Delhi High Court
Punjab & Sind Bank vs Joginder Pal Minocha on 29 April, 1997
Equivalent citations: 1997IVAD(DELHI)411, 67(1997)DLT851, 1997(42)DRJ439
Author: J.B. Goel
Bench: J.B. Goel
JUDGMENT J.B. Goel, J.
(1) By this order I am disposing of the aforesaid three applications filed by the defendants No.1, 2 & 3 respectively seeking leave to defend the suit filed by the plaintiff.
(2) Plaintiff who is a Banking Company has filed a suit for recovery of Rs. 6,86,062.75p. comprising of the principal amount and interest.
(3) Defendant No.1 is principal debtor whereas defendants No.2 to 4 are his guarantors. The case of the plaintiff is that the defendant No.1 had approached the plaintiff Bank in May, 1980 for loan of Rs. 3 lacs for the purchase of a truck for his business and had offered to hypothecate the truck and also to furnish the guarantees of defendants No.2 to 4 as sureties. This was accepted by the plaintiff and a sum of Rs. 3 Lacs was disbursed towards the purchase of truck by defendant No.1 and his account was debited. In consideration the defendant No.1 on 7.5.1985 had executed various documents including a Demand Promissory Note agreeing to pay the amount of Rs. 3 lacs with interest at the rate of 5% over the Reserve Bank of India rate subject to a minimum of 14% with quarterly rests and a deed of hypothecation hypothecating the Tata Truck Diesel No. Lpt 1516/48 purchased by him. Defendants No.2 to 4 had executed a guarantee deed dated 7th May, 1980 for payment of this loan by defendant No.1. Defendant No.1 has paid some amounts but had not paid the loan as agreed. He had acknowledged in writing the balance of Rs. 4,06,669.52 due on December 31, 1981 and again a sum of Rs. 3,39,833.74 as due on December, 31,1982. On April 20, 1983 a sum of Rs. 4,24,220.52 was due and payable by defendants and defendant No.1 as principal debtor again executed fresh documents including a demand promissory note agreeing to repay the same with interest at the rate of 5% over Reserve Bank of India subject to a minimum of 15% with quarterly rests and defendants No.2-4 had also executed fresh guarantee deed on April 20, 1983. The defendants having failed to pay despite legal notice of demand, a sum of Rs. 6,865,062.75 including interest upto November 16, 1985 is claimed in the suit. The suit was desired to be tried for summary procedure under Order 37 of the Civil Procedure Code . Summons of the suit were accordingly issued and served on the defendants. All put in appearance and in due course defendants No.1 to 3 have filed the aforesaid three applications seeking leave to defend the suit. Leave application filed by defendant No.4 was dismissed in default and a decree has been passed against him on 19.8.1994. Defendants No.1 to 3 have taken various pleas for leave to defend the suit which the plaintiff in his reply affidavit has denied and it is pleaded that no valid defense is raised and the defense raised is sham and bogus which does not entitle to leave to defend the suit in the circumstances.
(4) Written arguments have been filed on behalf of defendants No.1 & 3 and the same has been adopted on behalf of defendant No.2. I have heard the learned Counsel for the parties.
(5) The question is whether the defendants are entitled to leave to defend the suit on the material pleaded.
(6) The principles to be taken into consideration for grant or refusal of leave to defend have inter alia been considered by the Supreme Court in Santosh Kumar v. Bhai Mool Singh; ; M/s. Mechalec Engineers & Manufacturers v. M/s. Basic Equipment Corporation, and Mrs. Raj Duggal v. Ramesh Kumar Bansal, .
(7) In Santosh Kumar (supra) it has been laid down that in general, 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 and once the Court is satisfied about that leave cannot be withheld and the question of imposing conditions would not arise.
(8) In other words if the defense raises a "triable issue" leave must be given unconditionally, and on the other hand if the Court is of the opinion that the defense is to bona fide then it can impose conditions and is not tied down to refusing leave to defend. Such opinion has to be formed on sound judicial rules and judicial procedure. The object of the provision 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 defenses in a class of cases where speedy decisions are desirable in the interest of trade and commerce.
