Case Note & Summary
The matter arose from a writ petition under Article 227 of the Constitution of India filed by the defendant in a commercial summary suit, challenging an order dated 04.03.2026 passed by the LXXXIX Additional City Civil and Sessions Judge (Commercial Court), Bengaluru. The respondent, a company, had filed a suit under Order XXXVII of the Code of Civil Procedure, 1908 for recovery of Rs.5 crores, alleging that the amount was paid under a term sheet for a property transaction and that the petitioner had failed to execute the sale deed and issued a cheque that was dishonoured. In defence, the petitioner sought leave to defend, contending that the respondent had breached the terms, entitling him to forfeit the amount, and also claimed damages. The Commercial Court, upon considering the application, found that the petitioner had disclosed a substantial defence raising triable issues on limitation, forfeiture, and the respondent's compliance with the term sheet. However, while allowing the application for leave to defend, it imposed a condition that the petitioner furnish a bank guarantee for Rs.5 crores within 30 days. The petitioner challenged this condition as illegal, arguing that once the court records a finding of substantial defence, unconditional leave must follow under Order XXXVII Rule 3(5) CPC as interpreted by the Supreme Court in B.L. Kashyap and Sons Ltd. v. JMS Steels and Power Corporation and IDBI Trusteeship Services Ltd. v. Hubtown Ltd. The respondent contended that the court has discretion to impose conditions to protect the plaintiff's interests and that the condition was not onerous. The High Court examined the statutory scheme and noted that Order XXXVII Rule 3(5) classifies defences: where the defence is frivolous, leave may be refused; where it raises triable issues but is doubtful or improbable, conditional leave may be granted; but where the defence is substantial, the defendant must be allowed to defend unconditionally. The trial court itself had found the defence substantial, and therefore it was not open to impose any condition, including a bank guarantee. The court further held that the jurisdiction under this provision is not founded on abstract equity and that the legislature has already balanced the rights of the parties. It rejected the respondent’s argument about the absence of a counterclaim, as a defendant can dispute the plaintiff's claim without filing one. In conclusion, the High Court allowed the writ petition, set aside the condition of the bank guarantee, and granted unconditional leave to defend, directing the petitioner to file a written statement within a reasonable time to be fixed by the Commercial Court.
Headnote
A) Civil Procedure - Summary Suits - Leave to Defend - Order 37 Rule 3(5) of Code of Civil Procedure, 1908 - When a defendant in a summary suit discloses a substantial defence, unconditional leave to defend is mandatory; the court cannot impose conditions such as furnishing a bank guarantee even to balance interests, as the statutory scheme itself prescribes consequences based on the nature of defence - The Commercial Court had recorded that the petitioner raised a substantial defence on limitation, forfeiture, and breach of contract, yet directed a bank guarantee of Rs.5 crores. The High Court held that such a condition is contrary to the legislative mandate; once substantial defence is found, the defendant is entitled to unconditional leave. The condition was set aside and unconditional leave granted (Paras 9-12).
Issue of Consideration
Whether, after recording a finding that the defendant has disclosed a substantial defence within the meaning of Order XXXVII Rule 3(5) of the CPC, the Commercial Court could nevertheless impose a condition requiring the furnishing of a bank guarantee
Final Decision
The writ petition is allowed. The condition imposed by the Commercial Court requiring the petitioner to furnish a bank guarantee of Rs.5 crores is set aside. The leave to defend is granted unconditionally. The petitioner is at liberty to file his written statement within a reasonable time to be fixed by the Commercial Court.
Law Points
- Under Order 37 Rule 3(5) of Code of Civil Procedure
- 1908
- if a defendant discloses a substantial defence
- unconditional leave to defend must be granted
- imposition of conditions like bank guarantee is impermissible
- statutory scheme classifies defences and dictates consequences
- court cannot substitute legislative mandate with equitable considerations
- conditional leave is reserved for doubtful or improbable defences
- not for substantial ones
