SECTION 138-NI Act- PROVING FINANCIAL CAPACITY MANDATORY OR NOT?

 

SEction 138-NI Act- PROVING financial capacity MANDATORY OR NOT?

 

In order to accord credence to cheque transaction, the legislature has enacted the provisions of 138-148 of Negotiable Instruments Act. Ever since, the provision has become part of the statute book in 1988 i.e Negotiable Instruments Act 1881, the aforesaid provisions have undergone periodical changes with a view to cater to the situation emerging and therefore provisions were accordingly provided for so as to aid and facilitate the commercial transactions and all other transactions with provisions which may act as deterrent. The process of trial and its intricacies as evolved has also been settled by way of judicial precedents as settled by the Supreme Court. The process, as we all know has its dynamics and evolution of the process is an ongoing process, The complaint u/s 138 of Negotiable Instruments Act was originally conceived as entailing summary procedure, however, when subsequently, the terms of imprisonment of two years was prescribed for the offence u/s 138 of Negotiable Instruments Act and therefore, the summary process gave rise to summon procedure i.e summon cases and hence, after recording pre-summoning evidence, upon appearance of accused and after framing of notice and based on the probable defence shown while framing of notice, the case could be treated as summon case and therefore, the complainant evidence post summoning and cross examination of complainant is also envisaged. The trial in such complaints is conducted as per Code of Criminal Procedure and Bhartiya Nyay Suraksha Sanhita(BNSS)2023 in case of complaints filed after 01.07.2024.

The process of trial entails examination and cross examination of complainant, statement of accused u/s 313 of Cr.PC and defence witnesses if the accused opted to lead. Since, the initial pr4esumtion of debt is presumed in favour of the complainant i.e holder of the cheque/payee and thus, the accused is req2uired to rebut the complaint set out by the complainant, during cross examination and only, if accused is able to rebut the initial presumption existing in favour of the complainant that the onus shall shift on the complainant to revert on the rebuttal and therefore process of cross examination is of utmost importance in the cases of complaints u/s 138 of Negotiable Instruments Act.

Naturally, during cross examination of complainant, the questions are put to the complainant witness as to elicit the defence and the web of questions akin to rigmarole is put to complainant witness. The issue of financial capacity is often raised on behalf of the accused to buttress the point of no consideration and it is done on the premise that assuming that in case of loan or friendly loan, the amount could be lent only, if the accused was financially capable of lending money, more so, in case of part of transactions being in cash. Thus, if financial capacity was not disclosed by way of cogent evidence, the balance used to tilt in favour of accused, However, that is no more a situation. As narrated, though, earlier, the capacity of the complainant in lending money to the accused was found relevant by the Courts, but subsequently, the financial capacity of the complainant for lending money in itself is not construed as clinching.

To further deliberate on the aspect, if the cheque was issued in discharge of loan availed by the accused, presumption under Section 118 read with Section 139 of the Act would operate in the complainant’s favour. The burden of proof lies on the accused and he has to raise a probable defence. In the absence of any evidence, a mere oral statement that there did not exist any debt would not be sufficient to rebut the presumption, especially when the signature on the cheque has been admitted by the accused in his evidence.

The Supreme Court has recently adverted to the issue conclusively in a matter reported as 2025 INSC 427 captioned as Ashok Kumar Singh Vs State of Uttar Pradesh (Criminal Appeal No. 4171 of 2024.

                                LAW

The relevant case laws in this regard are as under:              1. 1. Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197;

2. Rajesh Jain v. Ajay Singh, (2023) 10 SCC 148;

3. Kishan Rao v. Shankargouda, (2018) 8 SCC 165,

4. Uttam Ram v. Devinder Singh Hudan, (2019) 10 SCC 287

5. Dattatraya v. Sharanappa, 2024 SCC OnLine SC 1899

 

In Ashok Singh (Supra) the Supreme Court has observed as under:

“15. There can be no dispute that in matters relating to alleged offences under Section 138 of the Act, the complainant has only to establish that the cheque was genuine, presented within time and upon it being dishonoured, due notice was sent within 30 days of such dishonour, to which re-payment must be received within 15 days, failing which a complaint can be preferred by the complainant within one month as contemplated under Section 142 (1)(b) of the Act.

16. On the other hand, the foremost defence available to the accused is to deny the very liability to pay the amount for which the cheque was issued on the ground that it was not a ‘legally enforceable debt’ under the Act.”

According to Supreme Court in deciding a criminal revision application under Section 482 CrPC for quashing a proceeding under Sections 138/141 of the NI Act, the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of the said sections has to be borne in mind. It is also to be noted that the provisions of Sections 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act.

In Ashok Singh (Supra) it is held by the Supreme Court as under:

21. One of the grounds, which weighed heavily with the High Court to acquit the respondent no.2 was that the appellant was unable to prove the source of Rs.22,00,000/- (Rupees Twenty-Two Lakhs) given to the respondent no.2 as loan. Admittedly, the signature on the cheque is of the respondent no.2 himself. The decision in Rohitbhai Jivanlal Patel v. State of Gujarat, (2019) 18 SCC 106 can be profitably referred to:

‘18. In the case at hand, even after purportedly drawing the presumption under Section 139 of the NI Act, the trial court proceeded to question the want of evidence on the part of the complainant as regards the source of funds for advancing loan to the accused and want of examination of relevant witnesses who allegedly extended him money for advancing it to the accused. This approach of the trial court had been at variance with the principles of presumption in law. After such presumption, the onus shifted to the accused and unless the accused had discharged the onus by bringing on record such facts and circumstances as to show the preponderance of probabilities tilting in his favour, any doubt on the complainant's case could not have been raised for want of evidence regarding the source of funds for advancing loan to the appellant accused. The aspect relevant for consideration had been as to whether the appellant-accused has brought on record such facts/material/circumstances which could be of a reasonably probable defence”.

