Holding

Under the amended Rule 3, sub‑rule 5, second proviso, the High Court was within its jurisdiction to impose a deposit condition before granting leave to defend, and the appeal is dismissed.

Summary

The respondent filed a suit under Order 37 of the Code of Civil Procedure, 1908 for recovery of Euro 757,885.42. The defendant raised triable issues and admitted part of the claim; the trial court gave unconditional leave to defend. The Karnataka High Court modified this to conditional leave, allowing defence of Euro 320,967.51 only if the defendant deposited 55% of that amount, citing the amended Rule 3, sub‑rule 5, second proviso. The defendant appealed to the Supreme Court, arguing that earlier case law required unconditional leave when a triable issue exists. The Supreme Court held that the 1976 amendment introduced a mandatory deposit condition for admitted amounts, and the High Court acted within its jurisdiction; therefore the appeal was dismissed.

Issues considered

Whether, under the amended Rule 3 of Order 37 CPC, a court may conditionally grant leave to defend a suit by requiring the defendant to deposit the admitted portion of the claim.
Whether the Supreme Court can interfere with the High Court's discretion in granting such conditional leave.

Legislation cited

Code of Civil Procedure, 1908s. Order 37 Rule 3 (sub‑rule 5, second proviso)
Code of Civil Procedure (Amendment) Act, 1976

Subjects

Order 37summary trialconditional leaveCPC amendmentjurisdictiondiscretioncivil procedure

Judgment

[2008] 14 S.C.R. 130

~
I
A SOUTHERN SALES & SERVICES & ORS.
v.
SAUERMILCH DESIGN & HANDELS GMBH
(Civil Appeal No. 6046 of 2008)
OCTOBER 3, 2008
B
[ALTAMAS KABIR AND MARKANDEY KATJU, JJ]
"i-
Code of Civil Procedure, 1908:
Or 37, .r3(5), second proviso (as substituted by Act 104
c of 1976) - Summary trial - Leave to defend the suit - Granted
by High Court subject to deposit of 55% of the claim amount
admitted by defendant - HELD: In view of the provisions of r 3
as substituted by 1976 amendment, High Court was within its
;urisdiction to grant conditional leave - There does not ap-
D pear to be any error or irregularity in the discretion exercised
by the High Court.
\
The respondent filed a suit under Order 37 of the _ _,
Code of Civil Procedure, 1908 against the defendant-ap-
pellant for recove..Y of Euro 757,885.42. The trial court
E
granted unconditional leave to defend the suit. In the re-
vision petition filed by the plaintiffs, the High Court held
that the defendant raised a triable issue and the suit re-
quired to be decided in a full-fledged trial; and that the
defendant in its defence admitted certain amount as
F claimed by the plaintiff. It, therefore, granted leave to de-
·\
fend the suit in respect of the claim of the plaintiff for Euro
3,20;967,57 subject to the condition that defendant would
deposit .in the trial court 55% of the said ~mount.
In the instant appeal filed by the defendant, it was
G
contended for the appellant that in relation to summary
;;.:..,
trial under Order 37 CPC when the court was satisfied that
a triable issue was raised in defence of the claim made by
the plaintiff, unconditional leave ought to have been
H 130 .
SOUTHERN SALES & SERVICES & ORS. v. 131
SAUERMILCH DESIGN & HANDELS GMBH
r~
granted to the defendant to contest the suit. For the plain- A
tiff-respondent it was contended that in view of the provi-
sions of Rule 3 of Order 37 CPC, as substituted by the
CPC (Amendment) Act, 1976, the High Court was justified
in imposing the condition for grant of leave to defend the
suit, and there was no reason for the Supreme Court to B
interfere with the discretion exercised by the High Court.
. r<
Dismissing the appeal, the Court
HELD: 1.1 In view of the provisions of Rule 3 of Or-
der 37 CPC, as substituted by the Code of Civil Proce- c
dure (Amendment) Act, 1976, the earlier concept of grant-
ing unconditional leave when a triable issue is raised on
behalf of the defendant, has been supplemented by the
addition of a mandate, which has been imposed on the
defendant, to deposit any amount as admitted before
D
I
I
leave to defend the suitcan be granted. [para 17][138-E,F]
-J 1.2 In the instant case, the High Court has come to a
finding thata certain portion of the claim made in the plaint
has been duly admitted by the defendant-appellant and,
accordingly, directed 55% thereof to be deposited as a E
pre-condition for grant of leave to defend the suit. The
question as to whether leave to defend a suit can be
granted or not is within the jurisdiction and the discre-
tionary powers of the High Court and it does not appear
that such discretion has been exercised erroneously or F
J with any irregularity. The judgment of the High Court does
not warrant any interference since it has exercised its ju-
risdiction under the second proviso to sub-rule (5) to Rule
3 of Order 37 of the Code. [para 15 and 17] [138-8,F,E]
Santosh Kumar Vs. Bhai Moo/ Singh [1958] SCR 1211; G
Milkhiram (India) Private Ltd. vs. Chamanlal Bros. AIR 1965
SC 1698; Mis. Meche/ec Engineers and Manufacturers Vs.
Mis. Basic Equipment Corporation 1977(1 )SCR 1060 = 1976
(4) SCC 687; and The Managing Director (MIG) Hindustan
H
132 SUPREME COURT REPORTS [2008] 14 S.C.R.

