SUDIN DILIP TALAULIKAR versus POLYCAP WIRES PVT. LTD. AND OTHERS on 15 July 2019

[2019] 9 S.C.R. 279

SUDIN DILIP TALAULIKAR

v.

POLYCAP WIRES PVT. LTD. AND OTHERS

(Civil Appeal No.5528 of 2019)

JULY 15, 2019

[ASHOK BHUSHAN AND NAVIN SINHA, JJ.]

Code of Civil Procedure, 1908: Or. XXXVII, r.3(5) – Summarysuit filed against appellant for recovery of Rs.64.18 lacs – Prior tofiling of summary suit, the respondent had filed criminal case unders.138 of N.I. Act for the same dues which case he had unconditionallywithdrawn – However, while the prosecution under the N.I. Act waspending, the respondent instituted the instant summary suit forRs.36.13 lacs being total sum of two dishonoured instruments withan additional claim for Rs.28.05 lacs as interest – Conditional leaveto defend was granted to appellant-defendant with a finding basedon existence of a commercial relationship – Grievance of appellantwas that under the second proviso to sub-rule 5 of r.3 of Or. XXXVII,the condition for deposit of Rs.30 lacs could not have been orderedin absence of any admissible dues and he denied any dealings withrespondents after 2011 and stated that there was no occasion forhim to issue a cheque in the year 2014 for any alleged dues of theyear 2011 – Held: According to the plaint of the respondent,commercial dealings between the parties ended on 03.06.2011 –The respondent did not state any reason as to why outstandingpayment in respect of the same was made by cheque as late as01.03.2014 – Although respondent had option to institute a summarysuit at the very inception of the dispute, but it consciously opted fora prosecution under the N.I. Act which undoubtedly was a moreefficacious remedy for recovery of any specified amount of adishonoured instrument raising a presumption against the drawer,as in a summary suit the possibility of leave to defend could not becompletely ruled out, in which case the recovery gets delayed andprotracted – The court, on 29.10.2015, in the prosecution institutedby the respondent under the Act, required the respondent to filecertain additional documents because the appellant had denied theexistence of legal liability for any sum due – It was only thereafter

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Athat the summary suit was instituted on 24.11.2015 – The prosecutionunder the Act was subsequently unconditionally withdrawn on14.12.2015 – This coupled with the specific contention of theappellant, not denied by the respondent, that it had returned defectivegoods and paid the balance dues of Rs.5 lacs, the conclusion togrant leave to defend was perfectly justified – But the defence raisedBby appellant in background was certainly not a sham much lessfrivolous and neither could it be called improbable – Appellant hadraised a substantial defence and genuine triable issues – The factthat there may have been commercial relations between the partieswas the ground for the institution of the summary suit but could notCper se be the justification for grant of conditional leave sans properconsideration of the defence from the materials on record – Theimpugned orders granting conditional leave to defend wereunsustainable and liable to be set aside – Appellant is grantedunconditional leave to defend – Negotiable Instruments Act,1881 – s.138.DCode of Civil Procedure, 1908: Or. XXXVII – Object ofsummary suit – Grant of unconditional leave to defend –Discretionary power of the court – In a summary suit, if thedefendant discloses such facts of a prima facie fair and reasonabledefence, the court may grant unconditional leave to defend – ThisEnaturally concerns the subjective satisfaction of the court on thebasis of the materials that may be placed before it – However, in anappropriate case, if the court is satisfied of a plausible or probabledefence and which defence is not considered a sham or moonshine,but yet leaving certain doubts in the mind of the court, it may grantFconditional leave to defend – In contradistinction to the earliersubjective satisfaction of the court, in the latter case there is anelement of discretion vested in the court – Such discretion is notabsolute but has to be judiciously exercised tempered with what isjust and proper in the facts of a particular case – The ultimateobject of a summary suit is expeditious disposal of a commercialGdispute – The discretion vested in the court, therefore, requires it tomaintain the delicate balance between the respective rights andcontentions by not passing an order which may ultimately end upimpeding the speedy resolution of the dispute.

