), Mehsana against the principal borrower and the guarantor, i.e., the appellant herein for recovery of the money.
6. Having regard to the pleadings of the parties, the Trial Court framed the following issues;
"(a) Whether there are sufficient reason to grant summons for judgement under order 37, rule 3 and passed decree against the defendant?
(b) As per Ex.16,17,23 and 24 there are sufficient reason to grant leave to defend in favour of the defendant?
(c ) What oder?"
7. The Trial Court adjudicated the suit filed by the plaintiff and having regard to the oral as well as the documentary Page 4 of 66 C/SA/190/2018 JUDGMENT evidence on record, allowed the suit and the summons for judgment and passed a money decree of the amount of Rs.1,15,097-50 paisa with running interest at the rate of 21% from the date of the judgment till the realization of the decretal amount.
8. It appears from the materials on record that the original defendant No.1, i.e., the principal borrower did not appear before the Trial Court and lead any evidence. To put it in other words, the suit was not contested by the principal borrower. The guarantor, i.e, the defendant No.2, the appellant herein appeared and contested the suit.
9. The defendant No.2, being dissatisfied with the decree passed by the Trial Court, preferred the Regular Civil Appeal No.90 of 2005 in the District Court of Mehsana. The lower appellate court, upon re-appreciation of the oral as well as the documentary evidence, thought fit to dismiss the appeal and thereby affirmed the judgment and decree passed by the Trial Court. Being dissatisfied with the judgment and decree passed by the lower appellate court, the original defendant No.2 has come up with this second appeal under section 100 of the CPC.
10. On 19th July, 2018, this Court passed the following order;
"This Second Appeal is admitted on the following substantial questions of law:
1) Whether the courts below erred in not granting unconditional leave or conditional leave to defend to the appellant, more particularly, when the appellant has pleaded that he has not signed the deed of guarantee?
(2) Whether the courts below erred in not taking appropriate steps to verify as regards the genuineness of Page 5 of 66 C/SA/190/2018 JUDGMENT the signature of the appellant on the deed of guarantee?
(3) Whether the courts below have erred in taking the view that despite the specific defence of the appellant as regards his signature on the guarantee deed being forged, the document in question could be said to have been proved in accordance with the provisions of the Evidence Act, more particularly, Section 67 of the Evidence Act?
(4) Whether the courts below have committed an error in drawing the presumption as regards the genuineness of the documents relying on Section122 of the Negotiable Instrument Act?"
11. On the civil application filed by the appellant for stay, the following order came to be passed;
"1. Rule returnable on 12/09/2018.
2. By this application, the applicant - original appellant/ defendant no.2 has prayed for the following reliefs:
8(A) Pending admission and final hearing of the captioned appeal, be pleased to stay the operation, execution and implementation of the judgment and order dated 11.12.2017 passed by the learned Principal District Judge, Mehsana in Regular Civil Appeal No.90 of 2005;
(B) Be pleased to grant such other and further relief/s and/or order as deemed fit in favour of the applicant, in the interest of justice.
Having heard the learned counsel appearing for the applicant-original appellant and having considered the materials on record and also, having regard to the fact the Second Appeal has been admitted, I am of the view that the applicant has been able to make out a strong prima facie case to have an ad interim order in terms of Paragraph8(A). I accordingly grant the relief in terms of Para8(A) on the condition that the applicant shall deposit the entire decreetal amount with interest as on date within a period of six weeks from today before the Registry of this Court. Direct service is permitted."
Page 6 of 66C/SA/190/2018 JUDGMENT
12. Mr. Archit Jani, the learned counsel appearing for the appellant vehemently submitted that the court below committed a serious error in holding his client responsible for the payment of the money borrowed by the defendant No.1 from the plaintiff. Mr. Jani, the learned counsel, outright denied the liability of his client as a guarantor. According to Mr. Jani, his client, at no point of time, had stood as a guarantor as regards the money transaction between the plaintiff and the defendant No.1. Mr. Jani submitted that his client has not executed any guarantee deed in writing, and the guarantee deed produced by the plaintiff is a forged document and it contains a forged signature of his client. According to Mr. Jani, the trial court should have granted him unconditional leave to defend as substantial triable issues are involved and the lower appellate court also overlooked all these aspects while dismissing the first appeal.
13. In support of his submissions, reliance has been placed on the following decisions;
Sr. No. Citation Relevant Para 1 IDBI Trusteeship Services Ltd. 17 vs. Hubtown Ltd. (2017) 1 SCC 568 2 State Bank of Hyderabad 17 to 19 vs. Rabo Bank (2015) 10 SCC 521 3 S. Raju 9 vs. C. Sathammai Page 7 of 66 C/SA/190/2018 JUDGMENT (2008) 2 SCC 583 4 Mukesh Kumar 9 & 10 vs. Bhopal Singh & Ors. 2008 SCC On Line Raj. 40 5 A.C. Traders 7&8 vs. Nawal Kishore 1987 SCC On Line Raj 9 6 Kantipudi Lelitha Lakshmi Manohar 7 Saraswathi vs. Kantipudi Ramakrishna 1981 (2) (H.C.) AP 412 7 Milkhiram (India) Private Ltd. 12 Vs Chamanlal Bros. AIR 1965 SC 1698 8 Bank of Baroda, Bombay 20 t0 24 vs Shree Moti Industries, Bombay 2009(1) MHLJ 282 9 Central Bank of India 7 vs Virudhunagar Steel Rolling Mills Ltd. (2015) 16 SCC 207 10 Mohamed Khan, H by L.Rs. 15 Mehrunnisa & Ors. vs. Andhra Bank & Ors. ILR (Karnataka) 252 Regular First Appeal 139/1974 Karnataka High Court
14. On the other hand, this second appeal has been Page 8 of 66 C/SA/190/2018 JUDGMENT vehemently opposed by the learned counsel appearing for the plaintiff. The learned counsel appearing for the plaintiff would submit that no error, not to speak of any error of law, could be said to have been committed by the two courts below while fixing the liability of the appellant as a guarantor. It is submitted that the defence put forward by the appellant herein is dishonest and having regard to the concurrent findings of the two courts, this Court may not disturb the same and grant any relief to the appellant. The learned counsel further submitted that the appellant, with a view to absolve himself from the liability as a guarantor, has gone to the extent of denying his signature on the deed of guarantee. It is submitted that if the case of the appellant is that fraud has been played upon him by the plaintiff or the principal borrower, and his signature has been forged on the deed of guarantee, then it was expected of the appellant to file an appropriate first information report and institute prosecution in that regard. It is submitted that by merely denying the liability and disputing the document in the nature of a guarantee deed, the appellant cannot get away and absolve himself from the liability.
15. The learned counsel appearing for the plaintiff placed strong reliance on a decision of this Court in the case of Naresh Ambalal Khalas vs. Mohanlal K. Khalas, 1995 (1) GLH 744, wherein a learned Single Judge of this Court has observed as under;
"8. In my Opinion, the proposition of law that once a signature below negotiable instrument is disputed by the executant thereto, unconditional leave should follow, as a matter of course, is too broadly and widely stated. The court of law is even at initial stage required to examine the Page 9 of 66 C/SA/190/2018 JUDGMENT correctness of such a claim. The trial Court always has before it the admitted signature of the party, both below the application for leave to defend as well as in Vakalatnama. Even admitted signature of the executant of negotiable instrument is very often available from the other documents which are produced before the court. There are number of other factors which the court has to examine. It is very difficult for this Court to be exhaustive and to enumerate all such other relevant and attendant facts and circumstances based on which the court can impose condition in cases where the defendant has denied his signature below the negotiable instrument. However, to illustrate a few of relevant and attendant circumstances to which the court must focus its mind, it can be said that such facts and circumstances may comprise of the relationship, business or otherwise, between the parties; the nature of transactions and series of transactions and the duration during which such transactions have continued; reason. if any, given by the defendant for the need on the part of the plaintiff to forge or put up fabricated document before the court; the need for the plaintiff to bring totally false claim before the court and the forged document against the defendant with whom the plaintiff has no relation; the issuance or prior notice and the conduct of the defendant in either reply to the notice or the reason for non-reply to the notice; the fact as to whether previous or earlier transactions between the parties have already taken place; the conduct of the defendant in issuing cheque of Rs. 2,000/- in favour of plaintiff; other attendant circumstances revealing from the correspondence and contemporaneous record either maintained by the parties or by the third party like banking institutions, shroffs etc., and large number of other factors, may also enter consideration of the court and the factors enumerated hereinabove should not be treated as exhaustive. They are merely illustrative. It is difficult for this court to accept the proposition that once the defendant disputes his signature below promissory note or other negotiable instrument, the court is always obliged to grant Page 10 of 66 C/SA/190/2018 JUDGMENT unconditional leave to defend. Such a wide proposition of law cannot be accepted, and in my opinion, the trial Court has always jurisdiction to examine other relevant and connected factors and circumstances ultimately to decide as to whether the defence put forth by the defendant is jejune or moonshine or whether it is genuine."
16. The learned counsel appearing for the plaintiff has placed reliance on the following decisions;
(1) Bharat Barrel & Drum Manufacturing Company vs. Amin Chand Payrelal, AIR 1999 SC 1008;
(2) UBS AG vs. State Bank of Patiala, AIR 2006 SC 2250;
17. Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether the two courts below committed any error in passing the impugned judgment and order.
18. Before adverting to the rival submissions canvassed on either side, I must look into the findings recorded by the two courts below. The Trial Court, while allowing the Special Summary Suit, held as under;
"3. In light of Mark 4 original document Mark 36 and in light of citation G.L.R. XXIV (1) 620 and 1995(1) G.L.H 744 Mr. M.S. Billadiwala argued before me that considering Exh.16,17, 23 and 24 defendant failed to establish prima facie case about leave to defend to defendant, failed to establish triable issues therefore. In light of original document Mark 26/1 to 26/9 plaintiff established commercial transaction, defendant also admitted about transaction therefore, once the Page 11 of 66 C/SA/190/2018 JUDGMENT transaction is admitted by the defendant then and then no triable issue or solid case about leave to defend defendant therefore, mere denial of plaint or summons for judgment is not sufficient but defendant who establish case about legal and factual aspect about triable issue. Here in this case neither defendant establish about factual aspect or legal aspect. In these circumstances plaintiff entitled decree under Order-37, Rule 3, therefore, Hon'ble Court should reject Exh.16,17,23 and 24 and pass the necessary order for decree.
(4) In light of Exh.23 and 24 Mr.Nanavati argued before me that considering Exh.23 para 10, 21% interest and defendant No.1 denied about this agreement.
Considering Exh.16 and 17 defendant No.2 leave to defend. He also denied about surety, considering Mark 4/4 original document Mark 26/3 and 26/4 signature of surety No.1 but there is strike out, considering Mark 4/2 (original Mark 26/2) there is some correction under title of Guarantee Letter (Jaminkhat) line of address removed by "Touch and Go" therefore there is a triable issue, considering Mark 4/4 original 26/4 the promissory note there is some addition about Rs.55,000/- and, therefore, compulsion about Rs. 85,000/- therefore, there is a triable issue therefore under the aforesaid circumstances the Hon'ble Court should grant Exh.16 and 23 leave to defend without depositing the single pai.
