Full Judgment Text
* HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) No.333-334/2005
th
% Date of decision : 20 May, 2008
ANIL ARORA & ANOTHER …..Appellants
Through: Mr. Adhip Iyer with Mr.Praveen
Aggarwal, Advocates
Versus
ANAND KUMAR …Respondent
Through Mr.Sumit Bansal with Mr.Manish
Paliwal, Advocates
CORAM:
HON’BLE THE CHIEF JUSTICE
HON’BLE DR. JUSTICE S.MURALIDHAR
1.Whether reporters of the local news papers be allowed to see
the judgment?No
2.To be referred to the Reporter or not ?y
3. Whether the judgment should be reported in the Digest ?y
JUDGMENT
20.05.2008
1. The question which is to be considered in this appeal under
Clause X of the Letters Patent is whether the learned single Judge
was right in granting leave to the appellants to defend the
summary suit filed by the respondent on the condition that the
appellants shall furnish security of an immovable property to the
extent of the suit amount. The respondent has filed the suit under
(FAO(OS) 333/2005) Page 1 of 17
Order XXXVII of the Code of Civil Procedure for recovery of
Rs.1,20,48,788/- with pendent lite and future interest @ 18% p.a.
Later the respondent filed an application for amendment of the
plaint which was allowed by the Court. By way of amendment the
respondent made certain additional averments and also claimed
interest prior to the institution of the suit. The respondent’s case
as pleaded in the plaint is that he is engaged in the business of
investment. The appellant No.2 is a company incorporated under
the provisions of Companies Act, 1956 dealing in stocks and share
broking and is having membership of the National Stock Exchange
of India Limited. The appellant No.1 is the Director of the
appellant No.2 company. The respondent had friendly and cordial
relations with the appellant No.1 and his brother for more than a
decade and the appellants used to borrow money from the
respondent from time to time. During the dealings the appellants
borrowed loans of the following description:
Date Amount Cheque/Pay Orders
06-01-2000 Rs.30,00,000/- Federal Bank Ltd - 801710
10-01-2000 Rs.23,00,000/- Federal Bank Ltd - 428168
18-02-2000 Rs.30,03,600/- Federal Bank Ltd - 428287
29-09-2000 RS.20,02,400/- Federal Bank Ltd – 861590
(FAO(OS) 333/2005) Page 2 of 17
2. Out of the said amounts which were given to the appellants
by cheques, the appellants had executed promissory notes and
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also repaid a sum of Rs.8 lacs on 24 March 2000 by cheque as
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against the amount borrowed of Rs.23 lacs taken on 10 January,
2000. The appellants paid part of the interest by different
th th
cheques during the period of 5 September, 2000 to 28 June,
2001 but in June, 2001 the appellants stopped making the
payment of interest as well as the principal amount. Despite
persuasion by the respondent, the appellants had not cleared the
liability. The appellant No.1 also issued cheques duly signed by
the appellant No.1 on behalf of appellant No.2 for an amount
aggregating to Rs.91 lacs on various dates, the details of which
have been given in para 13 of the plaint but later on the cheques
were returned unpaid with the reason 'payment stopped by
drawer'. According to the respondent the appellants are liable to
pay a sum of Rs.1,20,48,799/- which includes Rs.95,02,400/- on
account of principal plus Rs.25,46,388/- on account of interest.
3. The suit being under the provisions Order XXXVII of the Code
of Civil Procedure summons was issued to the appellants who filed
appearance and thereafter the respondent filed an application
(FAO(OS) 333/2005) Page 3 of 17
being IA No.403/2004 praying for leave to judgment while IA
No.2810/2004 was filed by the appellants under Order XXXVII Rule
3 CPC seeking leaving to defend unconditionally.
4. The case of the appellants in the application for leave to
defend is that the respondent was the client of the appellant No.2
company and was dealing in purchase and sale of shares through
the appellants since the year 1996 and the transactions between
the appellants and the respondent were relating to the sale and
purchase of shares. Due to a bust in the stock market in 2001 the
respondent suffered huge losses and stopped dealing in shares
through the appellants. Eventually when the dealing between the
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parties ceased on 27 June, 2001 there was left a debit balance of
Rs.35,238.92 in the account of the respondent after accounting for
the cheques against the so called loan in question and the so
called loan was not actually a loan but payment in adjustment of
the debit balance as a consequence of sale and purchase of
shares on behalf of the respondent. It is further case of the
appellants that having regard to the nature and the amount
involved in the transactions relating to the sale and purchase of
shares conducted by the appellants on the instructions of the
(FAO(OS) 333/2005) Page 4 of 17
respondent, as per the trade practice, to secure the mutual
interest, promissory notes were executed and blank cheques were
given to the either party and which were later returned/destroyed
upon settlement of accounts from time to time. The promissory
notes and cheques issued by the appellants were blank cheques
and were issued to the respondents as a security at his instance as
he required that his interest be secured as per the trade practice
being followed by the parties and had nothing to do with the
repayment of the so called loan. Once accounts were settled, the
appellants asked the respondent to return the cheques and the
promissory notes but the respondent stated that they have been
lost and also requested the appellants to inform the bank to stop
payment of these cheques. Consequently the appellants stopped
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payment of the said cheques vide letters dated 16 April, 2001
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and 19 April, 2001 addressed to the bankers. The respondent
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later turned dishonest and he fraudulently put the dates of 1
st rd
October, 2002, 21 October, 2002 and 23 October, 2002 on these
cheques without the consent of the appellants and presented
them for encashment.
