Delhi High Court
Rama Vision Ltd. vs Babbar Vision India Pvt. Ltd. on 1 April, 1997
Equivalent citations: 1997IIIAD(DELHI)193, II(1997)BC91, 67(1997)DLT281, 1997(42)DRJ185
Author: Manmohan Sarin
Bench: Manmohan Sarin
JUDGMENT Manmohan Sarin, J.
(1) By this order I would be disposing of IA.54/95 filed by the defendants under Order xxxvii Rule 3(5) of the Code of Civil Procedure, seeking leave to contest the suit filed by the plaintiff under Order xxxvII.
(2) Plaintiff is engaged in the manufacture and sale of picture tubes for black and white television sets, having its godown at Noida. Defendant No.2 is the Managing Director and the other defendants are the Directors of defendant No.1. Defendant No.2 on behalf of defendant No.1 had approached the plaintiff company for the supply of black and white television picture tubes. Defendant No.1 assured the plaintiff that it had overdraft facilities with the Vijaya Bank, Bikaji Cama Place, new Delhi and the goods could be delivered against post-dated cheques, which can be encashed as and when they became due. Plaintiff, accordingly, agreed to supply the goods to defendant no.1.
(3) As per the plaintiff, a sum of Rs.8,87,450.00 was payable by the defendants for supplies made during the period from 1.6.1991 to 13.7.1991, vide invoice numbers, N-111, N-116, N- 117, N-130, N-135, N-143, N-145, N-158 and N-231. In addition to the aforesaid amount the plaintiff also claimed interest at the rate of 24% for each day from the date the payment became due. A total sum of Rs.5,57,550.00 was claimed as interest that accrued on the outstanding amount till 28.2.1994. Thus, a total sum of Rs.14,45,000.00 was claimed in the suit filed under Order xxxvii, CPC.
(4) It is the case of the plaintiff that defendants had issued 10 post-dated cheques, the details of which are given in paras 6 & 7 of the plaint. The said cheques got dishonored one by one, mostly for reasons of "insufficient funds". The individual reasons for the dishonor of cheques are given in tabulated form in para (7) of the Plaint. It is sufficient to notice that except in the case of three cheques, which were returned on the ground of "payment being stopped", the remaining cheques had been returned on account of insufficient funds. It is the plaintiff's case that vide a letter dated 17.7.1991, defendant No.2 acknowledged the liability by stating that due to unavoidable circumstances, the payment was delayed. Plaintiff also had notices of demand served through its counsel, dated 26.7.1`991, 30.7.1991 and 14.8.1991, calling upon defendant No.1 to clear the outstandings. The defendant vide replies dated 28.10.1991 and 29.10.1991 denied the claim on untenable and frivolous grounds. As per the plaintiff, defendant No.2 had promised to clear the outstandings by 30.10.1991 but failed to do so. Hence, this suit on the basis of dishonoured cheques.
(5) The defendants could not be served by ordinary means and were served only after publication in the daily newspaper 'Statesman'. The defendants entered appearance through Mr. Rajan Sharma, Advocate. An application under Order xxxvii Rule 3(5) of the Code of Civil Procedure, on behalf of defendants, for grant of leave to contest was filed.
(6) The pleas and grounds taken for grant of leave to contest may now be noticed: The defendants claim that there are discrepancies in the amount being claimed by the plaintiff. Plaintiff claims that defendants had paid Rs.2,86,750.00 leaving an outstanding of Rs.8,87,500.00 , which it had promised to clear on or before 31.10.1991. However, if the total of dishonored cheques are taken, the amount is Rs.11,99,250.00 and after deducting the amount admittedly paid by the defendant, i.e. Rs.2,86,750.00, the balance would be Rs.9,12,500.00, whereas the amount claimed in the plaint is Rs.8,87,500.00. The defendants had also filed an additional affidavit dated 5.2.1996, together with a certificate from their bankers regarding encashment of a cheque bearing No.613981 for Rs.42,500.00 . An application, viz. IA.11377/95 had also been moved by which an affidavit dated 6.11.1995 was filed giving details of further payments made. The defendants, as a result of the payments made, claimed that a sum of Rs.3,16,750.00 was paid by them as per the details given below: S.No.Cheque No. Amount Amounts paid subsequently with dates with date 1. 693225/22.6.91 (mentioned at No. 1) Rs.42,500.00 Rs.42,000.00 by Dd dtd.12.8.92 and Rs.500.00 in cash on 18.9.92. 2. 697104/30.6.91 mentioned at No. 2) Rs.1,70,000.00 Rs.40,000.00 in cash and Rs.35,000.00 byDD/4.9.92 3. 698937/30.7.91 (mentioned at No. 6) Rs. 85,000.00 Rs.85,000/ by Dd No. 130682/dtd. 4.8.92 on 6.9.92. 4. 715390/5.8.91 (mentioned at No. 8) Rs.1,06,250.00 Part-payment of Rs. 26,250.00 by Dd No. 130891 on 21.9.91. 5. 698940/15.8.91 (mentioned at No. 9) Rs. 48,000.00 Rs.48,000/ by Dd No. 130989 on 26.9.92. 6. Paid Rs.40,000.00 on 5.8.91. Total Rs.3,16,750.00 (7) As against this the plaintiff admits payment of Rs.2,86,750.00 only. The defendants, accordingly, contend that it is only after leading of evidence that it can be ascertained as to how much amount the defendant actually paid to the plaintiff and what amount, if any, still remains due?
