Holding

The maximum deposit that could be directed under the earlier High Court order was Rs.20 lakh; any order directing a higher deposit is not maintainable.

Summary

Defiance Knitting Industries filed a summary suit for Rs.98.81 lakh and applied for unconditional leave to defend under Order XXXVII Rule 3(5) of the CPC, which was rejected. The Bombay High Court, in a civil revision, directed the defendant to deposit Rs.20 lakh to show bonafides and allowed a subsequent application for leave to defend, with the deposit refundable if leave was granted. The trial court later conditioned the grant of leave on an additional deposit of Rs.50 lakh, making the total Rs.70 lakh, and the High Court upheld this order. The Supreme Court held that the earlier High Court order expressly fixed the maximum deposit at Rs.20 lakh and did not contemplate any further amount, rendering the trial court and High Court orders untenable. Consequently, the Supreme Court stayed the High Court order subject to the Rs.20 lakh deposit, refused a refund of that amount, and directed the trial court to dispose of the suit expeditiously. The appeal was allowed without any order as to costs.

Issues considered

Whether the trial court could conditionally grant unconditional leave to defend by directing a deposit exceeding the Rs.20 lakh ceiling fixed by the earlier High Court order.
Whether the High Court was justified in upholding the trial court's order directing an additional Rs.50 lakh deposit.
Interpretation of Order XXXVII Rule 3(5) CPC regarding the requirement and quantum of deposit for granting leave to defend.

Legislation cited

Code of Civil Procedure, 1908s. Order XXXVII Rule 3(5)

Subjects

Order XXXVIIleave to defendsummary suitdepositbonafidesunconditional leaveCivil ProcedureHigh Court orderSupreme Courtappeal

Judgment

DEFIANCE KNITTING INDUSTRIES PVT. LTD. A
v.
JAY ARTS

AUGUST 30, 2006

[AR!JlT PASA YAT AND LOKESHWAR SINGH PANTA, JJ.] B

Code of Civil Procedure, 1908-0rder XXXVll Rule 3-Unconditional
leave to defend, grant of-Rejection of, by trial court-High Court directing
applicant to deposit Rs. 20 lakhs to. show his bonafides and in case he C
succeeded in application for leave to defend, withdrawal of amount allowed-
Trial court allowed the application and directed additional deposit of Rs. 50
lakhs-Upheld by High Court-Correctness of-Held: Order not maintainable
since there was no indication in the earlier order of High Court that in case
amount was more, applicant was to pay the differential amount-Maximum
deposit directed was fixed at Rs. 20 /akhs. D
Respondent filed summary suit for recovery of certain amount Appellant
filed an application under order XXXVll Rule 3(5) CPC for leave to defend
unconditionally which was rejected. Appellant filed civil revision application.
High Court directed the appellant to deposit Rs. 20 lakhs and entitled him to
take out application for leave to defend, which if allowed, he could withdraw E
the amount deposited. Trial Court allowed the application on the condition that
the appellant would deposit additional amount of Rs. 50 lakhs in two
installments. Appellant challenged the order. High Court dismissed the writ
petition. Hence the present appeal.

Appellant contended that the earlier order passed by High Court laid F
down that the quantum of deposit to be directed could not be more than Rs.20
lakhs and without noticing the same, the trial court directed deposit of Rs. 70
lakhs and High Court upheld the same.

Respondent contended that according to the correspondences and the G
statements filed by the appellant the admitted amount was more than R~. 90
lakhs and, therefore, after taking note of the deposit of Rs.20 lakhs made
earlier, trial court and High Court directed deposit of Rs.SO lakhs more.