(5) In light of Exh.16 and 17 on behalf of defendant Mr. J.S. Chaudhary argued before me in light of 24 GLR 1983 (1) defendant denied about signature and, therefore, as per 24 GLH there is a triable issue, under Order 37, Rule 3 no copy supplied to the plaintiff therefore, plaintiff is not entitled decree under Order 47, Rule 3, clear cut violation of Order 37, Rule 3, plaintiff failed to file summons for the judgment within 10 days and, therefore, summons of judgment prayers should be rejected and Exh.16, 17, 23 and 24 leave to defend should be granted where there is a specification triable issue about signature therefore, leave to defend Exh.16 and 23 should be granted.
(6) Considering legal and factual aspect about Exh.16 and 23, leave to defend of defendant No.1 and 2 in light of citation 24 GLR 620 and 1995 (1) GLH 794 it Page 12 of 66 C/SA/190/2018 JUDGMENT transpires from record of CPC Order 37, Rule 3, it is crystal clear provisions about to appear defendant within no days but there is no provision about limitation about summons for judgment should be given within 110 days therefore, argument of Mr. J.S. Chaudhary is not maintainable on legal and factual aspect and, therefore, it is rejected.
(7) Considering 24 GLR, it transpires from citation that 80% amount order of depositing in Court and under that condition leave to defend was granted, Court accept that defence therefore Order of depositing was set aside but here in this case looking to Exh.16 and 23 denial in toto. In these circumstances, 24 GLR 620 is not applicable therefore, argument of Mr. J.S. Chaudhary is rejected.
(8) Considering Exh.16 and 23 on merit whether this type of leave to defend is legal one or there is a specific triable issue are there? Then both the defendants are entitled for leave to defend, if they failed to establish prima facie case about triable issue then as per Order 37, Rule 3(5) leave to defend should be rejected.
(9) considering Exh.23 leave to defend of defendant No.1 and leave to defendant Exh.16 defendant No.2 both the defendant denied about Mark 4 and original Mark 26 document whether this denial can get leave to defend? Considering Exh.116, 17, 23 and 24 denial in toto about Ex.1 plaint and Ex.113 summons for judgment and this denial have no any value in eye of law especially in Evidence Act and Negotiable Instrument Act, under Order 37, Rule 11 and 2 have no any substance therefore, both advocate argument of Mr. Nanavati and Mr. J.S. Chaudhary rejected, Ex.1 plaint filed under Order 37 and Court also issue summons under Order 37, Rule 1 and 2.
(10) Considering Ex.10 and 11 appearance of defendant No.1 Ex.7 and 8 appearance of defendant No.2 both appeared through their advocate. There is no illegality about Order 37, Rule 2 and 3, Ex.13 summons for judgment application given on 17.06.1999 and on the same day Court pass the order under Order 37, Rule 3 (4) there is no limitation about summons for judgment but specific provision about summons for judgment can file after appearing the defendant. Considering Ex.7,8 and 9 plaintiff given Ex.13 after Ex.7, 8 and 9 therefore, no Page 13 of 66 C/SA/190/2018 JUDGMENT illegality for summons of judgment.
(11) Considering Mark 4 and 26 original and xerox document of suit about filed by the plaintiff it transpires from record that plaintiff come with a case of Order 37, Rule 5 and 6 therefore, leave to defend should be within limitation of Order 37, Rule 5 and 6 therefore from denial of the document Mark 4 and 26, 11 to 9 is not sufficient argument of Mr. Nanavati and Mr. J.S. Chaudhary is not maintainable therefore it is rejected.
(12) Under Order 37, Rule 5 and 6 , Mark 26/1 to 26/9 Mark 26/1 discount voucher, Mark 26/2 agreement with surety, Mark 26/3 Dinesh Madhavlal defendant No.2 is a surety and he signed the surety in favour of defendant No.1, Mark 26/4 promissory note executed by Nainesh Dashrathlal, Mark 26/5 Cheque No.278797 dated 05.06.98 signed by defendant No.1 of Rs. 20,000/-, Mark 26/7 cheque No.283605, dated 05.06.1998 signed by defendant No.1 of 55,000/- in favour of Ami Corporation, bot these cheques not accepted under Mark 26/6 and Mark 26/9 Cheque Return Memo on the ground of funds insufficient therefore, these document cannot denied by both the defendants. In light of Section 118, 119, 120, 121, 122, 138, 139 and 140, therefore, u/s.140 leave to defend Ex.16, 17, 23 and 24 defence cannot be allowed therefore, argument of Mr. Nanavati and Mr. J.S. Chaudhary is rejected. Mr. J.S. Chaudhary in light of Negotiable Instrument Act, merely denial is not sufficient therefore, on ground of denial about document is not permissible under provisions of Negotiable Instrument Act. The relevant Sections 118 to 122 and 139 to 140 are as under:-
118. Presumption as to Negotiable Instruments. Until the contrary is proved, the following presumptions shall be made:-
(a) of consideration- that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, for consideration;
(b) as to date- that every negotiable instrument bearing a date was made or drawn on such date;Page 14 of 66
C/SA/190/2018 JUDGMENT (c ) as to time of acceptance- that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;
(d) as to time of transfer- that every transfer of a negotiable instrument was made before its maturity;
(e) as to order of indorsement- that the endorsement appearing upon a negotiable instrument were made in the order in which they appear thereon;
(f) as to stamp- that a lot promissory note, bill or exchange or cheque was duly stamped
(g) that holder is a holder in due course- that the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the market or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.
119. Presumption on proof of protect- In a suit upon an instrument which has been dishonoured, the Court shall, on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved.
120. Estoppel against denying original validity of instrument- No maker of a promissory note, and no drawer of a bill of exchange or cheque and no acceptor of a bill of exchange for the honour of the drawer shall, in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn.
121. Estoppel against denying capacity of payee to indorse- No maker of a promissory note and no acceptor of a bill of exchange (payable to order) shall, in a suit thereon by a holder in due course be permitted to deny the payee capacity at the date of the note or bill, to endorse the same.
122. Estoppel against denying signature or capacity of prior party :- No indorser of a negotiable instrument shall, Page 15 of 66 C/SA/190/2018 JUDGMENT in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity contract of any prior party to the instrument.
138. dishonour of cheque for insufficient, etc. of funds in the account:- where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which amy extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless:-
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever earlier.
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c ) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.
139. Presumption in favour of holder:- It shall be presumed unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge in whole or in part, of any debt or other liability.
140. Defence which may not be allowed in any Page 16 of 66 C/SA/190/2018 JUDGMENT presumption under section 138:- It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no reason to believe when he issued the cheque may be dishonoured on presentment for the reasons stated in that section.
(13) Therefore, these court cannot exceed the provisions of section 118 to 122 and 138 to 140 therefore, there is no solid defence and triable issue of defendant therefore, argument and pleading and leave to defend Ex.16, 17, 23 and 24 is rejected. Considering the factual aspect about Mark 26/2 original deed of surety and agreement between the parties produced by the plaintiff with Ex.25, 21% interest mentioned in 26/1 to 26/3 therefore, crystal clear Ex.26/2 shows that there is no demarcation or any iota of evidence about Touch & Go therefore, argument of Mr. Nanavati is rejected.
(14) Considering 26/1 to 26/9 plaintiff come with a case that Order, 37, Rule 5 and 6, also establish by Mark 26/1 to 26/9 therefore, there is no reason to discard the Mark 26/1 to 26/9. Therefore, in light of Mark 26/1 to 26/9 and Order 37, Rule 5 and 6 defendant failed to establish triable issue and leave to defend on factual and legal aspect therefore, it is rejected and held issue No.(a) in affirmative and (b) in negative.
(15) Under the aforesaid reasons plaintiff is entitled decree as prayed for in plaint as well as Ex.13 therefore, I pass following order:-
ORDER Ex.16, 17, 23 and 24 leave to defend is rejected.
Ex.1 plaint and summons for judgement Ex.13 (with affidavit Ex.14) in light of Ex.26/1 to 26/9 suit and summons for judgment is allowed.
Defendants are ordered to pay Rs.1,15,097-50 ps. With running interest of 21% from the date of the judgment till the realization of the decretal amount."
19. The Trial Court ventured to dictate the judgment in English, but in the process, seems to have lost in the desert.Page 17 of 66
C/SA/190/2018 JUDGMENT At least, I have not been able to understand what is sought to be conveyed by the Trial Court.
20. The aforesaid findings recorded by the Trial Court came to be affirmed by the lower appellate court, holding as under;
"[13] Every Plaintiff has the choice of bringing any suit, and is governed by normal rules prescribed by the Code of Civil Procedure in the conduct of such suit. Order 37 is a special summary procedure which is applicable to a limited class of suits. A bare perusal of Order XXXVII Rule 3 sub-rule (6) clause (b) would enable us to hold that the plaintiff was entitled to a judgment forthwith. Now, there was no impediment in law for the learned Judge to pass a decree. He has recorded a finding that the defendants were failed to establish that there was triable issue in the matter and after recording reasons the learned trial judge has rejected the applications of the defendants for Leave to defend and allowed the Summons for Judgement.
[14] Here, in this case from the records and proceedings of this case it reveals that, against the said Judgement and Decree passed by the learned Civil Judge (Senior Division), Mahesana, the defendant No.2 has preferred First Appeal No.2916/2000 before the Honourable High Court of Gujarat, as at the relevant point of time only the Honourable High Court of Gujarat has got pecuniary jurisdiction to entertain appeal arising from the Judgement and Decree passed by the learned Civil Judge (Senior Division) in Summary proceedings. During the proceedings before the Honourable High Court of Gujarat, the appellant has submitted an application on 25.09.2001 praying to stay the operation, implementation and execution of the Judgement and Decree Dated 16.03.2000, passed by the learned Civil Judge (Senior Division), Mahesana in Special Summary Suit No.3 of 1999. The Honourable High Court of Gujarat has considered said application of the appellant and passed order below said application on 11.10.2011 that, on the facts and circumstances of the case, this application is granted in terms of Paragraph 9(a), subject to the condition that the applicant deposits in the trial Page 18 of 66 C/SA/190/2018 JUDGMENT court, the entire amount of the decree together with costs and interest within six weeks from today. On the amount being deposited, the opponent No.1- original plaintiff may withdraw the amount on furnishing security to the satisfaction of the trial court. Thereafter, because of Gujarat Civil Courts Act, 2005, came into force with effect from 09.05.2005 the Records and Proceedings of this appeal has been sent by the Honourable High Court of Gujarat to the District Court, Mahesana, on the grounds of change of pecuniary jurisdiction.
