A plausible defence warrants conditional leave; insufficiently stamped loan agreements must be impounded for adjudication.

The plaintiff, a non-banking financial company, advanced two term-loan facilities to defendant no. 1: ₹155 crores under a loan agreement dated 30 June 2015 and approximately ₹28.73 crores under a loan agreement dated 27 September 2017.

Defendant no. 1 executed the loan documents, demand promissory notes and undertakings; defendant no. 2 gave a corporate guarantee, while defendants nos. 3 and 4 gave personal guarantees.

Upon alleged defaults, the plaintiff issued default notices dated 6 September 2018 and a final recall notice dated 23 October 2018, claiming ₹188,32,15,037 under the first facility and ₹30,23,55,781 under the second facility.

Defendant no. 1 disputed the outstanding amount, interest and charges, asserted that the loans had been regularly serviced, and claimed adjustment of payments and consideration relating to agreements for the sale of 98 flats.

The suit had already been stayed against defendants nos. 2 to 4 because of insolvency moratoria under the Insolvency and Bankruptcy Code, 2016.

Whether defendant no. 1 had disclosed a substantial, fair or plausible defence and triable issues sufficient to obtain leave to defend under Order XXXVII Rule 3(5) of the Code of Civil Procedure, 1908?

Whether the plaintiff was entitled to judgment for the alleged admitted amount on the basis of the audit confirmation letter?

Whether the loan agreements were insufficiently stamped and therefore liable to be impounded under the Maharashtra Stamp Act, 1958?

If leave to defend was granted, whether it should be conditional upon deposit of the principal amount and furnishing security for the claimed interest?

The Court applied Order XXXVII Rule 3(5) of the Code of Civil Procedure, 1908, under which leave to defend may be granted unconditionally or on just conditions where the defendant discloses facts sufficient to defend the suit.

Under the principles affirmed in IDBI Trusteeship Services Ltd. v. Hubtown Ltd., (2017) 1 SCC 568, a substantial defence ordinarily warrants unconditional leave; a fair or reasonable defence ordinarily also warrants unconditional leave; a plausible but improbable defence may attract conditions; and a frivolous or vexatious defence warrants refusal of leave.

B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corporation, (2022) 3 SCC 294, reaffirmed that grant of leave is the ordinary rule and refusal is exceptional, particularly where a genuine triable issue exists.

Under Sections 33, 34 and 37 of the Maharashtra Stamp Act, 1958, an insufficiently stamped instrument must be impounded and cannot be acted upon until the requisite duty and penalty are adjudicated and paid.

The Court held that defendant no. 1 had raised genuine triable issues regarding the computation of the outstanding amount, alleged servicing of the loans, disputed interest and charges, payments allegedly made by Guruashish Constructions Private Limited, and the claimed adjustment of ₹30 crores towards 98 flats.

The plaintiff had not produced sufficient particulars of the calculations, yearly statements, or the mortgage document relied upon, and had not adequately clarified why payments by the related corporate guarantor could not be adjusted against defendant no. 1’s liability.

The audit confirmation was not treated as an admission because the accompanying statement of differences was unavailable and the document did not unequivocally establish the suit claim.

The Court further found that the loan agreements appeared insufficiently stamped under Article 5(h)(A)(iv) of Schedule I to the Maharashtra Stamp Act and therefore directed their impounding.

Nevertheless, since the loan amounts had admittedly been disbursed and utilised, the plaintiff’s interest required protection.

Upon compliance, defendant no. 1 was permitted to file its written statement within 30 days.

The plaintiff was directed to produce the original loan agreements dated 30 June 2015 and 27 September 2017 for impounding; the documents were to be forwarded to the Collector of Stamps for adjudication, and the plaintiff was directed to pay any adjudicated stamp duty and penalty.

The matter was directed to be listed for further directions on 5 January 2027.