Allowing the appeal, the Court
625 H
626 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A HELD: A bare reading of.the order of High Court on the earlier occasion
shows that the High Court took the view on the consent of parties that Rs.20
lakhs was to be deposited and on deposit being made certain follow up action
were to be taken. The fact that tile High Court wanted the quantum to be pinned
at Rs.20 lakhs and not more than that is clear from the fact that the High
Court directed refund in case the trial court on consideration of merits came
B to conclusion that the amount to be deposited was less than Rs.20 lakhs. There
is no indication that in case the amount was to be more, then the appellant
would pay the differential amount. The stand of the appellant that the maximum
deposit that could have been directed was fixed at Rs.20 lakhs is on a sound
footing. The order of the trial court as well as that of the High Court cannot
C be maintained. However, this Court has stayed the operation of High Court's
order subject to deposit of Rs.20 lakhs. The amount already deposited need
not be refunded. [633-B-E)

Mecha/ec Engineers and Manufactures v. Basic Equipment Corporation,
AIR (1977) SC 577 and Mrs. Raj Dugga/ v. Ramesh Kumar Bansal, AIR (1990)
D SC 2218, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3846 of2006.

From the Final Judgment and Order dated 20.4.2005 of the High Court
of Judicature at Bombay in Writ Petition No. 2521/2005.
E
C.A. Sundaram, Mahesh Agarwal, Rishi Agrawal, E.C. Agarwala and
Dhrupad Kashyap for the Appellant.

V.A. Bobde, Nikhil M. Sakhardande, Niranjan Pandit and Rekha Palli for
the Respondents.
F
The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. Leave granted.

Challenge in this appeal is to the judgment rendered b;· a learned Single
G Judge of the Bombay High Court dismissing the writ petition No. 2521 of2005
filed by the appellant. By the impugned judgment the High Court upheld the
view of the trial court in Summary Suit No. I0 of 200 I that the appellant has
not made out a case for unconditional leave to defend in terms of Order
XXXVII Rule 2 of the Code of Civil Procedure, 1908, ( in short the 'CPC').

H The factual background in a nutshell are as follows:
DEFIANCE KNITTING INDUSTRIES PVT. LTD. v. JAY ARTS [PASAYA T..l.] 627

Summary Suit No. I 0 of 200 I has been filed by the respondent before A
the learned Civil Judge (Senior Division) at Kalyan for recovery of an amount
of Rs.98,81,426.63. In addition, the plaintiff has claimed interest from the date
of filing of the suit till the realisation of the amount. The suit was filed on
05.07.200 I. After issuing notice, the writ petitioner-defendant filed an application
under Order XXXVll Rule 3(5) ofC.P.C. for leave to defend unconditionally
and the said application was rejected by the trial Court. The writ Petitioner, B
therefore, approached the High Com1 in Civil Revision Application No. 659
of 2002 and in terms of the consent orders, it was disposed of on 02.05.2002.
The said ord~r was to the effect that the writ petitioner was to deposit an
amount of Rs. 20,00,000/- with the trial Court within four months to show his
bonafides and was entitled to take out an application for leave to defend C
which was required to be heard on merits. If he succeeded in his application
for leave to defend, he was allowed to withdraw the amount deposited. The
trial Court heard the parties afresh and by order dated 11.03.2005 allowed the
application (Ex. 34) on the condition that the writ petitioner was to deposit
an additional amount of Rs.50,00,000/- in two instalments. The said order was
challenged before the High Court. D
Before the High Court, by referring to the numerous correspondence
between the parties right from 05.11.1997 onwards, writ petitioner submitted
that the summary suit raised several disputed questions which needed trial
and at no point of time, the writ petitioner had accepted the claim made by E
the plaintiff. It was also pointed out that the writ petitioner had taken up the
issue with its Architect and all the bills submitted by the plaintiff were
returned to the Architect. Thus, the writ petitioner had not accepted the
payments as claimed by the plaintiff. It was further submitted that the trial
court failed to give proper reasonings and a cryptic order has been passed
rejecting the application for leave to defend unconditionally. F
The High Court noted that after issuing notice in the triaf court, the
defendant has not filed its written statement. In the application, the defendant
has disputed the contents and in fact denied the claim made by the plaintiff.
However, the plaintiff has set out its case to point out that the work as per
the tender was completed some times in March, I 999, the final bills submitted G
by it were certified by the Architect of the defendant and certificate to that
effect was issued on 19.04.1999. The Architect had forwarded the bills to the
defendant for clearance and the final bill amount was Rs. 2,07, 11,4 75/-, out of
which, an amount of Rs.1,08,29,989/- was received. The correspondences
brought on record show that the meeting was held between the parties and H
628 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A the issue regarding incomplete work, payments and final settlement were
discussed by them in the meeting as is clear from the letter addressed by the
writ Petitioner dated 20.11.1998 to its Architect Mr. Qutub Mandviwala.
Reference was made to possible dates for final discussion and settlement of
the dues. During this period, the contractor and the Architect should discuss
B and settle all the payments etc. after completing the jobs as agreed.