“20. Hereinabove, we have examined in detail the findings of the trial court and those of the High Court and have no hesitation in concluding that the present one was clearly a case where the decision of the trial court suffered from perversity and fundamental error of approach; and the High Court was justified in reversing the judgment of the trial court. The observations of the trial court that there was no documentary evidence to show the source of funds with the respondent to advance the loan, or that the respondent did not record the transaction in the form of receipt of even kachcha notes, or that there were inconsistencies in the statement of the complainant and his witness, or that the witness of the complaint was more in the know of facts, etc. would have been relevant if the matter was to be examined with reference to the onus on the complaint to prove his case beyond reasonable doubt. These considerations and observations do not stand in conformity with the presumption existing in favour of the complainant by virtue of Sections 118 and 139 of the NI Act. Needless to reiterate that the result of such presumption is that existence of a legally enforceable debt is to be presumed in favour of the complainant. When such a presumption is drawn, the factors relating to the want of documentary evidence in the form of receipts or accounts or want of evidence as regards source of funds were not of relevant consideration while examining if the accused has been able to rebut the presumption or not. The other observations as regards any variance in the statement of complainant and witness; or want of knowledge about dates and other particulars of the cheques; or washing away of the earlier cheques in the rains though the office of the complainant being on the 8th floor had also been irrelevant factors for consideration of a probable defence of the appellant. Similarly, the factor that the complainant alleged the loan amount to be Rs 22,50,000 and seven cheques being of Rs 3,00,000 each leading to a deficit of Rs 1,50,000, is not even worth consideration for the purpose of the determination of real questions involved in the matter. May be, if the total amount of cheques exceeded the alleged amount of loan, a slender doubt might have arisen, but, in the present matter, the total amount of 7 cheques is lesser than the amount of loan. Significantly, the specific amount of loan (to the tune of Rs 22,50,000) was distinctly stated by the appellant accused in the aforesaid acknowledgment dated 21-3 2017”.

The provisions of Sections 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act.

It is further held in Ashok Singh (Supra) that:

22. The High Court while allowing the criminal revision has primarily proceeded on the presumption that it was obligatory on the part of the complainant to establish his case on the basis of evidence by giving the details of the bank account as well as the date and time of the withdrawal of the said amount which was given to the accused and also the date and time of the payment made to the accused, including the date and time of receiving of the cheque, which has not been done in the present case. Pausing here, such presumption on the complainant, by the High Court, appears to be erroneous. The onus is not on the complainant at the threshold to prove his capacity/financial wherewithal to make the payment in discharge of which the cheque is alleged to have been issued in his favour. Only if an objection is raised that the complainant was not in a financial position to pay the amount so claimed by him to have been given as a loan to the accused, only then the complainant would have to bring before the Court cogent material to indicate that he had the financial capacity and had actually advanced the amount in question by way of loan. In the case at hand, the appellant had categorically stated in his deposition and reiterated in the cross-examination that he had withdrawn the amount from the bank in Faizabad. The Court ought not to have summarily rejected such stand, more so when respondent no.2 did not make any serious attempt to dispel/negate such stand/statement of the appellant. Thus, on the one hand, the statement made before the Court, both in examination-in-chief and cross examination, by the appellant with regard to withdrawing the money from the bank for giving it to the accused has been disbelieved whereas the argument on behalf of the accused that he had not received any payment of any loan amount has been accepted”.

The Supreme Court has further observed in M/s S. S. Production v. Tr. Pavithran Prasanth, 2024 INSC 1059, we opined:

8. From the order impugned, it is clear that though the contention of the petitioners was that the said amounts were given for producing a film and were not by way of return of any loan taken, which may have been a probable defence for the petitioners in the case, but rightly, the High Court has taken the view that evidence had to be adduced on this point which has not been done by the petitioners. Pausing here, the Court would only comment that the reasoning of the High Court as well as the First Appellate Court and Trial Court on this issue is sound. Just by taking a counter-stand to raise a probable defence would not shift the onus on the complainant in such a case for the plea of defence has to be buttressed by evidence, either oral or documentary, which in the present cases, has not been done. Moreover, even if it is presumed that the complainant had not proved the source of the money given to the petitioners by way of loan by producing statement of accounts and/or Income Tax Returns, the same ipso facto, would not negate such claim for the reason that the cheques having being issued and signed by the petitioners has not been denied, and no evidence has been led to show that the respondent lacked capacity to provide the amount(s) in question. In this regard, we may make profitable reference to the decision in Tedhi Singh v Narayan Dass Mahant, (2022) 6 SCC 735:

‘10. The trial court and the first appellate court have noted that in the case under Section 138 of the NI Act the complainant need not show in the first instance that he had the capacity. The proceedings under Section 138 of the NI Act is not a civil suit. At the time, when the complainant gives his evidence, unless a case is set up in the reply notice to the statutory notice sent, that the complainant did not have the wherewithal, it cannot be expected of the complainant to initially lead evidence to show that he had the financial capacity. To that extent, the courts in our view were right in holding on those lines. However, the accused has the right to demonstrate that the complainant in a particular case did not have the capacity and therefore, the case of the accused is acceptable which he can do by producing independent materials, namely, by examining his witnesses and producing documents. It is also open to him to establish the very same

The Supreme Court, in Ashok Singh (Supra) on an overall circumspection of the entire facts and circumstances of the case, has held that the appellant succeeded in establishing his case and the Orders passed by the Trial Court and the Appellate Court did not warrant any interference. It was held that the High Court erred in overturning the concurrent findings of guilt and consequential conviction by the Trial Court and the Appellate Court. It is held that it becomes the duty of the courts to consider carefully and appreciate the totality of the evidence and then come to a conclusion whether in the given case, the accused has shown that the case of the complainant is in peril for the reason that the accused has established a probable defence.

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                                Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com  

 

Bounced cheque and summary suits

The cheques issued by any person liable to pay the debt or payments for services or goods as the case may be , in case of its dishonour shall be liable for the offence committed and penal provisions are there in section 138 of Negotiable Instruments Act. The payee of the cheque also has the option to prefer a civil suit under Order XXXVII of Code of Civil Procedure, in addition to the complaint that may be filed before the Judicial Magistrate 1^st class. Both the civil suit and criminal complaint as referred to can be continued together and there is no legal embargo in this regard. The civil suit filed under Order XXXVII of Code of Civil Procedure is known as summary suit, because of the procedure laid down, which is summary in nature, if the case within the Order XXXVII of Code of Civil Procedure is made out. The summary suit can be preferred on the basis of written agreement, invoices or bounced cheques issued towards liability. The cheque once issued, being a bill of exchange and if dishonoured, the civil action can also be initiated.

