caselaws
Supreme Court of India
B.L. Kashyap And Sons Ltd. vs M/S Jms Steels And Power … on 18 January, 2022Author: Dinesh Maheshwari
Bench: A.M. Khanwilkar, Dinesh Maheshwari, C.T. Ravikumar
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. ……..…. OF 2022
(ARISING OUT OF SLP (C) NO. 19413 OF 2018)
B.L. KASHYAP AND SONS LTD. …. APPELLANT(S)
VERSUS
M/S JMS STEELS AND POWER
CORPORATION & ANR. …. RESPONDENT(S)
JUDGMENT
DINESH MAHESHWARI, J.
Preliminary
Leave granted.
2. This appeal is directed 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, being CivDj/611333/2016, filed
by the plaintiff-respondent No. 1, wherein the present appellant was
Signature Not Verified
Digitally signed by
NEETU KHAJURIA
Date: 2022.01.18
13:27:54 IST
arrayed as defendant No. 2 and the present respondent No. 2 was arrayed
Reason:
as defendant No. 1.
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2.1. It may be noticed at the outset that the Trial Court had passed the
judgment and decree dated 18.09.2017 with its finding that no triable
issues had been raised by the defendants and hence, they were not
entitled to the leave to defend. In the impugned judgment and order dated
11.05.2018, the High Court has affirmed the decree in relation to the
appellant-defendant No. 2. Hence, the questions involved in the present
appeal are confined to the prayer for leave to defend sought for by the
appellant. However, it is also relevant to notice that the other defendant
(who is respondent No. 2 herein) had also filed an appeal against the said
judgment and decree dated 18.09.2017 (being RFA No. 743 of 2018),
which was dismissed by the High Court by its separate judgment and order
dated 05.09.2018. The said judgment and order dated 05.09.2018 is not
under challenge before us but, we shall refer to the same at the relevant
juncture and in relation to the implications of the findings therein.
2.2. For the purpose of continuity of narration and discussion, the
parties shall also be referred herein with reference to their status in the
suit.
Relevant factual and background aspects
3. The relevant factual and background aspects of the matter are as
follows:
3.1. 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
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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’, being developed at Plot No.1, Sector
143-B, Noida.
3.2. 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.
3.3. 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,
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filed the subject suit under Order XXXVII CPC, while asserting joint and
several liability of the defendants. The plaintiff, inter alia, averred that the
suit was based on written contract inasmuch as written purchase orders
were issued by the appellant-defendant No. 2 on the instructions, and on
behalf of, defendant No. 1.
3.4. 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.
3.5. 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
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reason for the defendant No. 1 to issue the cheques in the name of
plaintiff. It was also submitted that though the invoices were addressed to
the defendant No. 2 but, they also mentioned “C/o Mist”, which
substantiated the stand of the plaintiff.
3.6. 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 appellant submitted that under the contract, it was the duty of
owner, i.e., defendant No. 1, to supply the material for construction and
defendant No. 2 was to be paid for the quantities supplied by it. Further,
the copies of statements of accounts showing the purchase orders placed
by defendant No. 2 at the instance of defendant No. 1 were placed on
record; and it was submitted that the bills for such supplies were liquidated
in due course. In substance, case of the appellant had been that it had no
liability towards the plaintiff.
3.7. 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. It was asserted that the goods were supplied on the purchase orders
raised by the defendant No. 2 while acting as an agent for the defendant
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No. 1; and it was agreed between the parties that the defendant No. 1
would make payment for the goods supplied to the defendant No. 2. It was
also submitted that the role of the appellant-defendant No. 2 was
“important” in the present suit as the transaction of goods indeed involved
this defendant.
Trial Court declined leave to defend to both the defendants
4. 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.
4.1. The Trial Court observed that the defendant No. 2 was a contractor
working under defendant No. 1 by virtue of the construction agreement;
and as per Clause 10 of this agreement, defendant No. 1 was liable to pay
the costs of goods, material or articles procured and arranged for by the
contractor. The Trial Court further observed that the purchase orders had
been placed by defendant No. 2 on plaintiff at the instance of defendant
No. 1 and the goods were indisputably supplied at the site address of
defendant No. 1, who was the ultimate beneficiary of the transaction. It was
also noted that the bills raised for such supplies had been liquidated by the
defendant No. 1. The contention urged on behalf of the defendant No. 1
that there was no privity of contract was rejected with reference to the facts
that the defendant No. 1 had been making payments to the plaintiff; and
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reference was made to various payments made through cheques and
demand drafts from time to time. The Trial Court observed that the
transactions clearly indicated that the materials were being supplied by the
plaintiff to the site address of defendant No.1 and the defendant No. 1 had
been making payments directly to the plaintiff. Hence, the Trial Court held
that the defence sought to be raised by the defendant No. 1, of want of
privity of contract, was without any substance and was not giving rise to
any triable issue. The Trial Court also rejected the contention that the
summary suit under Order XXXVII CPC was not maintainable as the
plaintiff did not present the aforementioned cheques for encashment while
observing that the suit was not merely based on the two cheques issued by
the defendant No. 1, but was also based on the purchase orders and
invoices raised for supply of materials; and the invoices were a complete
contract, as contemplated by Order XXXVII CPC.