According to the High Court, the correspondence thereafter, between
the writ petitioner and its Architect go.es to show that there were some
defective jobs which were to be completed. The final bills submitted by the
plaintiff were certified on 19.04.1999 by the Architect of the defendant and
C thereafter, vide letter dated 27.04.1999, the defendant took up the issue with
its Architect. All this correspondence goes to show that the claim made by
the plaintiff is not totally denied and there may be some subtractions in terms
of the interest or defective work but there is nothing on record to show that
the Architect of the writ petitioner has finally worked out the figure, quantified
the payment to be made to the plaintiff and in any case less than the amount
D certified by the said Architect on 19.04.1999.
The trial court passed the following order:

"After hearing arguments of the parties, I am of the opinion that
defendant has no defence, but it is moon shine defence. Therefore,
E a permission can be granted to leave defence to the deserves to be
allowed on condition, I pass the following order:

I. The application Exh.34 is allowed for leave to defence to the
defendant on following conditions: -

F (i) The defendant shall deposit an amount of entire Rs.50 Lacs in
the Court in a two instalments on or before next date, in addition to
earlier deposited amount of Rs 20 Lacs.

2. Cost shall be cause in the suit".

G The High Court felt that the trial court ought to have given proper
reasons in support of the impugned order. But it was observed that the
correspondences between the parties does show that the application submitted
by the writ petitioner could not be allowed and the discretion exercised by
the trial court granting leave to defend conditionally i.e. on total deposit of
Rs.70,00,000/- cannot be termed to be perverse or totally erroneous. Four
H years had passed from the filing of the claim before the trial court and the
DEFIANCE KNITTING INDUSTRIES PVT.LTD. v. .JAY ARTS [PASAYA T, J.] 629

original claim was Rs.98,81,426.63/-. As noted above writ petition was A
dismissed.

Learned counsel for the appellant submitted that both the trial court and
the High Court completely lost sight of the earlier order passed by the High
Court which in no uncertain terms laid down that the quantum of deposit to
be directed could not be more than Rs.20,00,000/-. Without noticing these B
relevant aspects, the trial court directed deposit of Rs. 70,00,000/- and High
Court upheld it.

Per contra, learned counsel for the respondent submitted that even
according to the correspondences and the statements filed by the appellant
the admitted amount was more than Rs. 90,00,000/- and, therefore, after taking C
note of the deposit of Rs.20,00,000/- made earlier, the trial court and the High
Court had directed deposit of Rs.50,00,000/- more. In essence, his submission
was that in the earlier order in the Civil Revision the amount to be fixed was
let to be decided by the trial court.
D
Order XXXVII Rules 2 and 3 so far as relevant reads as follows:

2. Institution of Summary Suits.( I) A suit, to which this Order applies,
may if the plaintiff desires to proceed thereunder, be instituted by
presenting a plaint which shall contain,
(a) a specific averment to the effect that the suit is filed under E
this Order;
(b) that no relief, which does not fall within the ambit of this rule,
has been claimed in the plaint; and
(c) the following inscription, immediately below the number of the F
suit in the title of the suit, namely
(2) The summons of the suit shall be in Form No. 4 in Appendix B or
in such other form as may, from time to time, be prescribed.

