O XXXVII R 3 CPC

B.L. Kashyap And Sons Ltd. Vs JMS Steels And Power Corporation, SC 2022

FACTS – The plaintiff-respondent No. 1 filed the subject suit in terms of Order XXXVII of the Code of Civil Procedure, 1908 (‘CPC’) while stating itself to be a registered partnership firm manufacturing and supplying a wide variety of iron and steel products. According to the plaintiff, the defendant No. 1 represented itself as a real estate and infrastructure development firm while the defendant No. 2 (appellant herein) represented itself as a contractor working with the defendant No. 1 for the construction work of its project namely ‘MIST’.The plaintiff asserted that in relation to the said construction work, it had supplied 200 tons of steel at the site address of the defendant No. 1; and this supply was made in terms of two purchase orders dated 06.02.2015 and 20.03.2015, as raised by the appellant-defendant No. 2. The plaintiff further asserted that payment for the goods so supplied was to be made by the defendant No. 1 and in that regard, various invoices were raised, as detailed in paragraph 7 of the plaint. It was also submitted that an amount of Rs. 89,50,244/- remained due against the supplies so made and invoices so raised.The plaintiff further averred that for payment against the said invoices, the defendant No. 1 issued two cheques drawn on Axis Bank, Sector-44 Noida Branch, being cheque No. 037274 dated 04.05.2015 for a sum of Rs.14,72,269/- and cheque No. 037272 dated 09.05.2015 for a sum of Rs. 13,34,319/- while asking the plaintiff to present the cheques only after receiving intimation but no such intimation was received. Later on, the plaintiff issued a legal notice dated 28.01.2016 to the defendants demanding the dues and, upon their failure to make the requisite payment,filed the subject suit under Order XXXVII CPC, while asserting joint and several liability of the defendants.

In the summary suit so filed, the defendant No. 1 sought leave to defend with the contentions, inter alia, that it had no privity of contract with the plaintiff because the purchase orders were issued only by the defendant No. 2; that the invoices in question were raised by the plaintiff in the name of the defendant No. 2; that neither the purchase orders nor the invoices were bearing the signatures of the defendant No. 1; and that all the dealings were between plaintiff and defendant No. 2, where no legal liability was to be discharged by defendant No. 1. It was contended that the defendant No. 1 was rather a stranger to the contract in question.

In opposition to the contentions sought to be urged by the defendant No. 1, the plaintiff contended, inter alia, that the application filed by defendant No. 1 was an attempt to shy away from its responsibility by shifting the same on the defendant No. 2. In support of this contention, the plaintiff placed its ledger account as also the statement of account of defendant No. 1 which, according to the plaintiff, demonstrated that the payment of goods delivered to the defendant No. 2 had been made by the defendant No. 1. It was contended by the plaintiff that if there was no agreement between the plaintiff and the defendant No. 1, there was no reason for the defendant No. 1 to issue the cheques in the name of plaintiff.

The appellant-defendant No. 2 moved a separate application seeking leave to defend. It was contended in this application that the appellant had been working as civil contractor under the defendant No. 1; that the purchase orders were issued only on behalf of the defendant No. 1; and that the material supplied by the plaintiff was for the construction of project undertaken by defendant No. 1, who was the beneficiary of the said project.The plaintiff also opposed the prayer of the appellant for leave to defend with the submissions that the appellant-defendant No. 2 had failed to raise any substantial defence and he was rather trying to confuse the issue.

In its impugned judgement dated 18.09.2017, the Trial Court considered both the applications moved by the respective defendants seeking leave to defend together; and rejected the same while observing that the defendants were merely attempting to shift the burden upon each other.Thus, the Trial Court concluded that no triable issues were raised by the defendants and declined their applications seeking leave to defend. Consequently, the suit was decreed in favour of the plaintiff for a sum of Rs. 89,50,244/- together with interest at the rate of 10% per annum with joint and several liability of the defendants to pay the decreetal amount.

The appellant-defendant No. 2 challenged the judgement and decree so passed by the Trial Court by way of regular first appeal, being RFA No. 402 of 2018. The High Court, however, rejected the contentions urged on behalf of the appellant and dismissed the appeal.the High Court held that the appellant-defendant No. 2 was not entitled to leave to defend because the defences raised by it do not give rise to genuine triable issues; and the defences were frivolous and vexatious, raised only in order to deny the just dues of the seller of goods, being the plaintiff.High Court also dismissed the appeal filed by defendant No. 1 with the finding that the defence sought to be raised by the defendant No.1 was frivolous or vexatious.

Defendant No. 2 filed an appeal in the Supreme Court against the judgment and order dated 11.05.2018 in Regular First Appeal No. 402 of 2018, whereby the High Court of Delhi at New Delhi has dismissed the appeal filed by the present appellant and has affirmed the judgment and decree dated 18.09.2017 passed by the Additional District Judge-05: West, Tis Hazari Court, New Delhi, in the money recovery summary suit.

CAUSE – Dismissal of appeal by the High Court and affirmation of the Trial Court judgment.

ARGUMENTS – Learned senior counsel for the appellant-defendant No. 2 has contended that liability for payment against the material supplied by the plaintiff was not that of the appellant-defendant No. 2 but had been of the defendant No. 1, which was evident from the fact that the plaintiff itself had pleaded that the liability to pay for the supplies made by it was that of the defendant No. 1.

The learned counsel has yet further submitted that the defendant No. 1 had issued two cheques bearing Nos. 037274 and 037272 towards part payment to the plaintiff against the supplies made; and when the High Court has observed that a cheque is a written agreement containing a liquidated amount as per Order XXXVII Rule 1(2) of the CPC, the said cheques would only constitute a liability of the defendant No. 1 and not that of the appellant-defendant No. 2.

