1. Suit under Order XXXVII of the Code of Civil Procedure based on a dishonoured cheque — Application for leave to defend. (Para 1 , 2 )
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1958 Supreme(SC) 4
SUPREME COURT OF INDIA
S.R.Das, C.J.I., A.K.Sarkar, T.L.Venkatarama Ayyar : Vivian Bose, JJ.
Santosh Kumar
Versus
Bhai Mool Singh
Case No. : 96 of 1957
Date of Decision : 2/5/58
Advocates:
A.V.VISHWANATHA SASTRI, BAKSHI GURCHARAN SINGH, NAUNIT LAL, SARDAR BAHADUR SAHARYA
A.V.VISHWANATHA SASTRI, BAKSHI GURCHARAN SINGH, NAUNIT LAL, SARDAR BAHADUR SAHARYA
In summary suits, if a defendant raises a triable issue via affidavit, leave to defend should be granted. The court cannot impose conditions or deem the defense non-bona fide simply because documentary evidence was not produced at the leave stage, as proof follows the grant of leave.
Headnote:(A) Code of Civil Procedure, 1908 - Order XXXVII, Rules 2(2), 3(1) and 3(2) - Summary Suits - Leave to defend - Discretion of the court - The discretion conferred upon the court to grant leave to defend must be exercised along judicial lines and in consonance with the principles of natural justice. While the court has the power to grant leave unconditionally or subject to terms, such discretion must not be exercised arbitrarily. (Paras 6 and 7)
(B) Triable Issue - Test for granting leave - The object of the special procedure in summary suits is to prevent defendants from unnecessarily prolonging litigation by raising untenable and frivolous defenses. The primary test is whether the defense raises a real and plausible issue rather than a sham one; if the facts alleged by the defendant, if established, would provide a good or plausible defense, leave must be granted. (Paras 8 and 10)
(C) Stage of Proof vs. Stage of Leave - The court's role at the stage of applying for leave is to determine whether the facts alleged in the affidavit, if duly proved, would afford a plausible answer to the claim. The stage of proof and production of documents comes only after the defendant has been allowed to enter an appearance and defend the suit. Leave cannot be withheld or made conditional simply because the evidence by which the defense is to be proved was not brought on file at the time the defense was put in. (Paras 11 and 12)
(D) Conditional Leave - The power to impose conditions under Rule 3(2) is intended to ensure a speedy trial and prevent the evasion of the same. This conclusion cannot be reached solely because a defendant does not adduce evidence before being granted leave to defend the action. (Para 13)
Facts of the case:
A suit was instituted based on a dishonoured cheque. The defendants applied for leave to defend, asserting that the cheque was given as collateral security and that the underlying debt had been discharged through other payments. The trial court held that the defense raised a triable issue but concluded that the defense was not bona fide because the defendants had not produced supporting documents at the leave stage. Consequently, the trial court granted leave to defend conditional upon the defendants providing security for the suit amount and costs.
Findings of Court:
The trial court erred in concluding that the defense was not bona fide simply because the defendants did not produce documentary evidence at the leave stage. The court failed to distinguish between the stage of determining the nature of the defense and the stage of proof.
Issues: Whether the court can impose conditions for granting leave to defend a summary suit on the ground that the defendant failed to produce documentary evidence at the leave stage, despite the court finding that a triable issue was raised.
Ratio Decidendi: In summary suits, the court must only determine if the facts alleged in the affidavit would, if proved, constitute a plausible defense. Once a triable issue is established, leave cannot be made conditional based on the absence of evidence at that preliminary stage, as the production of evidence is part of the normal procedure that follows the grant of leave.
Result: Appeal allowed.