A Aeronautics Ltd., Balanagar, Hyderabad vs. Ajit Prasad Tarway
AIR 1973 SC 76 - cited.
CASE LAW REFERENCE
[1958] SCR 1211 cited para 8
B AIR 1965 SC 1698 cited para 9
1977 ( 1 ) SCR 1060 cited para 9 >-

AIR 1973 SC 76 cited para 10
CIVILAPPELLATE JURISDICTION: .Civil Appeal No. 6046
C of 2008
From the final Judgment and Order dated 26.6.2008 of
the High Court of Karnataka at Bangalore in C.R.P. No. 460 of
2005
D T. V. Ratnam for the Appellants.
Neeraj Sharma, Vikram Dholakia, Roopali Singh and
Archana Lakhodia (for M/s. Dua Associates) for the Respon-
dent.
E The Judgment of the Court was delivered by
ALTAMAS ~BIR, J. 1. Leave granted.
2. This appeal, which is directed against the order passed
by the Karnataka High Court on 26th June, 2008, in a proceed-
F ing under Order 37 of the Code of Civil Procedure, raises an
interesting question of law regarding the interpretation of Rule
3, Sub-rule (5) thereof.
3. Rule 3, as it now reads, was introduced in Order 37 of
the Code by way of amendment with effect from 1st February,
G 1977. Prior to such amendment, Rule 3 of Order 37 was as
follows:- /v

"Rule 3. (1) The Court shall, upon an application by the
defendant, give leave to appear and to defend the suit,
upon affidavits which disclose such facts as would make
H
SOUTHERN SALES & SERVICES & ORS. v. 133
SAUERMILCH DESIGN & HANDELS GMBH [ALTAMAS KABIR, J.]

it incumbent on the holder to prove consideration, or such A
other facts as the Court may deem sufficient to support
the application.
(2) Leave to defend may be given unconditionally or subject
to such terms as to payment into Court, giving security,
framing and recording issues or otherwise as the Court B
f thinks fit."
By virtue of the Code of Civil Procedure (Amendment) Act,
1976, Rule (3) of Order 37 was substituted by Rule 3 as it now
exists and introduced various changes of which one of the more c
significant changes was the introduction of Sub-rules (4) and
(5) which read as follows:-
"3. (4) If the defendant enters an appearance, the plaintiff
shall thereafter serve on the defendant a summons for
judgment in Form No.4A in Appendix B or such other Form D
I
~ as may be prescribed from time to time, returnable not
less than ten days from the date of service supported by
an affidavit verifying the cause of action and the amount
claimed and stating that in his belief there is no defence
to the suit. E
(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 on such summons
for leave to defend such suit, and leave to defend may be F
granted to him unconditionally or upon such terms as may
appear to the Court or Judges to be just:
Provided that leave to defend shall not be refused unless
the Court is satisfied that the facts disclosed by the
G
defendant do not 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 H
134 SUPREME COURT REPORTS [2008] 14 S.C.R.

'!

A him, leave to defend the suit shall not be granted unless ,..
the amount so admitted to be due is deposited by the
defendant in Court."
It may also be profitable to refer to Sub-rule (6) which
provides as follows:-
B
"(6) At the hearing of such summons for judgment, -
>;-
(a) if the defendant has not applied for leave to defend,
or if such application has been made and is refused, the
plaintiff shall be entitled to judgment forthwith; or
c
(b) if the defendant is permitted to defend as to the whole
or any part of the claim, the Court or Judge may direct him
to give such security and within such time as may be fixed
by the Court or Judge and that, on failure to give such
security within the time specified by the Court or Judge or
D
to carry out such other directions as may have been given \,
by the Court or Judge, the plaintiff shall be entitled to \..:
judgment forthwith."
4. In the instant case, the respondent filed a suit under Or-
E der 37 of the Code of Civil Procedure, hereinafter referred to
as "the Code", for recovery of a sum of Euro 757,885.42 equiva-
lent to Rs.3,86,52, 156.42 in Indian currency. On being served
with Summons for Judgment in terms of Rule 3, Sub-rule (4), of
Order 37 of the Code, the petitioner filed an affidavit providing
f
F various details which made out triable issues in the suit. On the
basis of the said affJdavit the learned XXXI Additional City Civil \
Judge, Bangalore, granted conditional leave to the petitioner to
defend the suit.
5. Being aggrieved by the said order, the respondent com-
G pany moved in revision before the High Court which after con.,
sidering the submissions made and the defence taken by the
defendant/appellant came to the conclusion that a triable issue "'
had been raised in the suit which would have to be decided in a
full-fledged trial. However, the High Court also came to a find-
H ing that though the defendant/appellant had raised a triable is-