(9) In the case of M/s. Mechalec Engineers and Manufacturers again no different principles have been laid down. The Supreme Court has referred to with approval the following principles laid down in Smt. Kiranmoyee Dassi v. Dr. J.Chatterjee, (1945) 49 Cal. Wn 246 (253):
(I)(a) If the defendant satisfies the Court that he had a good defense to the claim on its merits.
(B)or where he raises triable issue indicating that he has a fair or bonafide or reasonable defense although to a positively good defense, the defendant is entitled to unconditional leave to defend.
(II)If the defendant discloses such fact as may be 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 defense, yet shows such a state of fact as leads to the inference that at the trial of action he may be able to establish a defense to the plaintiff's claim 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 no as to payment into Court or furnishing security;
(III)If the defendant has no defense or the defense is illusory or sham or practically moonshine the defendant is not entitled to leave to defend.
(10) Again in the case of Mrs. Raj Dugal's case (supra) the principles have been reiterated as under: "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 defense. The test is to see whether 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 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 meaning of a document on which the claim is based or uncertainty as to the amount actually due to (sic.) 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, defendant shows that even on a fair probability he has a bonafide defense, he ought to have leave. Summary judgment 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."
(11) The other cases relied on behalf of defendants do not lay down different principles.
(12) Each case has to be decided on its particular facts and circumstances as facts of two cases generally will not be the same, keeping in view these principles.
(13) The first objection taken on behalf of the defendants is that the documents in question were executed in blank and as such the suit under Order 37, Civil Procedure Code . does not lie. Learned Counsel for the plaintiff relying on Punjab & Sind Bank v. R.P.J.C. and & Ors., has contended that this plea is neither bonafide nor could be entertained as this is a belated and afterthought and not a bonafide plea and is not tenable even in vie of Section 20 of the Negotiable Instruments Act.
(14) The case of the plaintiff is that the defendant No.1 approached the Bank in May, 1980 for a loan of Rs. 3 lacs for the purchase of a truck offering hypothecation of the truck and guarantees of the defendants No.2 to 4 as his sureties. This was accepted. The amount was disbursed and the account of the defendant No.1 was debited and this was confirmed in writing by him, and defendant No.1 had executed the following documents on 7.5.1980:
1.Demand Promissory Note for Rs. 3 lacs agreeing with rate of interest mentioned in it. 2.Form No. 103
3.Form No.106 4.Form No. 291
5.Deed of hypothecation hypothecating Tata Truck Diesel Model Lpt 1516/48.
(15) It is further pleaded that defendant No.1 had also confirmed in writing twice the balance due, i.e. Rs. 4,06,669.52 as on December 31, 1981 and again Rs. 3,39,833.74 on 31.12.1982.
(16) It is not disputed that defendant No.1 had approached the Bank for loan of Rs. 3 Lacs for the purchase of the truck with defendants No.2 to 4 as sureties and the hypothecation of the Truck. It is also not disputed that defendant No.1 had purchased the Tata Diesel Truck Model Lpt 1516/48 with the loan of Rs. 3 Lacs advanced by the Bank. It is specifically admitted that the defendant had agreed to pay the loan amount in instalments. It is also not disputed that the rate of interest as mentioned in the Demand Promissory Note dated 7.5.1980 was not agreed to be paid. Promissory Note is in printed form and the columns pertaining to the date, name of borrower, amount and the rate of interest only have been filled in ink in hand. Defendant No.1 has signed on two revenue stamps of Rs. 0.20 P. each. In these circumstances, the plaintiff would not have derived any benefit by obtaining the signatures of defendant No. 1 on blank form.
(17) In Form No.103 dated 7.5.1980 the loan is agreed to be paid in instalments of Rs. 12,000.00 p.m. and except the figure of "12,000.00 " remaining matter is printed. It is admitted by the defendant that the loan was payable in instalments. Here also plaintiff would not have derived any benefit by obtaining signatures in blank to this effect.
(18) Form No.106 is wholly in printed form and thereby the presentation of the Promissory Note has been waived by defendant No.1. This was not signed in blank. This document by necessary implication admits execution of Promissory Note by him.
FORMNo.216 is again wholly a printed form where defendant No.1 has declared that he is non agriculturist and the loan amount will be used for the purpose of agriculture. This was also not executed in blank.