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2. Whether the court's discretion under Order XXXVII, Rule 3(2) to impose conditions for leave to defend is unfettered or subject to judicial principles. (Para 6 )
3. Discretion to grant leave to defend must be exercised judicially and in consonance with natural justice, ensuring defendants are not precluded from participating without cause. (Para 7 , 10 , 14 )
4. Leave to defend must be granted if a triable issue is raised; proof of the defence is only required after leave is granted. (Para 8 , 12 )
5. Appeal allowed — Orders of the High Court and trial judge set aside — Case remanded for trial. (Para 15 )
6. When must leave to defend be granted under Order XXXVII of the CPC?
Leave must be granted when the defendant's affidavit discloses facts that would make it incumbent on the holder to prove consideration or other facts that raise a triable, real, and plausible issue. (Para 6 , 8 , 10 )
7. At what stage must a defendant produce evidence to prove their defence in a summary suit?
The stage of proof occurs only after the defendant has been granted leave to appear and defend the suit. At the leave stage, the court only determines if the alleged facts, if proved, would constitute a plausible defence. (Para 11 , 12 )
8. Under what circumstances can a court impose conditions when granting leave to defend?
Conditions may be imposed to ensure a speedy trial and prevent the defendant from unnecessarily prolonging litigation through untenable or frivolous defences, but not simply because evidence was not produced at the leave stage. (Para 10 , 13 )
9. How should courts exercise discretion regarding the grant of leave to defend?
Discretion must be exercised along judicial lines and in consonance with principles of natural justice, avoiding arbitrary conclusions about the bona fides of a defence. (Para 7 , 9 , 14 )
V.BOSE, J.
(1) THE defendants, Santosh Kumar and the Northern General Agencies, were granted special leave to appeal. The plaintiff filed the suit out of which the appeal arises on the basis of a cheque for Rs. 60,000.00 drawn by the defendants in favour of the plaintiff and which, on presentation to the Bank, was dishonoured.
(2) THE suit was filed in the court of the Commercial Subordinate Judge, Delhi, under 0. XXXVII of the Code of Civil Procedure.
(3) THE defendants applied for leave to defend the suit under r. 3 of that Order.
(4) THE learned trial Judge held that ` the defence raised by the defendants raises a triable issue,` but he went on to hold that the defendants ` have not placed anything on the file to show that the defence was a bona fide one.` Accordingly, he permitted the defendants to appear and defend the suit on the condition of their giving security to the extent of the suit amount and the costs of the suit.`
(5) THE defendants applied for a review but failed. They then applied under Art. 227 of the Constitution to the Delhi Circuit bench of the Punjab High court and failed again. As a result, they applied here under Art. 136 and were granted special leave.
(6) AT first blush, 0. XXXVII, r. 2(2), appears drastically to curtail a litigants normal rights in a court of justice, namely to appear and defend himself as of right, if and when sued, because it says that when a suit is instituted on a bill of exchange, hundi or a promissory note under the provisions of sub-rule (1) `..... the defendant shall not appear or defend the suit unless he obtains leave from a judge as hereinafter provided so to appear and defend.` But the rigour of that is softened by r. 3(1) which makes it obligatory on the court to grant leave when the conditions set out there are fulfilled. Clause (1) runs- ` The court shall, upon application by the defendant, give leave to appear and to defend the suit, upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the court may deem sufficient to support the application.` But no sooner is the wide discretion given to the court in r. 2(2) narrowed down by r. 3(1) than it is again enlarged in another direction by r. 3(2) which says that ` Leave to 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 court thinks fit.` The learned counsel for the plaintiff argues that the discretion so conferred by r. 3(2) is unfettered and that as the discretion has been exercised by the learned trial Judge, no appeal can lie against it unless there is a ` grave miscarriage of justice or flagrant violation of law` and he quotes D. N. Banerji v. P.R. Mukherjee (1) and Waryam Singh v. Amarnath (2).
(7) NOW what we are examining here are laws of procedure. The spirit in which questions about procedure are to be approached and the manner in which rules relating to them are to be interpreted are laid down in Sangrayn Singh v. Election tribunal, Kotah, Bhurey Lal Baya (1). ` Now a code of procedure must be regarded as such. It is procedure, something designed to facilitate justice and further its ends; not a penal enactment for punishment and penalties; not a, thing designed to trip people up. Too technical a construction of S. that leaves no room for reasonable elasticity of interpretation should therefore be guarded against (provided always that justice is done to both sides) lest the very means designed for the furtherance of justice be used to frustrate it. Next, there must be ever present to the mind the fact that our laws of procedure are grounded on a principle of natural justice which requires that men should not be condemned unheard, that decisions should not be reached behind their backs, that proceedings that affect their lives and property should not continue in their absence and that
