Case Note & Summary
The dispute arose from a summary suit under Order XXXVII of the Code of Civil Procedure, 1908, filed by the plaintiff (respondent) against the defendants (appellants) on the basis of a cheque for Rs. 60,000 drawn in the plaintiff's favour, which was dishonoured on presentation to the bank. The suit was instituted in the Court of the Commercial Subordinate Judge, Delhi. The defendants applied for leave to appear and defend the suit under Order XXXVII Rule 3, contending that the cheque had been given only as collateral security for the price of goods supplied by the plaintiff, that those goods had been paid for by cash payments and other cheques, and therefore the cheque in suit had served its end and was without consideration. They set out the exact dates of payments and the numbers of the other cheques. The trial court held that the defence raised a triable issue but opined that the defendants had not placed anything on file to show that the defence was bona fide, as they had not produced documentary evidence in support. Accordingly, the court granted leave to defend on condition that the defendants furnish security for the suit amount and costs. The defendants' review application failed, and their petition under Article 227 of the Constitution to the Delhi Circuit Bench of the Punjab High Court also failed. They then obtained special leave to appeal to the Supreme Court under Article 136. The Supreme Court considered the scope of Order XXXVII Rules 2 and 3 and the principles governing the grant of leave to defend. It observed that the special procedure under Order XXXVII was designed to prevent defendants from unnecessarily prolonging litigation by raising untenable and frivolous defences in commercial matters where speedy decisions are desirable. The Court held that the test for granting leave is whether the defence raises a real issue and not a sham one, in the sense that if the facts alleged by the defendant are established, there would be a good or even plausible defence on those facts. If the Court is satisfied about that, leave must be given and given unconditionally. The power to impose conditions under Rule 3(2) exists only to ensure a speedy trial, not to penalise a defendant for failing to produce evidence before leave is granted. The Court emphasised that the stage of proof arises only after the defendant has been allowed to enter an appearance and defend the suit, and the nature of the defence must be determined at the time the affidavit is put in. Consequently, a defence that is clear and precise on its face cannot be rendered vague simply because the evidence by which it is to be proved is not brought on file at that initial stage. The Court also reiterated that procedural rules must be construed liberally and in light of natural justice, not as penal enactments, and that discretion conferred on courts must be exercised judicially. It found that the trial court and the High Court had erred in imposing the condition of security based solely on the absence of documentary evidence at the leave stage. The Supreme Court accordingly allowed the appeal, set aside the conditional order, and granted the defendants unconditional leave to defend the suit.
Headnote
A) Civil Procedure - Summary Suit - Leave to Defend Unconditional on Triable Issue - Code of Civil Procedure, 1908, Order XXXVII Rules 2 and 3 - In a summary suit on a dishonoured cheque for Rs. 60,000, the defendants admitted execution but pleaded that the cheque was given as collateral security for goods already paid by cash and other cheques, thereby raising a triable issue - The Court held that if the facts alleged by the defendant, if proved, would afford a good or even plausible defence, leave to defend must be given unconditionally - Held that the trial court's condition of furnishing security was illegal (Paras 1-10). B) Civil Procedure - Summary Suit - Stage of Proof - Code of Civil Procedure, 1908, Order XXXVII Rule 3(2) - The trial court held the defence vague and not bona fide because the defendants did not produce documentary evidence at the leave stage, despite the defence being clear and precise - The Supreme Court held that the stage of proof arises only after leave to defend is granted, and the nature of the defence must be determined at the time the affidavit is put in - Held that lack of documentary evidence at that stage did not render the defence vague (Paras 8-10). C) Civil Procedure - Judicial Discretion - Exercise of Discretion Under Order XXXVII Rule 3(2) - Code of Civil Procedure, 1908, Order XXXVII Rule 3(2) - The Court has discretion to impose conditions but must exercise it judicially and in consonance with natural justice; if exercised arbitrarily or based on misunderstanding of principles, interference is called for upon resultant failure of justice - Held that the condition was based on a wrong approach and was set aside (Paras 10-12). D) Interpretation of Procedural Law - Natural Justice - Procedural Rules to Facilitate Justice - Code of Civil Procedure, 1908 - Procedural laws should be construed liberally and in light of natural justice, not as penal enactments, and should not be used to frustrate justice - Held that refusing unconditional leave due to absence of proof at pre-leave stage violated these principles (Paras 6-8).
Issue of Consideration
Whether the trial court and High Court erred in imposing a condition of furnishing security while granting leave to defend under Order XXXVII Rule 3 CPC solely because the defendant did not produce documentary evidence at the leave stage, even though the defence disclosed a triable issue.
Final Decision
Supreme Court allowed the appeal, set aside the conditional order, and granted unconditional leave to defend. The Court held that the imposition of security was illegal because the defence raised a triable issue, and failure to produce documentary evidence at the leave stage did not render the defence vague or not bona fide.
Law Points
- Legal points not extracted
- Order XXXVII CPC leave to defend must be unconditional if defence raises a triable issue
- test is whether facts alleged by defendant if proved afford a good or plausible defence
- stage of proof arises only after leave to defend is granted
- discretion to impose conditions under Order XXXVII Rule 3(2) must be exercised judicially
- procedural rules should be construed liberally to facilitate justice
- object of summary procedure is to prevent defendants from prolonging litigation by raising frivolous defences
