Mechelec Engineers and Manufacturers v. M/S Basic Equipment Corporation

A B ##### c D _I_ E 1060 MECHELEC ENGINEERS AND MANUFACTURcRS _v._ M/S. BASIC EQUIPMENT CORPORATION _November_ 1, 1976 [A. N. RAY, C.J., M. H. BEG AND JASWANT SINGH, JJ.] _Civil Procedure Code,_ S. _115-Jurisdiction_ _of_ _High Court to interfere with_ ###### the Trial Court's discretionary order, when exercisable. •• The appellant issued the respondent a cheque which was dishonoured. The respondent alleged•that the cheque• was the consideration for goods supplied. The appellant admitted issuing the cheque but denied by privity of contra~. The respondent filed a suit under order 37 C.P.C., and the appellant applied for the required leave to defend, which was granted by the trial Court unconditionally. On revision under section 115 C.P.C., the High Court held that triable· issues arose for adjudication,, but, it considered the defence to be dishonest. If allowed the revision petition and gave conditional leave to defend on the ground that the defences were not _bona fide._ Allowing the appeal, the Court HELD : It is only in cases where the defence is patently dishonest or so unreasonable that it could not reasonably be expected to s<ucceed that the exercise of discretion by the Trial Court to grant leave unconditionally may be questioned. Jn other cases, it is not fair to pronounce a categorical opinion on such a matter before the evidence of the partie~ is taken so that its effects could be examined. High Court's interference under sec. 115 C.P.C. with the correct exercise of its discretion by the trial Court was patently erroneous. [I 062 E-H J _Santo.1·h_ _Kumar_ v. _Bhai_ _Moo/_ _Singh_ [1958] S.C.R. 1211 at 1215, _Jacobs_ v. _Booth's Distillery Co._ [1901] 85 LT. 262 followed. _Smt. Kira11moyee Dassi_ _and_ _another_ v. _Dr._ _J._ _Clwttcrjn•_ (49 C.W.N. 246 at 253) distinguished. _M._ _L._ _Sethi_ v. _R._ _P._ _Kapur_ [1973]. (!) S.C.R. 697; _The Mana;:ing_ _Director_ _(MIG)_ _Hindustan Aeronautics Ltd. Balanagar, Hyderabad_ _&_ _A nr._ v. _Ajit_ _Prasad_ _Tarway,_ _J\1a11ager_ _(Purchase_ _and_ _Stores)._ _Hindustan A erona11tics Ltd. Bala-_ _nagar, Hyderabad_ (AIR 1973 SC 76); _D.L.F. Housing_ _&_ _Co11str11c1io11_ _Co. Pvt._ _Ltd.,_ _New_ _Delhi_ v. _Sarup_ _Sin{!/1_ _&_ _Ors._ [1970] 2 S.C.R. 368; and _Milkhiram_ ;F _(India)_ (Pl _Ltd._ _and Ors._ v. _Chamanlal Bros._ (AIR 1965 SC 1998) referred ## l to. G H CIVIL APPELLATE JURISDICTION : Civil Appeal No. 508 of 1976. (Appeal by Special Leave from the Jud~ment and Order dated 27-10-1975 of the Delhi High Court in Civil Revision No. 115/75). S. _N. A ndley, Uma Dutta and T._ C. _Sharma,_ _fof_ the appellant. _K._ C. _Agarwala and M. M._ _L._ _Srivastava,_ for the respondent. The Judgment of the Court was delivered by BEG. J. The plaintiff-respondent alleged to be a registered partnership firm filed a suit on 25th April, 1974, through Smt. Pushpa Mittal, shown as one of its partners, for the recovery of Rs. 21,265.28 as principal and Rs. 7655/-, as interest at 12% per annum, according to law and Mercantile usage, on the strength of a cheque drawn by the defendant on 12th May, 1971, on the State Bank of India, which, on presentation, was dishonoured. ·The plaintiff alleged that the cheque ' ### ' \ ~ ' # . MECHELEC ENG. _V._ BASIC EQ. CORP. _(Beg,_ _J.)_ 1061 was give!! as price of goods supplied. The defendant-appellant firm admitted the issue of the cheque by its Managing partner, but, it denied any privity of contract with the plaintiff firm. The defendant-appellant had its own version as to the reasons and purposes for which the cheque was drawn. The suit was instituted under the provisions of Order 3 7 Civil Procedure Code so that the defendant-appellant had to apply for leave under Order 37, Rule 2, of the Code to defend. This leave was granted unconditionally by the Tria~ Court after a perusal of the cases of the t~ sides. Order 37, Rule 3, Civil Procedure Code Jays down : "(1) The Court shall, upon application by the defendant, ~ive leave to appear and to defend the suit,. upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application. (2) Leave to defend may be given unconditionally or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Court thinks fit". A learned Judge of the High Court of Delhi had on a revision application under Section 11 5 Civil Procedure Code interfered with the order of the Additional District Judge of Delhi granting unconditiollftl leave, after setting out not less than seven questions on which the parties were at issue. The learned Judge had, after discussing the cases of the two sides and holding that triable issues arose for adjudication, nevertheless, concluded that the defences were not _bona fide._ He, therefore, ordered : "For these reasons I would allow the revision petition and set aside the order of the trial Court. Instead I would grant leave to the defendant on their paying into Court the amount of Rs. 21,265.28 together with interest at the rate of 6 per cent per annum from the date of suit till payment and costs of the suit (only court fee amount at this stage and not the lawyer's fee). The amount will be deposited within two months. There wm be no order as to costs of this revision". The only ql!estion; which arises before us in this appeal by