(15) During the course of hearing of this appeal the learned advocate appearing on behalf of the appellant (original defendant No.2) has not produced any documentary evidence on the basis of which it can be said that, the appellant has complied with the orders of the Honourable High Court of Gujarat and has deposited amount as ordered. On perusal of Records and Proceedings of this case, it reveals that, the appellant (original defendant No.2) has not produced any receipt on record to show that, he has complied with the order of the Honourable High Court of Gujarat and therefore, it reveals that, he. has not deposited the entire amount along with interest with the court. The appellant ls failed to carry out the directions in the order passed by the Honourable High Court of Gujarat on 11.10.2001. (16) Order XXXVII is applicable only to certain classes of suit. The primary object underlying summary procedure is to prevent unreasonable obstruction by the defendant who has no defense thereby assisting and securing speedy and expeditious disposal of cases. Summary procedure provided by the Code is aimed at providing certainty, security and continuity in business transactions and is a step in ensuring early disposal of commercial cases. Therefore the provisions of Order XXXVII are to be interpreted in such a manner which serves the object for which it exists in the Code. It has been submitted that for certain classes of suits Order XXXVII is a complete code in itself. It not only lays down the manner in which a summary suit is to be instituted but also prescribes a format in which summons of the suit are to be issued to the defendant and further provides that the plaintiff shall, together with the summons, serve on the defendant a copy of the plaint and annexures thereto. It not only fixes Page 19 of 66 C/SA/190/2018 JUDGMENT a time by which the defendant has to enter an appearance upon service of summons but also provides for the consequences of non appearance. Once the defendant enters appearance, the plaintiff is required to serve summons for judgment on the defendant in the prescribed format duly supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief there is no defense to the suit whereupon the defendant is required to apply for leave to defend by disclosing such facts as may be deemed sufficient, either on affidavit or otherwise, to entitle him to defend. Thereafter, the Court has to apply its mind to the prayer seeking leave to defend and to pass appropriate order which may be: (a) unconditional leave to defend; or (b) conditional leave to defend; or (c) refusal of leave to defend. Provided that leave to defend is not to be refused unless the Court is satisfied that the facts disclosed by the defendant do not indicate that he has a substantial defense to raise or that the defense steamed to be put up by the defendant is frivolous or vexatious. It was submitted that the object of granting conditional leave to defend is to wipe out frivolous and baseless pleas so that the object to provide summary procedure is not frustrated. It was submitted that the difference in the procedure of an ordinary suit and a summary suit is that in the former the defendant requires no leave of the Court to defend the suit and he is entitled to defend it as of right whereas in the latter the defendant is required to apply for leave to defend within ten days of service of the summons for judgment. It was submitted that in a summary suit the defendant has no right to defend unless leave is granted to him by the Court to defend. Therefore, where the defendant fails to obtain leave to defend or where the leave to defend has been granted conditionally and the defendant fails to fulfill the condition, the decree is almost automatic because it would be deemed that the defendant has no defense to offer. It was submitted that the use of "ords "entitled to judgment forthwith" as they occur in sub-rule (6) of Rule 3 of Order XXXVII are to be interpreted in the context of sub-rules (4) and (5) of Rule 3 of Order XXXVII which provides that when the defendant enters an appearance, the plaintiff would serve on the defendant a summons for judgment in Form No. 4A, supported by an affidavit verifying the cause of action and the amount claimed with a statement that in his belief there is no Page 20 of 66 C/SA/190/2018 JUDGMENT defense to the suit. It was submitted that summons for judgment in a summary suit is to be in Form No. 4A, which puts the defendant on notice to attend the Court on a particular date on the hearing of an application of the plaintiff to obtain judgment in the suit against him for a specified sum of money and for interest and cost.
Meaning thereby that where leave to defend, upon service of summons for judgment is refused or leave granted is conditional and the condition has not been fulfilled, then the plaintiff is entitled to judgment forthwith as contemplated in the summons for judgment served on the defendant. It was submitted that the words "judgment forthwith" is therefore to be understood in that context and they should not be interpreted so as to mean that the plaintiff's case has to be considered and determined as in an ordinary suit proceeding ex parte. It has been submitted on behalf of the plaintiff that since a special procedure has been provided by the Code for deciding a summary suit where the defendant either fails to enter appearance or fails to obtain leave to defend or fails to fulfill the condition, in a case where the leave to defend has been granted conditionally, the general provisions of the Code of Civil Procedure which are, otherwise, applicable would be deemed excluded notwithstanding Rule 7 of Order XXXVII of the Code. It was submitted that since admittedly the leave to defend was granted conditionally and the condition was not fulfilled, the plaintiff was entitled to judgment forthwith as contemplated in the summons for judgment and the application of the defendant to cross-examine the plaintiff's witness is nothing but misconceived inasmuch as the defendant would be deemed to have admitted plaintiff's case.
[17] Here in this case, the defendants failed to establish that, there was triable issue and leave to defend is required to be granted. It is also required to be considered that, plaintiff has established by leading documentary evidence on record that, there was commercial transaction between the plaintiff firm and defendants and therefore, the learned trial judge has rightly allowed Summons for Judgement and rejected the applications of the defendants submitted for leave to defend and passed Judgement and decree in favour of the plaintiff firm.
Page 21 of 66C/SA/190/2018 JUDGMENT (18) As mentioned hereinabove, the appellant (original defendant No.2) has failed to deposit the amount, in pursuance of order passed by the Honourable High Court of Gujarat. Thus, he has not availed of the opportunity to challenge the Judgement and decree passed by the Lower court. He failed to comply with the conditional order. Therefore, it is not required for this court to enter into merits and demerits of this case. Therefore, I do not see as to how the appellant-defendant No.2 can complain of any prejudice or loss. In the given facts and circumstances and by his conduct he cannot raise such a ground in the present appeal. I have no hesitation, therefore, in rejecting this submission as well. I am of the firm opinion that the discretion vested to this court under the scheme of Order XXXVII of the Code of Civil, is properly exercised and there is nothing arbitrary or capricious about the same.
(19) As discussed hereinabove plaintiff is failed to prove his case because his say and submission have not been proved on the basis of corroborative piece of evidence or on the basis of documentary evidence and therefore, it cannot be said that, the order passed by the lower court is vexations, capricious, perverse or against the settled provisions of law.
(20) Under these circumstances, it reveals that, the findings arrived at by the Hon'ble trial Court is just, proper and reasonable and there is no reason or ground to interfere with it and the appeal deserves to be dismissed by confirming the judgment and decree passed by learned Civil Judge (Senior Division), Mahesana.' (21) I have gone through the record and proceedings of the trial Court. On going through the record, it appears that learned trial Judge has rightly considered all the material available on record. It further appears that learned trial Judge has taken into consideration documents produced by the parties and by giving elaborate discussion upon each and every important aspects of the case, the Summons for Judgement allowed.
(22) Learned trial Judge has appreciated documentary Page 22 of 66 C/SA/190/2018 JUDGMENT evidence produced by the rival parties in proper and true perspective and has not committed any error of facts or of law. Learned trial Judge has also considered the relevant legal provisions and no error is committed in considering the legal provision applicable to the facts of the case on hand.
(23) Thus, the cumulative effect of all the issues discussed herein above, leads to the conclusion that the appeal fails and has no substance and merits and, therefore, no interference by this appellate Court is required. Hence, the same is required to be rejected.
(24) Thus, on perusing record of trial Court and judgment and decree passed in the suit, it appears that learned trial Judge has not committed any error of fact or error of law in determining the evidentiary value of the suit and coming to the conclusion. Thus, the learned trial Judge has committed no error in considering the documentary evidence on record. Learned trial Judge has considered all the documents available on record in proper perspective and has committed no error in giving weightage on the material and passed order which is just and proper and not against the settled principle of law and, therefore, in my opinion, the finding of the learned trial Judge does not require any interference."
21. In my opinion, the lower appellate court also committed an error by taking the view that as the appellant herein failed to deposit the amount as directed by the High Court, he is not entitled to be heard on the merits of the case. It appears from the materials on record that originally the first appeal was filed before this Court being the First Appeal No.2916 of 2000. It appears that in this first appeal, a civil application was filed for stay of the operation, implementation and execution of the decree. In the said application, this Court granted the relief on the condition that the appellant herein shall deposit the Page 23 of 66 C/SA/190/2018 JUDGMENT decretal amount with the Registry of this Court within a stipulated period of time. However, the said amount was not deposited. Such a condition was imposed by this Court at the relevant point of time only for the purpose of stay of the execution of the decree and not for the purpose of grant of conditional leave to defend. As the appellant herein failed to deposit the amount, the plaintiff could have proceeded to execute the decree but that by itself would not be the cause or the reason not to hear the appellant herein on the merits of the case in the first appeal. The First Appeal No.2916 of 2000, ultimately, came to be disposed of by this Court vide order dated 25.07.2005, which reads as under;
"The claim in the suit was less than Rs.5 Lakhs, therefore, in view of the Gujarat Civil Courts Act, 2005, coming into force with effect from 9.5.2005, the office is required to transfer this appeal to the District Court, Mehsana. Accordingly, while disposing of this Appeal, which is pending before this Court, the office is directed to transfer this Appeal to the District Court, Mehsana, at the earliest. R. & P, if any, received be sent down forthwith to the District Court, alongwith Appeal. Accordingly, this Appeal is disposed of here. "
22. In view of the order passed by this Court, referred to above, the appeal filed by the appellant herein stood transferred to the District Court and that is how the District Court heard the first appeal.
ANALYSIS
23. A contract of guarantee is defined in S. 126 of the Contract Act, 1872, in these terms :
"A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in Page 24 of 66 C/SA/190/2018 JUDGMENT case of his default. The person who gives the guarantee is called the 'surety', the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'."
24. It is clear from the above definition that a contract of guarantee involves three parties : the creditor, the surety and the principal debtor. A contract of guarantee must, therefore, involve a contract to which all those three parties are privy. Their express participation or implied assent to have such a contract must be proved by the person who wants to rely upon it.
25. In Ramchandra B. Loyalka v. Shapurji N. Bhownagree, AIR 1940 Bom 315, Beaumont C.J., speaking for the Bench of the Bombay High Court, observed at pp. 316 and 317 :
"There must be a contract, first of all, between the principal debtor and the creditor. That lays the foundation for the whole transaction. Then there must be a contract between the surety and the creditor, by which the surety guarantees the debt, and no doubt the consideration for that contract may move either from the principal debtor or both. But if those are the only contracts, in my opinion, the case is one of indemnity. order to constitute a contract of guarantee, there must be a third contract, by which the principal debtor expressly or impliedly requests the surety to act as surety. Unless that element is present, it is impossible in my view to work out the rights and liabilities of the surety under the Contract Act. Section 145 provides that in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety. It is impossible to imply a promise by the principal debtor to indemnify the surety, unless the principal debtor is privy to the contract of suretyship."
26. These observations reflect the true legal position with Page 25 of 66 C/SA/190/2018 JUDGMENT regard to a contract of guarantee.
27. The rival contentions urged by the counsel for the parties necessitate an examination of the provisions of Rule 3 of Order 37 of the Civil P.C. as it stood prior to the enactment of the Amendment Act, and the effect of the amendments introduced in the said provisions by the Amendment Act.
28. Rule 3 of Order 37 of the Civil P.C. as it stood prior to the enactment of the Amendment Act provided as under:--
"Rule 3 (1) The Court shall, upon application by the defendant, give leave to appear and to defend the suit, upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application.
(2) Leave to defend may be given un-conditionally or subject to such terms as to payment into court, giving security, framing and recording issues or otherwise as the Court thinks fit".
29. As laid down by the Supreme Court in Santosh Kumar v. Bhai Mool Singh, AIR 1958 SC 321, the object of the said provisions was to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce. In Santosh Kumar v. Bhai Mool Singh the Supreme Court has taken note of the rule laid down by the House of Lords in England in Jacobs v. Booth's Distillery Co., (1901) 85 LT 262, Page 26 of 66 C/SA/190/2018 JUDGMENT that whenever the defence raises a triable issue leave must be given and after referring to the decisions of the various High Courts, the Supreme Court has laid down :
"All that we need say about them is that if the Court is of opinion that the defence is not bona fide, then it can impose conditions and is not tied down to refusing leave to defend".
"In general, therefore, the test is to see whether the defence raises a real issue and not a 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 the said case, the Supreme Court has also emphasised that the court cannot reach the conclusion that the defence is not bona fide arbitrarily, and that it is as much bound by judicial rules and judicial procedure in reaching a conclusion of this kind as in any other matter.