Allowing the appeal, the Court

Conclusion

Allowing the appeal, the Court

HELD: Both the Civil Judge and the High Court posedunto themselves the wrong question and therefore misdirectedthemselves in application of the principles for discretion laid downin Hubtown Limited by granting conditional leave to defendwithout properly adverting and referring to the facts of the caseand the materials on record. According to the plaint of therespondent, commercial dealings between the parties ended on03.06.2011. At this stage, it was necessary to notice the contentionof the appellant that the signatures and the contents of the chequeswere in different writings. The respondent had the option toinstitute a summary suit at the very inception of the dispute. Butit consciously opted for a prosecution under the Act whichundoubtedly was a more efficacious remedy for recovery of anyspecified amount of a dishonoured instrument raising apresumption against the drawer, as in a summary suit thepossibility of leave to defend could not be completely ruled out,in which case the recovery gets delayed and protracted. Theappellant had raised a substantial defence and genuine triableissues. The failure both by the Trial Judge and the High Court tonotice and consider the said issues did not justify grant ofconditional leave to defend. The fact that there may have beencommercial relations between the parties was the ground for theinstitution of the summary suit but could not per se be thejustification for grant of conditional leave sans properconsideration of the defence from the materials on record. Theimpugned orders granting conditional leave to defend are heldto be unsustainable. The appellant is granted unconditional leaveto defend. [Paras 14, 16 and 17] [287-A-D, G-H; 288-A-B]

IDBI Trusteeship Services Limited v. Hubtown Limited(2017) 1 SCC 568 : [2016] 11 SCR 660 – referred to.

Case Law Reference[2016] 11 SCR 660 referred to Para 3

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ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 5528of 2019

From the Judgment and Order dated 27.02.2018 of the High Courtof Judicature at Bombay in Writ Petition No. 13155 of 2017

Varun Singh, Gaurav Nair, Akash S. Acharya, Ms. PranatiBBhatnagar, Advs. for the Appellant.

Ms. Sanjana Saddy, Ms. Sanyat Lodha, T. Mahipal, Advs. for theRespondents.

The Judgment of the Court was delivered by CNAVIN SINHA, J.

1. Leave granted.

2. The appellant is aggrieved by grant of conditional leave to defendin Summary Suit No. 1289 of 2015 filed against him, by the respondentunder Order XXXVII of the Code of Civil Procedure, 1908 (hereinafterDreferred to as “the Code”) for recovery of Rs.64,18,609/-, inclusive ofinterest.

3. Learned counsel for the appellant submitted that under theSecond Proviso to sub-Rule 5 of Rule 3 of Order XXXVII of the Code,the condition for deposit of Rs.30,00,000/- could not have been orderedEin absence of any admissible dues. The fact that there may have been acommercial transaction between the parties in the past, cannot ipsofacto be construed as an admission of debt merely because therespondent may have so claimed in the suit. The respondent hadunconditionally withdrawn the prosecution instituted by him earlier underFSection 138 of Negotiable Instruments Act (hereinafter referred to as“the Act”), for the same dues. All legitimate dues have been paid. Thedefective goods were returned, the balance of five lacs was also paid,and the accounts cleared, after which no further transactions had takenplace between the parties. Reliance was placed on IDBI TrusteeshipServices Limited vs. Hubtown Limited, 2017(1) SCC 568.

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4. Learned counsel for the respondent submitted that the summarysuit had been instituted for recovery of outstanding dues with regard togoods supplied to the appellant. It was for the appellant to demonstratethat he had paid for goods. The impugned orders notice that the appellanthad placed no documentary evidence in his reply. The reference to the H

admitted commercial transaction between the parties has been made inthat context. The withdrawal of the criminal prosecution was irrelevant.It was no bar to the maintainability of the summary suit. It is for theappellant to prove during the trial of the suit that he had in fact paid forthe goods as claimed. The impugned orders are based on sound exerciseof discretion in the facts of the case and merit no interference.

5. A brief recapitulation of facts would bring the matter in properperspective for appreciation of issues involved. The respondent suppliedelectrical cables and wires to the appellant between 09.05.2010 to03.06.2011. Acknowledging some payments they claimed outstandingdues of Rs.34,24,633/-. Likewise, for supplies between 01.04.2010 to10.03.2011 they claimed dues of Rs.1,88,377/-. A notice was given tothe appellant under Section 138(b) of the Act after the cheques dated01.03.2014 and 01.03.2014 were dishonored, as the account was blocked.The respondent then instituted a prosecution under Section 138 readwith Section 142 of the Act lodged for Rs.34,24,633/- on 30.04.2014with regard to the former instrument and on 01.08.2014 with regard tothe latter instrument. Different dates have been mentioned in differentdocuments placed before us.