(19) Form No.291 is also wholly in printed form whereby defendant No.1 had inter alia agreed to pay penal rate of interest upto 2.5% per annum for default period. This also was not signed in blank.
(20) Form No.192 is deed of hypothecation and is on printed form. Only columns in respect of the name of the borrower, amount of loan, borrowers address, rate of interest, rate of margin in respect of the value of the goods given as security, date of execution as 7.5.1980 and the make/Model of the Truck only have been filled in ink; and (21) Form No.256 is the surety bond executed by defendant Nos.2 to 4 which is also in printed form and only columns in blank pertaining to names of borrower, names of sureties, amount of loan, rate of interest, and date of execution have been filled in ink. This also would not have been got signed in blank for no valid reasons.
(22) To Forms No.182 are in printed form. These are in two parts. First is a letter from the Bank to defendant No.1 and the second part pertaining to balance confirmation. The blank columns are about the amount due with date.
(23) It is not the case of the plaintiff that the amount as filled in these documents were not due from defendant No.1 to the plaintiff on their respective dates.
(24) Same set of documents have again been executed by the defendants on 20.4.1983. There would have been no point in obtaining signatures on two sets of similar documents at the same time nor defendants would have singed so at the same time nor it is their case that their signatures were obtained on 2 sets of documents in blank at the same time.
(25) The plaintiff has specifically pleaded that the same set of documents were executed later on 20.4.1983 which is not denied.
(26) These circumstances exclude the possibility that these documents were signed in blank. The loan was advanced on 7.5.1980 and the present suit was filed on 18.11.1985, the defendants have never raised any objection before filing the applications for leave to defend that their signatures were obtained on blank papers. This suggests that plea is belated and afterthought and is not bonafide.
(27) Section 20 of the Negotiable Instruments Act, 1881 provides that: 20.Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he singed the same, to any holder in due course for such amount."
(28) As already noticed the consideration and the rate of interest as mentioned in the promissory note and the purpose of loan have not been disputed by the defendants. In the circumstances, no triable issue arises on this plea.
(29) The other plea is that the documents were executed as collateral security and the suit could lie only on the original transaction of loan.
(30) The plaintiff could file the suit either on the original consideration or on the promissory note given by the defendant for consideration. Plaintiff has chosen the latter. Defendant is liable on the promissory note and other documents executed by him in connection with this liability and defendant Nos.2 to 4 on the surety bond executed by them. Present suit is thus maintainable under Order 37, Civil Procedure Code . on the basis of these documents. No triable issue arises on this plea also.
(31) The next plea is that the claim in suit is exaggerated. This plea is vague the amount payable, rate of interest and other terms about the payment of charges and expenses had been agreed in writing in two Promissory Notes, deed to hypothecation and other documents. Plaintiff has produced copy of the statement of account duly certified under Bankers' Books Evidence Act. No discrepancy in this statement has been alleged or pointed out in the leave to defend applications. Such statement of account carry presumption of correctness unless it is shown to the contrary.
(32) In Punjab National Bank Ltd., Delhi v. Vinod Kumar and Others, , it was held as under: "UNDER Section 3 of the Bankers Books Evidence Act, the copy of accounts certified in accordance with Section 2(8) is prima facie evidence and it does not require proof by production of cheques and vouchers etc. relating to each entry. The object of the Act is to render the entries in Bankers, books admissible in evidence and to enable copies of the entries to be used instead of compelling the Bank to produce the original entries. Such a copy must be received as prima facie evidence not only of the existence of such entries but also of the matters, transactions and accounts therein recorded."
(33) Nothing to disprove its correctness has been pleaded. This also does not raise a triable issue.
The next objection is regarding rate of interest.
(34) No arguments were addressed on behalf of the defendants as to how the interest is not permissible and the objection is even otherwise very vague. The rate of interest as agreed in the promissory note dated 20.4.1983 is at the rate of 5% above the Reserve Bank of India rate with a minimum of 15% p.a. with quarterly rests and vide separate letter dated 20.4.1983 defendant No.1 has agreed that in case of default or delay in payment of loan he shall be liable to pay penal rate of interest upto 2.5% p.a. in addition to the rate agreed otherwise. Perhaps it is objected to on the basis of Section of the Indian Contract Act wherein its explanation it is stated that "a stipulation for increased interest from date of default may be a stipulation by way of penalty."
