The main legal point established in the judgment is the requirement for a bona fide defense and fair issue to be tried by a competent tribunal before granting unconditional leave to defend.

Madhavan Nair, Officiating, C.J.

1. This is an appeal against the order of Gentle, J., confirming the order of the Master giving the appellant (defendant in C.S. No. 167 of 1937) leave to defend on his furnishing security for a sum of Rs. 25,000 within a period of two months from the date of his order. The security has not been furnished. The appellant contends that leave to defend the suit should have been given to him unconditionally.

2. The circumstances are these. The respondent (plaintiff) is the South India Industrials, Ltd. The suit has been filed by; its Managing Director. The appellant is another Managing Director. The claim against the appellant is for a sum of Rs. 2,83,878-6-11 - the amount overdrawn by him from the company previous to the year 1928. There is no contest regarding this amount owing by the appellant to the company. In defence, the appellant raised various contentions, the most important of which is that the suit has not been filed with proper authority, inasmuch as the plaint purports to be signed by the Managing Director. His case on this point is that there is nothing to show that he has been properly authorised to file the suit on behalf of the company. So far as the merits of the claim are concerned, the defence are two fold. The appellant seeks to set-off against the amount claimed a considerable sum of money - we are told that it would amount to a little over a lakh of rupees - owing to him by the company in respect of unpaid bonus declared some years ago. He claims also to setoff another amount, namely, the amount which he as a shareholder might receive upon the winding up of the company. The third point raised is that the suit is barred by limitation.

3. On behalf of the company it is alleged that the proceedings of the Board of Directors will show that the Managing Director who has signed the plaint is authorised to institute suits on behalf of the company, that there is no substance in the two claims to set-off made by the appellant, for he has waived his right to claim the bonus, and that a shareholder cannot claim to set-off what he might eventually receive on a winding up of the company against the amount which he owes to the company. It is also urged by the respondent that the plea that the suit it barred by limitation cannot stand having regard to the letter written by the appellant acknowledging his liability to pay the amount claimed.

4. Both the Master and the learned Judge were not impressed with the defences raised, but as they did not desire to shut out altogether an opportunity for defending the suit the appellant was given permission to defend it provided he furnished security for the sum of Rs. 25,000. As already stated it is urged before us that in the circumstances of the case the Court is bound to grant the appellant permission to defend unconditionally.

5. Order 7, Rule 7(2) of the Original Side Rules says that:

Leave to appear and defend may be given unconditionally, or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Master thinks fit....

6. Order 14, Rule 6 of the Rules of the Supreme Court says:

Leave to defend maybe given unconditionally, or subject to such terms as to giving security or time or mode of trial or otherwise as the Judge may think fit.

7. According to both the rules the Court has discretion to decide whether leave to defend should be given unconditionally or subject to terms. The important English decisions bearing on the question are referred to in the note to Order 14, Rule 6, in the Annual Practice. According to these decisions it may be stated that:

As a general rule where a defendant shows that he has a fair case for defence, or reasonable grounds for setting up a defence or even a fair probability that he has a bona fide defence, he ought to have leave to defend. See Saw v. Hakin (1888) 5 T.L.R. 72 and other cases referred to in the note.

8. In Jacobs v. Booths Distillery Co. (1901) 85 L.