The Supreme Court while hearing a civil appeal has observed that grant of leave to defend (with or without conditions) is the ordinary rule; and denial of leave to defend is an exception. Putting it in other words, generally, the prayer for leave to defend is to be denied in such cases where the defendant has practically no defence and is unable to give out even a semblance of triable issues before the Court.
The Court importantly observed that while dealing with an application seeking leave to defend, it would not be a correct approach to proceed as if denying the leave is the rule or that the leave to defend is to be granted only in exceptional cases or only in cases where the defence would appear to be a meritorious one.
The Supreme Court was dealing with a civil appeal which arose from a Summary Suit filed under Order 37 CPC by the respondent no. 1 (plaintiff) against the appellant (defendant no. 2) and respondent no. 2 (defendant no. 1).
No triable issues were found by the Trial Court:
The plaintiff had filed a summary suit in terms of Order 37 CPC against the defendants. In the plaint, it was asserted that the plaintiff had supplied 200 tons of Steel to the defendant no. 1 and supply was made on the basis two purchase orders raised by the defendant no. 2. With regard to the supply the plaintiff had raised various invoices and further submitted that an amount of Rs. 89,50,244/- is due against the supplies so made and invoices so raised by the plaintiff.
On failure of the defendants to pay the demanded amount, the plaintiff filed the subject suit in terms of Order 37 CPC and asserted joint and several liability of the defendants.
The issues erupted when the application of the defendants for grant of leave to defend was rejected by the trial Court after observing that the defendants have no triable issues to raise in their defence and were merely attempting to shift the burden upon each other. Consequently, the suit was decreed in favour of the plaintiff for a sum of Rs. 89,50,244/- together with interest at the rate of 10% per annum with joint and several liability of the defendants to pay the decreetal amount
High Court dismissed the Appeal of the Appellants (Defendants):
In the appeal filed by the defendant no. 1 , the High Court by its judgment observed that the defence sought to be raised by the defendant No.1 was frivolous or vexatious and, in support of this finding, the High Court specifically gave the reason in following words: –
“The defence of the appellant/defendant no. 1 was clearly frivolous or vexatious, and it did not raise a genuine triable issue, because if there was no liability of the appellant/defendant no. 1 then, where was the question of making payments regularly by the appellant/defendant no.1 to the respondent no.1/plaintiff.”
In the appeal filed by the defendant no. 2 (appellant in the instant case), the High Court after relying upon the judgment in Mechelec Engineers and Manufacturers v. Basic Equipment Corporation: AIR 1977 SC 577 and IDBI Trusteeship Services Ltd. v. Hubtown Ltd.: (2017) 1 SCC 568 the High Court held that the appellant-defendant No. 2 was not entitled to leave to defend because the defences raised by it do not give rise to genuine triable issues; and the defences were frivolous and vexatious, raised only in order to deny the just dues of the seller of goods, being the plaintiff.
Observations of the Court:
The Court while explaining the provision of leave to defend observed
“17. It is at once clear that even though in the case of IDBI Trusteeship, this Court has observed that the principles stated in paragraph 8 of Mechelec Engineers’ case shall stand superseded in the wake of amendment of Rule 3 of Order XXXVII but, on the core theme, the principles remain the same that grant of leave to defend (with or without conditions) is the ordinary rule; and denial of leave to defend is an exception. Putting it in other words, generally, the prayer for leave to defend is to be denied in such cases where the defendant has practically no defence and is unable to give out even a semblance of triable issues before the Court.”
“17.1. As noticed, if the defendant satisfies the Court that he has substantial defence, i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend. In the second eventuality, where the defendant raises triable issues indicating a fair or bonafide or reasonable defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend. In the third eventuality, where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the Trial Court is expected to balance the requirements of expeditious disposal of commercial causes on one hand and of not shutting out triable issues by unduly severe orders on the other. Therefore, the Trial Court may impose conditions both as to time or mode of trial as well as payment into the Court or furnishing security. In the fourth eventuality, where the proposed defence appear to be plausible but improbable, heightened conditions may be imposed as to the time or mode of trial as also of payment into the Court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.”
17.2. Thus, it could be seen that in the case of substantial defence, the defendant is entitled to unconditional leave; and even in the case of a triable issue on a fair and reasonable defence, the defendant is ordinarily entitled to unconditional leave to defend. In case of doubts about the intent of the defendant or genuineness of the triable issues as also the probability of defence, the leave could yet be granted but while imposing conditions as to the time or mode of trial or payment or furnishing security. Thus, even in such cases of doubts or reservations, denial of leave to defend is not the rule; but appropriate conditions may be imposed while granting the leave. It is only in the case where the defendant is found to be having no substantial defence and/or raising no genuine triable issues coupled with the Court’s view that the defence is frivolous or vexatious that the leave to defend is to be refused and the plaintiff is entitled to judgment forthwith. Of course, in the case where any part of the amount claimed by the plaintiff is admitted by the defendant, leave to defend is not to be granted unless the amount so admitted is deposited by the defendant in the Court.
17.3. Therefore, while dealing with an application seeking leave to defend, it would not be a correct approach to proceed as if denying the leave is the rule or that the leave to defend is to be granted only in exceptional cases or only in cases where the defence would appear to be a meritorious one. Even in the case of raising of triable issues, with the defendant indicating his having a fair or reasonable defence, he is ordinarily entitled to unconditional leave to defend unless there be any strong reason to deny the leave. It gets perforce reiterated that even if there remains a reasonable doubt about the probability of defence, sterner or higher conditions as stated above could be imposed while granting leave but, denying the leave would be ordinarily countenanced only in such cases where the defendant fails to show any genuine triable issue and the Court finds the defence to be frivolous or vexatious.
The Court held that the appellant has raised triable issues, particularly concerning its liability and the defence of the appellant cannot be said to be frivolous or vexatious altogether.
The Court further held that the appellant (defendant no.2) ought to have been granted leave to defend the claim made in the suit concerning its liability; and to this extent, the impugned decree deserves to be set aside.
Ultimately the Court granted leave to defend to the appellant and set aside the order of the High Court as well of trial Court and the amount of Rs. 40,000,00/- deposited by the appellant in another execution proceedings shall be treated to be a deposit towards the condition for leave to defend.
B.L. Kashyap and Sons Ltd vs M/S JMS Steels And Power Corporation & Anr
Case no. Civil Appeal (ARISING OUT OF SLP (C) NO. 19413 OF 2018)
Coram: Justice Vinnet Saran and Justice Dinesh Maheshwari