30. In M/s. Mechalec Engineers & Manufacturers v. M/s. Basic Equipment Corporation, AIR 1977 SC 577, the Supreme Court has referred to the decision in Santosh Kumar v. Bhai Moot Singh, AIR 1958 SC 321, and has quoted with approval the following principles laid down by Das, J., (as he then was) in Smt. Kiranmoyee Dassi v. Dr. J. Chatterjee, (1945) 49 Cal WN 246: (AIR 1949 Cal 479):
"(a) If the defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend,
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say although the affidavit does not positively and immediately make it clear that he had a defence, yet, Page 27 of 66 C/SA/190/2018 JUDGMENT shows such a state of facts as leads to inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment in to Court or furnishing security.
(d) If the defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.
(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment the Court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such conditions, and thereby show mercy to the defendant by enabling him to try to prove a defence".
31. The provisions of Rules 2 and 3 of Order 37 of the Civil P.C. had been amended by the Bombay High Court in so far as they were applicable to the civil Courts subordinate to the said High Court, Rule 3 of Order 37, as it was applicable in Bombay, read as under:-
"3. Service of the writ of summons on defendant and appearance by defendant:--
(1) The plaintiff shall together with the writ of summons under Rule 2 serve on the defendant a copy of the plaint and exhibits thereto, and the defendant may, at any time within 10 days of such service, enter an appearance. The defendant may enter an appearance either in person or by pleader. In either case an address for service shall be given in the memorandum of appearance, and, unless otherwise ordered, all summonses, notices or other judicial processes required to be served on the defendant shall be deemed to have been duly served on him, if left at his address for service On the day of entering the Page 28 of 66 C/SA/190/2018 JUDGMENT appearance notice of the appearance shall be given to the plaintiff's pleader (or, if the plaintiff sues in person, to the plaintiff himself) either by notice delivered at or sent by prepaid letter directed to the address of the plaintiff's pleader or of the plaintiff, as the case may be. (2) Summons for judgment:-- If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant, a summon for judgment in Form No 4A in Appendix B or such other form as may be prescribed from time to time returnable not less than ten clear days from the date of service supported by an affidavit verifying the cause of action and the amount claimed, and stating that in his belief there is no defence to the suit, (3) Defendant to apply for leave to defend.-- The defendant may, at any time within ten days from the service of such summons for judgment by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend such suit. Leave to defend may be granted to him unconditionally or upon such terms as to the Court or Judge appear just.
(4) Hearing and judgment.-- All the hearing of such summons for judgment (a) if the defendant has not applied for leave to defend or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith, or
(b) if the defendant be permitted to defend as to the whole or any part of the claim, the court or the judge shall direct that on failure to complete the security (if any), or to carry out such other directions as the Court or the Judge may have given within the time limited in the order, the plaintiff shall be entitled to judgment forthwith, (5) Delay in entering appearance or in applying for leave to defend may be condoned:-- The Court may for sufficient cause excuse the delay in entering the appearance under Sub-rule (1) or in applying for leave to defend the suit under sub-rule (3) of this rule".
32. A comparison of the aforesaid provisions of Rule 3, as applicable in Bombay, with the provisions of Rule 3, which was Page 29 of 66 C/SA/190/2018 JUDGMENT applicable in other States, would show that Rule 3, as applicable in Bombay, contained more elaborate provisions with regard to the service of the writ of summons on the defendant and the appearance by the defendant and for grant of leave to the defendant to defend the suit. But in the matter of grant of leave to defend it appears that whereas in Sub-rule (2) of Rule 3, which was applicable in the other States, the court was empowered to grant leave to defendant unconditionally or subject to such terms as to payment into court, giving security, framing and recording issues or otherwise as the court thought fit. In Sub-rule (3) of Rule 3, as applicable in Bombay, the court was empowered to grant leave to defend unconditionally or upon such terms as may appear just to the court. The provisions of Sub-rules (2) and (3) of Rule 3 of Order 37 of the Civil P.C., as applicable in Bombay, came up for consideration before the Supreme Court in Milkhiram (India) Pvt. Ltd. v. Chamanlal Bros., AIR 1965 SC 1698, where in a suit for the recovery of Rs. 4,05,434.38 p. based upon promissory notes, the Bombay High Court, while granting leave to the defendant to defend the suit had imposed the condition that the defendant would deposit security to the extent of Rs. 70,000/- and the said order of the Bombay High Court was affirmed by the Supreme Court. In the said case the Supreme Court has explained its observations in the earlier judgment in Santosh Kumar v. Bhai Mool Singh, (AIR 1958 SC 321) (supra) to the effect that the test is to see whether the defence raises a real issue and not a 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 and has observed, --
Page 30 of 66C/SA/190/2018 JUDGMENT "Whether the defence raises a triable issue or not has to be ascertained by the Court from the pleadings before it and the affidavits of the parties and it is not open to it to call for the evidence at that stage. If upon consideration of material placed before it, the Court comes to the conclusion that the defence is a sham one or is fantastic or highly improbable, it would be justified in putting the defendant upon terms before granting leave to defend. Even when a defence is plausible, but is improbable, the Court would be justified in coming to the conclusion that issue is not a triable issue and put the defendant on terms by granting leave to defend. To hold otherwise would make it impossible to give effect to the provisions of Order 37 which have been enacted as rightly pointed out by Bose, J. to ensure speedy decisions in cases of certain types."
33. In Milkhiram's case (AIR 1965 SC 1698) (supra) the Supreme Court has noticed the development of the law in England after the decision of the House of Lords in Jacobs v. Booth's Distillary Co., ((1901) 85 LT 262) (supra) and has noticed that "the condition of payment into Court, or giving security, is nowadays more often imposed, than formerly and not only where the defendant consents but also where there is a good ground in the evidence for believing that the defence set-up is a sham defence". Taking into consideration the development of the law in England the Supreme Court, in Milkhiram's case (supra) has laid down, --
"It is indeed 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 conditions upon which leave to defend may be granted. If the Judge is of 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 Page 31 of 66 C/SA/190/2018 JUDGMENT leave to defend altogether. Unfortunately, however, the majority of cases cannot be dealt with in a 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 whether it raises a triable issue or not. It is to meet such cases that the amendment to Order 37, Rule 2 made by the Bombay High Court contemplates that even in cases where an apparently triable issue is raised the Judge may impose conditions in granting leave to defend. Thus this is a matter in the discretion of the trial Judge and in dealing with it, he ought to exercise his discretion judiciously. Care must be taken to see that the object of the rule to assist the expeditious disposal of commercial causes, to which the order applies, is not defeated. Care must also be taken to see that real and genuine triable issues are not shut out by unduly severe orders as to deposit. In a matter of this kind, it would be undesirable and inexpedient to lay down any rule of general application".
34. The provisions of Rule 3 of Order 37 of the Civil P.C. have been substituted by the Amendment Act by the following provisions, --
3. Procedure for the appearance of defendant -- (1) In a suit to which this Order applies, the plaintiff shall, together with the summons under Rule 2, serve on the defendant a copy of the plaint and an-nexures thereto and the defendant may, at any time within ten days of such service, enter an appearance either in person or by pleader and, in either case, he shall file in Court an address for service of notice on him.
(2) Unless otherwise ordered, all summonses notices and other judicial processes, required to be served on the defendant, shall be deemed to have been duly served on him if they are left at the address given by him for such service, (3) On the day of entering the appearance, notice of such appearance shall be given by the defendant to the plaintiff's pleader, or, if the plaintiff sues in person, to the plaintiff himself, either by notice delivered at or sent by a paid letter directed to the address of the plaintiff's pleader or of the plaintiff, as the case may be.
Page 32 of 66C/SA/190/2018 JUDGMENT (4) If the defendant enters an appearance the plaintiff shall thereafter serve on the defendant a summons for judgment in Form No. 4A in Appendix B or such other Form as may be prescribed from time to time, returnable not less than ten days from the date of service supported by an affidavit verifying the cause of action and the amount claimed (sic) stating that in his belief there is no defence to the suit.
(5) The defendant may, at any time within ten days from the service of such summons for judgment, by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend such suit and leave to defend may be granted to him unconditionally or upon such terms as may appear to the Court or Judge to be just;
Provided 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; Provided further that, where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in Course.
(6) At the hearing of such summons for judgment, --
(a) In the defendant has not applied for leave to defend, or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith; or
(b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court or Judge may direct him to give such security and within such time as may be fixed by the Court or Judge and that, on failure to give such security within the time specified by the Court or Judge or to carry out such other directions as may have been given by the Court or Judge, the plaintiff shall be entitled to judgment forthwith;
(7) The Court or Judge may, for sufficient cause shown by the defendant, excuse the delay of the defendant in entering an apparance or in applying for leave to defend the suit.
Page 33 of 66C/SA/190/2018 JUDGMENT
35. A perusal of the aforesaid provisions shows that in introducing the said provisions Parliament has chosen to adopt, with certain modifications, the provisions of Rule 3, as were applicable in Bombay. A comparison of the provisions of Rule 3, as substituted by the Amendment Act, with the provisions of Rule 3, as were applicable in Bombay, shows that Sub-rules (1), (2) and (3) of Rule 3, as substituted by the Amendment Act, are in pari materia with Sub-rules (i) of Rule 3, as applicable in Bombay. Similarly sub-rules (4), (6) and (7) of Rule 3, as substituted by the Amendment Act, are in pari materia with Sub-rules (2), (4) and (5) of Rule 3, as applicable in Bombay. In so far as Sub- rules (5) of Rule 3, as substituted by the Amendment Act, is concerned, I find that the main part of that sub-rule is in pari materia with sub-rule (3) of Rule 3, as applicable in Bombay. In sub-rule (5) of Rule 3, as substituted by the Amendment Act, there are, however, two provisions which were not contained in Rule 3, as applicable in Bombay. In the first proviso it is laid down 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. In the second proviso it is laid down that where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted un-less the amount so admitted to be due is deposited by the defendant in the Court. In other words the first proviso gives certain protection to the defendant by fettering the discretion of the court in the matter of refusal of leave to defend the suit by restricting the power of the court to refuse the leave to defend Page 34 of 66 C/SA/190/2018 JUDGMENT the suit to only those cases where the defendant does not have a substantial defence to raise and the defence intended to be put by him is frivolous or vexatious. The second proviso, on the other hand, gives some protection to the plaintiff by requiring the defendant to deposit in court the amount admitted by him to be out from him before leave to defend the suit is granted to him.