(35) In Babu Raj Inder Bahadur Singh v. Bhagwan Din, Air 1931 Oudh 33 (D.B.) where also the question whether the increased rate of interest is penal, it was held is as under: "THE explanation added to Section 74 provides that a stipulation for increased interest from the date of default may be stipulation by way of penalty. The question whether such a stipulation is or in not penal in any particular case must depend upon the facts and circumstances of that case. The test in our opinion is whether the enhanced interest was intended to be part of the primary contract between the parties or was introduced only in terrorem."
(36) Again in Nanhak Singh and Others v. Ram Lagan Dubey and Others, Air 1939 Patna 457 (D.B.) it was held that the stipulation for higher interest after default is on a different footing from the primary contract and must be read as stipulation by way of penalty. But it does not follow that the rate of interest after default is to be restricted to the rate agreed on in the primary contract. On the contrary, Section 74 requires the Court in such a case to assess a reasonable compensation. If the higher rate stipulated for is found not to be unreasonable, the compensation may be as high as that but shall not be higher.
(37) In Sohna Mal v. Imam Din, Air 1929 Lahore 515 (D.B.) it was held that a stipulation for increased interest from the date of the bond in always in the nature of a penalty; but a covenant for enhanced interest from the date of default may or may not be a stipulation is penal depends upon the construction of the document and upon ascertaining what the parties really intended by it.
(38) In K.P. Subbarama Sastri and Others v. K.S. Raghvan and Others, , it held that the question whether a particular stipulation in a contractual agreement is in the nature of a penalty has to be determined by the Court against the background of various relevant factors, such as the character of the transaction and its special nature, if any, the relative situation of the parties, the rights and obligations accruing from such a transaction under the general law and the intention of the parties in incorporating in the contract the particular stipulation which is contended to be penal in nature. If no such a comprehensive consideration, the Court finds that the real purpose for which the stipulation was incorporated in the contract was that by reason of its burdensome or oppressive character it may operate in terrorem over the promises so as to drive him to fulfilll the contract, then the provision will be held to be one by way of penalty.
(39) Under Order 37 Rule 3(5) the defendant in support of his application for leave to defend is required to disclose in the affidavit or otherwise such facts as may be deemed sufficient to enable him to defend. This shows that the defendant is required to plead in his application for leave statement of fact which may constitute a valid ground for leave to defend the suit. It is for the debtor to show why his contract should not be enforced.
(40) In the present case defendants have not pleaded any facts to show how the rate of interest is excessive, penal or exhorbitant and so is not recoverable. The right and scope of the right of the Banks to charge interest on various loans advanced by them has been considered by the Supreme Court in Corporation Bank v. D.S. Gowda & Anr., . In this case it was held that interest rates prescribed for various advances by Reserve Bank of India in exercise of power under the Banking Regulation act, 1949 to be charged by the Banks are binding on the latter and the Bank is entitled to charge interest with periodical rests or compoundable in any other manner and such stipulation cannot be termed as unreasonable or excessive. In this case the rate of interest of 16.5% p.a. with quarterly rests with penal interest on a secured loan for non-agricultural purposes was held to be not excessive and would not render the transaction substantially unfair. In the judgment it has been noticed that the Reserve Bank of India has been issuing circulars from time to time the interest so prescribed could be charged by the Banks. It is not the case of defendants that the interest agreed between the parties is not as per such circular issued by Reserve Bank of India.
(41) The rates of interest are generally fixed keeping in view the risk involved in recovering the debt.
(42) The plaintiff Bank has advanced loan against the security of a truck. The amount of loan was Rs. 3 Lacs and was payable in instalments of Rs. 12,000.00 per month. This obviously was intended to be repaid within a period of about 3 years. This was not done. The security of the truck after a long time cannot be said to be sufficient enough for realising the dues of the Bank. The term about further interest 2.5% p.a. on account of default and that too from the date of default was intended to secure repayment of the loan in time. This additional at the rate of 2.5% p.a. in the circumstances, especially in the absence of proper and relevant material cannot be said to be unreasonable or excessive. Even after adding this 2.5% the total interest would be 15% p.a. compounded quarterly plus 2.5% p.a. which cannot be said to be so excessive or unreasonable which may be termed as penal under Section 74 of the Contract Act. This plea in the circumstances, also is not bonafide and does not raise any triable issue.