Learned counsel would further submit that the plaintiff’s summary suit was not maintainable against the appellant under Order XXXVII CPC in the absence of a legally enforceable debt .

Learned counsel for the plaintiff-respondent No.1 to avoid the legal liability, deserves to be dismissed. The learned counsel has contended that both the appellant- defendant No. 2 and the defendant No. 1 are merely trying to evade the liability, by shifting the burden upon each other. As regards the liability of the appellant-defendant No. 2, learned counsel would submit that the appellant had raised purchase orders; that on the basis of the said purchase orders, goods were supplied and the invoices were raised in the name of the appellant; and that the goods were received by the appellant. In this fact situation, according to the learned counsel, merely because delivery address of the goods was that of the site owned by the defendant No. 1, the appellant cannot avoid its liability and, in fact, the defendants had been standing in joint and several liability to liquidate the amount due against the said invoices.

The learned counsel would argue that the invoices for their total value constituted written contracts and hence, the suit has rightly been filed in terms of Order XXXVII CPC where the defendants cannot get away by shifting the liability upon each other.

ISSUE – 1) Whether the plaintiff was entitled to maintain a summary suit under Order XXXVII CPC for the claim in question and 2) second, as to whether the appellant-defendant No. 2 has rightly been declined the leave to defend?

DECISION – The question concerning maintainability of the suit filed by the plaintiff as a summary suit under Order XXXVII CPC need not detain us much longer. This is for the simple reason that as per the plaint averment, the matter is based on written contract arising out of written purchase orders issued by the appellant on the instructions and on behalf of defendant No. 1; and the plaintiff had raised the invoices against such supplies under the purchase orders. The plaintiff has further pointed out that two cheques were issued by the defendant No. 1 towards part payment against the invoices, being cheque No. 037274 dated 04.05.2015 in the sum of Rs. 14,72,269/- and No. 037272 dated 09.05.2015 in the sum of Rs. 13,34,319/-. The assertion of plaintiff had been of joint and several liability of the defendants. The question as to whether the appellant was acting only as an agent of defendant No. 1 in relation to the supplies in question and had no monetary liability, as sought to be raised by the appellant, could be a matter of his defence. This aspect, relating to the nature of defence shall be examined in the next question but, such a proposition of defence by the appellant cannot take away the entitlement of the plaintiff- respondent No. 1 to maintain the summary suit in terms of Order XXXVII CPC. In the overall facts and circumstances of the case, the contention against maintainability of the summary suit in terms of Order XXXVII CPC cannot be accepted and to that extent, we find no reason to consider any interference in the decision of the High Court.

However, the question still remains as to whether the appellant is not entitled to leave to defend? In regard to the question of leave to defend, as noticed, the High Court has observed that the appellant would not be entitled to such leave because no triable issues were arising out of the defence sought to be taken by the appellant. The High Court has also observed that the defences were frivolous and vexatious; and were raised only in order to deny the just dues of seller of the goods, i.e., the plaintiff.

In the case of Mechelec Engineers , the principles for consideration of a prayer for leave to defend in a summary suit were laid down by this Court in the following terms: a) If the defendant satisfies the court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is 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) If the 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 a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action be 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 if 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.”

In the case of IDBI Trusteeship this Court modulated the aforementioned principles and laid down as follows: 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. 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. 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. 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. 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. 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.”

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.

As noticed, if the defendant satisfies the Court that he has substantial defence, i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend. In the second eventuality, where the defendant raises triable issues indicating a fair or bonafide or reasonable defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend. In the third eventuality, where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the Trial Court is expected to balance the requirements of expeditious disposal of commercial causes 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 conditions may be imposed as to the time or mode of trial as also of payment into the Court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.

When we apply the principles aforesaid to the facts of the present case and to the impugned orders, it is at once clear that after finding the suit to be maintainable under Order XXXVII CPC because of assertion of the plaintiff about joint and several liability of the defendants, the High Court concluded that the defences were frivolous and vexatious. The Trial Court had observed that the defendants failed to raise any triable issues. It appears that while recording such conclusions, the Trial Court as also the High Court totally omitted to consider that the appellant-defendant No. 2 has been contesting its liability with the assertion that it had only been the contractor executing the work of defendant No. 1. Even as per the plaint averments and plaintiff’s assertions, the defendant No. 1 had made various payments from time to time against the supplies of the building material. The cheques, allegedly towards part payment against the supplies made by the plaintiff, had been issued by the defendant No. 1. In the given set of circumstances, the conclusion of the High Court that the defence raised by the appellant was frivolous or vexatious could only be treated as an assumptive one and lacking in requisite foundation.

No reason has been assigned as to why and how the defence of the present appellant (defendant No. 2) was treated as frivolous or vexatious.In the totality of the circumstances of this case, we are clearly of the view that the appellant has indeed raised triable issues, particularly concerning its liability and the defence of the appellant cannot be said to be frivolous or vexatious altogether. In the totality of the circumstances of this case, we are clearly of the view that the appellant has indeed raised triable issues, particularly concerning its liability and the defence of the appellant cannot be said to be frivolous or vexatious altogether.

Accordingly, this appeal succeeds and is allowed in the manner that impugned judgment and order dated 11.05.2018 as passed by the High Court and the impugned judgment and decree dated 18.09.2017 as passed by the Trial Court, insofar relating to the present appellant (defendant No. 2), are set aside; the appellant is granted leave to defend; and the amount of Rs. 40,00,000/- deposited by the appellant shall be treated to be a deposit towards the condition for leave to defend. The Trial Court shall pass appropriate orders for treatment of the said amount of Rs. 40,00,000/- and then shall proceed with trial of the suit only qua the appellant-defendant No. 2 in accordance with law.