,......
SOUTHERN SALES & SERVICES & ORS. v. 135
SAUERMILCH DESIGN & HANDELS GMBH [ALTAMAS KABIR, J.]

sue, the defence taken did not exonerate them from payment of A
the entire amount claimed by the respondent herein.
6. The High Court held that despite the admission of the
defendant regarding the amount claimed by the respondent in
the suit, since the same had not been paid to the plaintiff/respon-
dent, it would be in the fitness of things to direct the defendant/ 8
appellant to deposit a substantial portion of the amount which
had been admitted to be due and payable even if the defence
set up by the defendant/appellant was not sham, moonshine or
illusory. The High Court accordingly modified the unconditional
leave granted to the defendant/appellant to defend the suit and C
restricted the same to the claim of the plaintiff-company to the
amount excluding the total demand of Euro 3,20,967.51 covered
under the documents Annexures G-1 and G-2. The High Court
directed that leave to defend the suit in respect of the claim of the
plaintiff-company for the said amount of Euro 3,20,967.51 would D
be subject to the condition that the defendant/appellan't firm would
deposit in the trial court 55% of the said amount within eight weeks
from the date of the orders of the High Court.
7. The defendant/appellant has come up to this Court chal-
lenging the said order of the High Court. E
8. On behalf of the defendant/appellant it was urged that
the consistent view taken by this Court in relation to summary
trials under Order 37 of the Code is that when a Court is satis-
fied that a triable issue has been raised in defence of the claim F
/ made on behalf of the plaintiff, unconditional leave has to be
granted to the defendant to contest the suit and no direction
could be given while granting such leave to the defendant to
deposit any amount by way of security. Mr. T.V. Ratnam, learned
advocate, who appeared for the defendant/appellant submit-
ted that this view had been taken by the Calcutta High Court as
far back as in 1949 in the case of Kiranmoyee Dassi vs. Dr. J.
Chatterjee, [AIR 1949 Calcutta, page 479) and was subse-
quently reiterated and followed by this Court in the case of
Santosh Kumar Vs. Bhai Mool Singh, [1958 SCR 1211), in
H
136 SUPREME COURT REPORTS [2008] 14 S.C.R.

A which this Court set aside the order of the High Court upon hold- f-
·ing that the imposition of a condition while granting leave to
defend a suit in which a triable issue has been raised was ille-
gal. If the Court was satisfied that there was a genuine triable
issue, leave had to be given and given unconditionally to de-
B fend the suit.
9. Mr. Ratnam submitted that same view was taken by this
Court in Milkhiram (India) Private Ltd. vs. Chamanlal Bros., [AIR t'
1965 SC 1698] and in M/s. Mechelec Engineers and Manufac-
turers Vs. M/s. Basic Equipment Corporation, [1976 (4) SCC
C 687] wherein it was further clarified that it is only in cases where
the defence is patently dishonest or so unreasonable that it could
not reasonably be expected to succeed, that the exercise of
discretion by the trial court to grant unconditional leave to de-
fend may be questioned.
D
10. In addition to his aforesaid submissions Mr. Ratnam
•
urged that in the absence of any error of jurisdiction or the illegal \y
exercise of jurisdiction or the exercise of jurisdiction with mate-
rial irregularity, the High Court had no jurisdiction to entertain the
revisional application filed by the respondent. Mr. Ratnam sub-
E mitted that as a legal proposition, it was well established that in
revisional jurisdiction even a wrong order cannot be corrected or
interfered with and that the scope of interference is limited to ju-
risdictional error only as was explained in the case of The Man-
aging Director (MIG) Hindustan Aeronautics Ltd., Balanagar,
F Hyderabad vs. Ajit Prasad Tarway. [AIR 1973 SC 76]. Mr. Ratnam f

submitted that on both counts the order of the High Court im-
pugned in the.appeal was li~ble to be set aside.
11. Replying to the submissions made on behalf of the
G appellant, Mr. Niraj Sharma, counsel for the respondent submit-
~,,,,....:?- ted that the legal parameters in which the earlier decisions cited
on behalf of the appellant had been rendered stood significantly
altered after the amendment of the Code in 1976. Learned coun-
sel submitted that with the substitution of Rule 3 of Order 37, the
H earlier decisions, right up to the decision in the case of M/s.