It is also noteworthy to state that Order XXVII of the Code has its prescription and the amount of the bounced cheque, can be claimed by a payee, apart from interest, but the interest should not be in a nature of penalty or damages. In other words, the cheque amount with due interest thereon and up to 18% p.a as per section 80 of the Negotiable Instruments could be claimed. In case, the suit filed is not treated as summary suit, then the suit may be continued as ordinary suit. Only such suit which shall not be in consonance with the provision as contained in Order XXXVII shall be treated as ordinary suit. If the plaintiff succeeds in a summary suit, then there shall be no need of trial and the expeditious decision could be pronounced. However, in case, the plaintiff fails to make out a case under Order XXXVII of Code of Civil Procedure, then too, the suit may continue as a general suit. Therefore, in case of bouncing of cheques both civil action and criminal action u/s 138 of Negotiable Instruments Act could be concurrently pursued.     

In order to further appreciate the principles of Order XXXVII of Code of Civil Procedure, the contents of Order XXXVII of Code of Civil Procedure, when perused, it will reflect that the said provision is with respect to filing of the suits either on the basis of a negotiable instrument or a written contract of guarantee or a written contract obliging payment of liquidated amount. The provision of Order XXXVII of Code of Civil Procedure, in essence is antithesis of the ordinary procedure, where a defendant can contest a matter as a matter of right. The exception is carved out as Order XXXVII of the Code in a situation, where a written document cast a clear obligation of a liquidated amount and is shown to be payable to the plaintiff by the defendant and mere execution of that without anything more is the only shall be construed as the complete cause of action of the summary suit. The Order 37stipulates that the pleading in such suit must state that no other relief is claimed in the Order 37 CPC suit, except what falls within its ambit.

In other words, Order XXXVII of the Code of Civil Procedure is a unique departure from the ordinary principles of natural justice, wherein a defendant has inherent right to defend the suit. The Order XXXVII of Code of Civil Procedure provides for an exception to the ordinary rule, in as much as, in such a suit ordinary right to defend is not available to a defendant. In order to defend a summary suit, under Order XXXVII of Code of Civil Procedure, the defendant shall have to show that the defendant has substantial defence in its favour for seeking leave to defend the suit unconditionally. If documents such as a written contract containing liquidated amount or a dishonoured bill of exchange or a cheque, themselves makes out a case, without raising any corresponding and additional facts /documents and need of proving such documents, establishes the liability of the defendant in favour of the plaintiff as existing. In such a situation, only, a summary suit shall be maintainable. A suit within the ambit of Order XXXVII of CPC shall have to be necessarily construed within the strict terms of the requirements as contained in Order XXXVII of CPC. Moreover, in the plaint, there has to be the averments of the cause of action emanating from a written contract, containing the specific liquidated amount which is specifically claimed in the suit, or based on dishonoured cheques issued for a crystalised consideration. The summary suit shall only be based on the written document or the dishonoured bill of exchange or cheque only. What therefore emerges is that, once the suit amount which is claimed in the suit, is not the amount, which directly arises in terms of the liquidated amount stated in the written document or a dishonoured bill of exchange or a cheque, the suit will not be maintainable under Order XXXVII of Code of Civil Procedure.

                             PROVISIONS OF SUMMARY SUIT

Before proceeding further, it is apt to reproduce the provisions of Order XXXVII of Code of Civil Procedures with its Rules which is known as Summary Procedure. The same is as under:

1.Courts and classes of suits to which the Order is to apply

(1) This Order shall apply to the following courts, namely-

(a) High Courts, City Civil Courts and Courts of Small Causes; and

(b) other courts;

PROVIDED that in respect of the courts referred to in clause (b), the High Court may, by notification in the Official Gazette, restrict the operation of this Order only to such categories of suits as it deems proper, and may also, from time to time, as the circumstances of the case may require, by subsequent notification in the Official Gazette, further restrict, enlarge or vary, the categories of suits to be brought under the operation of this Order as it deems proper.

(2) Subject to the provisions of sub rule (1), the Order applies to the following classes of suits, namely:

(a) suit upon bills of exchange, hundies and promissory notes;

(b) suits in which the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant, with or without interest arising-

(i) on a written contract; or

(ii) on an enactment, where the sum sought to be recovered is a fixed sum of money or in the nature of debt other than a penalty; or

(iii) on a guarantee, where the claim against the principal is in respect of a debt or liquidated demand only;

(iv) suits for recovery of receivables instituted by any assignee of a receivable.

  2.Institution of summary suits

(1) A suit, to which this Order applies, may, if the plaintiff desires to proceed hereunder, be instituted by presenting a plaint which shall contain,-

(a) a specific averment to the effect that the suit is filed under this Order;

(b) that no relief, which does not fall within the ambit of this rule, has been claimed in the plaint; and

(c) the following inscription, immediately below the number of the suit in the title of the suit, namely-

(Under Order XXXVII of the Code of Civil Procedure, 1908)

(2) The summons of the suit shall be in Form No. 4 in Appendix B or in such other Form as may, from time to time, be prescribed.

(3) The defendant shall not defend the suit referred to in sub-rule (1) unless he enters an Appearance and in default of his entering an appearance the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree for any sum, not exceeding the sum mentioned in the summons, together with interest at the rate specified , if any, up to the date of the decree and such sum for costs as may be determined by the Ahigh Court from time to time by rules made in that behalf and such decree may be executed forthwith.

3.Procedure for appearance of defendant    

(1) In a suit to which the Order applies, the plaintiff shall, together with the summons under rule 2, serve on the defendant a copy of the plaint and annexures thereto and the defendant may, at any time within ten days of such service, enter an appearance either in person or by pleader and, in either case, he shall file in Court an address for service of notice on him.