5. Upon a perusal of the plaint, submissions of the parties and
(FAO(OS) 333/2005) Page 5 of 17
the documents filed along with the plaint the learned single Judge
thought it fit to grant only conditional leave to the appellants to
defend the suit. The learned single Judge observed that once the
documents are admitted, the onus to show that they were not for
consideration and were mere business transactions as per practice
and trade is heavily on the appellants. The triable issues raised by
the appellants are not free from doubt. The defence taken may not
be sham or moonshine but it is a defence which defies even a
common sense that if the cheques were given by the appellants to
the respondent in business transaction where was the occasion for
supporting such a liability by issuing pro-notes which at least
prima facie is an admission of a liability with a commitment to
repay the same with interest. In that view of the matter, the
learned single Judge granted leave to defend subject to the
condition that the appellant shall furnish security of an immovable
property to the satisfaction of the Registrar of this Court to the
extent of the suit amount.
6. Mr.Adhip Iyer, learned counsel appearing for the appellants
strenuously contended that the appellants have a prima facie case
and a good defence on merits and are thus entitled to an
(FAO(OS) 333/2005) Page 6 of 17
unconditional leave to defend. Learned counsel submitted that
when the learned single Judge has categorically observed that the
defence taken by the appellant was not sham or moonshine, there
was no occasion for imposing a condition for grant of leave to
defend. He referred to the judgment of the Supreme Court in M/s.
Mechalec Engineers and Manufacturers v. Basic Equipment
Corporation AIR 1977 SC 577 where the following principles as
evolved after comprehensive review of the authorities on the
subject in Smt.Kiranmoyee Dessi v. Dr.J.Chaterjee (1945) 49
Calcutta Weekly Note 246, were approved by the Supreme Court:
“( 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 be 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
(FAO(OS) 333/2005) Page 7 of 17
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 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.”
7. Learned counsel for the appellants also referred to the
decision of the Supreme Court in Mrs.Raj Duggal v. Ramesh Kumar
Bansal AIR 1990 SC 2218 wherein the Court reiterated the
following principle while granting or refusing leave to defend a suit
under Order XXXVII CPC:
“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 defences. 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. 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
(FAO(OS) 333/2005) Page 8 of 17
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 was a bona fide defence, 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 defence of the defendant merely
because of its inherent implausibility or its
inconsistency.”
8. Our attention was also drawn by the learned counsel to a
judgment of the Division Bench of this Court in Babbar Vision India
Pvt. Ltd v. Ram Vision Ltd 99(2002) DLT 556(DB) wherein the
Division Bench following the decision of the Supreme Court in
Santosh Kumar v. Bhai Mool Singh AIR 1958 SC 321 held that
where the defence raises a triable issue, leave must be granted,
whether the defence is legal or equitable one and even though it
may not ultimately found to be a good defence. Where the
defence is good and valid one, conditions cannot be imposed,
power to impose conditions is only there to ensure that there be a
speedy trial. In general the test to be applied should be 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. As
(FAO(OS) 333/2005) Page 9 of 17
rule where valid defence on trial discloses, defence is bona fide,
leave must be granted unconditionally otherwise of grant of leave
may become illusory.
9. Mr.Sumit Bansal, learned counsel appearing for the
respondent, however, drew our attention to a larger Bench
decision of the Supreme Court in Milkhiram (India) Private Ltd and
Others v. Chamanlal Brothers AIR 1965 SC 1698 where the Court
after distinguishing its earlier judgment in Santosh Kumar v. Bhai
Mool Singh (supra) held as follows:
“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
(FAO(OS) 333/2005) Page 10 of 17
subjected to a condition.” (Emphasis supplied)
10. The Bench noted that in Santosh Kumar's case the Court
mainly 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 Supreme Court referred to the following observations
of Devlin L.J in Fieldrank Ltd v. Stein (1961) 3 All ER 681 at pp.682-
83:
“The broad principle, which is founded on Jacob
v. Booth’s Distillery Co. is summarised on p. 266 of
the Annual 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. 4 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
(FAO(OS) 333/2005) Page 11 of 17
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. 4 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 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.”
