Holding

Conditions imposing payment into court as security are not permissible when leave to defend is granted on the basis of disclosed facts; only conditions relating to time or mode of trial may be imposed and they must not be unduly onerous.

Summary

The respondent filed a summary suit under Order XXXVII of the CPC for recovery of Rs.2.66 crore on account of dishonoured cheques. The appellants sought leave to defend and the trial judge granted conditional leave, directing them to deposit Rs.2 crore within two months or have the leave revoked. The High Court upheld this condition. On appeal, the Supreme Court held that when a defendant discloses facts sufficient to merit leave to defend, the court may impose conditions only relating to the time or mode of trial, not a security deposit, and such conditions must not be unduly onerous. Consequently, the Supreme Court quashed the trial judge’s and High Court’s orders and modified the condition, ordering the appellants to deposit Rs.1.10 crore and an additional Rs.90 lakh, to be invested in a fixed deposit. The appeal was allowed and leave to defend was granted with the modified, less onerous condition.

Issues considered

Whether a court may impose a condition of security deposit on the grant of leave to defend in a summary suit under Order XXXVII CPC.
Whether such a condition is unduly onerous and defeats the purpose of granting leave to defend.
Interpretation of the principles laid down in Suni Enterprises v. SB Commercial & International Bank Ltd. regarding conditions on leave to defend.
Whether the existence of criminal proceedings under Section 138 of the Negotiable Instruments Act affects the grant of leave to defend.

Legislation cited

Code of Civil Procedure, 1908s. Order XXXVII, s. Rule 3(v)
Constitution of Indias. Article 136
Negotiable Instruments Act, 1881s. Section 138

Subjects

summary suitleave to defendconditional leavesecurity depositCPC Order XXXVIIundue onerous conditionSupreme CourtArticle 136Negotiable Instruments Actcheque bounce

Judgment

[2009) 12 S.C.R. 557

• -t A
M/S FIXITY PACKAGING INDUSTRIES PVT. LTD. & ORS.
v.
UDYEN JAIN (HUF)
(Civil Appeal No. 5129 of 2009)
AUGUST 06, 2009
B
[S.B. SINHA AND DEEPAK VERMA, JJ.]

Code of Civil Procedure, 1908: Or. 37 - Summary suit -
---t
Leave to defend, conditional or unconditional - Grant of
conditional leave to defend by trial court - Direction to deposit c
certain sum out of the total suit claim - Upheld by High Court
- On appeal, held: If applicant discloses sufficient facts to
entitle him to leave to defend, court may impose conditions
as to time of trial or mode of trial but not as to payment into
court of furnishing security - Conditions imposed should not D
- .., be unduly onerous - As a result thereof, defendant would not
be able to defend action for all intent and purpose - Thus,
order of courts below to be quashed - Order -of High Court
modified.
E
Respondent filed a summary suit against the

. .,,
appellant for recovery of certain sum. Appellant had
issued a cheque in favour of respondent and the same
was dishonoured on presentation to the bank. Appellant
filed application for leave to defend. Application was
allowed subject to deposit of Rs. 2 crores out of the total F
suit claim of Rs. 2,66,39,028/- within the stated period.
Aggrieved, appellant filed writ petition. High Court upheld
the order. Hence the present appeal.

Disposing of the appeal, the Court G
I
"
HELD: The finding of the trial judge that leave should
be granted by way of mercy, cannot be accepted and
therefore, this Court is not in a position to interfere
557 H
558 SUPREME COURT REPORTS [2009] 12 S.C.R.

A therewith as the plaintiff-respondent did not challenge t •
that aspect of the matter before the High Court. Therefore,
the ratio laid down in Sunil's case that if the defendant
discloses such facts as may be deemed sufficient to
entitle him to defend, that is, if the affidavit discloses that
B at the trial he may be able to establish a defence to the
plaintiffs claim the court may impose conditions at the
time of granting ~9ave to defend the conditions being as
to time of trial or mode of trial but not as to payment into
court of furnishing security is applicable to the facts and ~--
C circumstances of the instant case. Ordinarily the
conditions imposed for grant of leave to defend in a suit
filed under Order XXXVll CPC should not be unduly
onerous when leave to defend is granted. The conditions
imposed thereunder unsustainably should not be
D onerous. As a result whereof, the defendant would not
be able to defend the action for all intent and purpose. ~_
Each case, however, has to be considered on its own
merits. Therefore, it is a fit case where while quashing
order passed by the trial judge as also the High Court, in
E exercise of jurisdiction under Article 136 of the
Constitution of India, the impugned order should be
modified. The appellant is directed to deposit a sum of
Rs. 1, 10,00,000/- and a further sum of Rs. 90,00,000/- , •
before the trial judge. [Para 12] [564-D-E; 564-F-H; 565-
A-B; 565-C-D]
F
Suni/ Enterprises and Anr. v. SB/ Commercial and
International Bank Ltd. (1988) 5 SCC 354, relied on.