special leave : Could the High Court interfere, in exercise of its powers G under section 115, Civil Procedure Code, with the discretion of the Additional District Judge, in granting unconditional leave to defend. to the defendant-appellant upon grounds which even a perusal of the order of the High Court shows to be reasonable ? A B ###### c D E F _Santosh_ _Kumar_ v. _Bhai Mool Sin1?h(1),_ was a case where a cheque, the execution of which was admitted by the defendant, had been dishonoured. The defendant had. set up his defences for refusal to pay. (l) [1958] SCR 1211-1215. H 1062 SUPREME COURT REPORTS ( 1977] 1 S.C.R. A This Court noticed the case of _Jacobs_ v. _Booth's Distil/en;,_ _Com-_ _pany('),_ where it was held that, whenever a defence raises a really triable issue, leave must be given. Other cases too were noticed there to show that this leave must be given unconditionally where the defence could not be shown to be dishonest _in limine._ This Court observed there (at p. 1215) : B ##### c "The learned Counsel for the plaintiff-respondent relied on _Gopala Rao_ v. _Subba Rao_ (AIR 1936 Mad. 246, _Manohar Lal_ v. _Nanhe Mal_ (AIR 1938 Lah. 548), and _Shib Karan Das_ v. _Mohammed Sadiq_ (AIR 1936 Lah. 584). •• All that we need say about them is that if the Court is of opinion that the defence is not _bona fide,_ the.n it can impose conditions and is not tied down to refusing leave to defend. • We agree with Varadachariar J. in the Madras case that the Court has this third course open to it in a suitable case. But, it cannot reach the conclusion that the defence is not _bona_ _fide_ arbitrarily. It is as much bound by judicial rules and judicial procedure in reaching a conclusion of this kind as in any other matter". ; ' ' _I_ _)_ _D_ On general principles, relating to the exercise of jurisdiction of High Courts under section 115, Oivil Procedure Code, several cases were cited before us by Mr. Andlcy: _M._ _L._ _Sethi_ v. _R._ _P._ _Kapur(2);_ _The Managing Director_ _(MIG)_ _Hindustan Aeronautics Ltd._ _Bala-_ _nagar, Hyderabad_ & _Anr._ v. _Ajit_ _Prasad Tarway, Manager, (Pur-_ _chase_ & _Stores), Hindustan Aeronautics Ltd.,_ _Balanagar,_ _Hydcra-_ E _bad(3);_ _D._ _L._ _F._ _Housing_ & _Construction Co. Pvt. Ltd. New Delhi_ v. _Sarup Singh_ & _Ors.(_ _[4]_ _); Milkhiram (India) Pvt. Ltd._ & _Ors._ v. _Chaman-_ _lal_ _Bros.(")_ We need not dilate on the well established principles repeatedly laid down by this Court which govern jurisdiction of the High Courts under section 115 C.P.C. We think that these principles were ignored by the learned Judge of the High Court in interfering with the discretionary order after a very detailed discussion of the facts of the case by the learned Judge of the High Court who had differred on a pure question of fact-whether the defences could be honest and _bona_ _fide._ Any decision on such. a question, even before"evidence has been led by the two sides, is generally hazardous. We do not ihink that it is fair to pronounce a categorical opinion on such a matter before the evidence of the parties is taken so that its effects could be examined. In the case before us, the defendant had denied, _inter alia,_ liability to pay anything to the plaintiff for an alleged supply of goods. It is only in cases where the defence is patently dishonest or so unreasonable that it could not reasonably be expected to succeed that the exercise of discretion by the Trial Court to grant leave unconditionally may be (I) (1901] 85 L.T. 262. (3) . A IR 1973. SC 76. (5) AIR 1965 SC 1698. F G H (2) [1973] 1 S.C.R. 697. (4) (1970] (2) SCR 368. MECHELEC ENG. _v._ BASIC EQ. CORP. _(Beg,_ J.) 1063 .questioned. · In the judgment of the High Court we are unable to find, A a ground' !if interference covered by Section 115 C.P.C. . \ B c D E F G In _Smt. Kiranmoyee Dassi_ & _Anr._ v. _Dr._ _J._ _Chatterjee('),_ Das. J., after a comprehensive review of authorities on, the subject: stated the principles applicable to cases covered by order 17 C.P.C. m the form of the following propositions (at p. 253) : "(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff _!s_ not. entitled to leave to sign judgment and the Defendant 1s entitled - • to unconditional leave to defend. - (b) If the Defendant raises a triable issue indicating that he has a fair or _bona fide_ or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend. ( c) H tht:'1 Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has ai defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security. (d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend. ( e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is. entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed a the amount claimed is.paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence" . The case before us certainly does not fall within the class ( e) set -out ~~ove. It is o_nly in that cl~ss of case ).!.lat an impo~ition of the -cond1tion ·to deposit an amount m Court before proceeding further is justifiable. - H 49 C.W.N. 246, 253. 1064 SUPREME COURT REPORTS (1977] 1 S.C.R. A Consequently, we set aside the judgment and order of the High Court and restore that of the Additional District Judge. Tb parties will bear their own costs. M.R. _Appeal allowed._ ###### •• #### • _I_ ' _I_ _(_ ###### " \