K.R. Kesavan vs The South Indian Bank Ltd.

Satyanarayana Rao, J.—This is an appeal by the defendant against the decision of our learned brother, Yahya Ali J., dismissing the appeal

preferred against the order of the Master.

The respondent to this appeal is the South India Bank Ltd., which instituted a suit C. S. No. 480 of 1947, for recovery of a sum of Rs. 10310-

10-0 from the defendant. The suit was instituted under summary procedure provided under 0rder 7, Rule 6, Original Side Rules and under 0rder

37, Rule 2, Civil P. C. The claim was based on a cheque for a sum of Rs 10,000 dated 12th April 1947 drawn by the appellant on the Indian

Bank Ltd., Thyagarayanagar, in favour of one K. C. M. C. Bathnasabapathi Nadar and Sons. The drawee of the cheque negotiated if to the

plaintiff Bank and it was alleged in the plaint that it was endorsed to it for valuable consideration and that the plaintiff is a holder in due course. The

cheque was presented to the Indian Bank by the plaintiff but it was dishonoured on 16th April 1947. The plaintiff, therefore, claims that he is

entitled to recover the Suit amount from the defendant on the basis of the negotiable instrument.

As the suit was filed under summary procedure, the defendant had to obtain leave to defend the suit under 0rder 7, Rule 6, Original Side Rules

and for this purpose he made an application to the Master, Appln. No. 3010 of 1947. The main defences raised by him in that application were

that the plaintiff was not a holder in due course as there was no consideration for the endorsement and secondly that the plaintiff had no cause of

action to sue for the recovery of the amount as no notice of dishonour was given to the defendant, until 26th May 1947 which according to him

was wholly an unreasonable notice as considerable time had elapsed from the date of dishonour.

The Master was of opinion that as the payee endorsed the cheque in reduction of his previous liability and also to provide a margin for future

advances the endorsement was supported by consideration and that the plaintiff was a holder in due course. To gat over the plea of unreasonable

delay in issuing a notice the plaintiff pleaded that after the cheque was dishonoured by the Indian Bank on 16th April 1947 the defendant was

informed of the same but the defendant requested the plaintiff to present the cheque again. Twice it was presented and twice it was dishonoured

and therefore it. was alleged that there was oral notice of dishonour immediately after the cheque was dishonoured by the Indian Bank on 16th

April 1947. For these reasons he was of opinion that though there was a triable issue the defence was not bona fide. He, therefore, granted

conditional leave to defend the suit the condition being that the defendant should within four weeks from the date of this order deposit into Court a

sum of Rs. 10,000 or furnish security for that sum within that period.

Against this order there was an appeal which was disposed by Yahva Ali J. The learned Judge agreed with the conclusion of the Master and

confirmed the order granting conditional leave to defend the suit

In this appeal against that order the learned advocate for the appellant raised the contention that as it was found by the Master as well as by the

learned Judge that there were triable issues arising on the defence unconditional leave should have been granted and that the question of bona fide

nature of the defence should not have entered into consideration in view of the finding that triable issues were raised in the defence.

Under Order 7, Rule 6, Original Side Rules, an order granting leave to defend may be unconditional or subject to terms. The language of the

rule is word for word the same as that of Order 14, Rule 6 of the Rules of the Supreme Court in England. The rule in England received an

authoritative interpretation by the House of Lords in Jacobs v. Booth''s Distillery Co., (1902) 85 L. T. 262 : 50 W. R. 49. The principles laid

down in that decision for the guidance of the Courts in England in deciding the question when and under what circumstances leave to defend should

be granted subject to conditions and when it should be granted unconditionally, afford useful guidance in interpreting Rule 6 of Order 7, Original

Side Rules and Rule 2 of Order 37, Civil P. C. The defence raised, according to the decisions of the House of Lords, should not be a sham one

but should raise a fair issue to be tried by a competent Tribunal. By sham defence is meant that the facts alleged in the defence even if true would

not amount to a valid defence in law, and a fair issue has been interpreted to mean a plausible issue in the sense that if the facts alleged are

established there would be a tenable defence. In coming to a conclusion whether such a test is satisfied or not, the Court should take into

consideration all the circumstances of the case as disclosed in the plaint and in the affidavits and other material that is available, as was laid down

by Boven L. J., in Blaiberg v. Abrams, (1898) 77 L. T. 255. The question was considered in our Court after the decision of the House of Lords

(Jacobs v. Booth''s Distillery Co., (1902) 85 L. T. 262 : 50 W. R. 49 by Schwabe C. J. and Ramesam J. in P. M. Maracair and Sons v.