(Emphasis supplied)
11. The Court then held that the above observations and the
observations of Chagla, C.J. In Rawalpindi Theaters Private Limited
v. M/s.Film Group Bombay 60 Bom LR 1378at p. 1874 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
(FAO(OS) 333/2005) Page 12 of 17
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.”
(emphasis supplied)
12. The above judgment relates to a case under Order XXXVII
Rule 3 CPC as amended by the Bombay High Court but the
principles laid down will broadly apply to suits under Order XXXVII.
When the court has doubt that the defence is not in good faith or
it is improbable and wants to protect the plaintiff specially when
there is no ground of hardship to the defendant in asking to
deposit money in court or to furnish security therefor, the court
may in its discretion grant conditional leave. However, care has to
(FAO(OS) 333/2005) Page 13 of 17
be taken to see that real and triable issues are not shut out by
unduly severe orders as to deposit.
13. Learned counsel appearing for the respondent also drew
our attention to several decisions of different Division Benches of
this Court in Raj Rahul Contractors & Builders Pvt. Ltd &
Others(M/s) v. M/s.Viking Traders 2006 VI AD (Delhi) 388,
Reliance Engg & Electricals Corpn & Anr v. Veena Aggarwal
2006(92) DRJ 158 (DB) and Rajesh Kumar Aggarwal v. Punjab &
Sind Bank & others 129 (2006) DLT 792 (DB) wherein the Court
imposed conditions for grant of leave.
14. In Raj Rahul Contractors' case (supra) the Court held that the
stand taken by the appellant cannot be said to be ex facie sham or
a moonshine defence, particularly in view of the fact that the
appellant has clearly made a statement that the portion of the
property in question which was covered by the agreement
executed between the parties, is still available for user of the
respondent. The Court, however, proceeded to hold that the
appellant would be entitled to leave to defend but conditionally,
subject to their furnishing a bank guarantee to the satisfaction of
the trial court.
(FAO(OS) 333/2005) Page 14 of 17
15. In Reliance Engineering & Electrical Corpn's case (supra) the
fact that money was borrowed was not disputed by the defendant
but a defence was raised that subsequently a settlement was
arrived at between the parties and that the plaintiff had agreed
to accept a sum of Rs.3,60,000/- in full and final settlement of the
entire claim. According to the defendants they paid a sum of
Rs.3,20,000/- in cash and issued two cheques for a sum of
Rs.20,000/- each. The defendants relied upon a receipt which was
alleged to have issued by the plaintiff to the Accountant of the
defendants. The case of the plaintiff was that the receipt was a
forged and manipulated document. The receipt was issued to the
Accountant of the defendants towards part payment of the due
interest for the previous years and the said receipt has been
distorted and manipulated and fabricated by the defendants. The
Court held that all these issues raised by the defendant can only
be decided by producing evidence in this regard and granted only
conditional leave by directing the defendants to deposit the entire
decretal amount before the trial court.
16. In Rajesh Kumar Aggarwal's case (supra) again the Division
Bench held that in view of the fact the defendant No.3 is alleged to
(FAO(OS) 333/2005) Page 15 of 17
have executed a guarantee document, the execution of which is
not disputed by the defendant, however the plea being that it was
signed blank, the appellant should be entitled to conditional leave
subject to furnishing a bank guarantee/security of immovable
property as condition for grant of leave.
17. With the assistance of the learned counsel appearing for the
parties we have gone through the case and we are in respectful
agreement with the learned single Judge that though the defence
taken by the appellant cannot be said to be sham or moonshine
but certainly it is not a case where the defendant can be granted
leave unconditionally. The loan transaction is supported by pro-
notes. In fact respondent has placed on record letters
empowering the appellant No.1 to take loan from the respondent
on behalf of appellant No.2. This is the undisputed document
which will show that the parties entered into loan transactions and
not necessarily the sale and purchase of shares as pleaded by
the appellants. The defence raised by the appellant is
improbable in the sense that if the cheques were given by the
appellants to the respondent in business transaction there was no
occasion to support such liability by issuing pro-notes which
(FAO(OS) 333/2005) Page 16 of 17
contains an unequivocal admission of the liability.
18. We may mention that this Court while entertaining the
appeal stayed the order of the learned single Judge subject to the
appellants furnishing security of 50% of the immovable property
which has been duly furnished. In our opinion the ends of justice
would be met if the order of the learned single Judge is modified to
the extent that the security shall be furnished to the extent of 50%
of the suit claim instead of the entire suit claim. It is ordered
accordingly. The appeal stands disposed of in terms of the above
order.
CHIEF JUSTICE
MAY 20,2008 S.MURALIDHAR
“v” JUDGE
(FAO(OS) 333/2005) Page 17 of 17