Supreme Court Upholds Mandatory Security Deposit for Setting Aside Ex-Parte Decrees in Small Causes Court Cases: Arti Dixit & Anr vs. Sushil Kumar Mishra & Ors (2023) INSC 478 (18 May 2023)

Date of the Judgment: 18 May 2023
Citation: (2023) INSC 478
Judges: K.M. Joseph, J., Hrishikesh Roy, J.
Can an application to set aside an ex-parte decree be entertained if the applicant fails to deposit the decretal amount or provide adequate security at the time of filing the application? The Supreme Court of India addressed this critical question in a recent case concerning the interpretation of Section 17 of the Provincial Small Cause Courts Act, 1887. The Court held that strict compliance with the mandatory deposit or security requirement is essential for such applications to be valid. This judgment, authored by Justice K.M. Joseph, with Justice Hrishikesh Roy concurring, clarifies the procedural requirements for setting aside ex-parte decrees in small causes courts.

Case Background

The case revolves around an ex-parte decree for ejectment and recovery of arrears of rent, taxes, and damages obtained by Respondents 1 to 4 against the Appellants on 18 October 2012. The Appellants, upon learning of the decree during execution proceedings on 5 April 2014, filed an application on 6 May 2014, under Order IX Rule 13 of the Code of Civil Procedure (CPC) to set aside the ex-parte decree. Simultaneously, they also filed an application under Section 17 of the Provincial Small Cause Courts Act, 1887, seeking permission to furnish security instead of depositing the full decretal amount.

Timeline:

Course of Proceedings

The Trial Court initially dismissed the Appellants’ application under Section 17 of the Provincial Small Cause Courts Act, 1887, stating that a subsequent application for providing a surety had already been admitted. The High Court, in revision, directed the Trial Court to expedite the matter, noting that the surety had been accepted. However, the Additional District Judge (ADJ) later set aside the Trial Court’s order, emphasizing the need to verify compliance with Section 17. Subsequently, the Trial Court rejected the application under Section 17 and the surety provided by the Appellants. This decision was upheld by the ADJ and then by the High Court, which led to the appeal before the Supreme Court.

Legal Framework

The core of this case lies in the interpretation of Section 17 of the Provincial Small Cause Courts Act, 1887, which states:

“17. Application of the Code of Civil Procedure. — (1) The procedure prescribed in the Code of Civil Procedure, 1908 (5 of 1908), shall save in so far as is otherwise provided by that Code or by this Act,] be the procedure followed in a Court of Small Causes, in all suits cognizable by it and in all proceedings arising out of such suits:
Provided that an applicant for an order to set aside a decree passed ex parte or for a review of judgment shall, at the time of presenting his application, either deposit in the Court the amount due from him under the decree or in pursuance of the judgment, or give such security for the performance of the decree or compliance with the judgment as the Court may, on a previous application made by him in this behalf, have directed.
(2) Where a person has become liable as surety under the proviso to sub-section (1), the security may be realised in manner provided by section 145 of the Code of Civil Procedure, 1908 (5 of 1908).”

This section mandates that an applicant seeking to set aside an ex-parte decree must either deposit the decretal amount or furnish security as directed by the court. The Supreme Court has previously interpreted this provision to mean that the application for setting aside the decree must be accompanied by either the deposit or a prior application for permission to furnish security.

Arguments

Appellants’ Arguments:

• The Appellants filed the application under Order IX Rule 13 of the CPC and Section 17 of the Provincial Small Cause Courts Act, 1887, on the same day, 6 May 2014.
• They contended that the Trial Court failed to pass an order on their application under Section 17, which was a fault of the court, and they should not suffer due to this.
• The Appellants argued that the security in the form of a shop, which was accepted by the court on 24 May 2014, was sufficient compliance with Section 17.
• They relied on the Allahabad High Court’s Full Bench decision in Bhagwandas Arora v. First ADJ Rampur and the Supreme Court’s decision in Bhagwan Dass Arora v. First Additional District Judge, Rampur and others [ (1983) 4 SCC 1 ], arguing that once security is accepted, any subsequent insufficiency cannot be held against them.
• They also contended that the High Court’s order dated 3 December 2015, which acknowledged the acceptance of the surety, should have been upheld.

