Mehraj-ud-Din Bhat vs Hilal Ahmad Khanday

This Civil First Appeal has been filed by the appellant herein against the judgment and decree (dated 11.10.2015 & 31.102015) passed by the Court of learned Principal District Judge, Pulwama in Civil Suit No. 04/2015 (for short impugned judgment decree) in case titled "Hilal Ahmad Khanday v. Mehraj-ud-Din Bhat"

A brief account of facts and grounds, in which the appeal is stated to have filed is:

(i) Petitioner and respondent having business relations and, as such, are known to each other since last so many years and in this regard, they usually handed over the cheques with regard to their account numbers to each other for smooth operation of business. However, sometime before they separated from each other from business relations and respondent was in possession of certain cheques belonging to the petitioner, which he tried to misuse and, accordingly, settlement was made between the parties and cheques issued by the petitioner were satisfied. However, respondent in spite of receiving the money instituted the suit before the Court below under Order 37 of CPC with respect to recovery of an amount of Rs. 3.50 lacs. The Court below after following the procedure issued the notice to the petitioner, who thereafter appeared and filed application for seeking leave to defend the suit in which all the details, facts and circumstances were elaborated. The respondent has not specifically rebutted the issues and facts narrated by the petitioner in his reply and the Court below while dealing the said application has not only dismissed the said application in violation of the procedure prescribed under Order 37 Rule 3(6), but has also decreed the suit in violation of the procedure prescribed thereunder.

(ii) That while appreciating the controversy involved in the matter, more particularly with respect to the procedure which was required to be followed by the Court below while dealing with the application filed by the petitioner herein for defending the suit filed by the respondent and so far as procedure for the appearance of defendant is concerned as provided under Order 37 Rule 3(5) of the said Rule provides that leave to defend shall not be refused unless the Court is satisfied that the facts disclosed by the defendants do not indicate that he has a substantial defense to raise or that the defense intended to be put up by the defendant is frivolous or vexatious, while reading the contents of the Rule 3(5) and simultaneously while examining the application submitted by the petitioner with respect to granting leave to him for defending his suit, more particularly para 3 of the application, it is clear that the petitioner has not only shown the cause for defending the suit, but has also shown his interest and also the intentions to produce the documents before the Court below for satisfying the Court with respect to the defense to be taken by the petitioner for defending the suit and the Court below has brushed aside the procedure provided for defending the suit and has rejected the application of the petitioner in violation of the procedure.

(iii) The Court below has further erred in law while passing the impugned judgment and decree by way of common order without deciding the application separately as is requirement of the law, as it is well defined under Order 37 Rule 3 (6) (a), while provides:

"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".

Meaning thereby the Court below was required to reject the application first and then proceed for granting to decree, but in the instant case the application was listed on the same day when the decree was passed.

Record has been called for perusal. Perusal of the same reveals a suit had been filed under Order 37 of CPC for recovery of an Amount of Rs. 3.50 lacs by the respondent herein before the trial Court while pleading as:

(i) That the plaintiff had friendly relations with the defendant and the defendant used to borrow money from time to time from the plaintiff and lastly in the month of January, 2012, the plaintiff gave Rs. 2.45 lacs to the defendant in cash and also in the month of February, 2012, the plaintiff also issued two cheques for an amount of Rs. 1.05 lacs to the defendant ( in total Rs. 3.50 lacs) and when in the month of August, 2013, the plaintiff asked the defendant to pay the borrowed amount, he, i.e, the defendant in turn issued a cheque bearing No. 05809165 dated 19.08.2013 for Rs. 350000/- to be encashed from the account of the defendant bearing No. SB-7330, which the defendant is operating in J&K Bank B/O Khrew.

(ii) That when the plaintiff submitted the said cheque before the said bank for collection purposes, the plaintiff came to know that there was not sufficient amount in the account of the defendant on being asked about this lapse, the defendant requested the plaintiff to keep the said cheques as the defendant will pay the said amount in cash, but the defendant on one or other pretext avoided the same and lastly in the month of January, 2015, the defendant refused to pay the above said amount.

On appearance before the learned trial Court, the appellant herein filed an application seeking leave to defend the case while stating as:

(i) That the plaintiff has submitted the above said recovery suit before the Court wherein the applicant has been arrayed as party and, as such, the application being necessary party is interested to defend the suit to safe guard his rights.

(ii) That the parties to the lis were having business relations and, as such, were known to each other from last so many years. As such, the parties were having deep rooted relations with each other. They usually handed over cheque with regard to their account Nos. to each other for smooth operation of the business. The parties separated from each other and dissolved the business relation. The plaintiff who was in possession of the cheques under suit demanded cheque amount from the applicant some months before and, accordingly, after settlement of accounts the applicant while paying the balance amount to the plaintiff-non-applicant cleared the liability in Toto.