Subraniania Iyer, 46 M. L. J. 255 : A. I. R. 1924 Mad. 612 and it was explained in that decision that by the expression ""triable issue"" is meant a

plea which at least is plausible. The defence must not be as pointed out by Lord Chancellor Halsbury in Jacobs v. Booth''s Distillery Co., (1902)

85 L. T. 262 : 50 W. R. 49, an attempt merely to delay the trial of the action,

The object of the rule requiring that leave to defend should be obtained in suits under summary procedure is to see that in the class of suits to

which the order applies the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining a decree early by raising

untenable and frivolous defence. It is not intended, however, by that rule to deprive a man of his right of defending the suit in Court if he has a good

defence but at the same time a man by raising a sham defence or unreal defence should not be allowed to delay the action. In the latter case leave

would be granted only conditionally. As pointed out by the Lord Chancellor in Jacobs v. Booth''s Distillery Co., (1902) 85 L. T. 262 : 50 W. R.

49, in his speech :

People do not seem to understand that the effect of Order 14 is, that, upon the allegation of the one side or the other a man is not to be permitted

to defend himself in a Court; that his rights are not to be litigated at all. There are some things too plain for argument; and where there were pleas

put in simply for the purpose of delay which added to the expense and where it was not in aid of justice that such things should continue Order 14

was intended to put an end to that state of things and to prevent sham defences from defeating the rights of parties by delay and at the same time

causing great loss to plaintiffs who were endeavouring to enforce their rights.

Lord James of Hereford in the same case stated as his opinion that in a proceeding to obtain leave to defend, the Court is not called upon to

consider the merits of the case. All that the Court has to be satisfied, to quote the words of Lord James of Hereford, is

the view which I think ought to be taken of Order 14 is that the Tribunal to which the application is made should simply determine, '' Is there a

triable issue to go before a jury or a Court.'' It is not for the tribunal to enter into the merits of the case at all. It ought to make the order only when

it can say to the person who opposes the order ''You have no defence. You could not by general demurer, if it were a point of law, raise a defence

here. We think it impossible for you to go before any Tribunal to determine the question of fact.'' We are not expressing any opinion whatever

upon the merits of the case. It appears to me that there is a fair issue to be tried, On which side the chances of success are it is not for this House

to determine but thinking as I do that there is a fair issue to be tried by a competent Tribunal it seems to me to be perfectly clear that the order of

the Court of appeal ought to be reversed''.

The principle in Jacobs v. Booths Distillery Co., (1902) 85 L. T. 262 : 50 W. R. 49 and the principle of the decision in Periya Miycm

Maracayar v. Subramania Iyer, 46 M. L. J. 255 : A. I. R. 1924 Mad. 612 were again applied by this Court in Sundaram Chettiar v. Valliammal,

58 Mad. 116 : A. I. R. 1935 Mad. 43. According to the learned Chief Justice (Sir Owen Beasley) the test is, to quote his words :

If the defendant sets up a defence in his affidavit in support of his application for leave to defend which, if he should succeed in proving, would

entitle him to succeed in the suit, then the Master or the Court before whom the application comes has no discretion whatever in the matter and

unconditional leave to defend must be granted. A triable issue in such a case has been raised by the defendant and it is not open to the Master or

anybody else other than the trial Judge to go into the merits and discover whether that case is a true one.

In the Yearly Practice of the Supreme Court for 1939 the effect of the judgment of the House of Lords in Jacobs v. Booth''s Distillery Co.,

(1902) 85 L. T. 262 : 50 W. R. 49, is Stated in the following terms:

If the defendant by his affidavit or otherwise shows that there are facts which, if true, constitute a defence to the claim, he should be given

unconditional leave to defend,

In Ebrahim Sait v. South India Industrials Ltd., I. L. R. (1939) Mad. 36 : A. I. R. 1933 Mad. 962, in an action by a company for recovery of

a large amount overdrawn by the defendant from the company the defendant applied for leave to defend and stated as his grounds of defence that

the plaintiff, managing director, who instituted the suit on behalf of the company had no proper authority to sue, that he was entitled to set off

against the claim of the company, the bonus and dividends due to him from the company and also to set off the amount which he might receive

from the company in the liquidation proceedings. He also raised the plea of limitation. It appeared, however, that there was an acknowledgment by

him of his liability to the company which saved the suit from the bar of limitation. In respect of the set-off the plaintiff produced a letter whereunder

the defendant released his claim unconditionally to the bonus and dividends due to him from the company. He was not entitled in law to claim set-

off against the company, a sum which might become due to him upon the winding up of the company as against the moneys due by him to the

company until the money due by him to the company was paid. On these defences the Master before whom the application came for hearing

