The main legal point established in the judgment is that a properly constituted leave to defend application free of defects is expected to be filed within the time prescribed under the CPC, and a defense must offer a plausible explanation supported by credible evidence.

IA No. 468 of 2013 [u/O XXXVII Rule 3 (5) CPC]

1. This is an application by the Defendants under Order XXXVII Rule 3(5) CPC seeking leave to defend the aforementioned suit filed by Mr. Ravi Sharma for recovery of a sum of Rs. 7,72,09,219 together with pendente lite and future interest at 36% per annum as agreed between the parties.

2. The case of the Plaintiff is that one Mr. Alok Gupta approached the Plaintiff in January 2009 along with one Mr. Jogesh Jerath (Defendant No. 2), Mrs. Anu Jerath (Defendant No. 3) and Mr. Ishwar Rohal (Defendant No. 4) requesting him to invest, along with Defendants 2 to 4, in a Shimla project of Shubh Marketing Pvt. Ltd (Defendant No. 1) comprising of residential apartments and a commercial complex which was to come up on 4 bigha (3840 sq. mts.) of land located in Village Badai, Tehsil & District Shimla. In May 2009, Defendants 2 to 4 informed the Plaintiff that they had since purchased the said land and were in need of funds for construction. The case of the Plaintiff is that upon the aforementioned request, the Plaintiff, on behalf of the Astute Real Estate Private Limited (AREPL), in which the Plaintiff is a Director and shareholder, agreed to invest in the said project.

3. The Plaintiff states that he advanced a sum of Rs. 4.90 crores to the Defendants which was secured by a loan agreement (‘agreement’) dated 28th January 2010 entered into with Defendant No. 1, through its Directors Defendants 2 and 3, and Defendant No. 4 as the borrowers. Article I of the said agreement provided that the rate of interest would be floating at 36% per annum computable on the basis of 365 days in a year. As security for the loan advanced, a mortgage by deposit of title deeds as described in Article 5 of Schedule I of the agreement was created in favour of the Plaintiff. Personal guarantees of Defendants 2 and 4 jointly and severally were given. Further post-dated cheques were issued in favour of the Plaintiff. The schedule of repayment was set out in Clause 6 of Schedule I of the Agreement. An indenture of the mortgage and a deed of guarantee by Defendants 2 to 4 was also executed on 28th January 2010. Post-dated cheques dated 29th January 2010 for an aggregate of Rs. 4.90 crores were issued from the account of the Plaintiff in favour of the Defendants. It is stated that the Defendants 2 and 3 as Directors of Defendant No. 1 issued four post-dated cheques dated 15th February 2010 , 15th March 2010, 15th May 2010 and 16th May 2010 for an aggregate sum of Rs. 5,22,73,264.

4. The Plaintiff states that while the first cheque dated 15th February 2010 for Rs. 61,06,251 was encashed, the second cheque dated 15th March 2010 for Rs. 2,09,07,397 when presented for payment, was dishonoured. The Plaintiff states that by a letter dated 1st June 2010, the Defendant No. 2 regretted the dishonour of the said cheque and assured that further cheques dated 10th June 2010 and 30th June 2010 amounting to Rs. 1 crore each, which were being issued, would be honoured. On 30th June 2010, the Defendants 2 and 4 once again requested the Plaintiff for extension of time for repayment till 15th October 2010 and issued one more cheque dated 15th October 2010 for Rs. 1,21,50,957. According to the Plaintiff, Defendants 1 to 4 had, till 15th October 2010 acknowledged that they owed the Plaintiff a sum of Rs. 5,74,10,573.

5. When the Plaintiff presented the five cheques for encashment on 20th October 2010, the said cheques were dishonoured. By a letter dated 28th October 2010, Defendants 2 to 4 expressed regret and acknowledged their liability to pay Rs. 5,74,10,573 and requested extension of time for repayment till 31st January 2011. Accordingly, a post-dated cheque dated 31st January 2011 for Rs. 5,74,10,573 and another post-dated cheque for Rs. 60,28,110 were issued in favour of the Plaintiff. When the Plaintiff presented both cheques for encashment, they were dishonoured on 29th April 2011. The Plaintiff then sent a legal notice dat