Leave to defend must be granted where the defendant raises substantial grounds and triable issues.

The Plaintiff/Respondent filed a summary suit under Order XXXVII of the CPC for recovery of ₹27,50,000/- based on a dishonored cheque

The Respondent, a former Director of the Appellant company, claimed the amount was due towards her unpaid salary (₹50,000/month) and 50% profit share from the Mumbai division as per a Memorandum of Understanding (MOU)

The Appellant filed an application for Leave to Defend, asserting that the MOU was an unsigned draft and that the impugned cheque was one of several blank, signed cheques issued to the Respondent specifically for meeting petty office expenses and staff wages, not for discharging a debt

The Appellant provided evidence that other cheques in the same series were used for staff salaries

The learned District Judge dismissed the Leave to Defend application and decreed the suit, relying on the presumption under Section 139 of the Negotiable Instruments Act

The Appellant challenged this decree before the High Court.

1. Whether the Appellant/Defendant raised a substantial defense or triable issues warranting the grant of Leave to Defend under Order XXXVII Rule 3 of the CPC

2. Whether the lack of a signed MOU and the disputed nature of the salary and profit-sharing arrangement constitute a moonshine defense

3. Whether the alleged misuse of blank cheques issued for office contingencies constitutes a valid ground for trial

The court applied Order XXXVII Rule 3 of the CPC, which governs the summary procedure and the conditions under which Leave to Defend may be granted or refused

It relied on the principles established in IDBI Trusteeship Services Limited v. Hubtown Limited (2017) and Sunil Enterprises M/s v. SBI Commercial & International Bank Ltd. (1998), which dictate that if the defendant shows a "good defense" or raises "triable issues," they are entitled to unconditional leave to defend

The court also considered the statutory presumption under Section 139 of the Negotiable Instruments Act regarding the discharge of liability via cheque, while noting that such a presumption is rebuttable through evidence in a trial

The High Court found that the District Judge erred by treating the Respondent’s claims as "gospel truth" despite significant factual disputes

First, the court noted that the MOU was admittedly unsigned and the terms regarding the ₹50,000 salary were not supported by documentary evidence or company resolutions

Second, the Appellant provided a detailed chart showing that cheques sequentially adjacent to the impugned cheque (No. 160430) were utilized for staff wages, supporting the defense that the cheque was intended for contingencies rather than personal liability

Third, the court highlighted discrepancies in the Respondent’s own stance, noting she referred to three cheques in a prior police complaint but based the suit on a single cheque

Fourth, the court observed that the actual profit figures (₹55 Lakhs vs. ₹25 Lakhs) were heavily contested

The court reasoned that these contradictions and the specific defense regarding the purpose of the cheques constituted "substantial grounds" that could only be resolved through a full trial

The Court held that the Appellant had raised triable issues and was entitled to Leave to Defend the suit

The parties were directed to appear before the District Judge on 06.05.2026 to proceed with the trial in accordance with the law

All pending applications were disposed of accordingly