Case Law Reference:
G (1988) 5 sec 354 Relied on. Paras 7
and 12
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5129 of 2009.
H
FIXITY PACKAGING INDUSTRIES PVT. LTD. & ORS. 559
v. UDYEN JAIN (HUF)
,. .. From the Judgment & Order dated 8.5.2009 of the High A
Court of Judicature at Bombay in Writ Petition No. 8234 of
2008.

P.S. Narasimha, Shwetank, Sailakawal, S. Udaya Kumar
Sagar, Bina Madhavan for the Appellants.
B
Shekhar Naphade, Vinay Navare, Abha R. Sharma for the
Respondents.

• -+ The Judgment of the Court was delivered by

S.B. SINHA J. 1. Leave granted. c
2. Defendants in a suit for recovery for a sum of Rs.
2,66,39,028/- are before us aggrieved by and dissatisfied with
a judgment and order dated 08.05.2009 passed by the High

- Court of Judicature at Bombay in Writ Petition No. 8234 of
:wos.
3. Respondent herein filed the aforementioned suit inter
alia on the premise that the cheques issued by the appellants
D

herein for the said amounts, when presented to the bank stood
E
dishonoured. The suit was filed in terms of Order XX.XVII of the
Code of Civil Procedure.
~ "'* 4. Appellants filed an application praying for leave to
defend in the said suit. The learned trial judge framed the
following question for its consideration. F

"Whether prima facie triable issue exists in defendant's
favour for granting leave to defend? If yes, whether
conditional or unconditional?"

.,. 5. In a very detailed judgment, it was opined that for all G
·;
intent and purpose the defendants-appellants have no defence.
The learned trial judge rejected a contention raised on behalf
of the defendants even with regard to maintainability of account
as a summary suit. It was opined:-
H
560 SUPREME COURT REPORTS [2009] 12 S.C.R.

A "Further more apart from the cheques in question t •
there are statements of accounts and the document of
balance confirmation in the form of acknowledgement of
indebtedness followed by categorical admissions in the
notice reply Exh-3/20. If at all these facts are cumulatively
B taken into consideration in all its seriousness, them
appears not even a little scope to find out any sort of such
questions which would be required to be decided on the
strength of evidence. On the contrary all the aforesaid
documents undoubtedly point out towards categorical + •
admissions on defendant's part for which no inference
c prevails in a fashion of availability of plausible, good or
reasonable defence. It is in such a situation the case in
hand is squarely covered by a situation of total absence
of any plausible defence and the contentions claiming
availability of defence are nothing but sham and illusory
D pretending that whatever questions in concern with
maintainability of summary suit, misjoinder of parties, locus
,....
standi of plaintiff, want of cause of action and no forms a
triable issues in the matter. Being so, the conclusion
emerges only in a fashion of non entitlement of leave to
E defend the suit."

6. Despite arriving at the aforementioned finding, it was
held: .,
"But considering the facts that series of transactions
F
had taken place in between parties to suit and that
defendant No. 1 on various occasions had also made
repayment of the loan amount, transferred his individual
liability in the loan account of defendant No. 1 company,
the contentions in concern with helplessness of defendants
G to make repayment because of financial crunch and so on, 'I'
there appears reason to give an opportunity to defend out
of mercy so that they may attempt to prove and establish
their respective contentions. But at the same time as the
transaction has its nexus with advancement of loan amount
H
FIXITY PACKAGING INDUSTRIES PVT. LTD. & ORS. 561
v. UDYEN JAIN (HUF) [S.B. SINHA, J.]