(8) The defendants claim that the picture tubes supplied by the defendant were defective. Reference is made to complaints made vide letters dated 15.5.1991, 27.5.1991, 3.6.1991 and 28.6.1991. In these letters, the defective quality of picture tubes was brought to the attention of the plaintiff. As per the defendant, complaints received from the distributors of the defendants, who were returning the Tv sets with defective picture tubes, were also brought to the attention of the plaintiff and its Marketing Manager. It is claimed that earlier in May 1991, the plaintiff replaced the defective tubes that had been supplied vide invoice number 67. As the plaintiff failed to take corrective measures or to replace the defective picture tubes, which were having defects of gun sparking, etc. the defendants were constrained to stop payment of cheques. It is claimed that as a result of defective tubes the television sets could not be disposed of and as many as 1071 Tv sets with defective picture tubes were lying with one distributor, viz. M/s.Shakti Sales Corporation, who had withheld the sum of Rs.24 lakhs due to the defendants. Defendants are said to have suffered heavy losses on account of defective picture tubes resulting in closure of their works. it is claimed that defendants are entitled to claim set off or damages for the loss suffered on account of defective picture tubes supplied.
(9) The defendants also deny the claim for payment of interest of Rs.5,57,500.00 or any other amount. The defendants contend that no agreement, as claimed in para (5) of the plaint, whereby 24% interest rate was agreed to be paid for each day after the payment became due, was ever entered into. The interest rate claimed is described as exorbitant, which is never charged in any business transaction in the market. It is also contended by the defendants that the suit does not fall within the ambit of Order xxxvii of the Code of Civil Procedure. The plaintiff is accused of concealment and misrepresentation of facts.
(10) On the aforesaid grounds unconditional leave to contest is sought.
(11) Plaintiff contends that the application seeking leave to contest has been filed only by defendant No.2 and, accordingly, it cannot be regarded as an application for leave to contest on behalf of other defendants. It is noticed that though the application is supported with an affidavit of defendant No.2 only, at the very outset in the application, it is stated to be an application on behalf of the defendants for grant of leave to contest. We may also notice that, prima facie, it appears that the plaintiff has not made any averments which would make the directors of the defendant No.1 as personally liable. Therefore, to meet the ends of substantial justice, IA.54/95 is treated as being on behalf of all the defendants.
(12) Plaintiff has labelled the defense raised as frivolous and untenable. It is claimed that the suit is based on dishonored cheques and defendants have shown no agreement whereby they had the right to stop payment in case of defective supply of goods. Besides, most of the cheques had been dishonored on account of "insufficient funds" and not on account of "payment being stopped". It is stated that even if all the payments claimed by the defendants were accepted, the amount admittedly due would be Rs.8,57,500.00.
(13) Let us now consider the grounds set out by the defendants for grant of leave to contest:
(14) The amount claimed is an unascertained amount and requires evidence: IT is not in dispute that picture tubes have been supplied for which invoices were raised. The plaintiff has claimed a sum of Rs.8,87,450.00 as being due and outstanding. The defendants pointed out that the amount of the dishonored cheques was Rs.11,99,250.00 and claimed that payment of Rs.3,16,750.00 had been made instead of Rs.2,86,750.00. It would, therefore, be seen that, at best, the defendants' claim is that Rs.30,000.00 was paid in excess, which would make the amount of outstanding as Rs.8,57,500.00 . The defendants' dispute with regard to the aforesaid amount of outstanding is confined to the goods being defective. Learned counsel for the plaintiff pointed out that the complaints made by the defendant were prior to the dates of the cheques and on 17.7.1991 the defendant had regretted the delay in making payment while informing of the unavoidable circumstances because of which payment was delayed. Besides, as late as October 1991, the defendant had assured that outstanding amount would be cleared by the end of October and the plaintiff confirmed the same vide its letter of 5.10.1991 to the defendant. The plaintiff has also relied on the judgment in N.J.R. Sethna Vs. Ladak Khaku (1910 Vol.VIII Indian Cases 925) The ratio of the said case is that "in a suit under Order xxxvii, Civil Procedure code, the defense that plaintiff's breach of contract had occasioned to the defendant a pecuniary loss exceeding the amount due from him on account of the hundi sued upon, cannot be allowed and the defendant must be referred to a regular suit for damages". It is further held in the same judgment that "Under Section 45 of the Negotiable Instruments Act (XXVI of 1881), where there has been partial failure of consideration, it is only where that part is ascertainable in money without collateral inquiry that reduction can be allowed. Hence, a defense of failure of partial consideration which is not ascertainable in money without collateral inquiry is not permissible in a suit under Order xxxvii of the Civil Procedure Code."
