Conditional leave to defend may require security where the court doubts the defence’s bona fides.

The respondent-plaintiff brought a summary suit under Order XXXVII CPC, relying on a written acknowledgment dated 21 March 2009 for a short-term loan of Rs.97,73,400, allegedly advanced by cheque, with interest at 16% per annum.

The petitioner-defendant sought leave to defend, contending that the payment was consideration for services rendered in producing films, not a loan.

The Trial Court found a substantial and bona fide defence but granted leave subject to the petitioner furnishing security for the amount that might ultimately be decreed.

The petitioner challenged that condition under Article 227 of the Constitution, relying in part on observations in an earlier revision proceeding that the suit had substantially progressed and the purpose of the summary procedure had been frustrated.

1. Whether the Trial Court erred in making leave to defend conditional on furnishing security for the amount that might be decreed, despite finding a substantial and bona fide defence.

2. Whether observations in the earlier revision proceeding concerning the progress of the suit and the purpose of Order XXXVII affected the validity of the security condition.

Order XXXVII Rules 3(5) and 3(6)(b) CPC govern leave to defend in summary suits.

Applying the principles in Mechalec Engineers & Manufacturers v. Basic Equipment Corporation, IDBI Trusteeship Services Ltd. v. Hubtown Ltd., and B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corporation, the Court stated that a substantial defence or fair, bona fide triable issue ordinarily entitles the defendant to unconditional leave; however, where the court has reason to doubt the genuineness of the defence or the defendant’s good faith, it may impose appropriate conditions, including furnishing security.

The Court also noted that the amended proviso to Rule 3(5) requires deposit of any admitted amount as a condition of leave.

The Court considered the defendant’s asserted alternative explanation for the payment against the plaintiff’s written acknowledgment of debt and evidence that the sum had been advanced by cheque.

It held that, where those materials left doubt about the genuineness or good faith of the defence, the Trial Court could require security under Order XXXVII Rule 3(5).

The earlier revision concerned rejection of the plaint under Order VII Rule 11; its observations about the suit’s progress did not determine the separate question whether security could be imposed as a condition of leave to defend.

It held that the observations in the earlier revision did not require the security condition to be set aside and dismissed the writ petition.