4.2. Having rejected the case of the defendant No. 1, the Trial Court
also proceeded to deny the prayer of the appellant-defendant No. 2 for
leave to defend while observing that the goods were received by the
defendant No. 2 as an agent of the defendant No. 1 and, therefore, both
the defendants were under obligation to make payment. The Trial Court
said,-
“15. The invoices issued by the plaintiff have been addressed to
the site address of defendant no.- 1 and the goods have been
received by defendant no.- 2 acting as an agent of defendant no.-
1. Therefore, both the defendants are under an obligation to make
payments of the goods supplied by the plaintiff.”
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5. 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.
High Court dismissed the appeal filed by appellant
6. 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.
6.1. The High Court, inter alia, observed that merely for the delivery
address of the goods in question having been that of the site of defendant
No. 1, it would not mean that the purchase orders were those of the
defendant No. 1, when it was ex facie evident that the purchase orders had
been issued only by defendant No. 2; the invoices were raised by the
plaintiff upon defendant No. 2 and not upon defendant No. 1; and the
defendant No. 2 was specifically mentioned as the buyer in those invoices.
6.2. The High Court further observed that the appellant-defendant No. 2
was liable and the suit was maintainable under Order XXXVII CPC
because the invoices for their total value were written contracts, containing
specified amount of liability of the appellant-defendant No. 2 for payment to
the plaintiff-respondent No. 1. As regards the cheques in question, the
High Court observed that though the cheques were issued by the
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defendant No. 1, yet a suit under Order XXXVII of CPC would lie against
the defendant No. 2 because there was no such requirement in Order
XXXVII CPC that the cheques which are issued for payments ought to be
of the person against whom the liability is claimed. The High Court further
observed that as per Section 2 (d) of Indian Contract Act, 1872
consideration under a contract need not flow/pass only between the parties
to a contract. The High Court also observed that even if the cheques were
not presented, the suit would be maintainable under Order XXXVII CPC
because there was no such requirement that the cheque ought to be
dishonored for filing a summary suit. The High Court further observed on
the maintainability of the summary suit even when there was a joint and
several liability of the defendants in the following words: –
“9. The fact that there is a joint and several liability of the
appellant/defendant no.2 with the respondent no.2/defendant no.1
will not mean that to enforce this joint and several liability, the
subject suit could not have been filed both against the
appellant/defendant no.2 and the respondent no.2 herein. Once
liability is joint and several of the appellant/defendant no.2 with the
respondent no.2/defendant no.1, and as stated above Section 2(d)
of the Indian Contract Act permits passing/payment of
consideration by a person who is not a party to the contract,
therefore merely because respondent no.2/defendant no.1 had
agreed to be liable to make the payment of the goods purchased
by the appellant/defendant no.2, this would not mean that the
appellant/defendant no.2 would no longer be liable and liability will
only be of the respondent no.2/defendant no.1.”
6.3. The High Court further observed that the principles governing the
issue were not those of the decision of this Court in the case of Mechelec
Engineers and Manufacturers v. Basic Equipment Corporation: AIR
1977 SC 577, as referred to by the Trial Court; but the applicable principles
were contained in the later decision of this Court in IDBI Trusteeship
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Services Ltd. v. Hubtown Ltd.: (2017) 1 SCC 568. While reproducing the
principles so laid down by this Court, 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
7. Before proceeding further, we may take note of the fact that the
defendant No. 1 had also filed an appeal, being RFA No. 743 of 2018, in
challenge to the judgment and decree of the Trial Court dated
18.09.2017. The appeal so filed by the defendant No. 1 (respondent No. 2
herein) was considered and decided by the High Court by its separate
(and later) judgment and order dated 05.09.2018 with the finding that the
defence sought to be raised by the defendant No.1 was frivolous or
vexatious and, in support of this finding, the High Court specifically gave
the reason in following words: –
“The defence of the appellant/defendant no. 1 was clearly
frivolous or vexatious, and it did not raise a genuine triable issue,
because if there was no liability of the appellant/defendant no. 1
then, where was the question of making payments regularly by the
appellant/defendant no.1 to the respondent no.1/plaintiff.”