36. It is settled rule of statutory construction that where the legislature makes a provision in the same terms as an earlier legislation which has been construed judicially, it must be assumed that the legislation intended the said provision in the sense in which it has been judicially interpreted unless a contrary intention appears. It should therefore, be assumed that Parliament in enacting Rule 3 of Order 37 by the Amendment Act, intended the said provisions to have the same meaning as was given to the provisions of Rule 3, as were applicable in Bombay, by the Supreme Court in Milkhiram's case (AIR 1965 SC 1698) (supra). Sub-rule (4) and the main part of sub-rule (5) of Rule 3, as substituted by the Amendment Act, must, therefore, bear the same meaning as was given to the provisions of Sub-rules (2) and (3) of Rule 3, as applicable in Bombay, by the Supreme Court in Milkhi Ram's case (supra). The question which next arises for consideration is whether the insertion of the two provisos in sub-rule (5) of Rule 3, as substituted by the Amendment Act, indicates a contrary intention as to alter the law laid down in Milkhi Ram's case (supra). As noticed earlier, the first proviso to Sub-rule (5) of Rule 3, as substituted by the Amendment, fetters the discretion of the court in the matter of refusal of leave to Page 35 of 66 C/SA/190/2018 JUDGMENT defend the suit, by restricting the power of the court to refuse the leave to defend the suit to only those cases where the respondent does not have a substantial defence to raise and the defence intended to be put up by him is frivolous or vexatious and the second proviso enjoins upon the court to impose the condition with regard to deposit in court of the amount admitted by the defendant to be due from him while granting him leave to defend the suit. It has already been pointed out that in Milkhi Ram's case (supra) a)so it is Jaid down by the Supreme Court that leave to defend should be refused altogether if the Court is of opinion that the defence raised is frivoious or false or sham. In other words, the first proviso to Sub-rule (5) of Rule 3, as substituted by the Amendment Act, does not go contrary to the law laid down by the Supreme Court in Milkhi Ram's case (supra). The second proviso to Sub-rule (5) of Rule 3, as sub-stituted by the Amendment Act, by imposing a mandatory obligation on the Court, while granting leave to defend the suit to impose the condition requiring the defendant to deposit in the Court the amount which is Emitted by him to be due from him, however, alters the law laid down in Milkhi Ram's case (supra) to the extent. In my opinion the provisions of Sub-rule (5) of Rule 3 of Order 37, as substituted by the Amendment Act, construed in the light of the decision of the Supreme Court in Milkhi Ram's case (supra) postulate that while giving leave to defend the suit the court shall observe the following principles :--
"(a) If the Court is of opinion that the case raises a triable issue then leave to defend should ordinarily be granted unconditionally. The question whether the defence raises a triable issue or not has to be ascertained by Court from the pleadings before it and the affidavits of parties.
(b) If the Court is satisfied that the facts disclosed by the Page 36 of 66 C/SA/190/2018 JUDGMENT defendant do not indicate that he has a substantial defence to raise or that the defence intended to put by the defendant is frivolous or vexatious it may refuse leave to defend altogether.
(c) In cases where the Court entertains a genuine doubt on the question as to whether the defence is genuine or sham or whether it raises a triable issue or not, the Court may impose conditions in granting leave to defend. The Court would be justified in coming to the conclusion that the issue is not a triable issue when the defence is plausible but is improbable and in such cases it can put the defendant on terms while granting leave to defend.
(d) In cases where the defendant admits that a part of the amount claimed by the plaintiff is due from him, the Court shall not grant leave to defend the suit unless the amount so admitted to be due is deposited by the defendant in the Court.
(e) The Court while granting leave to defend must take care to see that the object of the Rule to assist the expeditious disposal of criminal cases to which the order applies is not defeated.
(f) The Court should further take care to see that real and genuine triable issues are not shut out by unduly severe orders as to deposit." (see Fateh Lal vs. Sunderlal, AIR 1980 Rajasthan 220)
37. Now coming to the facts of the present case, I find that the courts below committed an error inasmuch as the lower appellate court has nowhere stated in its order that, according to him, the defence which is sought to be raised by the appellant herein in his application for leave to defend is illusory or shame or practically moonshine. The case of the appellant herein is very specific. According to the appellant, the guarantee deed, containing his signature, is a false document. To put it in other words, the guarantee deed said to be signed by the appellant is a bogus document and created by the plaintiff. The Trial Court took the view that the defence put forward by the appellant herein is dishonest. This finding Page 37 of 66 C/SA/190/2018 JUDGMENT appears to have been affirmed by the lower appellate court although the lower appellate court seems to have misdirected itself on the point of non-compliance of the order passed by this Court with regard to the deposit of the amount. The moot question is whether, in fact, the signature of the appellant herein on the guarantee deed is genuine or forged. As the courts have declined to grant leave to defend, this issue with regard to the genuineness of the signature of the appellant on the guarantee deed remains a mystery. Even if conditional leave to defend would have been granted, the defence put forward could have been tested on merits. However, with the courts declining to grant leave to defend, the doors for the appellant got shut for all times to come. The condition with regard to the payment of the amount claimed could be imposed while granting leave to defend in cases where the defendant has no defence or the defence is illusory or shame or practically moonshine.
38. The correct approach for the courts below for the purpose of determining whether unconditional leave or conditional leave or no leave to defend should be granted or not, should have been by putting a question whether there is anything palpable on record to indicate that the defence of the defendant is outright false or dishonest. To put it in other words, where there is anything on record to, prima facie, indicate that, in no circumstances, the defendant could have executed the guarantee deed. The doubt in this regard may be sufficient to grant conditional leave to defend. In the case on hand, the two courts below arrived at the conclusion that the signature of the defendant on the guarantee deed is Page 38 of 66 C/SA/190/2018 JUDGMENT genuine and he is bound by such guarantee. There are two ways of looking at the matter. The signature could be genuine or the signature could be forged. There is nothing on record to indicate, for sure, that the signature is genuine. In such circumstances, the court should have granted, at least, a conditional leave to defend. The Trial Court always has, before it, the admitted signature of the party, both below the application for leave to defend as well as in the Vakalatnama. Even the admitted signature of the executant of the negotiable instrument is very often available from the other documents which are produced before the Court. There are number of other factors which the court has to examine. It is true, as held by this Court in the case of Naresh Ambalal Khalas (supra) that the court should not accept the proposition that once the defendant disputes his signature, the court is always obliged to grant unconditional leave to defend. However, at the same time, the court may not shut the doors for the defendant by not even granting unconditional leave to defend.
39. At this stage, I may refer to and rely upon a Division Bench decision of this Court in the case of New Ashapuri Cooperative Housing Society Ltd. vs. Arvind Kumar Manilal Patel, AIR 1975 Guj. 76. In the said case it has been observed that;
"It must be realised that when a condition is imposed for granting leave to defend in such suits, the Court shuts the door of inquiry on the merits of the dispute depending on whether or not the condition is complied with. Compliance with the condition imposed would open the door to an enquiry on merits. And failure to comply with the condition would bar the door to enter into the enquiry on merit as regards the dispute. When, Page 39 of 66 C/SA/190/2018 JUDGMENT therefore, a condition is imposed it acts as a fetter and precludes the enquiry on merits unless the party concerned is in a position to comply with the conditions, the consequences of inability to comply with the condition would be that a decree would be passed against the defendant not because the defendant is bound to be liable to the plaintiff but because he does not have the resources to comply with the condition. It is misfortune of the defendant which gives rise to the decision and not the want of merit in his defence. The Court pronounces in favour of the plaintiff not because his cause is found to be just but because his opponent is in economic distress. The Court does not pronounce against the defendant because he is legally or morally liable but because he does not possess sufficient ready cash to enable him to comply with the condition imposed by the Court. The machinery of Court will then operate as an engine of oppression and not as a vehicle of justice."
"If therefore it clearly appears on the affidavits and materials brought before the High Court that the defence does raise a triable issue and there is nothing to justify an inference of lack of bona fides, the order passed by the trial Court must be set aside, inasmuch as the order touches the question of the jurisdiction of the trial Court to adjudicate on merits on the dispute between the parties. When leave is refused the Court closes its door in the face of litigant and does not enter into the merits of the dispute at all. By imposing a condition even though there is a triable issue and even though there is nothing to show lack of bona fides, the trial Court deprives itself of the jurisdiction to adjudicate the dispute on merits after a proper trial and hearing. Having regard to the consequences of imposing an unwarranted condition, the jurisdiction of the Court to decide the main dispute on merits comes to be sacrificed. It is, therefore, futile to contend that such an order has no relation to the question of jurisdiction or that it does not impinge on the question of jurisdiction."Page 40 of 66
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40. A very important principle of law is discernible from the above referred decision of this Court in the case of New Ashapuri Cooperative Housing Society Ltd. (supra).
41. I may also refer to one decision of the Supreme Court in the case of State Bank of Hyderabad vs. Rabo Bank, (2015) 10 SCC 521. I am referring to this decision of the Supreme Court because few observations are very important in it.
"15. As regards the entitlement of a defendant to the grant of leave to defend, the law is well settled long back in the year 1949 in Sm. Kiranmoyee Dassi v. Dr. J. Chatterjee, AIR 1949 Cal 479, in the form of the following propositions:
(1) If the defendant satisfies the Court that he has a good defence to the claim on its merits, the plaintiff is not entitled to leave to sign the judgment and the defendant is entitled to unconditional leave to defend.
(2) If the defendant raised a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.
(3) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately made it clear that he has a defence, yet, shows such a stage of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff`s claim, the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the court may in its discretion impose conditions as to the time or mode of trial but not as to payment into court or furnishing security.Page 41 of 66
C/SA/190/2018 JUDGMENT (4) If the defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.
(5) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence."
16. It is also noticed that the law as enunciated above, has been followed by the Courts in several cases [See also : Santosh Kumar v. Bhai Mool Singh, AIR 1958 SC 321; Milkhiram (India) (P) Ltd. v. Chamanlal Bros, AIR 1965 SC 1698; Mechelec Engineers and Manufacturers v. Basic Equipment Corpn. (1976) 4 SCC 687 : (AIR 1977 SC
577) and Sunil Enterprises and Anr. v. SBI Commercial and International Bank Ltd.(1998) 5 SCC 354 : (AIR 1998 SC 2317)].
17. An analysis of the above principles makes it clear that in cases where the defendant has raised a triable issue or a reasonable defence, the defendant is entitled to unconditional leave to defend. Leave is granted to defend even in cases where the defendant upon disclosing a fact, though lacks the defence but makes a positive impression that at the trial the defence would be established to the plaintiff's claim. Only in the cases where the defence set up is illusory or sham or practically moonshine, the plaintiff is entitled to leave to sign judgment.
18. Insofar as the question of maintainability of the suit in question under Order 37, CPC is concerned, this Court has in Neebha Kapoori v. Jayantilal Khandwala, 2008 (3) SCC 770 : (AIR 2008 SC 1117) observed that where the applicability of Order 37 itself is in question, grant of leave to defend may be permissible. The Court before passing a decree is entitled to take into consideration the consequences therefor. The Courts dealing with Page 42 of 66 C/SA/190/2018 JUDGMENT summary trials should act very carefully taking note of the interests of both the parties. Merely on the ground that the defendant may resort to prolonged litigation by putting forth untenable and frivolous defences, grant of leave to defend cannot be declined. At the same time, the Court must ensure that the defendant raises a real issue and not a sham one. The Court cannot reject the defence on the ground of implausibility or inconsistency. Before recording a finding of granting leave to defend, the Court should assess the facts and come to the conclusion that if the facts alleged by the defendant in the affidavit are established, there would be a good or even a plausible defence on those facts.
19. Although the affidavit does not positively and immediately make it clear that he had a defence, yet, it shows such a state of facts leading to the inference that at the trial of the action, the defendant may be able to establish a defence to the plaintiff`s claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security [See : T. Sukhender Reddy v. M. Surender Reddy, 1998 (3) ALD 659 : (AIR 1998 AP 399)].
20. We are in total agreement with the view taken by this Court in Raj Duggal v. Ramesh Kumar Bansal , 1991 Suppl (1) SCC 191 : (AIR 1990 SC 2218) that leave to defend the Summons for judgment shall always be granted to the defendant when there is a triable issue as to the meaning or correctness of the documents on which the claim is based or the alleged facts are of such nature which entitle the defendant to interrogate or cross-examine the plaintiff or his witnesses."