Respondents’ Arguments:

• The Respondents argued that the requirements under Section 17 of the Provincial Small Cause Courts Act, 1887, are mandatory and that security was not filed on 6 May 2014, but on 24 May 2014.
• They contended that the court should have passed an order on the application under Section 17, specifying the nature of the security required.
• The Respondents argued that the security furnished was not enforceable in law, as the shop belonged to the Municipal Corporation and not to the surety.
• They emphasized that the application under Order IX Rule 13 was not rejected because security was not furnished, but because the security furnished was not valid.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the application filed by the appellants under Section 17 of the Provincial Small Cause Courts Act, 1887, was in conformity with the proviso to the said section.
2. Whether the security furnished by the appellants was in compliance with Section 17 of the Provincial Small Cause Courts Act, 1887.
3. What is the effect of the order of the High Court dated 03.12.2015, which accepted the submission of the counsel for the parties that the surety was accepted by the court below.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in Kedarnath v. Mohan Lal Kesarwari and others [AIR 2002 SC 582]* , reiterating that the provision as to deposit can be dispensed with by the Court and the applicant can seek leave for furnishing such security as the Court may direct.
• The Supreme Court applied the principles laid down in Ram Bharose v. Ganga Singh [AIR 1931 Allahabad 727]* , which held that the security must be furnished within 30 days, and the court can direct the nature of the security.
• The Supreme Court distinguished the facts in Bhagwan Dass Arora v. First Additional District Judge, Rampur and others [(1983) 4 SCC 1]* , stating that the security was furnished within the stipulated time.

What weighed in the mind of the Court?

The Supreme Court emphasized the mandatory nature of Section 17 of the Provincial Small Cause Courts Act, 1887. The Court was of the view that the legislative intent behind the provision is to ensure that a person seeking to set aside an ex-parte decree demonstrates a genuine intention to comply with the decree by either depositing the decretal amount or providing sufficient security. The Court also highlighted the importance of adhering to procedural requirements and the need for the security to be legally enforceable. The Court also noted that the security furnished by the appellants was not in compliance with Section 145 of the CPC, as the property did not belong to the surety.

Logical Reasoning:

The Court considered the literal interpretation of Section 17, which requires the deposit or security to be furnished at the time of presenting the application. While the Court acknowledged that the application under Section 17 can be filed along with the application under Order IX Rule 13, the security must still be furnished within the stipulated time. The Court rejected the argument that the appellants should not suffer due to the court’s failure to pass orders on the application under Section 17, as the security furnished was not in compliance with law. The Court emphasized that the security must be such that it can be enforced under Section 145 of the CPC, which was not the case with the rented shop.

The Court also addressed the High Court’s earlier order, noting that it was based on a concession by the counsel and did not address the core issue of compliance with Section 17. The Court held that the appellants’ failure to challenge the ADJ’s order dated 01.08.2017, which remanded the matter for fresh consideration, further weakened their case. The Supreme Court concluded that the security furnished by the appellants was unacceptable in law and that there was no merit in the appeal.

“The security to be provided under Section 17 by a surety is to be enforced under the provisions of Section 145 of the Code of Civil Procedure as contemplated in Section 17 (2) of the Act.”

“If security is given, which is later found to be unacceptable even if it is within 30 days within the meaning of Article 123 of the Limitation Act, then it would not be complying with Section 17.”

“The effect of the order of the High Court dated 03.12.2015 must be understood with reference to the concession made by the counsel and may not withstand the requirement of law under Section 17 of the Act being fulfilled.”

Key Takeaways

• Strict compliance with Section 17 of the Provincial Small Cause Courts Act, 1887, is mandatory for setting aside ex-parte decrees.
• Applicants must either deposit the decretal amount or furnish adequate security as directed by the court at the time of filing the application.
• Security furnished must be legally enforceable and comply with Section 145 of the Code of Civil Procedure.
• Courts must promptly pass orders on applications seeking permission to furnish security.
• Parties cannot rely on concessions made by counsel on questions of law.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The Supreme Court reaffirmed the mandatory nature of Section 17 of the Provincial Small Cause Courts Act, 1887 and clarified that the security furnished must be legally enforceable and in compliance with Section 145 of the CPC. The Court reiterated the principles laid down in Kedarnath v. Mohan Lal Kesarwari and others [AIR 2002 SC 582] and Ram Bharose v. Ganga Singh [AIR 1931 Allahabad 727]. This judgment reinforces the need for strict compliance with procedural requirements for setting aside ex-parte decrees in small causes courts.

Conclusion

The Supreme Court dismissed the appeal, upholding the decisions of the lower courts. The Court emphasized that the Appellants failed to comply with the mandatory requirements of Section 17 of the Provincial Small Cause Courts Act, 1887, as they did not furnish acceptable security at the time of filing their application to set aside the ex-parte decree. This judgment reinforces the importance of strict adherence to procedural rules in legal proceedings.