Rival Contentions
8. Reverting to the case at hand, which pertains to the appellant-
defendant No. 2, we may briefly take note of the rival submissions in this
appeal.
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9. 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. Thus, according to the learned counsel, the
impugned decree proceeds rather contrary to the plaintiff’s own case and
cannot be sustained.
9.1. Learned counsel for the appellant has further submitted that the
appellant was only acting as an agent of the defendant No. 1, as the
agreement for supply of steel was between plaintiff and defendant No. 1;
and the appellant, having issued the purchase orders only on behalf of
the defendant No. 1, cannot be held liable for payment to the plaintiff, in
terms of Section 230 of the Indian Contract Act, 1872 which provides that
an agent cannot be held liable for the contract executed on behalf of the
principal. The learned counsel has referred to the decision of this Court in
the case of Prem Nath Motors Limited v. Anurag Mittal: (2009) 16 SCC
274. 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
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cheques would only constitute a liability of the defendant No. 1 and not
that of the appellant-defendant No. 2.
9.2. 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 and, in support of this
contention, would rely on the decision of this Court in case of V.K.
Enterprises v. Shiva Steels: (2010) 9 SCC 256.
10. Per contra, learned counsel for the plaintiff-respondent No.1 would
submit that the present appeal, being only an attempt to avoid the legal
liability, deserves to be dismissed.
10.1. 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.
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10.2. 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.
11. In different dimensions to the above, the learned counsel
appearing for the defendant No. 1 (respondent No. 2 herein) has
contended that under the construction agreement executed between the
defendant No. 2 and defendant No. 1, the payments toward supply of
material by the plaintiff were to be made by the defendant No. 2. The
learned counsel would submit that the appellant-defendant No. 2 had
placed purchase orders with the plaintiff and invoices were raised by the
plaintiff in the name of defendant No. 2 and hence, there was no privity of
contract between the plaintiff and defendant No. 1. The mere fact that the
defendant No. 2 was carrying out the work of the defendant No. 1 and the
invoices mentioned the name of the project where the goods were to be
delivered would not make the defendant No. 1 liable to make payment to
the plaintiff. It has also been submitted that there was no role of the
defendant No. 1 because neither its consent was taken at the time of
execution of agreement for the supply of goods nor the rates of steel were
discussed; and the purchase orders and invoices also do not bear the
name of the defendant No.1 or any signatures on its behalf. As regards
the payments earlier made by the defendant No. 1, the submission has
been that such payments were made on the request of the defendant No.
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2 when it had shown deficiency in cash flow and requested to make
payment to the vendors including the plaintiff.
11.1. On behalf of the defendant No. 1, reference has also been made to
the judgment dated 05.09.2018 passed by the High Court in its appeal
(RFA No. 743 of 2018) while contending that the said appeal came to be
dismissed without adverting to the relevant facts. It has also been pointed
out that there were other disputes between the appellant and the
defendant No. 1 for which, other litigation is pending in Delhi High Court.
12. We have given thoughtful consideration to the rival submissions
and have examined the record of the case with reference to the law
applicable.
Analysis
13. For what has been noticed hereinbefore, two principal points call
for determination in this appeal: one, as to whether the plaintiff was
entitled to maintain a summary suit under Order XXXVII CPC for the
claim in question; and second, as to whether the appellant-defendant No.
2 has rightly been declined the leave to defend?
14. 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
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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/-.
14.1. 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. This is apart from the fact that while asserting joint and several
liability of the defendants, the plaintiff has also relied upon the cheques
said to have been issued by defendant No. 1, which were allegedly not
presented as per the request of the said defendant No. 1.
14.2. 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?
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15. 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. According to
the High Court, while applying the principles for grant of leave to defend,
as delineated in the case of IDBI Trusteeship (supra), the appellant was
not entitled to the leave to defend.
16. The High Court took note of the fact that the Trial Court relied
upon the decision in Mechelec Engineers (supra) and observed that the
applicable principles were those contained in the later decision of this
Court in IDBI Trusteeship (supra). Having regard to the question at
hand, it shall be worthwhile to read together the principles stated in the
said two decisions of this Court.