... and as the plaintiff has been deprived of the money A
blocked in the hands of defendants, who must have
derived undue advantage of the sitt,1ation in the form of
unjust, enrichment, plaintiffs rights need to be adequately
protected, while showing such mercy, by granting leave to
defend. Hence, the point is replied accordingly with the B
order to follow:

ORDER
; -t
(1) Application is allowed subject to condition of
depositing an amount of Rs. 2,00,00,000/_(Two c
crores) out of total suit claim of Rs. 2,66,39,028/-
(Two crores sixty six lacs thirty nine thousand and
twenty eight) in this proceeding within a period of
two months, failing in which order granting liberty to
defend shall stand automatically revoked, and D
¥" "'.
plaintiff shall be entitled to sign the judgment.

(2) Defendants are further directed to furnish on record
written statement within the aforesaid period.

(3) In the event of compliance of the order Asstt. E
Superintendent would invest the said amount in a
fixed deposit in any Nationalised bank for a period
' -<
of one year."

7. On the aforementioned premise, it was directed the F
appellants to deposit a sum of Rs. 2,00,00,000/-(two crores)
out of a total suit claim of Rs. 2,66,39,028/- in the proceeding
within a period of two months from the date of passing of the
said order. A writ petition was filed by the appellants
questioning the legality and/or validity of the said order. The G
l'" High Court noticed all the contentions raised on behalf of the
appellants. It, furthermore, also noticed a decision of this Court
in Suni/ Enterprises & Anr. v. SB/ Commercial & International
Bank Ltd. reported in (1998) 5 SCC 354 where the law has
been laid down in the following terms:- H
562 SUPREME COURT REPORTS [2009] 12 S.C.R.

A "(a) If the defendant satisfies the court that he has a
good defence to the claim on merit, the defendant is
entitled to unconditional leave to defend.

(b) If the defendant raises a tribal issue indicating
that he has fair and bona fide or reasonable defence,
B
although not a possibly good defence, the defendant is
entitled to unconditional leave to defend.

(c) If the defendant discloses such facts as may be + •
deemed sufficient to entitle him to defend, that is, if the
c affidavit discloses that at the trial he may be able to
establish a defence to the plaintiffs claim, the court may
impose conditions at the time of granting leave to defend
- the conditions being as to time of trial or mode of trial
but not as to payment into court or furnishing security.
D
(d) If the defendant has no defence, or if the defence '.
is sham or illusory or practically moonshine, the defendant
is not entitled to leave to defend."

8. Holding that the learned trial judge has granted
E conditional leave having regard to the facts and circumstances
of this case as the same was voluntary not reasonable or fair
defence. The High Court opined that the learned trial judge has .. 1

not committed any error in passing the said condition or order.

F 9. Mr. P.S. Narasimha, the learned senior ,counsel
appearing on behalf of the appellants would contend that
assailing it is a case where conditions were required to be
reposed for granting leave to defend in terms of Order XXXVll
Rule 3(v) of the Code of Civil Procedure, the conditions
G imposed being wholly unreasonable, this Court should interfere
therewith. Our attention, furthermore, has been drawn to the fact
that at least two other parties namely Mrs. Dolly Tehmuras Mistri
and Mr. ,Kaikhusru Jehangirji Daruwala have filed two complaint
petitions before the Judicial Magistrate First Class, Court No.
H VII, Pune under Section 138 of the Negotiable Instruments Act
FIXITY l?ACKAGING INDUSTRIES PVT. I-TD. & ORS. 563
v, UDYE:N ~AIN (HUF) [S.S. SINHA, J.]
•. 1 cli:iiming th<lt the cheques issued in their favour for a sum of A
Rs. 40,00,0QQ/- (Rupees forty lacs qn!y) and Rs. 50,00,000/-
' '
(Rupees fifty lacs only) re~pectivelY had b9unced.

10. Mr. Shekhar Naphade, the learnetj senior counsel
appearing on behalf of the respondent, however, urged that the
B
le<lrned tri<1I judge fQr ow intent and purpose has found that
appellants have no qefenc13 at all in the suit proceedings:-

I ,_ (1) issu<lnce of cheque in favour of the respondents is ·
not in dispute;
c
(2) the balance amount payable by the appeHants to the
respondent mentioned in a statement h_as also not
been disputed; and

(3) they have not raised any defence in reply to the
D
~- )I
notice of demand served upon them.