(15) Learned counsel for the plaintiff has also placed reliance on the judgment in the case of Messrs. Weiss Biheller and Brooks Ltd. Vs. Firm of Habibbhoy Gangji (1929 Vol.120 Indian Cases 528). In this case the plaintiff had, for valuable consideration, drawn several bills of exchange on the defendants which they accepted but dishonoured. The defendants sought leave to defend on the ground that the plaintiffs had failed to supply goods according to specifications and had, in consequence to their request, agreed to adjust differences but had failed to do so. Reliance was even placed on a letter of the plaintiffs who, while alluding to some complaints made by the defendant, wrote as under:
"We would ask you, however, to accept our draft for these two consignments and can assure you that if anything is wrong with these goods we will make any adjustment which is justified.
The defendant had contended that it was on this understanding that they had accepted the bills and were liable to pay the bills on due dates, but only to pay whatever was found to be due after negotiations. This argument was not accepted and the Court held that "it appears to me that the promise made by the plaintiffs was no more than the promise implied in all such contracts, that the purchaser should be entitled to claim a refund or a rebate in case the goods should turn out to be below the agreed quality. That is understood in all C I F contracts, but none-the-less when an importer has accepted bills and so obtained the shipping documents he must meet the bills, and if he failed to do so, is liable. The defendants can, therefore, not be allowed to plead that by failing to meet the bills on the due dates they were not liable for breach of contract." The question was whether the defendants in a suit under Order xxxvii can be allowed to counter-claim for the damages sought by the plaintiff to supply goods of the right sort. This had been decided in the negative in the cases of Schroder Smidt & Co. Vs. Svamour & Co. (2 S.L.R. 53), Sethna V. Ladak Khaku (8 Ind. Cas. 924: 4 S.L.R. 147) and Kooverbhan Sukhanand V. Madandas Siroomal (49 Ind. Cas. 193; 12 S.L.R.70).
Accordingly, Court held, "I must hold that the defendants cannot be allowed to raise a defense of the nature stated by them in these proceedings but must have recourse to suit especially framed for the purpose." I am in agreement with the aforesaid decisions.
(16) Applying the ratio of the aforesaid decisions to the facts of the present case before us, it would be seen that even if defendants claim was to be accepted, it would, at best, be a case of partial failure of consideration. It is clear, however, that this partial failure, as claimed by the defendants, would not be ascertainable in money, without collateral inquiry. Besides, in Messrs. Weiss Biheller and Brooks Ltd. (Supra), even though there was a specific assurance by the plaintiff for adjustment if goods were not in order, the defendant was not permitted to raise this as a plea for not honouring the Bill of Exchange in Order xxxvii Suit. In the present case, there is no such understanding and the factum of defect in supplies is denied and labelled as an after-thought. It is not even the case of the defendant that the alleged defective tubes have been returned. Once the ground of defective supplies is held to be not available, then the only factor that would remain would be ascertaining the total payment made by the defendants. There is a difference of Rs.30,000.00 herein. The defendants claim Rs.3,16,750.00 having been paid and the plaintiff admits payment of Rs.2,86,750.00 only. Giving the benefit of Rs.30,000.00 to the defendant, for the present the admitted principal outstanding would work out to Rs.8,57,500.00 .
(17) defense with regard to payment of interest: The plaintiff in the suit has claimed interest at the rate of 24% per day from the date the amounts became due. The averment made in para (5) of the plaint is as under: "5.As per clause 1 of terms and conditions of sale, 24% interest rate is chargeable for each day after the payment becomes due. Accordingly the interest amount accrued on the outstanding till 28th February, 1994 comes to Rs.5,57,550.00 . Thus the total outstanding is Rs.14,45,000.00 only."
