Supreme Court Allows Another Chance to Defend Suit After Ex-Parte Decree: Jersey Developers vs. Canara Bank (2022)

Introduction

Date of the Judgment: 13 April 2022

Citation: (2022) INSC 418

Judges: M.R. Shah, J., B.V. Nagarathna, J.

Should a defendant be given another chance to defend a suit if they were not properly served with a summons, leading to an ex-parte decree? The Supreme Court of India addressed this question in a recent case involving a loan recovery suit where the defendants were residing abroad and the summons were served at their old address in India. The Court considered whether the defendants should be given another opportunity to defend the suit. The judgment was delivered by a two-judge bench comprising Justices M.R. Shah and B.V. Nagarathna.

Case Background

M/s Jersey Developers (P) Limited, the first appellant, had taken a loan from Canara Bank, the respondent. The other appellants, who are directors of the company, were residing in the USA for the last 40 years. The bank filed a suit (OS No. 3749 of 2003) in the Trial Court to recover the loan amount. The summons and notices were sent to the appellants’ address in Chennai, which was closed. The summons were returned as ‘unclaimed’. The Trial Court then ordered substituted service through newspaper publication. The suit proceeded ex-parte, and a decree was passed on 12.02.2004.

Later, the bank approached the Debts Recovery Tribunal (DRT) for a recovery certificate. The DRT, Chennai, issued a notice on 07.06.2013 to the appellants, demanding Rs. 47,21,320.53. This notice was also sent to the Chennai address, which, according to the appellants, was sold in 2002. In 2014, when one of the directors visited India, he became aware of the recovery certificate and the ex-parte decree. The appellants then filed an application before the Trial Court to set aside the ex-parte decree. This application was dismissed, and the dismissal was upheld by the High Court of Judicature at Madras.

Timeline

Course of Proceedings

The Trial Court dismissed the appellants’ application to set aside the ex-parte decree. The appellants then filed a revision petition before the High Court of Judicature at Madras, which was also dismissed on 23.04.2021. The High Court upheld the Trial Court’s decision, leading the appellants to file an appeal before the Supreme Court.

During the hearing of the appeal in the Supreme Court, it was noted that the appellants had already deposited 50% of the decretal amount as per the High Court’s order. The Supreme Court then ordered the appellants to deposit the remaining 50% of the decretal amount with the Registry of the Supreme Court, which they complied with.

Legal Framework

The case primarily revolves around the procedure for service of summons and the setting aside of ex-parte decrees. The relevant provisions are not explicitly mentioned in the provided text, but the core issue is related to the principles of natural justice and the right of a defendant to be heard. The Civil Procedure Code, 1908, deals with the procedure for serving summons and the grounds for setting aside an ex-parte decree.

Arguments

The appellants argued that they were not properly served with summons because they were residing in the USA, and the summons were sent to their old address in Chennai, which was closed. They contended that they only became aware of the ex-parte decree when one of the directors visited India in 2014. They further argued that they should be given an opportunity to defend the suit on its merits. They demonstrated their bonafides by depositing the entire decretal amount.

The respondent, Canara Bank, likely argued that the substituted service through newspaper publication was sufficient and that the ex-parte decree was valid. However, the specific arguments of the respondent are not detailed in the provided text.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was whether the ex-parte decree should be set aside, and the appellants should be given another opportunity to defend the suit, considering the circumstances of the case, including the fact that the summons were not properly served and that the appellants had deposited the entire decretal amount.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly mention any specific cases or legal provisions that were considered by the Court. However, the underlying principle is that of natural justice, which requires that a person should be given a fair opportunity to be heard before an adverse order is passed against them. The Court also considered the fact that the appellants had deposited the entire decretal amount, which showed their bonafides.

Judgment

The Supreme Court allowed the appeal, setting aside the impugned judgment of the High Court and the order of the Trial Court. The ex-parte decree was also quashed, and the original suit was restored to the file of the Trial Court. The Court directed the appellants to appear before the Trial Court on 10th May, 2022, and file their written statements within four weeks. The Court also directed that the amount deposited by the appellants could be withdrawn by the bank and kept in a fixed deposit, subject to the outcome of the suit.

The Court’s decision was influenced by the fact that the summons were not properly served, the appellants were residing abroad, and the appellants had deposited the entire decretal amount, which showed their bonafides.

The Court observed that “so as to give one additional opportunity to the defendants to defend the suit and as by now entire decretal amount is deposited by the appellants to show their bonafides and therefore the amount alleged to have been due and payable to the Bank is secured, we are of the opinion that if the appellants are given one additional opportunity to defend the suit it will be in the fitness of things and meet the ends of justice.”

The Court also stated that “the original suit is ordered to be restored on the file of the learned Trial Court, which shall be decided and disposed of by the learned Trial Court in accordance with law and on its own merits.”

The Court further clarified that “it will be open for the respondent – Bank original plaintiff to withdraw the same and keep it in an interest bearing fixed deposit which shall be dealt with subject to the ultimate outcome of the suit.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:
✓ The lack of proper service of summons on the appellants.
✓ The fact that the appellants were residing abroad.
✓ The deposit of the entire decretal amount by the appellants, indicating their bonafides.

Key Takeaways

✓ Proper service of summons is crucial for ensuring a fair trial.

✓ Courts should consider setting aside ex-parte decrees if the defendant was not properly served.

✓ Deposit of the decretal amount can be considered as a sign of bonafides by the defendant.

✓ Defendants should be given a fair opportunity to defend the suit on its merits.

✓ The judgment reinforces the principles of natural justice and the right to be heard.

Directions

The Supreme Court directed the following:

✓ The appellants must appear before the Trial Court on 10th May, 2022.

✓ The appellants must file their written statements within four weeks from their first appearance.

✓ The respondent bank can withdraw the deposited amount and keep it in a fixed deposit, subject to the outcome of the suit.

Development of Law

The ratio decidendi of this case is that an ex-parte decree should be set aside if the defendant was not properly served with summons and has shown bonafides by depositing the decretal amount. This judgment reinforces the principles of natural justice and the right to be heard. While it does not introduce a new legal principle, it emphasizes the importance of ensuring that defendants are given a fair opportunity to defend themselves, especially in cases where they are residing abroad and may not be aware of the proceedings.

Conclusion

The Supreme Court’s decision in M/s Jersey Developers vs. Canara Bank highlights the importance of proper service of summons and the right of a defendant to be heard. By setting aside the ex-parte decree and giving the appellants another chance to defend the suit, the Court ensured that the principles of natural justice were upheld. The Court also considered the fact that the appellants had deposited the entire decretal amount, which showed their bonafides. This judgment serves as a reminder that courts should be vigilant in ensuring that all parties are given a fair opportunity to present their case.