16.1. In the case of Mechelec Engineers (supra), 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: –
“8. In Kiranmoyee Dassi Smt v. Dr J. Chatterjee [AIR 1949 Cal 479
:49 CWN 246, 253 : ILR (1945) 2 Cal 145.] Das, J., after a
comprehensive review of authorities on the subject, stated the
principles applicable to cases covered by Order 17 CPC in 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 is not entitled to leave to sign
judgment and the defendant is entitled to unconditional leave to
defend.
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(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.”
16.2. In the case of IDBI Trusteeship (supra), this Court modulated
the aforementioned principles and laid down as follows: –
“17. Accordingly, the principles stated in para 8 of Mechelec
case [Mechelec Engineers & Manufacturers v. 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 case [Milkhiram (India) (P) Ltd. v. Chamanlal
Bros., AIR 1965 SC 1698 : (1966) 68 Bom LR 36] , 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
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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.”
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. As noticed, if the defendant satisfies the Court that he has
substantial defence, i.e., a defence which is likely to succeed, he is
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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.
17.2. Thus, it could be seen that in the case of substantial defence, the
defendant is entitled to unconditional leave; and even in the case of a
triable issue on a fair and reasonable defence, the defendant is ordinarily
entitled to unconditional leave to defend. In case of doubts 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
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security. Thus, even in such cases of doubts or reservations, 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 the
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 would not be a correct approach to proceed as if denying the
leave is the rule or that the leave to defend is to be granted only in
exceptional cases or only in cases where the defence would appear to be
a meritorious one. 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.
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18. 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.
19. At this juncture, we may also refer to a significant feature of the
case that the defendant No. 1 (respondent No. 2 herein) had questioned
the same judgment and decree of the Trial Court dated 18.09.2017 by
way of a separate appeal, being RFA No. 743 of 2018, that was
considered and dismissed by the High Court by the judgment and order
dated 05.09.2018. Interestingly, the High Court dismissed the said appeal
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with the finding that the defence raised by defendant No. 1 was frivolous
or vexatious and, in support of this finding, the High Court specifically
gave the reason in the form of a query that if at all there was no liability of
the defendant No. 1, where was the question of making payments
regularly by the defendant No. 1 to the plaintiff?
19.1. It is at once noticeable that in contradistinction to the reasons
stated qua the defendant No. 1 in the judgment and order dated
05.09.2018, the High Court has merely observed in the impugned
judgment and order dated 11.05.2018 concerning the present appellant,
i.e., defendant No. 2, that the defences were frivolous or vexatious and
were raised only to deny the just dues of the seller of goods. 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. The
effect and impact of an admitted position of the plaintiff, that payments
were indeed made from time to time by the defendant No. 1, seems not to
have gone into consideration of the Trial Court and the High Court while
denying leave to the appellant. The same considerations, which weighed
with the Courts to deny the leave to defend to the defendant No. 1, could
not have been applied ipso facto to the case of the appellant; rather those
considerations, in our view, make out a case of triable issues qua the
appellant.
20. In the totality of the circumstances of this case, we are clearly of
the view that the appellant has indeed raised triable issues, particularly
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concerning its liability and the defence of the appellant cannot be said to
be frivolous or vexatious altogether.
20.1. In the aforesaid view of the matter, we are inclined to hold that the
appellant-defendant No. 2 ought to have been granted the leave to
defend the claim made in the suit concerning its liability; and to this
extent, the impugned decree deserves to be set aside.
21. For what has been observed hereinabove, we would have
considered granting unconditional leave to defend to the appellant but
then, it is noticed that by the order dated 17.08.2018, this Court granted
stay over execution of the decree on the condition of the appellant
depositing a sum of Rs. 40,00,000/- (Forty Lakhs). Thereafter, by the
order dated 24.09.2018, this Court noticed the fact of such deposit and
condoned the delay of four days in making the deposit. Taking these
factors into account and, looking to the nature of claim and the nature of
defence sought to be raised as also the fact that the appeal filed by the
defendant No. 1 had been dismissed by the High Court, we find it just and
proper to grant leave to defend to the appellant-defendant No. 2 while
leaving it open for the Trial Court to pass appropriate orders regarding
treatment of the said amount of Rs. 40,00,000/- deposited by the
appellant in terms of the order passed by this Court.
21.1. As the appellant is being granted leave to defend, we are not
dealing with other contentions urged on behalf of the appellant
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concerning its liability; and all the relevant aspects are left open for
consideration of the Trial Court.
22. 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.
22.1. No order as to costs of the present appeal.
………………..…………J.
(VINEET SARAN)
..……….…….…………. J.
(DINESH MAHESHWARI)
New Delhi;
Date: January 18, 2022
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