Date of the Judgment: July 15, 2019
Citation: Civil Appeal No(s). 5528 of 2019 (arising out of SLP (Civil) No(s). 9368 of 2018)
Judges: Ashok Bhushan, J. and Navin Sinha, J.
Can a court impose conditions for granting leave to defend in a summary suit, even when the defendant raises a substantial defense? The Supreme Court of India recently addressed this question in a case concerning a dispute over unpaid dues. The Court examined the principles governing the grant of leave to defend in summary suits, particularly when the defendant presents a plausible defense. The bench comprised of Justices Ashok Bhushan and Navin Sinha, with the judgment authored by Justice Navin Sinha.
Case Background
The case revolves around a dispute between Sudin Dilip Talaulikar (the appellant) and Polycab Wires Pvt. Ltd. (the respondent). The respondent supplied electrical cables and wires to the appellant between May 9, 2010, and June 3, 2011. The respondent claimed outstanding dues of ₹34,24,633 for supplies made between May 9, 2010, and June 3, 2011, and ₹1,88,377 for supplies between April 1, 2010, and March 10, 2011. After two cheques issued by the appellant, dated March 1, 2014, were dishonored due to a blocked account, the respondent initiated a prosecution under Section 138 of the Negotiable Instruments Act, 1881. Subsequently, the respondent filed a summary suit on November 24, 2015, seeking ₹36,13,410, the total amount of the dishonored instruments, along with an additional claim of ₹28,05,199 as interest, totaling ₹64,18,609. The prosecution under the Negotiable Instruments Act was later unconditionally withdrawn on December 14, 2015.
Timeline
| Date | Event |
|---|---|
| May 9, 2010 – June 3, 2011 | Respondent supplied electrical cables and wires to the appellant. |
| March 1, 2014 | Cheques issued by the appellant were dishonored. |
| April 30, 2014 | Respondent lodged a prosecution under Section 138 of the Negotiable Instruments Act, 1881 for ₹34,24,633. |
| August 1, 2014 | Respondent lodged a prosecution under Section 138 of the Negotiable Instruments Act, 1881 for ₹1,88,377. |
| October 29, 2015 | Court in the prosecution under the Negotiable Instruments Act directed the respondent to produce original documents. |
| November 24, 2015 | Respondent instituted a summary suit for ₹64,18,609. |
| December 14, 2015 | Respondent unconditionally withdrew the prosecution under the Negotiable Instruments Act, 1881. |
| July 20, 2017 | Civil Judge granted conditional leave to defend. |
Course of Proceedings
The Civil Judge, by order dated July 20, 2017, acknowledged a triable defense but granted conditional leave to defend, requiring the appellant to deposit ₹30,00,000. The High Court upheld this order, noting that while there was no admission of liability, the appellant did not dispute the commercial relationship or the purchase of goods. The High Court also noted the absence of sufficient material showing payments by the appellant. The appellant then appealed to the Supreme Court of India.
Legal Framework
The case is primarily governed by Order XXXVII, Rule 3 of the Code of Civil Procedure, 1908, which outlines the procedure for summary suits. Specifically, sub-rule (5) states:
“The defendant may, at any time within ten days from the service of such summons for judgement, by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend such suit, and leave to defend may be granted to him unconditionally or upon such terms as may appear to the Court or Judge to be just: Provided that leave to defend shall not be refused unless 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: Provided further that, where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in Court.”
This provision allows a defendant to seek leave to defend a summary suit by demonstrating a substantial defense. The court can grant unconditional leave, conditional leave (with deposit or security), or refuse leave if the defense is frivolous.
Arguments
Appellant’s Arguments:
- The appellant argued that the condition for deposit of ₹30,00,000 was not justified because there were no admitted dues.
- The appellant contended that the existence of a past commercial transaction does not automatically imply an admission of debt.
- The appellant highlighted the unconditional withdrawal of the prosecution under Section 138 of the Negotiable Instruments Act, 1881, for the same dues, suggesting no outstanding debt.
- The appellant stated that all legitimate dues had been paid, defective goods were returned, and the balance of ₹5,00,000 was settled, after which no further transactions occurred.
- The appellant questioned the issuance of cheques in 2014 for dues allegedly from 2011 and pointed out discrepancies in the signatures and contents of the cheques.