(iii) That while clearing the balance amount including the cheque amount various respectable persons where present on spot in whose presence the claim of the plaintiff non applicant was satisfied by the applicant defendant. The said respectables are ready to cause their presence before the Court just to ascertain the truth and falsehood of the matter. The applicant defendant is in possession of various documents by virtue of which the applicant-defendant has satisfied the cheque amount besides other accounts as well. It is worthwhile to mention here that the plaintiff while taking the cheque amount assured the defendant-applicant that the cheque will be returned back to the defendant-applicant within few days, but after some time he refused to hand over the said cheque back to the defendant applicant by saying that he lost the said cheque somewhere. The same will be returned in case it is found. The defendant-applicant was astonished while receiving thesummon of the Court seeking there in the illegal and unwarranted action of the plaintiff non applicant.

(iv) That the defendant-applicant is in possession of various cheques which the plaintiff-non-applicant had issued in his favour during the course of business. The defendant-applicant did not utilize the same by saying that the plaintiff has assured him that the cheques amount will be paid after some time as the financial position of the plaintiff-non-applicant is not sound now a days. The defendant-applicant while reposing trust up on the statement of plaintiff-non-applicant did not utilize the said issued cheques of the plaintiff. The plaintiff-non-applicant against the said faithfulness of the defendant-applicant submitted the instant suit that to after liquidation of the cheque amount which he has received from the defendant-applicant. The plaintiff submitted the instant suit after receiving the cheque amount from the defendant-applicant with a motive to gage the mouth of defendant-plaintiff-non-applicant so that the defendant-applicant will not claim the cheque amount which the plaintiff-non-applicant owes to the defendant-applicant.

On examination of material on record and after hearing learned counsel, the application so filed has been dismissed and the decree passed in favour of the respondent herein on 11.10.2015.

Learned counsel for the appellant has placed reliance on the judgment titled

"M/s Mechelec Engineers and Manufacturers v. M/s Basis Equipment Corporation", reported in (1976) 4 SCC 687, and contended that the learned trial Court having not granted leave unconditionally in favour of the appellant, but rejectionig application so filed, consequent to which the judgment and decree waspassed thereon, is bad.

On the other hand, learned counsel for the respondent submitted that the learned trial Court has properly applied law to the facts. The application filed on behalf of the appellant had been presented mala fidely to protract the proceedings, so it entailed rejection.

Considered rival arguments. It will be proper herein to refer to following judgments of Hon'ble Apex Court for appreciation on the contentions raised from both the sides.

In Milkyram (India) P. Ltd. v. Chamamlal Bros, reported in AIR 1965 SC 1698, a four judge Bench of the Hon'ble Apex Court observed as:

"6. It may be mentioned that this Court relief upon the decision in Jacobs v. Booth's Distillery Co. (1901) 85 LT 262, in which the House of Lords held that whenever a defence raises a triable issue leave must be given and also referred to two subsequent decisions, where it was held that when such is the case leave must be given unconditionally. In this connection we may refer to the following observation of Devlin L. J. in Fieldrank Ltd. v. Stein (1961) 3. All ER 681 at pp. 682-3:

"the broad principle, which is founded on (1901) 85 LT 262, is summarized on p. 266 of the Annual Practice (1962 Edn.) in the following terms:

"The principle on which the Court acts is that where the defendant can show by affidavit that there is a bona fide triable issue, he is to be allowed to defend as to that issue without condition.

If that principle were mandatory, then the concession by counsel for the plaintiffs that there is here a triable issue would mean at once that the appeal ought to be allowed, but counsel for the plaintiffs has drawn our attention to some comments that have been made on (1901) 85 LT 262. They will be found at pp. 251 and 267 of the Annual Practice, 1962. It is suggested (see p. 251) that possibly the case, if it is closely examined does not go as far as it has hitherto been thought to go; and on the top of p. 267 the learned editors of the Annual Practice have this note:

"The condition of payment into Court, or giving security, is nowadays more often imposed than formerly, and not only where the defendant consents but also where there is a good ground in the evidence for believing that the defence set up is a sham defence and the matter is prepared very nearly to give judgment for the plaintiff."

It is worth nothing also that in Lloyd's Banking Co. v. Ogle (1876) 1 Ex. D. 262, at p. 264 in a dictum which was said to have been overruled or qualified by (1901) 85 LT. 262 Bramwell B., had said that "...... those conditions (of bringing money into Court or giving security) should only be applied when there is something suspicious in the defendant's mode of presenting his case.