(43) The next objection is that the truck purchased did not serve the purpose inasmuch as it was lying idle either due to defects or otherwise remained with Telco, the supplier. The plaintiff Bank had advanced loan for the purchase of the truck and the defendant has purchased the same. The plaintiff is not concerned about the working or non working of the truck for no fault of theirs. The truck remained in the (sci) was not serving the purpose of the defendant they should have sold the same and cleared the dues of the plaintiff Bank which they did not do. This objection also does not raise any triable issue.
(44) The next plea is that the plaintiff Bank did not take timely action nor carried out any inspection of the vehicle and it was because of their continuous negligence that the defendant had suffered loss. This plea is not understandable. The vehicle was purchased by the defendant and it was for them to ensure that it was suitable for their purpose. Plaintiff had not thrust the vehicle as the defendants against their wish. This plea also does not raise any triable issue.
(45) The next objection is that the loan was payable in instalments of Rs. 12,000.00 per month and Rs. 60,000.00 had already been paid and whole of the balance amount could not be claimed. It is not disputed that the loan was taken on 7.5.1980 and this was repayable in instalments of Rs. 12,000.00 per month. According to the defendants only a sum of Rs. 60,000.00 has been paid. The present suit has been filed in November, 1985, i.e. after 5 and 1/2 years after the loan was advanced. By that time all the instalments had become due and the remaining loan remained unpaid for a considerable long time thereafter. In the circumstances, it cannot be said that the suit filed is premature. This also is not a valid defense and it does not raise any triable issue.
(46) The next objection is that the suit is bad for misjoinder of Telco, the manufacturer and supplier of the truck, Telco is not a party to the loan agreement. The loan was advanced by the plaintiff-Bank to the defendant and it is only defendant No.1 who is liable to pay the same. Telco is neither a necessary nor a proper party. This plea is also not bonafide and does not need trial.
(47) It is then contended that the truck was of no use to the plaintiff and the Telco had agreed to refund to the defendant a sum of Rs. 2.10 lacs for it. Any dispute or settlement if arrived at between defendant No.1 and Telco is not binding on the plaintiff as it is not the case of the defendant that the plaintiff was a party to such dispute or settlement. Any dispute between defendant No.1 and the supplier of the truck is their inter se dispute between them. Plaintiff cannot suffer for any such dispute. This is also not a bonafide plea and does not need consideration.
(48) Then it is contended that the loan could not be paid because the truck could not be used because of defects. As already noticed the plaintiff Bank had advanced loan against the purchase of the truck. The truck was purchased by the defendant. Whether the truck served the purpose or not is not for the plaintiff to answer. This is also not a bonafide plea and does not raise a triable issued.
(49) Thus it is clear that the defense is neither plausible nor bonafide and no triable issues arise in the case.
(50) It is also noticed that the defendant had admitted his liability in a letter dated 17th August, 1995 sent by defendant No.1 to the plaintiff Bank, copy of which has been placed on record by the defendant No.1. In this letter defendant No.1 has not disputed his liability to pay the suit amount but he has offered to pay only the balance of the principal amount. The defendants had also filed earlier application being I.A. 9147/88 where also they had admitted their liability to pay but had offered to pay only a sum of Rs. 2.5 lacs in instalments. Suit could be decreed on such admissions under Order 12 Rule 6, Civil Procedure Code . also.
IN view of these circumstances, the application for leave to defend filed by defendants 1, 2 & 3 do not raise any bonafide dispute and the pleas taken are frivolous and vexatious, and no triable issues needing trial arise in the case. As such they are not entitled to leave to defend the suit. Leave is accordingly refused and these applications are dismissed.
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THE applications for leave to defend having been dismissed the plaintiff is entitled to decree. I accordingly pass a decree in favour of the plaintiff and against defendants 1 to 3 for the recovery of Rs. 6,86,062.75 with costs of the suit. Plaintiff is also awarded interest from the date of the institution of the suit till date of decree and further interest from the date of decree till realisation at the rate of 17.5% p.a. thereon. The liability of defendant No.1 is of principal debtor and of defendants 2 and 3 is as sureties of defendant No.1.