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 1st 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 12th
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 4th 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.
--------
Anil K Khaware
Founder & Senior Associate
Societylawandjustice.com
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