(2) Unless otherwise ordered, all summonses, notices and other judicial processes, required to be served on the defendant, shall be deemed to have been duly served on him if they are left at the address given by him for such service.

(3) On the day of entering the appearance, notice of such appearance shall be given by the defendant to the plaintiff’s pleader, or if the plaintiff sues in person, to the plaintiff himself, either by notice delivered at or sent by a prepaid letter directed to the address of the plaintiff’s pleader or of the plaintiff, as the case may be.

(4) If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a summons for judgment in Form No. 4A in Appendix B or such other form as may be prescribed from time to time, returnable not less than ten days from the date of service supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief that there is no defence in the suit.

(5) The defendant may, at any time within ten days from the service of such summons for judgment, by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend such suit, and leave to defend may be granted to him unconditionally or upon such terms as may appear to the court or judge to be just.

PROVIDED that leave to defend shall not be refused unless the court is satisfied that the facts disclosed do not indicate that he has a substantial defence to raise or that defence intended to be put by the defendant is frivolous or vexatious.

PROVIDED FURTHER that, where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in court.

(6) At the hearing of such summons for judgment-

(a) if the defendant has not applied for leave to defend, or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith.

(b) if the defendant is permitted to defend as to the whole or any part of the claim, the court or judge may direct him to give such security and within such time as may be fixed by the court or judge and that, on failure to give such security within the time specified by the court or judge or to carry out such other directions as may have been given by the Court or judge, the plaintiff shall be entitled to judgment forthwith.

(7)  The Court or judge may, for sufficient cause shown by the defendant, excuse the delay of the defendant in entering an appearance or in applying for leave to defend the suit.                 

4. Power to set aside decree

After decree the court may, under special circumstances, set aside the decree, and if necessary, stay or set aside execution, and may give leave to the defendant to appear to the summons and to defend the suit, if it seems reasonable to the court so to do, and on such terms as the court thinks fit.

5. Power to order bill, etc, to be deposited with officer of the court-  

In any proceeding under this Order the court may order the bill, hundi or note on which the suit is founded to be forthwith deposited with an officer of the court, and may further order that all proceedings shall be stayed until the plaintiff gives security for the costs thereof.

6. Recovery of Cost of noting non-acceptance of dishonoured bill or note

The holder of every dishonoured bill of exchange or promissory note shall have the same remedies for the recovery of the expenses incurred in noting the same for non-acceptance or non- payment, or otherwise, by reason of such dishonour, as he has under this Order for the recovery of the amount of such bill or note.

7. Procedure in suits

Save as provided by this Order, the procedure in suits hereunder shall be the same as the procedure in the suits instituted in the ordinary manner.

As narrated it is available to a payee to invoke the provision of Section 138 of Negotiable Instruments Act, which in essence is a quasi- criminal proceedings and in addition thereto on the basis of bounced cheque and/or agreement or invoices, a civil suit under Order XXXVII of Code of Civil Procedure, entailing summary procedure could also be invoked. As the name itself suggest in case a plaintiff is able to make out a case under the summary procedure, then, without the necessity of examining witnesses on the basis of the case set out, the judgment and decree could be passed. In case, defendant after entering appearance is not able to make out a case, for seeking leave to defend, then the inevitable corollary to that will be pronouncing judgment and decree forthwith. However, in case, leave to defend is granted to the defendant, then the process and proceedings as ordinary suit shall follow. Another dimension to granting leave to defend to the defendant is to grant the leave unconditionally or conditionally. In case unconditional leave to defend is granted by the Court, the ordinary course of suit shall follow without any need of security and/or deposit. However, in case of leave is granted with a condition to deposit the entire principal amount or 50% of the principal amount and/or condition furnishing of security, such as bank guarantee, the suit shall be contested by the defendant after meeting the conditions. There may also be direction as regards time and mode of trial and direction to that effect could also be passed for proceeding with a suit under summary procedure.

LAW

The law is evolved over the years and leave to defend shall be refused by the Court if the defence raised by the defendant in its leave to defend application appears to be frivolous or vexatious and if according to the Court the defence raised is akin to moonshine, then, the judgment and decree could be pronounced forthwith. On the other hand, if the defendant in their leave to defend application is able to demonstrate that the defence is substantial, then, unconditional leave to defend could be granted. Yet another dimension to the case could be that the defence portrayed by the defendant in the leave to defend application may be plausible, but not substantial, then, conditional leave to defend could be granted subject to deposit of certain sums i.e towards principal claim and may range from 50% to 1200% of the suit amount or the direction of furnishing bank guarantee could also be passed.

In pursuance to the above discussion, it may be worthwhile to refer to judicial precedents as has been evolving in due course of time and the ambit of Order XXXVII of Code of Civil Procedure Code is now well defined. The following judicial prec3ednts in the context of Order XXXVII suit and on the aspect of leave to defe3nd, including the issues of maintainability are as under:

1.      V.K Enterprises Vs Shiva Steels III (2010) BC 718 SC

2.      Shri Colonizers & Developers Pvt Ltd Vs Felcia Realcon India Pvt Ltd 265(2019)DLT 138(DB)

3.      G.P Bhatia Vs Dee Kay Inc & Ors 188 (2012)DLT 721

4.      Anil Tyagi Vs SD Infosys 210 (2014)DLT 678

5.      Maya Devi Vs Yash Chhabra CS(OS)2254/2013 decided on 27.04.2015(Delhi High Court)

6.      Tilak Sondhi Vs Dev Chandra Jha 2019 Lawsuit (Del) 1187-Delhi High Court-        

7.      Avtar Kaur Vs Zuleikha Karnik 258 (2019) SLT 625

8.      Sarvesh Bisaria Vs Hari Om Anand ( Dead Through LRs) CS (OS) 160/2020- Date of decision 12^th July 2022)- Delhi High Court

9.      M/s Mechelec Engineers & Manufacturer Vs Basic Equipment Corporation AIR 1997 SC 577

10.    Sunil Enterprises Vs SBI AIR 1998 SC 237

11.    Roop Kumar Vs Mohan Thedani AIR 2003 SC 2418

12.    IDBI Trusteeship Services Ltd Vs Hubtown Ltd (2017) 1 SCC 56

13.    BL Kashyap and Sons Ltd Vs JMS Steels & Power Corporation and Anr AIR 2022 Supreme Court 785

On claim of interest under Order XXXVII of Code of Civil Procedure

In a suit under Order XXXVII of Code of Civil Procedure arising out of bounced cheque , the applicability of Section 80 of Negotiable Instruments Act is inherent. The provision reads as under: 

Section 80 of Ni Act

Section 80 of NI Act:

Interest when no rate specified

Where no rate of interest is specified in the instrument, interest on the amount due thereon shall notwithstanding any agreement relating to interest between any parties to the instrument be calculated at the rate of Eighteen percent per annum from the date at which the same ought to have been paid by the party charged, until tender or realization of the amount due thereon, or until such date after the institution of a suit to recover such amount as the court directs.

