Supreme Court: While clarifying the law on leave to defend, the Division Bench of Vineet Saran and Dinesh Maheshwari*, JJ., held that even if there remains a reasonable doubt about the probability of defence, sterner or higher conditions could be imposed while granting leave to defend but, denying the leave would be ordinarily countenanced only in such cases where the defendant fails to show any genuine triable issue and the Court finds the defence to be frivolous or vexatious.
The plaintiff-respondent 1 filed the subject suit in terms of Order XXXVII of the CPC while stating itself to be a registered partnership firm manufacturing and supplying a wide variety of iron and steel products. The plaintiff contended that the defendant 1 represented itself as a real estate and infrastructure development firm while the defendant 2 represented itself as a contractor working with the defendant 1 for the construction work of its project namely ‘MIST’. The defendant 1 issued two cheques drawn on Axis Bank for a sum of Rs.14,72,269 and Rs. 13,34,319 while asking the plaintiff to present the cheques only after receiving intimation but no such intimation was received. Later on, the plaintiff issued a legal notice dated 28-01-2016 to the defendants demanding the dues and, upon their failure to make the requisite payment, filed the summary suit under Order XXXVII CPC.
Joint and Several Liability or a Blame Game?
The defendant 1 sought leave to defend with the contentions that it had no privity of contract and the purchase orders were issued only by the defendant 2; that the invoices in question were raised in the name of the defendant 2; that neither the purchase orders nor the invoices were bearing the signatures of the defendant 1; and that all the dealings were between plaintiff and defendant 2. On the contrary, the appellant-defendant 2 moved a separate application seeking leave to defend on the ground that the purchase orders were issued by him only on behalf of the defendant 1; and that the material supplied by the plaintiff was for the construction of project undertaken by defendant 1, who was the beneficiary of the said project.
Findings of the Courts below
The Trial Court held that no triable issues were raised by the defendants and declined their applications seeking leave to defend. Consequently, the suit was decreed in favour of the plaintiff for a sum of Rs. 89,50,244/- together with interest at the rate of 10% per annum with joint and several liability of the defendants to pay the decreetal amount.
The High Court held that the defendants were not entitled to leave to defend because the defences raised by them did not give rise to genuine triable issues; and the defences were frivolous and vexatious, raised only in order to deny the just dues of the seller of goods. Noticeably, the High Court made the following observations:
- Though the cheques were issued by defendant 1, yet a suit would lie against defendant 2 as there was no such requirement in Order XXXVII CPC that the cheques which are issued for payments ought to be of the person against whom the liability is claimed. The High Court further observed that as per Section 2 (d) of Contract Act, 1872 consideration under a contract need not flow/pass only between the parties to a contract.
- The High Court also observed that even if the cheques were not presented, the suit would be maintainable under Order XXXVII CPC because there was no such requirement that the cheque ought to be dishonored for filing a summary suit.
Maintainability of the Summary Suit
Considering the factual background of the case, the Bench held that the contention against maintainability of the summary suit in terms of Order XXXVII CPC could not be accepted as the matter was based on written contract arising out of written purchase orders. The question as to whether the appellant was acting only as an agent of defendant 1 in relation to the supplies could only be a matter of his defence and could not take away the entitlement of the plaintiff to file a summary suit.
Law on Leave to Defend
The Bench opined that while dealing with an application seeking leave to defend, it would not be a correct approach to proceed as if denying the leave is the rule or that the leave to defend is to be granted only in exceptional cases or only in cases where the defence would appear to be a meritorious one. Precisely, the Bench framed the following rules:
- If the defendant satisfies the Court that he has substantial defence, i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend.
- Where the defendant raises triable issues indicating a fair or bonafide defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend.
- Where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the Trial Court may impose conditions both as to time or mode of trial as well as payment into the Court or furnishing security to balance the requirements of expeditious disposal of commercial causes and of not shutting out triable issues.
- Where the proposed defence appear to be plausible but improbable, heightened conditions may be imposed as to the time or mode of trial as also of payment into the Court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.
- In the case where any part of the amount claimed by the plaintiff is admitted by the defendant, leave to defend is not to be granted unless the amount so admitted is deposited by the defendant in the Court.
In the backdrop of above, the Bench concluded the following:
- The Trial Court as also the High Court totally omitted to consider that the appellant-defendant 2 had been contesting its liability with the assertion that it had only been the contractor executing the work of defendant 1.
- The conclusion that the defence raised by the appellant was frivolous or vexatious could only be treated as an assumptive one and lacking in requisite foundation.
- The effect and impact of an admitted position of the plaintiff, that payments were indeed made from time to time by the defendant 1, seems not to have gone into consideration of the Trial Court and the High Court while denying leave to the appellant.
- The same considerations, which weighed with the Courts to deny the leave to defend to the defendant 1, could not have been applied ipso facto to the case of the appellant; rather those considerations make out a case of triable issues qua the appellant.
- The view that the appellant has indeed raised triable issues, particularly concerning its liability and the defence of the appellant could not be said to be frivolous or vexatious altogether.
Accordingly, the appeal was allowed and the impugned judgments and orders of the High Court as well as of the Trial Court, insofar relating to the appellant were quashed and set. The appellant was granted leave to defend; and the amount of Rs. 40,00,000/- deposited by the appellant was directed to be treated as a deposit towards the condition for leave to defend. The Trial Court was directed to pass appropriate orders for treatment of the said amount and then proceed with trial of the suit only qua the appellant-defendant 2 in accordance with law.
[B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corpn., C.A. No. 379 of 2022,
*Judgment by: Justice Dinesh Maheshwari
Advocate for the Appellant: Apoorva Bhumesh
Kamini Sharma, Editorial Assistant has put this report together