(3) The defendant shall not defend the suit referred to in sub rule (I)
unless he enters an appearance and in default of his entering an G
appearance the allegations in the plaint shall be deemed to be admitted
and the plaintiff shall be entitled to a decree for any sum, not exceeding
the sum mentioned in the summons, together with interest at the rate
specified, if any, up to the date of the decree and such sum for costs
as may be determined by the High Court from time to time by rules H
6.)'0 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A made in that behalf and such decree may be executed forthwith.]

3. Procedure for the appearance of defendant. - (I) In a suit to which
this Order applies, the plaintiff shall, together with the summons
under rule 2, serve on the defendant a copy of the plaint and annexures
thereto and the defendant may, at any time within ten days of such
B service, enter an appearance either in person or by pleader and, in
either case. he shall file in Court an address for service of notices on
him.

(2) Unless otherwise ordered, all summonses, notices and other judicial
processes, required to be served on the defendant, shall be deemed
C to have been duly served on him if they are left at the address given
by him, for such service.

(3) On the day of entering the appearance, notice of such appearance
shall be given by the defendant to the plaintiff's pleader, or, if the
plaintiff sues in person, to the plaintiff himself, either by notice delivered
D at or sent by a pre-paid letter directed to the address of the plaintiff's
pleader or of the plaintiff, as the case may be.

(5) The defendant may, at any time within ten days from the service
of such summons for judgment, by affidavit or otherwise disclosing
such facts as may be deemed sufficient to entitle him to defend, apply
E 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
F 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
G to be due is deposited by the defendant in Court.

This Court in Mechalec Engineers and Manufactures v. Basic Equipment
Corporation, AIR (1977) SC 577 has laid down the principles to be followed
in granting leave to defend the suit under Order XXXVII, r~le 3 of the Code.
H One of the aforesaid principles is, that if the defendant raises a triable issue
DEFIANCE KNITTING INDUSTRIES PVT. LTD. v. JAY ARTS [PASAYAT. .1.]631

·· indicating that he has a fair or bona fide or reasonable defence although not A
a positively good defence the plaintif(is not entitled to sign judgment and
the defendant is entitled to unconditional leave to defend. It has also been
laid down therein that if the defendant has no defence or the defence set up
is illusory or sham or practically moonshine then ordinarily the plaintiff is
entitled to leave to sign judgment and the defendant is not entitled to leave B
to defend.

While giving leave to defend the suit the Court shall observe the
following principles:

(a) If the Court is of opinion that the case raises a triable issue then
leave to defend should ordinarily be granted unconditionally. See C
Milkhiram (India) Pvt. Ltdv. Chaman Lal Bros., AIR (1965) SC 1698.
The question whether the d~fence raises a triable issue or not has to
be ascertained by Courtfro.M the pleadings before it and the affidavits
·.,:- ··:/
of parties. · ·. ·

(b) If the Co~rt is satisfied that the facts disclosed by the D
defendant do ;;;,~~t indicate that he has a substantial defence to
.'
raise or that the defence intended to put by the defendant is
frivolous or vexatious is may refuse leave to defend altogether.
Kiran Mryace Dassi v. Dr. J. Challrjae, AIR (1949) Cal. 479.
(noted and approved in Mechalec 's case (supra). E
(c) In cases where the Court entertains a genuine doubt on the
question as to whether the defence is genuine or sham.or whether it
? ~·:·
.raises a triable issue or not, the Court may impose conditions in
granting ilxlve to defend.