In support of claim of interest in a suit under Order XXXVII of Code of Civil Procedure, the judgments/precedents  pronounced by the Supreme Court and Delhi High Court may be perused

1. SK Malhotra (HUF) vs Man Mohan Modi166 (2010) DLT 723

2. Sanjay Kohli Vs Vikas Srivastava & Ors 196 (2013)DLT 237

3. Mange Ram Vs Raj Kumar Yadav- 2018 LawSuit(Del)3778

 

In Mange Ram (Supra) it is held as under:

“7. At this stage, I would like to note that whenever a cheque is dishonoured statutorily interest at the rate of 18% per annum simple is provided as per Section 80 of the Negotiable Instruments Act, 1881 . Appellant in fact is more than lucky because trial court instead of awarding interest at 18% per annum simple has only awarded interest at 9% per annum simple. Appellant/defendant has already therefore got a benefit which he did not statutorily deserve”.

Therefore, interest up to @18% p.a in terms of section 80 of Negotiable Instruments Act could be provided by the court as per statutory scheme.

Contentions in the leave to defend application in Mange Ram Case were as under:

(i)                The cheque handed over was blank with signature only

(ii)               Plaintiff Misused cheque

(iii)           The signed cheques were robbed by some unknown persons from defendant’s office

(iv)            Police complaint was also filed resulting into F.I.R.

The defence was disbelieved and no leave to defend was granted and judgment was written.

The hon’ble high court has duly considered and relied upon hon’ble Supreme Court judgment captioned as IDBI Trusteeship Services Ltd Vs Hubtown Ltd II (2017) SLT 542 = (2017) 1 SCC 56., Relying upon the  IDBI Trusteeship  judgment hon’ble high court had affirmed declining of leave to defend was proper.

 

Sanjay Kohli Vs Vikas Srivastava 96(2013)DLT 237-

The Delhi High Court by Placing reliance on Section 80 of the Negotiable Instruments Act, has held that even if there was no contract between the parties for claiming a specified rate of interest, yet the plaintiff is entitled to claim the interest as prevailing in the market in a summary suit. Reliance was placed on the following judgments:

1. Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy, AIR 1992 SC 732.

2. S.K. Malhotra v. Manmohan Modi, 166 (2010) DLT 723.

3. M.D Oversees Ltd. v. Uma Shankar Kamal Narain & Ors., 127 (2006) DLT 482.

4. Sinexmico Pte. v. Dinesh International Pvt. Ltd., 174 (2010) DLT 422.

5. The New India Assurance Co. Ltd. v. State Trading Corporation of India, AIR 2007 (NOC) 517 (GUJ.).

6. Mrs. Sushila Mehta v. Shri Bansi Lal Mehta, ILR (1982) I Delhi 320.

Tilak Sondhi Vs Dev Chandra Jha 2019 Lawsuit (Del) 1187-Delhi High Court- decided on 10.04.2019 it is held in para 18:

18. In the leave to defend application there has been no explanation whatsoever as to how six cheques were ·issued by the defendant and how three of them were dishonoured. It is a vague application for leave to- defend. Moreover, the inspection of the original invoices wJ1ich bear the acknowledgement of the Defendant having been given by the Plaintiff, and the same having been placed on record, there is no reason to disbelieve them. The grounds on which leave to defend is sought is nebulous to say the least. The Defendant has continuously defaulted in payments. The cheques given were dishonoured for which. action under Section 138 of the NI Act was taken. Even after original invoices were shown. the Defendant has failed to agree to make payment. Further, to compound the circumstances, a criminal complaint has been filed alleging forgery. These facts indicate lack of bona fides on behalf of the Defendant. Under these circumstances, the Trial Court rightly arrived at the conclusion.

Thus, to elucidate further, leave to defend declined. The issue raised by defendants in that suit were as under:

(i)                Criminal complaint was initiated by defendants alleging forgery.

(ii)              Six (6) cheques were issued, and out of that Three (3) cheques were dishonoured.

(iii)           The account statement was the basis of suit and that was denied by defendants.

(iv)            The cheque amount dishonoured was less than suit amount.

The cheques were dishonoured and u/s 138 NI Act proceedings were initiated. Original invoice raised and shown to the court by the plaintiff and there was no reason to disbelieve the plaintiff. The part payment by way of cheque tantamount to admission of liability.

The defence was held to be illusory and mala fide.

 

III(2010) BC 718(SC- VK Enterprises Vs Shiva States)

The case of the plaintiff is squarely covered by the above citations. The court held that the allegation that there was interpolation in the cheque and it was forged and issued against security was found to be not a triable issue. The oral denial was meaningless. Interest 18 % per annum also granted while upholding dismissal of leave to defend.