I should be very glad to see some relaxation of the strict rule in (1901) 85 LT 262. I think that any judge who has sat in chambers in B. S. C. Ord. 14 summonses has had the experience of a case in which, although he cannot say for certain that there is not a triable issue, nevertheless he is left with the real doubt about the defendant's good faith, and would like to protect the plaintiff, especially if there is not grave hardship on the defendant in being made to pay money into Court. I should be prepared to accept that there has been a tendency in the last few years to use this condition more often than it has been used in the past, and I think that is good tendency."

These observations as well as some observations of Chagla, C. J., in Rawalpandi Theatres Private Ltd. v. M/s Film Group Bombay, 60 Bom LR 1378 at p. 1374, may well be borne in mind by the Court sitting in appeal upon the order of the trial judge granting conditional leave to defend. It is indeed not easy to say in many cases whether the defences is a genuine one or not and, therefore, it should be left to the discretion of the trial judge who has experiences of such matters both at the bar and the bench to form his own tentative conclusion about the quality or nature of the defence and determine the conditions upon which leave to defend may be granted. If the judge is of opinion that the case raised a triable issue, then leave should ordinarily be granted unconditionally. On the other hand, if he is of opinion that the defence raised is frivolous, or false, or sham, he should refuse leave to defend altogether. Unfortunately, however, the majority of cases cannot be dealt with in a clear cut way like this and the judge may entertain a genuine doubt on the question as to whether the defence is genuine or sham or in other words whether it raises a triable issue or not. It is to meet such cases that the High Court contemplates that even in cases where an apparently triable issue is raised the judge may impose conditions in granting leave to defend. Thus this is a matter in the discretion of the trial judge and in dealing with it, he ought to exercise his discretion judiciously. Care must be taken to see that the object of the rule to assist the expeditious disposal of commercial causes to which the order applies, is not defeated. Care must also be taken to see that real and genuine triable issues are not shut out by unduly severe orders as to deposit. In a matter of this kind, it would be undesirable and inexpedient to lay down any rule of general application."

Their lordships on having a review of the entire case law in IDBI Trusteeship Services Ltd. v. Hubtown Ltd., reported in (2017) 1 SCC 568, on the subject, returned its findings on the following issues:

(i) Whether the respondent-defendant had raised substantial defence to the claim made in the suit and was entitled to leave to defend and if so on what conditions?

(ii) Whether the judgment in Mechelec, (1976) 4 SCC 687, continues to be the law even after amendment of Order 37 in 1976.

In this matter, a suit had been filed by the petitioner to enforce rights that had arisen out of a Corporate Guarantee executed by the respondent-defendant. Their lordships referred at the very facts as pleaded in the plaint and subsequent development thereon. After having discussion on the grounds put forth, the learned single judge, therefore, had come to the conclusion that unconditional leave was required to be granted to the defendants to defend the case which was accordingly granted.

After having noted the facts as pleaded by the parties and legal principles applicable, their lordships concluded that it can be said that defendant has raised a substantial defence to the claim made in the suit. Arguably at the highest, as held by the learned Single Judge, even if a triable issue may be said to have arises on the application of FEMA etc, their lordships expressed doubt about the defendant's good faith and genuineness of triable issue raised. The defendant was stated appearing to be in the realm of being plausible but improbable. The defendant was granted leave subject to deposition of an amount indicated therein, on giving security to the satisfaction of Prothonotary and Senior Master, Bombay High Court.

Some of the pertinent observations in this regard made by their lordships from the judgment are as:

However, there are two judgments of the Hon'ble Apex Court which directly deal with the amendment made to Order 37 and the effect thereof on the ratio contained in Mechelec case;

15.1. In Defiance knitting Industries (P) Ltd. v. Jay Arts, this Court after setting out the amended Orders 37 and after referring to Mechelec case, laid down the following principles:

While giving leave to defend the suit the Court shall observe the following principles:

(a) If the Court is of the opinion that the case raises a triable issue then leave to defend should ordinarily be granted unconditionally. See Milkhiram (India) (P) Ltc. V. Chamanlal Bros. The question whether the defence raises a triable issue or not has to be ascertained by the Court from the pleadings before it and the affidavits of parties.

(b) If the Court is satisfied that the facts disclosed by the defendant do not indicate that he has a substantial defence to raise or that the defence intended to be put up by the defendant is frivolous or vexatious it may refuse leave to defend altogether. Kiramoyee Dasi v. J. Chatterjee (noted and approved in Mechelec case).