In Mrs. Raj Duggalv. Rmnesh Kumar Bansal, AIR (1990) SC 2218 it was
F
held as follows:

"3. Leave is declined where the Court is of the opinion that the grant
of leave would merely enable the defendant to prolong the litigation
by raising untenable and frivolous defences. The test is to see whether G
the defence raises a real issue and not a sham one, in the sense that
ifthe facts alleged by the defendant are established there would be
a good or even a plausible defence on those facts. If the Court is
satisfied about that leave must be given. If there is a triable issue in
the sense that there is a fair dispute ·to be tried as to the meaning of
a document on which the claim is based or uncertainty as to the H
632 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A amount actually due or where the alleged facts are of such a nature
as to entitle the defendant to interrogate the plaintiff or to cross-
examine his witnesses leave should not be denied. Where also, the
defendant shows that even on a fair probability he has a bona fide
defence, he ought to have leave. Summary judgments under Order 37
should not be granted where serious conflict as to matter of fact or
B where any difficulty on issues as to law arises. The Court should not
reject the defence of the defendant merely because of its inherent
implausibility or its inconsistency".

In the instant case much would depend upon the effect of the order
C passed by the High Court in the earlier case i.e. Civil Revision no. 659 of2002.
The operative portion reads as follows:

"The applicants in order to establish their bonafides agree and
unde1take that they shall deposit before the Trial Court in amount of
Rs. 20 lacs within a period of four months from today.
D Upon deposit of the aforesaid amount of Rs.20 lacs by the
Applicants, the impugned order of the learned Civil Judge, Senior
Division, Kalyan dated, 7th March, 2002 declining to grant
unconditional leave to defend and the consequential decree passed
on 8th March, 2002 shall stand quashed and set aside.
E The learned Trial Judge shall dispose of the summons for Judgment
after hearing the parties, uninfluenced by the earlier order dated 7th
March, 2002, which is with th<) consent of the parties quashed and set
aside. The learned Trial Judge will proceed to deal with the matter in
accordance with the directions as aforesaid and keeping in view the
F requirements of order 37, of the Code of Civil procedure, 1908.

In the event that the deposit of an amount of Rs.20 lacs as
aforesaid is made, it shall be without prejudice to the right of the
Applicants to contend that they are entitled to the grant of
unconditional leave to defend the suit. In the event that the learned
G Trial Judge comes to the conclusion that the Applicants are entitled
to unconditional leave to defend, the Applicants would be at liberty
to make an application before the Trial court for refund of the amount
which has been deposited by them of Rs.20 lacs, in pursuance of the
statement which has been made herein above, similarly, in the event
of leave being granted to defend the suit subject to deposit of an
H
DEFIANCE KNITTING INDUSTRIES PVT. LTD. v. JAY ARTS [PASA YAT, J.) 633

amount less than Rs.20 lacs, the Applicants would be at liberty to A
move an application for the refund of the balance amount of Rs.20
lacs. The Respondents would similarly be at liberty to move an
application for the withdrawal of the amounts deposited after the
application for leave to defend has been disposed of and subject to
the outcome of the application".
B
A bare reading of the order shows that the High Court i.n the earlier
occasion took the view, on the consent of parties, that Rs.20,00,000/- was to
be deposited and on deposit being made certain follow up action were to be
taken. The fact that the High Court wanted the quantum to be pinned at
Rs.20,00,000/- and not more than that is clear from the fact that the High Court C
directed refund in case the trial court on consideration of merits came to
conclusion that the amount to be deposited was less than Rs.20,00,000/-.
... There is no indication that in case the amount was to be more, then the
appellant would pay the differential amount.

The stand of the appellant that the maximum deposit that could have D
been directed was fixed at Rs.20,00,000/- is on a soi.tnd footing. The order of
the trial court as well as that of the High Court cannot be maintained.
However, as an interim measure by order dated 26.9.2005 this Court has
stayed the operation of the High Court's order subject to deposit of
Rs. 20,00,000/-. It is stated that the deposit has already been made. Though
we have held the trial Court's order and the High Court's order are not E
sustainable, the amount deposited pursuant to this Court's order need not be
refunded. The trial Court is directed to proceed with the matter and make
effort for its expeditious disposal.

Appeal is allowed but without any order as to costs.
F
NJ. Appeal allowed.