Poornima Enterprises and Another vs Nagarjuna Finance Ltd.

S. Dasaradharama Reddy, J.—The Respondent filed O.S. No. 18 of 1994 on the file of the II Addl. Judge, City Civil Court, Hyderabad under Order XXXVII, Rule 3, CPC for recovery of Rs. 7,71,512/ - together with interest at the rate of 36 percent per annum. The allegations in the plaint are that the Petitioner No. 1 who is distributor of M/s. Sunku Auto Limited in Chittoor District for sale and distribution of motor vehicles manufactured by them, approached the Respondent company with a request to arrange letter of credit of a schedule bank for Rs. 4,97,945/ - for purchasing five three-wheeler diesel autos and five load carriers for carrying on their business. The 2nd Petitioner who is the wife of the 1st Petitioner offered her immovable property as collateral security and deposited the title deeds by creating equitable mortgage. The Respondent arranged open letter of credit dated 9.7.1992 for the said amount in favour of Sunku Auto Limited and an agreement was also entered into between the Plaintiff and the first Petitioner on 9.7.1992 for the said amount in favour of Sunku Auto Limited and an agreement was also entered into between the Plaintiff and the first Petitioner on 9.7.1992 as per which the 1st Petitioner has to pay the Plaintiff a sum of Rs. 10,000/ - being the 2% of the letter of credit value towards non refundable service charges to pay bank charges; pay Rs. 75,000/ - towards margin money for letter of credit and deliver post dated cheques covering the entire loan amount. In case of default, the Plaintiff is entitled to claim interest at 36% towards liquidated damages besides Rs. 1,500/ - towards liquidated damages besides Rs. 1,500/ - towards expenses. The Petitioner failed to honour the post dated cheques issued for Rs. 4,25,000/ - and Rs. 90,000/ - in respect of which proceedings u/s 138 of the Negotiable Instruments Act are pending. The Petitioner filed I.A. 314 of 1994 seeking unconditional leave to defend the suit stating that the suit claim is false, that the manufacturer managed with the Respondent-Plaintiff and discounted the bills without delivering the goods to the 1st Petitioner, that the Plaintiff colluded with the manufacturer to make wrongful loss to the Petitioners 1st Petitioners and that the Plaintiff-finance company obtained signatures of the 1st Petitioner on blank letter heads and other blank papers and misused them. In the counter, the Respondent-Plaintiff reiterated what is stated in the plaint and stated that the petition is filed with oblique motive to protract the proceedings. The Court below has refused to give leave and consequently decreed the suit as prayed for.

Against the order dismissing the I.A. the Petitioners have come up in this revision contending that unconditional leave ought to have been granted in view of the plea of the Petitioners that the Respondent paid the amount to the suppliers without verifying whether the vehicles were delivered to the Petitioners or not.

Mr. A.T.M. Rangaramanujam, learned Counsel for the Respondent raised a preliminary objection that the C.R.P. is not maintainable since the suit has been decreed consequent upon the dismissal of the I.A. and the remedy of the Petitioners is only to file appeal. This objection is not valid in view of the decision in K. Lalitha Saraswathi Lakshmi case 1981 (2) APLJ 412, wherein it is held that when the order passed under Order XXXVII, Rule 32 is itself set aside, the subsequent decreeing of the suit passed on such an order cannot survive and that the revision is maintainable even after consequential order of decreeing the suit was passed.

The contention of Mr. K. Ramakrishna Reddy, learned Counsel for the Petitioner is that the Court below ought to have granted leave to defend either unconditionally or subject to some conditions since the defence set up by the Petitioners is a bonafide one and involve triable issues. He relied on the decision in Santosh Kumar Vs. Bhai Mool Singh, , wherein the Supreme Court held that though the Court is given a discretion by Order XXXVII, Rule 3, it must be exercised along judicial lines and whenever the defence raises triable issues, leave must be given unconditionally, while leave can be refused if the defence is sham or illusory and that if the defence is not bonafide, the Court can impose conditions, and is not tied to refusing leave to defend. The Court held that the test is to see whether the facts alleged by the Defendant, if established, constitute good and plausible defence. It was also laid down that the Court at that stage has to determine only the nature of defence but cannot reach the conclusion arbitrarily at the threshold that the defence is not bonafide.

In the I.A. some documents were marked on behalf of the Plaintiff while no document was marked by the Petitioners. No oral evidence was taken. In view of the suit agreement Ex. B-1, Ex. B-2 declaration given by the 2nd Petitioner creating equitable mortgage in favour of the Respondent, Ex.B-4 letter written by the 1st Petitioner to the Respondent promising to clear off the outstandings by 10.9.1992 and Exs. B-11 and B-12, xerox copies of the cheques dated 13.8.1992 and 10.7.1992 for Rs. 4,25,000/ - and Rs. 90,000/ - respectively which have been dishonoured, the Court below held that the defence of the Petitioners is sham and illusory. But as pointed out by the Supreme Court, the Court has to examine at the stage of granting leave whether the facts as alleged by the Defendant, even if proved true, constitute valid or bonafide defence. The Court below instead of doing so, discussed evidence and gave finding that the defence is sham evidently as there was no evidence on behalf of the Defendants. The Petitioners cannot be said to have raised triable issues to enable them to unconditional leave, nor can they be refused leave as it cannot be said that the defence is sham or illusory. As the defence falls within the middle category, namely bonafide, leave is granted to defend subject to the condition that they deposit Rs. 1,00,000/ - to the credit of the suit within six weeks from today. The C.R.P. is accordingly disposed of. No costs.