42. I may also remind the lower appellate court of one recent pronouncement of this Court in the case of Anand Sons Overseas Trading Pvt. Ltd. vs. Trivedi Industries, Second Appeal No.397 of 2017, decided on 27.06.2018. Let me refer Page 43 of 66 C/SA/190/2018 JUDGMENT to paras-26, 27, 28 and 29 of the judgment;
'26. So far as the case in hand is concerned, the order passed by the trial Court granting the conditional leave to defend is not appealable. This order could have been challenged by the defendants by filing a Special Civil Application before this Court under Article 227 of the Constitution of India. However, the defendants did not deem fit to challenge such order passed by the trial Court granting conditional leave to defend, and at the same time, also failed to comply with such conditional order. This led to passing of the decree, and this decree is appealable under Section 96 of the CPC on the basis of the provisions of Order 43 Rule 1-A(1). This decree, although could be strictly termed as an ex-parte decree passed on account of failure to comply with the conditional order of leave to defend, yet can be challenged in an appeal like any other decree which is appealable. In my view, the first appellate court is not right in taking the view that the grounds raised in the first appeal could not have been looked into on their own merits because of noncompliance of the conditional order of leave to defend.
27. In the aforesaid context, let me refer to and rely upon two decisions of the Supreme Court. In Ajay Bansal v. Anup Mehta, AIR 2007 SC 909, the Supreme Court made few observations although in a different context, yet very much relevant for the purpose of the present matter. The matter before the Supreme Court was one arising from a summary suit filed in terms of Order 37 CPC. The respondent therein filed an application purported to have been under Order 37 Rule 3(5) CPC praying for grant of leave to defend the said suit. The Civil Judge found the defence to be sham and illusory and declined to grant leave to defend. On the same date itself, a final judgment and decree was passed. It appears that an application was filed under Article 227 of the Constitution of India challenging the order of the Civil Judge declining to grant leave to defend. The same came to be allowed by the High Court. Before the Supreme Court, it was argued on behalf of the appellant that as an appeal was maintainable under Section 96 of the Code against the judgment and decree passed by the Civil Judge, the application under Section 227 of the Constitution of India Page 44 of 66 C/SA/190/2018 JUDGMENT was not maintainable. On the other hand, it was argued on behalf of the respondents that a petition under Article 227 was maintainable as the respondents could not have been put to undue hardship of depositing the entire decretal amount in terms of Order 41 Rule1 CPC although it had made out a good case for obtaining the leave to defend the suit. While dismissing the appeal, the Supreme Court held as under :
"12. A decree passed in a summary suit where leave to defend the suit has been refused is almost automatic. The consequence of passing a decree cannot be avoided.
13. Ordinarily, an application under Article 227 of the Constitution of India would not be maintainable where an appeal lies. An appeal lay from the decree under Section 96 of the Code. When an appeal could be filed, ordinarily, an application under Article 227 of the Constitution of India would not be entertained.
14. A decree passed subsequent to the refusal of leave to defend could either be under Order XXXVII, Rule 3(6) of the Code or it could be based on the affidavit evidence on the side of the plaintiff and the documents produced or even based on oral evidence formally proving, say, the execution of a promissory note by the defendant. It may not be proper or necessary to apply the theory of "dependent order" in such circumstances. For one, the theory may not apply. Even if this Court were to set aside the order of the Court below and give the defendant leave to defend the suit, the decree that is passed may not go automatically. It may have to be set aside. Secondly, the defendant can always go to the Court which passed the decree and move under Rule 4 of Order XXXVII of the Code to reopen the decree.
15. The theory of "dependent order" may not apply in a case of this nature because even if this Court were to set aside the order refusing leave to defend, the decree subsequently passed may not fall by itself. It has still to be set aside either by resort to Order XXXVII, Rule 4 or by way of an appeal, or by some other mode known to law. In a given case like the present one as it may not be proper to interfere with the decree merely because in an appeal against an order refusing leave to defend, this Court is inclined to take a different view. [See V. S. Saini Page 45 of 66 C/SA/190/2018 JUDGMENT and Anr. v. D.C.M. Ltd., AIR 2004 Delhi 219.]
16. The defendant in such a case can also be left to appeal against the decree and therein challenge the order refusing leave to defend in terms of Section 105(1) of the Code."
28. Thus, para 16 referred to above makes it abundantly clear that the defendant can file an appeal against the decree and challenge the order refusing the leave to defend in terms of Section 105(1) of the Code. Once it is permissible to challenge, then all grounds raised are to be looked into by the first appellate court on merits.
29. In Wada Arun Asbestos Private Limited v. Gujarat Water Supply and Sewerage Board, AIR 2009 SC 1027, the Supreme Court observed as under :
"15. Where a conditional leave is granted and the conditions therefor are not complied with, a judgment in favour of the plaintiff can be passed. It is not in dispute that the first appeal was maintainable. Where a decree is appealed from, any error, defect or irregularity in any order affecting the decision of the case may be set forth as a ground of objection in the Memorandum of Appeal as envisaged under Section 105 of the Code of Civil Procedure.
16. It is in the aforementioned backdrop, the question as to whether a revision petition was maintainable against an order granting conditional leave must be considered. We will proceed on the basis that an order imposing a conditional leave to defend the suit was a jurisdictional question and, thus, a revision application would be maintainable as has been held by various High Courts, notable amongst them are The New Ashapuri Co- operative Housing Society Ltd. and Anr. v. Arvindkumar Manilal Patel [AIR 1975 Gujarat 76]; Fateh Lal v. Sunder Lal [AIR 1980 Rajasthan 220]; Modi Ram and Anr. v. Smt. Sugan Bai [AIR 2005 Rajasthan 12]; and A.K. Velan v. M/s. Narnyanan and Co. (P) Ltd. [AIR 1972 Madras 118].
17. But if a right of appeal from the decree is conceded to a defendant, in our opinion, he cannot be denied a right to challenge an order which was subject to revision in his memorandum of appeal filed from the decree Page 46 of 66 C/SA/190/2018 JUDGMENT ultimately passed.
21. We fail to persuade ourselves to agree with the contention of Mr. Chitale that although a revision from an order granting conditional leave was maintainable, the same could not have been a subject matter of challenge in an appeal from a decree as envisaged under Section 105 of the Code of Civil Procedure.
22. A statutory right conferred on a litigant cannot ordinarily be taken away. A civil revision application might have been maintainable as against the order dated 27.11.2002 granting conditional leave. The said remedy was also available where leave to defend a suit is refused. Leave to defend a suit, as noticed herein before, should ordinarily be granted. It was, therefore, permissible for the defendant to raise the said contention in the appeal although it had asked for time to comply with the conditions."
43. I am reminding the lower appellate court of the judgment noted above for the simple reason that it should keep in mind that the defendant can file an appeal against the decree and challenge the order refusing leave to defend in terms of section 105(1) of the Code. Once it is permissible to challenge, then all the grounds raised are to be looked into by the first appellate court on merits.
44. The law on the subject has been very succinctly explained by the Supreme Court in a very recent pronouncement in the case of IDBI Trusteeship Services Limited vs. Hubtown Limited, (2017) 1 SCC 568, wherein from para-9 onwards, there is discussion with regard to Order 37 Rule 3 of the CPC. I may quote the relevant observations;
"9.1.Order 37, Rule 3 (pre-amendment) "3. Defendant showing defence on merits to have leave to appear. (1) The Court shall, upon an application by the defendant, give leave to appear and to defend the suit, Page 47 of 66 C/SA/190/2018 JUDGMENT upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application.
(2) Leave to defend may be given unconditionally or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Court thinks fit."
9.2 Order 37, Rule 3 (post amendment) "3. Procedure for the appearance of defendant.--(1) In a suit to which this Order applies, the plaintiff shall, together with the summons under Rule 2, serve on the defendant a copy of the plaint and annexures thereto and the defendant may, at any time within ten days of such service, enter an appearance either in person or by pleader and, in either case, he shall file in Court an address for service of notices on him.
(2) Unless otherwise ordered, all summonses, notices and other judicial processes, required to be served on the defendant, shall be deemed to have been duly served on him if they are left at the address given by him for such service.
(3) On the day of entering the appearance, notice of such appearance shall be given by the defendant to the plaintiff's pleader, or, if the plaintiff sues in person, to the plaintiff himself, either by notice delivered at or sent by a prepaid letter directed to the address of the plaintiff's pleader or of the plaintiff, as the case may be. (4) If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a summons for judgment in Form 4-A in Appendix B or such other Form as may be prescribed from time to time, returnable not less than ten days from the date of service supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief there is no defence to the suit.
(5) The defendant may, at any time within ten days from the service of such summons for judgment, by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such Page 48 of 66 C/SA/190/2018 JUDGMENT summons for leave to defend such suit, and leave to defend may be granted to him unconditionally or upon such terms as may appear to the Court or Judge to be just:
Provided 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:
Provided further that, where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in Court.
(6) At the hearing of such summons for judgment,--
(a) if the defendant has not applied for leave to defend, or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith; or
(b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court or Judge may direct him to give such security and within such time as may be fixed by the Court or Judge and that, on failure to give such security within the time specified by the Court or Judge or to carry out such other directions as may have been given by the Court or Judge, the plaintiff shall be entitled to judgment forthwith.
(7) The Court or Judge may, for sufficient cause shown by the defendant, excuse the delay of the defendant in entering an appearance or in applying for leave to defend the suit."
10. The three judge bench in Mechelec's case heard an appeal from a judgment of the Delhi High Court. In paragraph 2 of the judgment, the unamended O.XXXVII Rule 3 is set out, after which, in paragraph 4, the Court stated that the only question which arose before them in that appeal by special leave was whether the High Court could, in exercise of its powers under Section 115 of the CPC, interfere with the discretion of the district court in granting unconditional leave to defend to the defendant- appellant, upon grounds which even a perusal of the impugned judgment of the High Court showed to be reasonable. The answer to the question thus posed was in the question itself, and this Court had no doubt that Page 49 of 66 C/SA/190/2018 JUDGMENT the High Court judgment, in interfering with the trial court's judgment under its revisional jurisdiction, was wrong. Paragraphs 6 and 7, which constitute the ratio of the judgment, went into the well-established principles repeatedly laid down by this court which govern the jurisdiction of the High Courts under Section 115 of the CPC. This Court held that such principles had been ignored in the judgment under appeal. However, in paragraph 8, the judges set out the 5 propositions governing O.XXXVII laid down in Kiranmoyee Dassi Smt v. Dr J. Chatterjee, AIR 1949 Cal 479, as follows:
"In Kiranmoyee Dassi Smt v. Dr J. Chatterjee [AIR 1949 Cal 479 : 49 CWN 246, 253 : ILR (1945) 2 Cal 145.] Das, J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by Order 37 CPC in the form of the following propositions (at p. 253):
"(a) If the defendant satisfies the court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the court may in its discretion impose conditions as to the time or mode of trial but not as to payment into court or furnishing security.
(d) If the defendant has no defence or the defence set-up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.Page 50 of 66
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(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence." [para 8]
11. As the case before the court did not fall within clause
(e), this Court held that imposition of a condition to deposit an amount in court would not be possible, and allowed the appeal as aforesaid. It is interesting to note that a binding four judge bench decision on order 37 in Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698, was bunched together with several other judgments that were relied upon in paragraph 6, as judgments relating to the exercise of jurisdiction of High Courts under section 115 of the CPC.