It will be relevant here to refer to the judgment of this Court in the case of S. K Malhotra v. Man Mohan Modi, 166 (2010) DLT 723, wherein the Court while granting the interest in a summary suit held as under: "4. ln the case of Secretary Irrigation Department, Government of Orissa and Ors. v. G. C. Roy, reported as AIR 1992 SC 732, the Supreme Court held that a person is entitled to the payment of interest on the principal amount and the security deposit illegally retained, on the ground that the person deprived of the use of money to which he is legitimately entitled, has a right to be compensated for the deprivation, call it by any name. Even in the present case, it cannot be disputed that the appellant was deprived of the use of the money to which he was legitimately entitled and thus he had a right to b<' compensated for the period of deprivation at least from the date of institution of the suit till the date of passing of the decree." As manifest from above, the plaintiff would be entitled to the amount of interest

In order to attract the provisions of Order XXXVII of Code of Civil Procedure, If cheque is not presented for encashment, Order 37 may not be maintainable as is held in Bal Dev Singh Vs Rare Fuel & Automobiles Technologies (P) Ltd 119 (2005)DLT 44 DB

 

Some additional judgments in support of granting of leave to, if triable issues are raised:

1. CARGIL India Pvt Ltd & Ors Vs Deepayan Mohanty 266 (2020) DLT 211 DB

2. Raj Duggal Vs Ramesh Kumar Bansal 1991 Suppl (1)SCC 191

Avtar Kaur Vs Zuleikha Karnik 258(2019)DLT625

It was held that the agreement/MoU and its terms cannot be ignored. Any other plea shall in variance with the MoU shall have no significance. The dishonor of cheques were the admitted position.

All the above judgments including VK Enterprises and other judgments relied upon vide written synopsis dated 16.04.2019 has been a direct judgment on the issue in hand.

 

 

Roop Kumar Vs Mohan Thedani AIR 2003 SC 2418

Principles of section 91-92 evidence act and prohibition of oral assertions contrary to a written documents are discussed.

In Anil Tyagi Vs SD Infosys 210(2014)DLT 678 the Delhi High Court has held as under:

15. In the present case, in the light of original documents placed on record, which evidence that the goods were supplied to the defendants, post-dated cheques were handed over by the defendants to the plaintiff, which raises a presumption under Section 118 of the Negotiable Instruments Act in favour of the holder of the cheque, in view of the communication dated 17.3.2011 and the undated communication wherein defendant No. 2 admits the claim of the plaintiff, and also tak4,.g into consideration that not a single document has been placed on record by the defendants to support the stand taken by the defendants in the leave to defend application, I am of the view that the defence, sought to be raised by the defendants, is sham, moonshine and not bona fide, and the same is not borne out from the record. · On the other hand, the plaintiff has been able to establish, based on documents on record that the claim of the plaintiff is clear and undisputed.

The Delhi High Court in a matter captioned as Goyal Tax Feb. Pvt. Ltd. vs Anil Kapoor Proprietor Supriya 91 (2001) DLT 616

8. Coming to the facts of the present case, it cannot be said that the defense taken by the defendant in leave to defend application is totally sham. There are certain circumstances, couples with certain acts on the part of the plaintiff which may prima facie raise some doubt the credibility of its version and may lend some credence to the defense taken by the defendant that the cheques in question were without consideration. Although as the plaintiff, four cheques were presented to the banker and each time they were dishonoured, not a single letter was written by the plaintiff to the defendant about the return of these cheques as unpaid. Further to the pointed query from the Court, learned counsel for the plaintiff made candid admission to the effect that no notice was served on the defendant before filing the present Suit. Why plaintiff would not send notice of dishonour of the cheque when plaintiff could even file proceedings under Section 138 of the Negotiable Instruments Act, or why plaintiff would not write a single letter or serve notice upon the defendant for payment of the alleged outstanding amount before filing the Suit is baffling to the mind. Now let us examine this aspect further in the context of the submissions made by the defendant on the basis of statement of account filed by the plaintiff itself. As per the statement of account the case of the plaintiff is that the cheques were given against supply of goods by specific bill/challan numbers, particulars whereof are given in para 5 of the plaint. If the Cheques in question were against the supplies made vide these challan, how the plaintiff was receiving payments through cheques as well as in cash also particularly after 5th June, 1998 the details whereof are given in para 2 of the plaint. It is not explained by the plaintiff as to on what account these payments were received if they were in addition to the payments received by means of these cheques against the challan mentioned in para 5 of the plaint. Thus, the defendant has raided good defence and friable issue indicating that he has fair and bona fide defence.

9. Moreover, this Court in the case of Suri and Suri Private Limited (supra) has held that when the Suit is filed on the basis of several dishonoured cheques not presented at all for encashment, relief claimed would be outside the scope of Order XXXVII and Suit would not be maintainable under Order XXXVII of the Code of Civil Procedure. In that case plaint will have to be dealt with in ordinary way. No doubt there may be some justification in the stand taken by the plaintiff that when four cheques on presentation by the plaintiff several times were dishonoured on the ground of insufficient fund in the account of the defendant, and plaintiff therefore did not present remaining cheques. But for filing the Suit under order XXXVII of the Code of Civil Procedure it was still necessary for the plaintiff to present these cheques to the Bank. Admittedly, 7 cheques out of 11 cheques given by the defendant were not presented for payment. Therefore, the Suit under Order XXXVII would not be maintainable”.

In G.P Bhatia Vs Dee Kay Inc & Ors 188 (2012)DLT 721. The Delhi High Court while passing judgment and decree has held as under:

8. Keeping in view these parameters and the fact as noted hereinabove, it is dear that the defendant in his reply to the legal notice (dated 15.1.2010) had not disputed his liability of Rs. 12,65,044/-; he had in fact admitted it; this liability had been premised on the acknowledgement dated 15.7.2006 & 1.6.2009; legal notice had clearly specified that as on date i.e. on 27.12.2009 a sum of Rs. 12,65,044/- was due and payable to which there was an admission by the defendant; the -only contention having been raised in the reply that apart from this amount of Rs. 12,65,044/-, the additional sum of Rs. 10 lacs has been added to create a pressure upon the defendant as also another submission that the bills and vouchers have not been sent. However, the clear fact cannot be lost sight of which was to the effect that the liability of Rs. 12,65,044/- stood admitted by the defendant in this reply. In the subsequent application seeking leave to defend contention raised by him was that he had not signed the letters of acknowledgement; this defence was contrary to the earlier stand where the defendant had admitted his liability. In this circumstances, the impugned order granting leave to defend has committed an illegality.