(18) Reliance is placed by learned counsel for the plaintiff on one of the "Terms and Conditions of the Sale" which appear on the challan-cum-invoice, which is as under: "Interest at the rate of 24% per annum shall be charged for each day's delay if the payment of the bill is not received on the due date."
From the challan-cum-invoice number 00011161/61, that has been filed by the plaintiff, it is not clear as to what is the due date of payment and whether there was a credit period or not? Besides, the plaintiff has failed to give any computation of the amount of Rs.5.57,500.00 , claimed as interest, except stating that the same is the accrued interest upto 28.2.1994. The defendants have denied the existence of any such agreement or understanding between the parties. Furthermore, the plaintiff has not made any specific averment that the aforesaid terms and conditions of the invoice were accepted without any reservations or protest and were acted upon by the defendant. In the absence of specific averments by the plaintiff regarding the acceptance of the above terms and conditions and also the absence of details and computation of the amount of Rs.5,57,500.00, the entitlement of the plaintiff to interest @24% for per day's delay raises a triable and contentious issue, in as much as, in case it is held that there is no agreement for payment of interest, then the only resort available to the plaintiff would be to claim interest that can be claimed in a suit based on negotiable instruments, in view of the decision of this Court in Khera Handloom Supply Vs. O.B. Exports & Ors. and Dharamdas Vs. Shidya Jatra . In Dharamdas' case (Supra) reliance was placed on Section 80 of the Negotiable Instruments Act to claim interest at the rate of 6% while in the case of Khera Handloom (Supra), the Court held that simply because there was no agreement between the parties to pay interest at the specific rate of 18% per annum, it will not debar the plaintiff from filing a suit under Order xxxvii of the Civil Procedure Code. The plaintiff was held entitled to recover interest, the transaction being of a commercial nature and the admissible rate of interest to be determined during trial.
(19) The principles for grant of leave to contest are fairly well-settled. Reference may usefully be made to the law as laid down by the Apex Court in Santosh Kumar Vs. Bhai Mool Singh wherein the Court laid down the following principles for grant of leave and exercise of discretion under Order xxxvii Rule 3(2), CPC:
"Wherever the defense raises a triable issue leave must be given. When that is the case, it must be given unconditionally otherwise the leave may be illusory. If the Court is of the opinion that the defense is not bonafide one, then it can impose conditions and is not tied to refusing leave to defend."
"Where the defense is a good and valid one, conditions cannot be imposed. Power to impose conditions is only there to ensure that there may be a speedy trial. If there is reason to believe that the defendant is trying to prolong the litigation and evade a speedy trial then conditions can be imposed. But that conclusion cannot be reached simply because the defendant does not adduce his evidence even before he is told that he may defend the suit."
(20) Reference may also be made to the decision of the Apex Court in Raj Duggal Vs. Ramesh Kumar Bansal (AIR 1990 Sc 2219) "Leave is declined where the Court is of the opinion that the grant of leave would merely enable the defendant to prolong the litigation by raising untenable and frivolous defenses. The test is to see whether the defense 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 defense on those facts. If the Court is satisfied about that leave must be given. If there is a triable issue in the sense that there is a fair dispute to be tried as to the meaning of a document on which the claim is based or uncertainty as to the amount actually due or where the alleged facts are of such a nature as to entitle the defendant to interrogate the plaintiff or to cross-examine his witnesses leave should not be denied. Where also, the defendant shows that even on a fair probability he has a bonafide defense, he ought to have leave. Summary judgments under Order 37 should not be granted where serious conflict as to matter of fact or where any difficulty on issues as to law arises. The Court should not reject the defense of the defendant merely because of its inherent implausibility or its inconsistency."
"On a consideration of the material in this case - we have looked into the defense sought to be raised and the criminal complaint earlier lodged - we think that a triable issue arises. On the analogous provisions of Order 14 of the Rules of Supreme Court in England it was held that where the defense can be described as more than "shadowy" but less than "probable" leave to defend should be given."
(21) Applying the aforesaid principles to the facts of this case, it is clear that as regards the principal outstanding in the sum of Rs.8,57,500.00 the defendants do not have any plausible or probable defense, as discussed in the preceding paragraphs 14 to 17. However, as regards the claim for interest, the defendants have raised a triable issue which requires trial and evidence.
(22) In the facts and circumstances of the case, leave to contest the suit is granted to the defendants, subject to their depositing in this Court the sum of Rs.8,57,500.00 within four weeks. In case the defendants fail to deposit the amount, as aforesaid, their application seeking leave to contest, viz.IA.54/95, shall stand dismissed.
(23) The observations made herein are on a prima facie view of the matter and will not affect the trial on merits in the suit.