Grant of Leave to Defend may be granted where the question is relating to Applicability of Order 37 #indianlaws

Where the applicability of Order 37 itself is in question, grant of leave to defend may be permissible. The Court before passing a decree is entitled to take into consideration the consequences therefor. The Courts dealing with summary trials should act very carefully taking note of the interests of both the parties. Merely on the ground that the defendant may resort to prolonged litigation by putting forth untenable and frivolous defences, grant of leave to defend cannot be declined.

Supreme Court in the instant matter dealt with the issue of maintainability of suit under Order 37 of the Code of Civil Procedure (CPC) and also circumstances when leave to defend should not be denied to Defendant.

Respondent is a Singapore based banking institution, which on behalf of its constituent ‘X’ carried on business dealings with the Appellant. ‘X’ is engaged in export business and it shipped a consignment to its Indian clients while handing over sets of certain relevant documents to the Respondent for collecting the payment from its Indian clients. The Respondent, in turn, forwarded those documents to the Appellant on the condition of releasing them to the Indian clients of its constituent against payment. Appellant apparently did not receive payment from the clients and hence did not release the documents to them.

The Respondent sent a fax message to the Appellant enquiring whether they would accept Bills of Exchange (Drafts) payable after 170 days, to which the Appellant Bank conveyed its acceptance. Accordingly, the Respondent sent four Bills of Exchange in favour of the Appellant Bank. Thereafter, again Respondent sent another set of documents together with Bills of Exchange to the Appellant Bank for collection from the Indian clients of constituent of the Respondent. The collection tenor was specified as 170 days after the date of Draft (Bill of Exchange). The Respondent by a Telex message instructed the Appellant Bank to deposit the payment against Bills of Exchange with their Correspondent Bank. When the appellant Bank did not remit the amount even after the expiry of due date, Respondent again asked Appellant to remit the proceeds along with interest for the late payment. Appellant replied by denying its liability on the ground that the manner and mode in which the transactions took place, was not in ordinary course of business and the acceptance given by its one branch appears to be in total disregard to the prevailing procedure in Banks and also that the matter accordingly has been entrusted to the Central Bureau of Investigation (CBI). This was followed by various correspondences exchanged between the parties. Trial Court fixed the liability on the Appellant and made absolute the summons for judgment alongwith interest. Appeal against the same was also dismissed.

It was contended on behalf of the Appellant that courts below erred by not granting an opportunity to the Appellant Bank to defend its case and file written statement in such a case where a huge amount was involved. It was further contended that there was no valid legal reason to institute the Suit under Order 37, CPC as the same does not qualify the test of Order 37 1(ii)(b)(i) since there was no specific averment with respect to a “written contract” and the averment so pleaded by the Respondent is with respect to “an agreement”. There was no consideration to the Appellant Bank and merely the telex/fax messages does not constitute a written contract between the parties. The instruments in question (Bills of Exchange) also did not bear the “acceptance” on behalf of the appellant Bank. The provisions of Negotiable Instruments Act mandate that the “acceptance” shall be given by the drawee/ acceptor by signing his assent on the face of the Bill of Exchange. However, in the present case, no such endorsement of acceptance was present on behalf of the Appellant Bank, nor any document was appended giving acceptance. In such a situation, the enforcement was stated to be in clear violation of public policy envisaged under Section 23 of the Contract Act.

It was observed in the affidavit filed by the Appellant Bank seeking leave to defend, after receiving Summons for Judgment it was categorically mentioned that the Suit in question was not maintainable to be a Summary Suit as per law. It was stated that the Respondent after filing the suit had preferred the Summons for Judgment, and thereafter withdrew the said summons for judgment with liberty. Thereafter Respondent had failed in taking out the proceedings for amendment of the said summary suit and then took out the Chamber Summons praying for the various amendments to the summary suit. Thus, the said Chamber Summons were taken out after a lapse of four years, when the Respondent had preferred the summons for judgment in the suit. The above conduct of the Respondent showed failure and negligence in prosecuting his rights under the said suit and there was a deliberate delay on his part in taking out the chamber summons for the amendment of the said plaint.

Further, the drawee had admittedly not affixed his signature, showing the co-acceptance of the Bills, on the Bills. Hence the alleged acceptance of the Bills of Exchange by the Appellant as well as the drawee was not proper and the said Bills of Exchange could not be said to be duly accepted by the Appellant as well as the drawee. Accordingly, by way of its affidavit, Appellant had taken the plea that the contract between the parties was not a concluded contract and the Suit in question was barred by limitation.

The Court made a reference to the decision in Sm. Kiranmoyee Dassi vs. Dr. J. Chatterjee (AIR 1949 Cal 479) which settled the law in respect of granting of leave to defend as under:

1. 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 the judgment and the defendant is entitled to unconditional leave to defend.
2. If the defendant raised 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.
3. 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 made it clear that he has a defence, yet, shows such a stage of facts as leads to the inference that at the trial of the action he 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 may in its discretion impose conditions as to the time or mode of trial but not as to payment into court or furnishing security.
4. 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.
5. 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.

Thus, in cases where the defendant has raised a triable issue or a reasonable defence, the defendant is entitled to unconditional leave to defend. Leave is granted to defend even in cases where the defendant upon disclosing a fact, though lacks the defence but makes a positive impression that at the trial the defence would be established to the plaintiff’s claim. Only in the cases where the defence set up is illusory or sham or practically moonshine, the plaintiff is entitled to leave to sign judgment.

With regard to maintainability of the Suit under Order 37, CPC is concerned, where the applicability of Order 37 itself is in question, grant of leave to defend may be permissible. The Court before passing a decree is entitled to take into consideration the consequences therefor. The Courts dealing with summary trials should act very carefully taking note of the interests of both the parties. Merely on the ground that the defendant may resort to prolonged litigation by putting forth untenable and frivolous defences, grant of leave to defend cannot be declined.

At the same time, the Court must ensure that the defendant raises a real issue and not a sham one. The Court cannot reject the defence on the ground of implausibility or inconsistency. Before recording a finding of granting leave to defend, the Court should assess the facts and come to the conclusion that if the facts alleged by the defendant in the affidavit are established, there would be a good or even a plausible defence on those facts.

Leave to defend shall always be granted to the defendant when there is a triable issue as to the meaning or correctness of the documents on which the claim is based or the alleged facts are of such nature which entitle the defendant to interrogate or cross-examine the plaintiff or his witnesses.

In the case on hand, there were certain triable issues for adjudication and the Appellant was entitled to defend the Suit and accordingly the Appellant was entitled to grant of unconditional leave to defend the Suit. The other issues were accordingly not touched upon by the Court and the appeal was allowed.

State Bank of Hyderabad vs. RABO Bank

SC, 01.10.2015

Civil Appeal No. 8194 of 2015