12. We find that Milkhiram's case is in fact an important judgment on the scope of O.XXXVII of the CPC, and is not a judgment on principles to be applied under Section
115. This judgment, being a judgment of four learned judges of this court, set out, in paragraph 1, O.XXXVII, Rule 3 sub-rules (2) and (3) as amended by the Bombay High Court at the relevant time, as follows:
"(2) If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a summons for judgment returnable not less than ten clear days from the date of service supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief there is no defence to the suit. (3) The defendant may at any time within ten days from the service of such summons for judgment by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend the suit. Leave to defend may be granted to him unconditionally or upon such terms as to the Judge appear just."
13. The trial court found that the defence disclosed by the affidavit required by sub-rule (3) was sufficient to grant leave to defend the suit, but as against a claim of ? 4,05,434.38/-, the Court ordered the appellant to deposit security worth ?70,000/-. A first appeal having been Page 51 of 66 C/SA/190/2018 JUDGMENT dismissed, the Supreme Court had to decide whether it was incumbent upon the trial court to grant unconditional leave to defend, having found that a triable issue exists. Since this judgment is of seminal importance in deciding the issue raised before us, it is necessary for us to quote parts of this judgment, as follows:
"Learned counsel relied upon a decision of this court in Santosh Kumar v. Bhai Mool Singh [ (1958) SCR 1211] and particularly upon a passage at p. 1216. That was a case in which the Court of Commercial Subordinate Judge, Delhi, had held that the defence raised a triable issue but that defence was vague and was not bona fide because the defendant had produced no evidence to prove his assertion. For these reasons the court granted leave to defend the suit on the condition of the defendant giving security for the entire claim in the suit and costs thereon. This court held that the test is to see whether the defence raises a real issue and not a 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. If the court is satisfied about that, leave must be given unconditionally. This Court further held that the trial court was wrong in imposing a condition about giving security on the ground that documentary evidence had not been adduced by the defendant. This Court pointed out that the stage of proof can only arise after leave to defend has been granted and that the omission to adduce documentary evidence would not justify the inference the defence sought to be raised was vague and not bona fide. While dealing with the matter Bose, J., who spoke for the Court observed (p. 1216):
"Taken by and large, the object is to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce. In general, therefore, the test is to see whether the defence raises a real issue and not a 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."
The latter part of the observations of the learned Judge Page 52 of 66 C/SA/190/2018 JUDGMENT have to be under- stood in the background of the facts of the case this Court was called upon to consider. The trial Judge being already satisfied that the defence raised a triable issue was not justified in imposing a condition to the effect that the defendant must deposit security because he had not adduced any documentary evidence in support of the defence. The stage for evidence had not been reached. Whether the defence raises a triable issue or not has to be ascertained by the court from the pleadings before it and the affidavits of parties and it is not open to it to call for evidence at that stage. If upon consideration of material placed before it the court comes to the conclusion that the defence is a sham one or is fantastic or highly improbable it would be justified in putting the defendant upon terms before granting leave to defend. Even when a defence is plausible but is improbable the court would be justified in coming to the conclusion that the issue is not a triable issue and put the defendant on terms while granting leave to defend. To hold otherwise would make it impossible to give effect to the provisions of Order 37 which have been enacted, as rightly pointed out by Bose, J., to ensure speedy decision in cases of certain types. It will be seen that Order 37 Rule 2 is applicable to what may be compendiously described as commercial causes. Trading and commercial operations are liable to be seriously impeded if, in particular, money disputes between the parties are not adjudicated upon expeditiously. It is these considerations which have to be borne in mind for the purpose of deciding whether leave to defend should be given or withheld and if given should be subjected to a condition.
It may be mentioned that this Court relied upon the decision in Jacobs v. Booth's Distillery Co. [(1901) 85 LT 262] in which the House of Lords held that whenever a defence raises a triable issue leave must be given and also referred to two subsequent decisions where it was held that when such is the case leave must be given unconditionally. In this connection we may refer to the following observations of Devlin, L.J. in Fieldrank Ltd. v. Stein [ (1961) 3 AELR 681 at pp 682-3] :
"The broad principle, which is founded on Jacob v.Booth's Distillery Co. is summarised on p. 266 of the Annual Page 53 of 66 C/SA/190/2018 JUDGMENT Practice (1962 Edn.) in the following terms:
'The principle on which the court acts is that where the defendant can show by affidavit that there is a bona fide triable issue, he is to be allowed to defend as to that issue without condition.
'" If that principle were mandatory, then the concession by counsel for the plaintiffs that there is here a triable issue would mean at once that the appeal ought to be allowed; but counsel for the plaintiffs has drawn our attention to some comments that have been made on Jacobs v. Booth's Distillery Co. [(1901) 85 LT 262] They will be found at pp. 251 and 267 of the Annual Practice, 1962. It is suggested (see p. 251) that possibly the case, if it is closely examined, does not go as far as it has hitherto been thought to go; and on the top of p. 267 the learned editors of the Annual Practice have this note: "The condition of payment into court, or giving security, is nowadays more often imposed than formerly, and not only where the defendant consents but also where there is a good ground in the evidence for believing that the defence set up is a sham defence and the master 'is prepared very nearly to give judgment for the plaintiff."
It is worth noting also that in Lloyd's Banking Co. v.Ogle 1 Ex. D. at p. 264 in a dictum which was said to have been overruled or qualified by Jacob v. Booth's Distillery Co. [ (1901) 85 LT 262] Bramwell, B., had said that "....those conditions (of bringing money into court or giving security) should only be applied when there is something suspicious in the defendant's mode of presenting his case."
I should be very glad to see some relaxation of the strict rule in Jacob v. Booth's Distillery Co. I think that any Judge who has sat in chambers in RSC, Order 14 summonses has had the experience of a case in which, although he cannot say for certain that there is not a triable issue, nevertheless he is left with a real doubt about the defendant's good faith, and would like to protect the plaintiff, especially if there is not grave hardship on the defendant in being made to pay money into court. I should be prepared to accept that there has Page 54 of 66 C/SA/190/2018 JUDGMENT been a tendency in the last few years to use this condition more often than it has been used in the past, and I think that that is a good tendency;"
These observations as well as some observations of Chagla, C.J., in Rawalpindi Theatres Private Ltd. v. Film Group Bombay [ (1958) BLR 1373 at p 1374] may well be borne in mind by the court sitting in appeal upon the order of the trial Judge granting conditional leave to defend. It is indeed 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 conditions upon which leave to defend may be granted. If the Judge is of 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, however, the majority of cases cannot be dealt with in a 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 whether it raises a triable issue or not. It is to meet such cases that the amendment to Order 37 Rule 2 made by the Bombay High Court contemplates that even in cases where an apparently triable issue is raised the Judge may impose conditions in granting leave to defend. Thus this is a matter in the discretion of the trial Judge and in dealing with it, he ought to exercise his discretion judiciously. Care must be taken to see that the object of the rule to assist the expeditious disposal of commercial causes to which the Order applies, is not defeated. Care must also be taken to see that real and genuine triable issues are not shut out by unduly severe orders as to deposit. In a matter of this kind, it would be undesirable and inexpedient to lay down any rule of general application."
[paras 7 - 12]
14. We may hasten to add that Mechelec's case has since been followed in a series of judgments of this court
- Municipal Corpn. of Delhi v. Suresh Chandra Jaipuria, (1976) 4 SCC 719 at para 11; Sunil Enterprises v. SBI Page 55 of 66 C/SA/190/2018 JUDGMENT Commercial & International Bank Ltd., (1998) 5 SCC 354 at para 4; State Bank of Saurashtra v. Ashit Shipping Services (P) Ltd., (2002) 4 SCC 736 at para 10; Uma Shankar Kamal Narain v. M.D. Overseas Ltd., (2007) 4 SCC 133 at paras 8 and 9; SIFY Ltd. v. First Flight Couriers Ltd., (2008) 4 SCC 246 at para 10; Wada Arun Asbestos (P) Ltd. v. Gujarat Water Supply & Sewerage Board, (2009) 2 SCC 432 at para 19; R. Saravana Prabhu v. Videocon Leasing & Industrial Finance Ltd., (2013) 14 SCC 606 at para 4; and State Bank of Hyderabad v. Rabo Bank, (2015) 10 SCC 521 at para 16.
15. However, there are two judgments of this Court which directly deal with the amendment made to O.XXXVII and the effect thereof on the ratio contained in Mechelec's case.
15.1 In Defiance Knitting Industries (P) Ltd. v. Jay Arts , (2006) 8 SCC 25, this Court, after setting out the amended O.XXXVII and after referring to Mechelec's case, laid down the following principles -
"While giving leave to defend the suit the court shall observe the following principles:
(a) If the court is of the opinion that the case raises a triable issue then leave to defend should ordinarily be granted unconditionally. See Milkhiram (India) (P) Ltd. v.Chamanlal Bros. [AIR 1965 SC 1698 : 68 Bom LR 36] The question whether the defence raises a triable issue or not has to be ascertained by the court from the pleadings before it and the affidavits of parties.
(b) If 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 it may refuse leave to defend altogether. Kiranmoyee Dassi v. Dr. J. Chatterjee [AIR 1949 Cal 479 : 49 CWN 246] (noted and approved in Mechelec case [(1976) 4 SCC 687 : AIR 1977 SC 577] ).
(c) In cases where the court entertains a genuine doubt on the question as to whether the defence is genuine or sham or whether it raises a triable issue or not, the court may impose conditions in granting leave to defend."Page 56 of 66
C/SA/190/2018 JUDGMENT [para 13]
15.2 In Southern Sales & Services v. Sauermilch Design & Handels GMBH, (2008) 14 SCC 457, this Court was squarely asked to render its decision on whether the judgment in Mechelec's case was to a large extent rendered ineffective in view of the amended Order 37.
This Court found:;
"Having considered the submissions made on behalf of the respective parties and the decisions cited, there appears to be force in Mr Sharma's submissions regarding the object intended to be achieved by the introduction of sub-rules (4), (5) and (6) in Rule 3, Order 37 of the Code. Whereas in the unamended provisions of Rule 3, there was no compulsion for making any deposit as a condition precedent to grant of leave to defend a suit by virtue of the second proviso to sub-rule (5), the said provision was altered to the extent that the deposit of any admitted amount is now a condition precedent for grant of leave to defend a suit filed under Order 37 of the Code. A distinction has been made in respect of any part of the claim, which is admitted. The second proviso to sub-rule (5) of Rule 3 makes it very clear that leave to defend a suit shall not be granted unless the amount as admitted to be due by the defendant is deposited in court." [para 15]
16. It is thus clear that O.XXXVII has suffered a change in 1976, and that change has made a difference in the law laid down. First and foremost, it is important to remember that Milkhiram's case is a direct authority on the amended O.XXXVII provision, as the amended provision in O.XXXVII Rule 3 is the same as the Bombay amendment which this Court was considering in the aforesaid judgment. We must hasten to add that the two provisos to sub-rule (3) were not, however, there in the Bombay amendment. These are new, and the effect to be given to them is something that we will have to decide. The position in law now is that the trial Judge is vested with a discretion which has to result in justice being done on the facts of each case. But Justice, like Equality, another cardinal constitutional value, on the one hand, and arbitrariness on the other, are sworn enemies. The discretion that a Judge exercises under Order XXXVII to refuse leave to defend or to grant conditional or Page 57 of 66 C/SA/190/2018 JUDGMENT unconditional leave to defend is a discretion akin to Joseph's multi-coloured coat - a large number of baffling alternatives present themselves. The life of the law not being logic but the experience of the trial Judge, is what comes to the rescue in these cases; but at the same time informed by guidelines or principles that we propose to lay down to obviate exercise of judicial discretion in an arbitrary manner. At one end of the spectrum is unconditional leave to defend, granted in all cases which present a substantial defence. At the other end of the spectrum are frivolous or vexatious defences, leading to refusal of leave to defend. In between these two extremes are various kinds of defences raised which yield conditional leave to defend in most cases. It is these defences that have to be guided by broad principles which are ultimately applied by the trial Judge so that justice is done on the facts of each given case. 17 Accordingly, the principles stated in paragraph 8 of Mechelec's case will now stand superseded, given the amendment of O.XXXVII R.3, and the binding decision of four judges in Milkhiram's case, as follows:
17.1 If the defendant satisfies the Court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit;
17.2 if the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend;
17.3 even if the defendant raises triable issues, if a doubt is left with the trial judge about the defendant's good faith, or the genuineness of the triable issues, the trial judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security;Page 58 of 66
C/SA/190/2018 JUDGMENT 17.4 if the Defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.