6. While the prosecution under the Act was pending, the respondentinstituted the present summary suit on 24.11.2015 for a cumulative sumof Rs.36,13,410/-, being the total amount of two dishonored instruments,with an additional claim for Rs.28,05,199/- as interest at the rate of 18%per annum amounting to a total of Rs.64,18,609/-. The Suit expresslyreferred to the pendency of the prosecution under the Act.

7. In Summons for Judgment No. 105 of 2016 dated 16.03.2016,in the summary suit the respondent relied upon the extracts of accountsof the appellant to support its claim for unpaid dues. The prosecutionsunder the Act were withdrawn on 14.12.2015. The order withdrawingthe prosecution under the Act is unconditional in nature and is a suo-moto action.

8. The appellant in its defence to the summons for judgment reliedupon the institution of the prosecution under the Act prior to the suit andits unconditional withdrawal to contend that there were in fact no duespayable. The appellant further relied upon an order dated 29.10.2015passed in the prosecution under the Act requiring the respondent toproduce certain original documents materials to the complaint and only A

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Asubsequent to which, without producing the said documents theprosecution under the Act was unconditionally withdrawn. Denying anydealings with the respondents after 2011, the appellant questioned thatthere was no occasion for it to issue a cheque in the year 2014 for anyalleged dues of the year 2011. It was further contended that differentinks had been used in the instruments for the signatures and its contents.BDefective goods on the consignment had been returned and the balanceof Rs.5,00,000/- paid, facts which were not disputed by the respondent.

9. The Civil Judge by order dated 20.07.2017 recorded thesatisfaction of a triable defence but granted conditional leave to defendwith an unreasoned finding based on the existence of a commercialCrelationship between the parties. The High Court acknowledged thatthere was no admission by appellant about its liability to repay any amount,but because the appellant had not disputed a commercial relationshipand purchase of goods from the respondent, and in absence of anymaterial to show sufficient payment, the order for conditional leave toDdefend required no interference.

10. Order XXXVII, Rule 3 of the Code dealing with the procedurefor summary suit, in the relevant extract provides as follows:

“3. Procedure for the appearance of defendant XXXXX

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(4) if the defendant enters an appearance, the plaintiff shallthereafter serve on the defendant a summons for judgementin Form No. 4A in Appendix B or such other Form as may beprescribed from time to time, returnable not less than ten daysfrom the date of service supported by an affidavit verifyingthe cause of action and the amount claimed and stating thatin his belief there is no defence to the suit.

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(5) The defendant may, at any time within ten days from theservice of such summons for judgement, by affidavit orotherwise disclosing such facts as may be deemed sufficientto entitle him to defend, apply on such summons for leave todefend such suit, and leave to defend may be granted to himunconditionally or upon such terms as may appear to the Courtor Judge to be just:

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SUDIN DILIP TALAULIKAR v. POLYCAP WIRES PVT. LTD.AND OTHERS [NAVIN SINHA, J.]

Provided that leave to defend shall not be refused unless theCourt is satisfied that the facts disclosed by the defendant donot indicate that he has a substantial defence to raise or thatthe defence intended to be put up by the defendant is frivolousvexatious:

Provided further that, where a part of the amount claimed bythe plaintiff is admitted by the defendant to be due from him,leave to defend the suit shall not be granted unless the amountso admitted to be due is deposited by the defendant in Court.

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11. In a summary suit, if the defendant discloses such facts of aprima facie fair and reasonable defence, the court may grantunconditional leave to defend. This naturally concerns the subjectivesatisfaction of the court on basis of the materials that may be placedbefore it. However, in an appropriate case, if the court is satisfied of aplausible or probable defence and which defence is not considered asham or moonshine, but yet leaving certain doubts in the mind of thecourt, it may grant conditional leave to defend. In contradistinction to theearlier subjective satisfaction of the court, in the latter case there is anelement of discretion vested in the court. Such discretion is not absolutebut has to be judiciously exercised tempered with what is just and properin the facts of a particular case. The ultimate object of a summary suitis expeditious disposal of a commercial dispute. The discretion vested inthe court therefore requires it to maintain the delicate balance betweenthe respective rights and contentions by not passing an order which mayultimately end up impeding the speedy resolution of the dispute.

12. The controversy in the facts of the present case is thereforenot with regard to any dues admitted by the appellant or not, and therequirement to deposit the same. The issue for adjudication is whetheron basis of the materials on record, whether their has been just andproper exercise of the discretion to grant conditional leave to defend bydeposit of Rs.30,00,000/- after consideration of all material and relevantfactors.