tr
SOUTHERN SALES & SERVICES & ORS. v. 137
SAUERMILCH DESIGN & HANDELS GMBH [ALTAMAS KABIR, J.]

Mechelec Engineers and Manufacturers (supra) were to a large A
extent rendered ineffective in view of the addition of Sub-rules
(4), (5) and (6) to Rule 3.
12. It was urged that Sub-rule (5) of Rule 3 of Order 37 is
important to this case in the sense that it recognizes a dichotomy
between a disputed claim and an admitted claim in a suit filed 8
under Order 37 of the Code. As far as the disputed claim is
concerned, once the Court comes to a conclusion that there is
a triable issue, unconditional leave has to be given to the de-
fendant to defend the suit. However, in view of the second pro-
viso to Sub-rule (5) of Rule 3, any amount of the claim, if admit- C
ted by the defendant to be due from him, has to be deposited in
Court before the leave to defend a suit can be granted.
13. Mr. Sharma submitted that the admission by the appel-
lant that there were certain dues which would be paid by the end
0
of December, 2002, the High Court was justified in directing the
appellant to deposit 55% of the admitted amount as a condition
precedent for grant of leave to defend the suit in accordance with
the provisions of the second proviso to Sub-rule (5) of Rule 3 of
Order 37 as it now stands after the amendment effected with
effect from 1st February, 1977. Mr. Sharma urged that there was, E
therefore, no ground or reason for this Court to interfere with the
discretion exercised by the High Court in the impugned order.

14. Having considered the submissions made on behalf of
the respective parties and the decisions cited, there appears to F
be force in Mr. Sharma's submissions regarding the object intended
to be achieved by the introduction of Sub-rules (4), (5) and (6) in
Rule 3 of Order 37 of the Code. Whereas in the unamended provi-
sions of Rule 3, there was no compulsion for making any deposit
as a condition precedent to grant of leave to defend a suit by virtue G
of the second proviso to Sub-rule (5), the said provision was al-
tered to the extent that the deposit of any admitted amount is now
a condition precedent for grant of leave to defend a suit filed under
Order 37 of the Code. A distinction has been made in respect of
any part of the claim, which is admitted. The second proviso to H
138 SUPREME COURT REPORTS [2008] 14 S.C.R.

A Sub-rule (5) of Rule 3 makes it very clear that leave to defend a suit
shall not be granted unless the amount as admitted to be due by
the defendant is deposited in Court.
15. The High Court has come to a finding that a certain
portion of the plaint has been duly admitted by the appellant 1,.-

B herein and accordingly directed 55% thereof to be deposited [
r
as a pre-condition for grant of leave to defend the suit. I

16. As has been pointed out by Mr. Sharma, it is now well
established as a principle of law that even if a wrong order is
passed by a Court having jurisdiction to pass an order in such
C cases, the revisional Court will not interfere with such an order
L
unless a jurisdictional error is pointed out and established by
the person who questions such order. I
17. In the instant case, the High Court did not lackjurisdic-
D tion to pass an order with regard to the subject matter of dis-
1,.-
pute, though the order itself may be incorrect. There is, there- r

fore, little scope for this Court to interfere with the directions
given to the appellant herein to deposit in Court 55% of the ad-
mitted dues as a pre-condition to grant of leave to defend a
suit. The judgment of the High Court impugned in this appeal
E does not warrant any interference since the trial Court had ex-
ercised its jurisdiction under the second proviso to Sub-rule (5)
of Rule 3 of Order 37 of the Code. The earlier concept of grant-
ing unconditional I.eave when a triable issue is raised on behalf
of the defendant, has been supplemented by the addition of a
·. F mandate, which has been imposed on the defendant, to de- f
posit any amount as admitted before leave to defend the suit
can be granted. The question as to whether leave to defend a
suit can be granted or not is within the discretionary powers of
the High Court and it does not appear to us that such discretion
G has been exercised erroneously or with any irregularity which
warrants interference by this Court.
. ,..._
18. The appeal is, therefore, dismissed.
19. There will be no order as to costs.

H R.P. Appeal dismissed. )