11. It was submitted that from a perusal of the judgment
Qf the learned trial judge it would be evident that the appellants
have no defenee in the suit at all. The learned trial judge in his
judgment, as indicated hereinbefore has taken into E
consideration the entire fact of the matter. It referred to the two
' . cheques being Exhibit 'J/9 ia.nd Exhibit 3/10 dated 15.10.2006
and 1.1.2006 respectively which are said to be the subject
matter of the aforementioned complaint petitions filed by Mrs.
Dolly Tehmuras Mistri and Mr. Kaikhusru Jehangirji Daruwala F
opined that if there had been no transaction by and-between
the parties, there was no reason as to why the said cheques
have been issued. The individual loan transaction between the
plaintiff and defendant No. 1 with regard to the residual amount
of Rs. 4,00,000/- parted by him in his individual capacity having G
> .,. been transferred to the loan account of defendant No. 1-

- company has alreacjy been taken into 'tonsideration
whereunder not gone into the details of the matter inasmuch
as it has also been found that the other .chequ~siissued by the
appellant had bounced. The learned trial judge,was also at
, I H
564 SUPREME COURT REPORTS [2009] 12 S.C.R.

A pains to reject the contention raised on behalf of the appellants i- •
that only because a criminal proceeding under Section 138 of
the Negotiable Instruments Act had been issued the same
would come in the way of filing of the civil suit:-

"It has been contended on behalf of defendants that
8
plaintiff had already availed a remedy under Section 138
of Negotiable Instruments Act for which he is entitled to get
unconditional leave to defend the suit. In fact there is no
rule that merely because of initiating criminal action,
i' I
individual is entitled to unconditional leave. But what is to
c be seen as to whether there is available any plausible
defence, which appears not any way available, particularly
when documents Exh-3/8 to 3/13 and 3/20 are taken into
consideration."

D 12. We, therefore, with respect, are not in a position to
agree with the finding of the learned trial judge that leave should
be granted by way of mercy, and are, therefore, not in a
' .
position to interfere therewith as the plaintiff-respondent did not
challenge that aspect of the rtiatter before the High Court. We
E are, therefore, of the opinion that clause (c) of paragraph 4 in
Sunil's case (supra) which reads as under:

"(c) If the defendant discloses such facts as may be
deemed sufficient to entitle him to defend, that is, if the
. ,

affidavit discloses that at the trial he may be able to
F establish a defence to the plaintiffs claim the court may
impose conditions at the time of granting leave to defend
the conditions being as to time of trial or mode of trial but '

not as to payment into court of furnishing security."

G is applicable to the facts and circumstances of this case. We
are not oblivious of the fact that ordinarily the conditions "' ~

imposed for grant of leave to defend in a suit filed under Order
XXXVll of the Code of Civil Procedure should not be unduly
onerous when leave to defend is granted. The conditions
-
H imposed thereunder unsustainably should not be onerous. As
FIXITY PACKAGING INDUSTRIES PVT. LTD. & ORS. 565
v. UDYEN JAIN (HUF) [S.B. SINHA, J.]
... t a result whereof, the defendant would not be able to defend the A
action for all intent and purpose. Each case, however, has to
be considered on its own merits. We, therefore, are of the
opinion that it is a fit case where while quashing order passed
by the learned trial judge as also the High Court, We, in exercise
of our jurisdiction under Article 136 of the Constitution of India, B
should modify the impugned order in the following terms: -

(i) The appellant shall deposit a sum of Rs. 1, 10,00,000/-
; .., (Rupees One Crore ten lakhs only) before the learned trial
judge within a period of two months from today.
c
(ii) Within the aforementioned periqd, the appellant should
deposit a further sum of Rs. 90,00,000/- (Rupees ninety
'
lacs only) which shall be depositea before the trial judge
who shall in turn invest the same in a fixed deposit so as
to enable the successful party i.e. the plaintiff- respondents D
... >! or the complainants in the other two cases· referred to us
hereinbefore to be compensated from the said option, in
the event, either the suit or the said complaint petition are
decided in their favour.
E

.
13. The appeal is disposed of in the aforesaid terms witti
J''
no order as to costs.
~
N.J. Appeal disposed of.