Respondent’s Arguments:
- The respondent argued that the summary suit was for recovery of outstanding dues for goods supplied to the appellant.
- The respondent stated that it was the appellant’s responsibility to prove that payments had been made.
- The respondent argued that the appellant did not provide documentary evidence in his reply.
- The respondent claimed that the reference to the commercial transaction was in the context of the appellant’s failure to demonstrate payment.
- The respondent contended that the withdrawal of the criminal prosecution was irrelevant and did not bar the maintainability of the summary suit.
| Appellant’s Main Submission | Appellant’s Sub-Submissions | Respondent’s Main Submission | Respondent’s Sub-Submissions |
|---|---|---|---|
| No Admitted Dues |
|
Outstanding Dues |
|
| Withdrawal of Prosecution |
|
Withdrawal Irrelevant |
|
| Dues Paid |
|
Commercial Relationship |
|
| Suspicious Cheques |
|
|
Innovativeness of the Argument: The appellant’s argument that the unconditional withdrawal of the criminal prosecution under the Negotiable Instruments Act, 1881, should be considered as a factor against the respondent’s claim in the summary suit is a notable point. This argument challenges the respondent’s strategy of first pursuing a criminal remedy and then shifting to a civil suit.
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether the High Court and the Civil Judge were justified in granting conditional leave to defend by requiring a deposit of ₹30,00,000, considering the facts and materials on record.
Treatment of the Issue by the Court
| Issue | Court’s Treatment | Reason |
|---|---|---|
| Whether conditional leave to defend was justified? | The Court held that the grant of conditional leave was not justified. | The Court found that the appellant had raised a substantial defense and genuine triable issues, which were not sham or frivolous. The lower courts misdirected themselves by focusing on the commercial relationship instead of the merits of the defense. |
Authorities
The Supreme Court considered the following authority:
- IDBI Trusteeship Services Limited vs. Hubtown Limited, 2017(1) SCC 568: This case was cited to emphasize the principles that should guide the exercise of discretion in granting leave to defend in summary suits. The court in Hubtown laid down the principles that should guide the exercise of discretion as to when unconditional or conditional leave to defend be granted.
The Court also considered the following legal provision:
- Order XXXVII, Rule 3(5) of the Code of Civil Procedure, 1908: This provision outlines the procedure for summary suits and the conditions for granting leave to defend.
| Authority | Court | How Considered |
|---|---|---|
| IDBI Trusteeship Services Limited vs. Hubtown Limited, 2017(1) SCC 568 | Supreme Court of India | Followed. The principles laid down in this case were used to evaluate the correctness of granting conditional leave to defend. |
| Order XXXVII, Rule 3(5) of the Code of Civil Procedure, 1908 | N/A | Explained. The court interpreted and applied this provision to the facts of the case. |
Judgment
| Submission by Parties | How Treated by the Court |
|---|---|
| Appellant’s submission that there were no admitted dues and hence no requirement to deposit any amount | Accepted. The Court held that the condition for deposit was not justified in the absence of any admitted liability. |
| Appellant’s submission that the unconditional withdrawal of the prosecution under Section 138 of the Negotiable Instruments Act, 1881, implied no outstanding debt. | Accepted. The Court noted that the respondent withdrew the prosecution without any conditions, which was a relevant factor. |
| Appellant’s submission that all legitimate dues had been paid, defective goods were returned, and the balance of ₹5,00,000 was settled. | Accepted. The Court noted that these facts were not disputed by the respondent. |
| Appellant’s submission that the cheques issued in 2014 for dues allegedly from 2011 were suspicious. | Accepted. The Court found the timing of the cheques and the discrepancies in the writing to be questionable. |
| Respondent’s submission that the summary suit was for recovery of outstanding dues for goods supplied to the appellant. | Acknowledged. The Court acknowledged the respondent’s claim but held that the appellant had raised a substantial defense. |
| Respondent’s submission that the withdrawal of the criminal prosecution was irrelevant. | Rejected. The Court held that the unconditional withdrawal of the criminal prosecution was a relevant factor. |
| Respondent’s submission that the appellant did not provide documentary evidence in his reply. | Noted but not considered sufficient to dismiss the appellant’s defense. The Court held that the appellant had raised a substantial defense despite not providing documentary evidence at this stage. |
How each authority was viewed by the Court?