In Sunil Enterprises & Anr vs SBI Commercial & International Bank Ltd IV (1998) SLT 793 it is observed that the criteria for granting leave to defend are elucidated by hon’ble Supreme Court. The case of the defendant based on moonshine and shall defence is clearly hit by the above judgments. Conversely, the plaintiff has proved his case on the touchstone of law and strictly as per the provisions of Order XXXVII of CPC. The written agreement is a part of record. The claim is based on and pursuant to the share purchase agreement. The cheques were issued pursuant to the agreement and whereas all the other cheques were honoured, the 4^th cheque was dishonoured due to stop payment advise of defendant on flimsy grounds and without even notifying the plaintiff, due to dishonest intentions. The summons for judgments have elucidated the claim in details and the same may be perused.

In V.K Enterprises (Supra) para 8 & 9 may be reproduced:

8. Order XXXVII C.P.C. has been included in the Code of Civil Procedure in order to allow a person, who has a clear and undisputed claim in respect of any monetary dues, to recover the dues quickly by a summary procedure instead of taking the long route of a regular suit. The Courts have consistently held that if the affidavit filed by the defendant discloses a triable issue that is at least plausible, leave should be granted, but when the defence raised appears to be moonshine and sham, unconditional leave to defend cannot be granted. What is required to be examined for grant of leave is whether the defence taken in the application under Order XXXVII Rule 3 C.P.C. makes out a case, which if established, would be a plausible defence in a regular suit. In matters relating to dishonour of cheques, the aforesaid principle becomes more relevant as the cheques are issued normally for liquidation of dues which are admitted. In the instant case, the defence would have been plausible had it not been for the fact that the allegations relating to the interpolation of the cheque is without substance and the ledger accounts relating to the dues, clearly demonstrated that such dues had been settled between the parties. Moreover, the issuance of the cheque had never been disputed on behalf of the Petitioner whose case was that the same had been given on account of security and not for presentation, but an attempt had been made to misuse the same by dishonest means.

9. Against such cogent evidence produced by the plaintiff/respondent, there is only an oral denial which is not supported by any corroborative evidence from the side of the petitioner. On the other hand, the ledger book maintained by the respondent and settled by the petitioner has been produced on behalf of the respondent in order to prove the transaction in respect of which the cheque in question had been issued by the petitioner.

The lave to defend application being devoid of any triable issues raised were dismissed.

The Division Bench of Delhi High Court in a matter reported as Shri Colonizers & Developers Pvt Ltd Vs Felcia Realcon India Pvt Ltd 265(2019) DLT 138(DB) has held as under:

16. While there is no quarrel to the proposition of law laid down in the case of IDBI Trusteeship Services Ltd Vs Hubtown Ltd II (2017) SLT 542 = (2017) 1 SCC 568 the important aspect is that the application for leave to defend must raise triable issues. The application should be bona fide. The defence should not be frivolous, sham, moonshine, vague or simply with a view to prolong the litigation to prevent the plaintiff from an early decree. The Apex Court has repeatedly held that untenable and frivolous defence should be rejected and a speedy decision should be rendered in the interest of trade and commerce. In our view, the learned Single Judge has rightly held that the appellant has failed to raise any plausible defence or any triable issue, which would entitle him to an unconditional leave to defend. The appellants received a sum of Rs.3 crores and in return three post-dated cheques, duly signed by one of the directors of the appellant, were issued no.2. The same were deposited and were returned with the endorsement 'insufficient funds'. In case there was any merit in the defence sought to be raised today, the appellant would have, at first opportunity available, either stopped the payment of the post-dated cheques which were issued or at least replied to the legal notices and placed their objection and defence on record. The failure of the appellant to reply to the notices issued by the respondent clearly makes their defence sham, frivolous, untenable and moonshine”.

In Sarvesh Bisaria Vs Hari Om Anand CS (OS)160/2020 it is held in para no. 18,19 and 20, as under:

18.   In IDBI Trusteeship Services Ltd Vs Hubtown Ltd (2017) 1 SCC 568, the Supreme Court has laid down the following principles with regard to grant of leave in summary suits filed under Order XXXVII of the CPC:

"17 Accordingly, the principles stated in paragraph 8 of Mechelec Engineers & Manufacturers Vs Basic Equipment Corpn. (1976) 4 SCC 687 will now stand superseded, given the amendment of Order 37 Rule 3 and the binding decision of four Judges in Milkhiram India (P) Ltd Vs Chamanlal Bros, AIR 1965 SC 1698, as follows:

17.1 If the defendant satisfies the court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit.

17.2 If the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend.

17.3 Even if the defendant raises triable issues, if a doubt is left with the trial Judge about the defendant's good faith, or the genuineness of the triable issues, the trial Judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security.

17.4 If the defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such, a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.

17.5 If the defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith.

17.6 If any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant in court."

19. The fact that Rs.3,20,00,000/- given by the plaintiff to the Late Sh. Hari Om Anand, has not been denied by the legal heirs of the Late Sh. Hari Om Anand. Further, even the payment of interest on the aforesaid amount being paid by Late Sh. Hari Om Anand to the plaintiff, has not been denied by the legal heirs of the Late Sh. Hari Om Anand. Therefore, this amounts to a clear admission that the aforesaid amount was given as a loan by the plaintiff to Late Sh. Hari Om Anand. Merely because the loan was not evidenced by a written agreement, would not mean that the sum was not advanced as a loan. It has also not been denied that Late Sh. Hari Om Anand issued a cheque of Rs. 3,20,00,000/- for the repayment of aforesaid loan, which was dishonoured. Further, no replies to the legal notice under NI Act as well as Demand notice dated 16th November, 2019, before filing of the present suit, were given by Late Sh. Hari Om Anand, who was alive at that point of time.

20. In view of the above, the defendant has no substantial defence and the leave to defend application does not raise any plausible defence or Signing Date:15.07.2022 10:46:31 triable issue. Therefore, the present case is squarely covered by paragraph 17.5 of IDBI Trusteeship Services Ltd Vs Hubtown Ltd, II (2017) SLT 542.