17.5 if the Defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith; "
45. Thus, the principles of law discernible from the aforesaid decision is that if the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is entitled to unconditional leave to defend. Even if the defendant raises triable issues but there is a doubt in the mind of the Court about the defendant's good faith or the genuineness of the triable issues, the trial judge may impose conditions both as to the time or mode of trial, as well as the payment into court or furnishing security. If the defendant has no substantial defence and/or raises no genuine triable issues and the court finds such defence to be frivolous or vexatious, then leave to defend the suit should be refused and the plaintiff is entitled to the judgment forthwith.
46. One important principle of law as regards the summary suit and leave to defend is that the leave to defend should be granted to the defendant when there is a triable issue as to the meaning or correctness of the documents on which the Page 59 of 66 C/SA/190/2018 JUDGMENT claim is based.
47. If attention is paid to the provisions contained in order 37 of the Code then the intention of the legislature seems to be that on the filing of a suit on the basis of a bill of exchange, hundi or a promissory note, the defendant has first to convince the court that leave to defend the suit is deserved. Order 37, rule 3 (2) of the Code indicates that terms can be imposed in order to eliminate the possibility of the prolongation of the litigation. In order to secure expeditious disposal the court is given the power to allow leave to defend the suit subject to such terms as to payment into court or of giving security in respect of the amount sought to be recovered and it extends not only to the framing and recording of issues in a particular manner but is wide enough to allow imposition of conditions such as the court may otherwise think fit. Why was the court given the authority to impose terms as may be found necessary ? Such authority was given to the court in order to secure immediate recovery of the amount for which the suit may be decreed. According to the circumstances in the case the court may demand any kind of security. It may otherwise impose any conditions in order to secure expeditious trial and effective disposal of the suit. Chances of delay may be sought to be minimised by imposing conditions while giving the leave to defend the suit.
48. In suits covered by order 37, rule 2 of the Code every possible care should be taken by the trial courts in coming to the conclusion whether the issues raised are friable or not. There should be a further finding whether the defense raised is Page 60 of 66 C/SA/190/2018 JUDGMENT bona fide or not. The court is not to be impressed by mere assertions, whether of facts or of law. The court must examine the merits of all the contentions raised in order to obtain leave to defend the suit. Unless the trial courts act strictly in accordance with the requirements of order 37 of the Code the provisions contained there in may be rendered ineffective.
49. Having regard to the overall facts and circumstances of the case, I am inclined to grant the appellant herein the conditional leave to defend on deposit of the entire decretal amount with interest accrued thereon. Pursuant to the order passed by this Court dated 19th July, 2018 in the Civil Application No.2 of 2018, the appellant herein has deposited an amount of Rs.5,62,250/- with the Nazir Department of this Court by way of a Demand Draft No.131900 dated 28th August, 2018 drawn on the Bank of Baroda, Visnagar Main Branch.
50. The second question which I need to look into is whether I should permit the plaintiff to withdraw the amount on furnishing appropriate Bank Guarantee or any other tangible security pending the adjudication of the summary suit.
51. Mr. Jani, the learned counsel appearing for the appellant has strong objection in this regard. Mr. Jani submits that the plaintiff is not entitled to use the money deposited by his client. According to Mr. Jani, if conditional leave to defend is granted and the defendant is directed to deposit the amount, then the amount should be kept invested in a fixed deposit with any Nationalized Bank. In short, according to Mr. Jani, the plaintiff should not be allowed to withdraw the money. It is submitted that withdrawal of money cannot be made a Page 61 of 66 C/SA/190/2018 JUDGMENT condition of granting leave to defend; in a case where the court grants the conditional leave to defend the suit. It is contended that this flows from a bare reading of the provisions of Order 37 Rule 3 of the CPC. A similar question fell for consideration before the Bombay High Court in the case of Suraj Sanghi Finance Ltd. vs. Credential Finance Ltd & Ors., AIR 2002 Bombay 481. I may quote the relevant observations;
"Let us therefore, first consider whether this Court can impose as a condition of leave to defend, a condition permitting the plaintiff to withdraw the amount against security or otherwise. Order 37, Rule 3(3) as amended by this Court in State of Maharashtra reads as under :
"The defendant may at any time within ten days from the service of such summons to entitle him to defend, apply on such summons for leave to defend the suit. Leave to defend may be granted to him unconditionally or upon such terms as the Judge appears just."
Similarly Sub-rule 3(5) as amended by the Amendment Act, 1976 reads as under:
"The defendant may, at any time within ten days from the service of such summons for judgment, by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitled him to defend, apply on such summons for leave to defend such suit, and leave to defend may be granted to him unconditionally or upon such terms as may appear to the Court or Judge to be just:..............
Provided that leave to defend shall not be refused unless the Court is satisfied that the fact 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......... Provided further that, where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is Page 62 of 66 C/SA/190/2018 JUDGMENT deposited by the defendant in Court."
The issue of grant of leave to defendant is no longer res Integra in view of the decision of the Apex Court in Mechalec Engineers and Manufacturers v. Basic Equipment Corporation, . In Paragraph 8, the principles applicable to cases covered by Order 37 of Civil Procedure Code have been set out. These principles have been reiterated in Sunil Enterprises v. SBI Commercial and International Bank Ltd., . They may be summarized as under:
"(a) If the defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he had a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.
(d) If the defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend.
(e) If the defendant has no defence or the defendant is illusory or sham or practically moonshine, then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only Page 63 of 66 C/SA/190/2018 JUDGMENT allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defence."
If one looks at predicate (e) even if the defendant has no defence or defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition and thereby show mercy to the defendant by enabling him to try to prove a defence. It is therefore, clear that even in those cases of moonshine defence or whether the defence is illusory or sham, leave to defend may be granted on the defendant's paying the amount into the Court or otherwise securing the amount would it be therefore, within the jurisdiction of the Court in such a case where leave to defend is granted purely as a mercy, to impose a condition to permit withdrawal of the money by the plaintiff on furnishing security or otherwise. In M/s Classic Strips Pvt. Ltd. (supra) the judgment in Machalic Engineers and Manufacturers v. Basic Equipment Corporation (supra) had not been taken into consideration. Similarly the attention of the learned Division Bench was not invited to the judgment of the Apex Court in Raj Duggal v. Ramesh Kumar Bansal, 1991 Supp. (1) SCC 191. In M/s Classic Strips Pvt. Ltd. (supra) conditional leave was granted without leave to withdraw the money. Leave was granted on the defendant's depositing the money with Prothonotary and Senior Master. An appeal was preferred against the said order. The appeal was dismissed. Matter then came up before the Chamber Judge. At that stage, an oral application was moved for withdrawal of the moneys. That was granted. It was that order that was challenged. The learned Division Bench observed that the Chamber Judge would have no jurisdiction to pass such order. To my mind, the judgment would be clearly distinguishable for reasons to be stated. Firstly in granting conditional leave, it is open to the Court to impose conditions. There is no reason as to why one of the conditions should not be as to withdrawal of the money on furnishing security.
Page 64 of 66C/SA/190/2018 JUDGMENT Secondly, in Raj Duggal v. Ramesh Kumar Bansal, the Apex Court in the matter arising out of Order 37 in a case where the defence can be described as more than "shadowy" but less than "probable" had granted leave to defend. While granting leave to defend, a condition was imposed that the amount of Rs. 20,000/- deposited in the case during the pendency of the suit be paid to and retained by the respondent-plaintiff subject to the condition that if ultimately respondent-plaintiff fails in the suit, he shall be liable to restitute the said sum of Rs. 20,000/- to the appellant defendant with interest thereon at 9 per cent per annum. It is therefore, clear that there is jurisdiction in the Court to direct withdrawal of money and hold it towards the suit account. Thirdly the matter before the Division Bench of this Court arose in a case where no condition was imposed while granting leave to the defendant to defend the suit, to withdraw the money. On the contrary it was directed to be deposited. That judgment based on those facts, therefore, would be of no assistance as it is clearly distinguishable. The issue in issue in that case, was whether in a case where leave to defend had been granted with a condition to deposit the money, but without a direction for withdrawal, could the Chamber Judge direct withdrawal of the money on furnishing security or otherwise. In my opinion, when this Court grants leave to defend purely as an act of mercy, or where part claim is admitted, considering the relief, it will be open to impose a condition, to permit the plaintiff to withdraw the money on furnishing bank guarantee or security or otherwise to the satisfaction of the Court, pending the hearing and final disposal of the suit. This flows from the judgment in Mechalic (supra). The plaintiff who otherwise would be entitled to judgment, merely because leave is granted as mercy should not be denied the right to retain the money during the pendency of the suit subject to further orders in the suit as to interest or otherwise. Even otherwise considering justice, the money remains invested in the Court. The plaintiff who otherwise is entitled to the money because of laws delay will be denied the use of the money for a long period. Why should in a cases where there is no legal bar, the plaintiff be denied the same. The ends of justice could be met by imposing suitable conditions as to security, so that the money is brought back and is available for refund to the defendant, if the suit is dismissed or otherwise. "
Page 65 of 66C/SA/190/2018 JUDGMENT
52. I am in complete agreement with the view of the Bombay High Court.
53. In view of the aforesaid discussion, this second appeal is allowed in part. The judgment and order passed by the lower appellate court in the Regular Civil Appeal No.90 of 2005, affirming the judgment and decree passed by the Trial Court in the Special Summary Suit No.3 of 1999 is hereby quashed and set aside. The appellant herein-original defendant No.2 is granted conditional leave to defend the suit. The appellant herein has already deposited the decretal amount with the Registry of this Court. The Special Summary Suit No.3 of 1999 is transferred to the court of the Civil Judge (SD), Mehsana. The appellant herein -original defendant No.2 shall file his written statement within three weeks from today. The plaintiff is permitted to withdraw the amount of Rs.5,62,250/- deposited with the Registry of this Court on furnishing a Bank Guarantee to the satisfaction of the Asst. Registrar, Nazir Department.
54. In the result, this second appeal fails and is hereby dismissed.
(J.B.PARDIWALA, J) Vahid Page 66 of 66