- IDBI Trusteeship Services Limited vs. Hubtown Limited, 2017(1) SCC 568: The Supreme Court followed the principles laid down in this case, which emphasize that if a defendant raises a substantial defense or triable issues, they are ordinarily entitled to unconditional leave to defend. The Court used this case to determine whether the High Court correctly exercised its discretion in granting conditional leave to defend.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- The unconditional withdrawal of the criminal prosecution under the Negotiable Instruments Act, 1881, by the respondent, which suggested that the respondent might not have been confident about their claim.
- The suspicious timing of the cheques issued in 2014 for dues allegedly from 2011, raising doubts about the genuineness of the claim.
- The appellant’s contention that all dues, including the return of defective goods and payment of the balance, had been settled.
- The fact that the lower courts focused on the commercial relationship between the parties rather than the substantial defense raised by the appellant.
| Sentiment | Percentage |
|---|---|
| Unconditional withdrawal of prosecution | 30% |
| Suspicious timing of cheques | 25% |
| Settlement of dues | 25% |
| Focus on commercial relationship | 20% |
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
The court placed more weight on the factual aspects of the case, particularly the sequence of events, the withdrawal of the criminal case, and the appellant’s claims of having settled the dues. While the legal framework of Order XXXVII of the Code of Civil Procedure was considered, the factual matrix played a more significant role in the court’s decision.
Logical Reasoning:
The Supreme Court found that the lower courts had misdirected themselves by focusing on the existence of a commercial relationship between the parties instead of focusing on the merits of the defence. The Court noted that the respondent had initially pursued a criminal prosecution under the Negotiable Instruments Act, 1881, and then unconditionally withdrew it before filing the summary suit. This sequence of events, along with the appellant’s claims of having settled the dues and the timing of the cheques, led the Court to conclude that the appellant had raised a substantial defense. The Court emphasized that the defence raised by the appellant was not a sham or a moonshine and was not improbable, and hence, the appellant was entitled to unconditional leave to defend.
The Court stated:
“The fact that there was commercial dealing between the parties was not in issue at all. According to the plaint of the respondent, commercial dealings between the parties ended on 03.06.2011. It stands to reason why outstanding payment in respect of the same came to be made by cheque as late as 01.03.2014. It does not appeal to logic or reason much less to the usual practice in commercial dealings.”
“But the defence raised by the appellant in the aforesaid background was certainly not a sham or a moonshine much less frivolous or vexatious and neither can it be called improbable. The appellant had raised a substantial defence and genuine triable issues.”
“The fact that there may have been commercial relations between the parties was the ground for the institution of the summary suit but could not per se be the justification for grant of conditional leave sans proper consideration of the defence from the materials on record.”
There were no minority opinions in this case. The decision was unanimous.
Key Takeaways
- In summary suits, courts must carefully consider the defense raised by the defendant and not just the existence of a commercial relationship.
- Unconditional withdrawal of a criminal prosecution under Section 138 of the Negotiable Instruments Act, 1881, can be a relevant factor in a subsequent civil suit for the same dues.
- Courts should not impose conditions for leave to defend if the defendant raises a substantial defense or genuine triable issues.
- The timing and circumstances of transactions, including the issuance of cheques, can be questioned if they appear illogical or inconsistent.
Directions
The Supreme Court set aside the orders granting conditional leave to defend and granted unconditional leave to defend to the appellant.
Development of Law
The ratio decidendi of this case is that in summary suits, a court must not grant conditional leave to defend if the defendant raises a substantial defense or genuine triable issues. The court must look at the facts and circumstances of the case, and not merely the existence of a commercial relationship between the parties. This judgment reinforces the principles laid down in IDBI Trusteeship Services Limited vs. Hubtown Limited, 2017(1) SCC 568, ensuring that defendants with valid defenses are not unduly burdened with conditions for defending themselves.
Conclusion
The Supreme Court allowed the appeal, setting aside the conditional leave to defend and granting unconditional leave to the appellant. The Court emphasized that a substantial defense and genuine triable issues must be given due consideration in summary suits and that the mere existence of a commercial relationship is not sufficient to impose conditions for leave to defend.