The Delhi High Court in a matter reported as Avtar Kaur Vs Zuleikha Karnik 258 (2019) SLT 625 had signed judgment under Order XXXVII of Code of Civil Procedure while placing reliance on Mechelec Engineers & Manufacturers Vs Basic Equipment Corpn. (1976) 4 SCC 687 and V.K Enterprises Vs Shiva Steels III (2010) BC 718 SC.

In BL Kashyap (Supra), the Supreme Court has held as under:

“17. It is at once clear that even though in the case of IDBI Trusteeship, this Court has observed that the principles stated in paragraph 8 of Mechelec Engineers’ case shall stand superseded in the wake of amendment of Rule 3 of Order XXXVII but, on the core theme, the principles remain the same that grant of leave to defend (with or without conditions) is the ordinary rule; and denial of leave to defend is an exception. Putting it in other words, generally, the prayer for leave to defend is to be denied in such cases where the defendant has practically no defence and is unable to give out even a semblance of triable issues before the Court.

17.1. …..If the defendant satisfies the court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit. In the second eventuality, if the defendant raises triable issues indicating that he has a fair or reasonable defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend. In the third eventuality, if the 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 issue, the Trial Court is expected to balance the requirements of expeditious disposal of commercial cases on one hand and of not shutting out triable issues by unduly severe orders on the other. Therefore, the trial court may impose conditions both as to time or mode of trial as well as payment into the court or furnishing security. In the fourth eventuality, where the proposed defence appear to be plausible but improbable, heightened condition 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.

17.2. Thus, it could be seen that in case of substantial defence, the defendant is entitled to unconditional leave, and even in the case of triable issue on a fair and reasonable defence, the defendant is ordinarily entitled to unconditional leave to defend. In case of doubt about the intent of the defendant or genuineness of the triable issues as also the probability of defence , the leave could yet be granted but while imposing conditions as to the time or mode of trial or payment or furnishing security. Thus, even in such cases of doubt or reservation, denial of leave to defend is not the rule, but appropriate conditions may be imposed while granting the leave. It is only in the case where defendant is found to be having no substantial defence and/or raising no genuine triable issues coupled with the Court’s view that the defence is frivolous or vexatious that the leave to defend is to be refused and the plaintiff is entitled to judgment forthwith. Of course, 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.    

17.3. Therefore, while dealing with an application seeking leave to defend, it will 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 meritorious one. Even in the case of raising of triable issues, with the defendant indicating his having a fair or reasonable defence , he is ordinarily entitled to unconditional leave to defend unless there be any strong reason to deny the leave. It gets perforce reiterated that even if there remains a reasonable doubt about the probability of defence, sterner or higher conditions as stated above could be imposed while granting leave, 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.

On the basis of aforesaid what therefore is culled out from it is that:

(1) In case the defendant satisfied the court that he has a substantial defence and he is likely to succeed, the plaintiff in such an eventuality shall not be entitled to leave to sign a judgment, rather the defendant shall be entitled to unconditional leave to defend;

(2) In case the defendant raises triable issues which may indicate that the defendant has a fair or reasonable defence, even though, the defence may not be a very positive defence, yet the defendant shall be ordinarily entitled to leave to defend;

(3) The defendant, though may raise triable issue, yet if the trial judge is left with some doubt about the defence being in good faith and genuine, the trial court may impose some condition while granting leave. The conditions imposed could be as regards time or mode of trial and/or payment of into the court or furnishing security. It should be borne in mind that the object of expeditious disposal of commercial suit is not defeated.

(4) If the defence raised is plausible but improbable, then conditions could be imposed by the trial judge a regards time or mode of trial, as well as payment into court or furnishing security. The conditions soi imposed could be to deposit the entire principal sum along with interest that may be deemed just and fair.

(5) If the leave to defend application does not reflect substantial defence and/or triable issues and if the defence is perceived as frivolous or vexatious, leave to defend is to be refused and the plaintiff shall be entitled to judgment forthwith.

(6) If the defendant admits part of the liability towards plaintiff, then leave could be granted only after depositing such amount, though, the leave to defend application may raise triable issues and /or substantial defence.           

The aforesaid narrations shall amply demonstrate the ambit of Order XXXVII suit inclusive of procedures and judicial precedents discussed above shall adequately explain the broad parameter of the suit inclusive of parameter of leave to defend. The provisions as contained in Order XXXVII of Code of Civil Procedure also known as summary suit, for, in the event, the plaintiff is able to satisfy the court that the plaintiff is entitled to sign summary judgment by complying with and meeting the pre-requisites of summary suit such as the fact that summary suit could be based on dishonoured cheques, written agreement and/or invoices and claim should be ex facie evident. The original documents in Order XXXVII of CPC suit shall have to be placed on record. The Memo of appearance within the specified time as elucidated above shall have to be filed upon service of summons. The plaintiff thereafter shall have to file summons for judgment verifying the plaint and reiterating as to why the suit under Order XXXVII is filed and that it is within the parameter of the said provisions. The defendant, thereafter shall have to file leave to defend application along with affidavit to show that the defendant has substantive defence to entitle him for unconditional leave to defend. The court shall have to ascertain if the leave to defend sought by the defendant is based on substantive defence or the defence is illusory or moonshine. In case, defence is found to be illusory and moonshine, the judgment shall be pronounced forthwith by dismissing leave to defend application. In case, however, some defence on the face of it is evident that court may grant conditional leave to defend entailing deposit of certain part of claim, say about 50% or even the entire sum as claimed may be asked to be deposited.

It is also worth mentioning that under Order XXXVII suit, the plaintiff can claim the amount based on agreement/invoice/dishonour of cheques and no claim other than principal sum as per above shall be claimed. No claim towards penalty /penal interest or damages shall lie under the above provision. The interest, however can be claimed under summary suit and details have already been depicted in that regard. The suit shall have to conform to the provision of Order XXXVII and no claim should be raised which is not within the prescription of Order XXXVII.

No doubt, as illustrated before, if substantial defence is available to the defendant, then unconditional leave to defend could also be granted. In that event, the suit shall be treated as ordinary suit and the trap of Order XXXVII suit shall outlive its purpose at that stage.

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                                  Anil K Khaware

Founder & Senior Associate

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