(c) In cases where the Court entertains a genuine doubt on the question as to whether the defence is genuine or sham or whether it raises a triable issue or not, the Court may impose conditions in granting leave to defend."

15.2. In Southern Sales & Services v. Sauermilch Design & Handels GmbH, this Court was squarely asked to render its discretion on whether the judgment in Mechelec case was to a large extent rendered ineffective in view of the amended Order

The Court found:

Having considered the submissions made on behalf of the respective parties and the decisions cited, there appears to be force in Mr. Sharma's submissions regarding the object intended to be achieved by the introduction of sub rules (4), (5) and (6) in Rule 3, Order 37 of the Code. Where in the unamended provisions of Rule 3, there was no compulsion for making any deposit as a condition precedent to grant of leave to defend a suit by virtue of the second proviso to sub-rule (5), the said provision was altered to the extent that the deposit of any admitted amount is now a condition precedent for grant of leave to defend a suit filed under Order 37 of the Code. A distinction has been made in respect of any part of the claim, which is admitted. The second proviso to sub-rule (5) of Rule 3 makes it very clear that leave to defend a suit shall not be granted unless the amount as admitted to be due by the defendant is deposited in Court."

It is thus clear that Order 37 has suffered a change in 1979 and that change has made a difference in the law laid down. First and foremost, it is important to remember that Milkhiram case is a direct authority on the amended Order 37 provision, as the amended provision in Order 37 Rule 3 is the same as the Bomb ay amendment which this Court was considering in the aforesaid judgment. We must hasten to add that the two provisos to sub-rule (3) were not, however, there in the Bombay amendment. These are new, and the effect to be given to them in something that we will have to decide. The position in law now is that the trial judge is vested with a discretion which has to result in justice being done on the facts of each case. But justice, like Equality, another cardinal constitutional value, on the one hand, and arbitrariness on the other, are worn enemies. The discretion that a judge exercises under Order 37 to refuse leave to defend or to grant conditional or unconditional leave to defend is a discretion akin to Josep's multi-coloured coat, a large number of baffling alternative present themselves. The life of the law not being logic but the experience of the trial judge is what comes to the rescue in these cases; but at the same time informed by guidelines or principles that we propose to lay down to obviate exercise of judicial discretion in an arbitrary manner. At one end of the spectrum is unconditional leave to defend, granted in all cases which present a substantial defence. At the other end of the spectrum are frivolous or vexatious defenes, leading to refusal of leave to defend. In between these two extremes are various kinds of defences raised which yield conditional leave to defend in most cases. It is these defences that have to be guided by broad principles which are ultimately applied by the trial judge so that justice is done on the facts of each given case.

Accordingly, the principles stated in para 8 of Mechelec case will not stand superseded, given the amendment of Order 37 Rule 3 and the binding decision of four judges in Milkhiram case as follows:

17.1 If the defendant satisfies the Court the 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 raised 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 raised 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 raised a defence which is plausible but improbable, the trial Judge may impose conditions as to tie 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.

The suit herein was filed by the respondent on 04.02.2015, for issuance of decree under Order 37 of CPC. Application came to be filed by appellant herein for grant of leave to defend the suit, which came to be dismissed by the learned trial Court in terms of order judgment and decree dated 31.10.2015.

A cursory examination of the grounds taken for grant of leave by the appellant herein before the trial Court as reflected in the memo of appeal and judgment shows that the appellant having negated correctness of the stand taken by the respondent herein, in the suit filed against the appellant for recovery amount of Rs. 3. 50 lacs. The learned trial Court has found defence projected by the appellant to be not fair, reasonable and bona fide.

The observations of their lordships in Milkyram (India) P. Ltd. v. Chamanal Bros, above referred, reported in AIR 1965 SCC 1698, are quite clear that the discretion vested in a trial judge under Order 37 is to be allowed to be used by them according to his wisdom, which gets sharpened by practical experience over years as a judge or may be even at bar. One of the principles unerringly which can be deduced for exercise of discretion, is, if the bona fides were found to be deficient in the conduct of defendant, the leave has to be declined. In the instant case, it has been opined by the trial Court that the pleas taken by the appellant are evasive and lacking bona fides. Refusal to grant leave was not, as such, improper, necessitating the judgment and decree passed consequently to be set aside.

Having found the discretion has not been exercised in any manner capriciously, arbitrarily or erroneously by the trial Court, no merit is found in the instant appeal. Approach of the learned trial Court in passing judgment/decree consequent upon refusal to grant leave, too cannot be thus found fault with. Same entails dismissal and is accordingly dismissed.

Record be returned back.