13. In Hubtown Limited (supra), this court has laid down theprinciples which should guide exercise of such discretion as follows :

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“…17.1. If the defendant satisfies the court that he has asubstantial defence, that is, a defence that is likely to succeed,the plaintiff is not entitled to leave to sign judgment, and thedefendant is entitled to unconditional leave to defend the suit.

17.2. If the defendant raises triable issues indicating that hehas a fair or reasonable defence, although not a positivelygood defence, the plaintiff is not entitled to sign judgment,and the defendant is ordinarily entitled to unconditional leaveto defend.

17.3. Even if the defendant raises triable issues, if a doubt isleft with the trial Judge about the defendant’s good faith, orthe genuineness of the triable issues, the trial Judge mayimpose conditions both as to time or mode of trial, as well aspayment into court or furnishing security. Care must be takento see that the object of the provisions to assist expeditiousdisposal of commercial causes is not defeated. Care must alsobe taken to see that such triable issues are not shut out byunduly severe orders as to deposit or security.

17.4. If the defendant raises a defence which is plausible butimprobable, the trial Judge may impose conditions as to timeor mode of trial, as well as payment into court, or furnishingsecurity. As such a defence does not raise triable issues,conditions as to deposit or security or both can extend to theentire principal sum together with such interest as the courtfeels the justice of the case requires.

17.5. If the defendant has no substantial defence and/or raisesno genuine triable issues, and the court finds such defenceto be frivolous or vexatious, then leave to defend the suitshall be refused, and the plaintiff is entitled to judgmentforthwith.

17.6. If any part of the amount claimed by the plaintiff isadmitted by the defendant to be due from him, leave to defendthe suit, (even if triable issues or a substantial defence israised), shall not be granted unless the amount so admittedto be due is deposited by the defendant in court.”

14. In our opinion, both the Civil Judge and the High Court haveposed unto themselves the wrong question and have therefore misdirectedthemselves in application of the above principles by granting conditionalleave to defend without properly adverting and referring to the facts ofthe case and the materials on record. The fact that there was commercialdealing between the parties was not in issue at all. According to theplaint of the respondent, commercial dealings between the parties endedon 03.06.2011. It stands to reason why outstanding payment in respectof the same came to be made by cheque as late as 01.03.2014. It doesnot appeal to logic or reason much less to the usual practice in commercialdealings. In any event the respondent has not furnished any explanationwith regard to the same. At this stage it becomes necessary to noticethe contention of the appellant that the signatures and the contents ofthe cheques are in different writings. The respondent had the option toinstitute a summary suit at the very inception of the dispute. But itconsciously opted for a prosecution under the Act which undoubtedlywas a more efficacious remedy for recovery of any specified amount ofa dishonoured instrument raising a presumption against the drawer, as ina summary suit the possibility of leave to defend could not be completelyruled out, in which case the recovery gets delayed and protracted.

15. Significantly on 29.10.2015, in the prosecution instituted bythe respondent under the Act, the court required the respondent to filecertain additional documents because the appellant denied the existenceof any legal liability for any sum due. It is only thereafter that theSummary Suit was instituted on 24.11.2015. The prosecution under theAct was subsequently unconditionally withdrawn on 14.12.2015. Thesefacts are not in dispute and are clearly discernible from the records.This coupled with the specific contention of the appellant, not denied bythe respondent, that it had returned defective goods and paid the balancedues of Rs.5,00,000/-, we find the conclusion to grant leave to defend asperfectly justified.

16. But the defence raised by the appellant in the aforesaidbackground was certainly not a sham or a moonshine much less frivolousor vexatious and neither can it be called improbable. The appellant hadraised a substantial defence and genuine triable issues. The failure bothby the Trial Judge and the High Court to notice and consider the aforesaidissues as discussed by us hereinbefore leaves us satisfied that there was AB

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Ano justification to grant conditional leave to defend. The fact that theremay have been commercial relations between the parties was the groundfor the institution of the summary suit but could not per se be thejustification for grant of conditional leave sans proper consideration of the defence from the materials on record.

B17. In the result, the impugned orders granting conditional leaveto defend are held to be unsustainable and are set aside. The appellantis granted unconditional leave to defend.

18. The appeal is allowed.

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Devika Gujral

Appeal allowed.

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