thought that leave to defend should be granted conditionally on his furnishing security for a sum of Rs. 25,000 within a period of two months. The

order was confirmed on appeal by Gentle J. (as he then was) and against that order of the learned Judge an appeal was preferred which came up

for hearing before Madhavan Nair O. C. J., and Krishnaswami Aiyangar J. The learned Judges considered the matter and the decisions on the

points including the decision in Jacobs v. Booth''s Distillery Co., (1902) 85 L. T. 262 : 50 W. R. 49 and held that the decision of Gentle J. was

correct and that the defendant was not entitled to an unconditional leave to defend. At page 41 of the report, however, there are certain

observations of the Honourable the Officiating Chief Justice which go to indicate that in order to entitle a defendant to unconditional leave he

should satisfy the Court not only that there was a triable issue but also that his defence was bona fide. The decision in Sundaram Chetti v.

Valliammal, 58 Mad. 116 : A. I. R. 1935 Mad. 43 was also doubted. The decision in Sundaram Chetti v. Valiammal, 58 Mad. 116 : A. I. R.

1935 Mad. 43 did lay down the broad proposition that the defence should not only raise a triable or real issue or a plausible issue but that it should

also be bona fide one. If the issue raised is a real one no further question of the consideration of the bona fide nature of the defence arises. The

very fact that the defence is real indicates that it is bona fide. The learned Judges, when they referred to the triable issue and bona fide defence at

page 41 in Ebrahim Sait''s case, I. L. R. (1939) Mad. 36: A. I. R. 1938 Mad. 962 must have meant by those observations to indicate, that it is not

enough to have an issue whatever be its nature, and substance but that it should be real and substantial. The defence must raise a plausible case for

trial and if established a sufficient answer to the claim. We do not think that the decision in Ebrahim Sait v. South India Industrials, Ltd., 1939

Mad. 36 : A. I. R. 1938 Mad. 962, is intended to lay down a rule which is contrary to the decision of the House of Lords in Jacobs v. Booths,

Distillery Go., (1902) 85 L. T. 262 : 50 W. R. 49 and is in conflict with what was laid down in the earlier decisions of this Court. On the facts of

that case the defence was really not a bona fide one and there was no plausible issue for trial. We think that the only test to be applied is whether

the defence raised a real issue and not a sham issue in the sense that if the facts alleged by the defendant are established there would be plausible

defence on those facts.

The finding of the learned Judge in the present case amounts, in our opinion, to no more than that the defence is a sham one and does not raise

a triable issue. In the affidavit filed in support of the application for leave to defend, the defendant admitted that when he drew the cheque he

expected the drawee to furnish the necessary funds to the Indian Bank in order to enable the cheque to be cashed and that the cheque was issued

by him only as an accommodation cheque. It cannot, therefore, be said that by reason of want of notice of dishonour he suffered any prejudice and

in those circumstances he would not be entitled to notice as the case falls u/s 98(b), Negotiable Instruments Act. He is a person who suffered no

damage and therefore would not be entitled to any notice as he never deposited any money in the bank. The plea, therefore, for want of notice of

dishonour on the facts as disclosed in the affidavit, is not a real defence at all. As regards the other plea that the plaintiff is not a holder in due

course in view of the allegation is the affidavit, we are unable to hold that even this plea has any substance in it. Even according to the defendant the

cheque was issued only as an accommodation cheque and therefore must have necessarily been intended to constitute the endorsee a holder in due

course. The drawee wanted the cheque to be drawn in his favour with a view to enable him to discharge or meet the liability he owed to to the

bank. The endorsement, therefore, was supported by valuable consideration and the plaintiff unless the presumption u/s 118, Negotiable

Instruments Act is rebutted, would prima facie be holder in due course. Of course, we are not expressing any opinion on the merits of the case and

we are not finally deciding any of the questions which have been raised in the [application for leave to defend. Prima facie we are satisfied that the

defence raised by the defendant in his affidavit raises no real issue in the case so as to entitle him to unconditional leave to defend. For these

reasons we think that the decision of the learned Judge is correct.

It is, however, represented to us on behalf of the appellant that he had already given an undertaking not to alienate his Immovable properties

which are outside this city pending disposal of this appeal. He is willing and undertakes not to alienate the properties until security as directed by

the order of the Master is furnished. The undertaking will, there-fore, continue until the security is furnished as directed. Time fixed for giving

security expired but we extend it by one month from this date. The respondent has no objection to the appellant''s tendering as security his

Immovable properties situated in the mofussil to the satisfaction of the Second Assistant Registrar, Original Side.

In the result, the appeal is dismissed with costs of the respondent. Time for filing written statement is extended to two weeks after security is

furnished.