A

B

c

D

E

1060

MECHELEC ENGINEERS AND MANUFACTURcRS

v.

M/S. BASIC EQUIPMENT CORPORATION

November 1, 1976

[A. N. RAY, C.J., M. H. BEG AND JASWANT SINGH, JJ.]

Civil Procedure Code, S. 115-Jurisdiction of High Court to interfere with

the Trial Court's discretionary order, when exercisable.

••

The appellant issued the respondent a cheque which was dishonoured. The

respondent alleged•that the cheque• was the consideration for goods supplied. The

appellant admitted issuing the cheque but denied by privity

of

contra~. The

respondent filed a suit under order

37

C.P.C., and the appellant applied for the

required leave to defend, which was granted

by the trial Court unconditionally. On revision under section 115 C.P.C., the High Court held that triable· issues

arose for adjudication,, but, it considered the defence to be dishonest. If allowed

the revision petition and gave conditional leave to defend on the ground that the

defences were not

bona fide.

Allowing the appeal, the Court

HELD : It is only in cases where the defence is patently dishonest or so

unreasonable that it could not reasonably be expected to

s<ucceed that the exer­

cise of discretion by the Trial Court

to grant leave unconditionally may

be

questioned. Jn other cases, it is not fair to pronounce a categorical opinion on

such

a matter before the evidence of the

partie~ is taken so that its effects could

be examined. High Court's interference under sec.

115

C.P.C. with the correct

exercise

of its discretion by the trial Court was patently erroneous. [I

062 E-H J

Santo.1·h Kumar v. Bhai Moo/ Singh [1958] S.C.R. 1211 at 1215, Jacobs v.

Booth's Distillery Co. [1901] 85 LT. 262 followed.

Smt. Kira11moyee Dassi and another v. Dr. J. Clwttcrjn• (49 C.W.N. 246 at

253) distinguished.

M. L. Sethi v. R. P. Kapur [1973]. (!) S.C.R. 697; The Mana;:ing Director

(MIG) Hindustan Aeronautics Ltd. Balanagar, Hyderabad & A nr. v. Ajit Prasad

Tarway, J\1a11ager (Purchase and Stores). Hindustan A erona11tics Ltd. Bala­

nagar, Hyderabad (AIR 1973 SC 76); D.L.F. Housing & Co11str11c1io11 Co. Pvt.

Ltd., New Delhi v. Sarup Sin{!/1 & Ors. [1970] 2 S.C.R. 368; and Milkhiram

;F (India) (Pl Ltd. and Ors. v. Chamanlal Bros. (AIR 1965 SC 1998) referred

G

H

to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 508 of 1976.

(Appeal by Special Leave from the Jud~ment and Order dated

27-10-1975 of

the Delhi High Court in Civil Revision No. 115/75).

S. N. A ndley, Uma Dutta and T. C. Sharma,

fof the appellant.

K. C. Agarwala and M. M.

L. Srivastava, for the respondent.

The Judgment of the Court was delivered by

BEG. J. The plaintiff-respondent alleged to be a registered part­

nership firm filed a suit on

25th April, 1974, through

Smt. Pushpa

Mittal, shown as one of its partners, for the recovery of Rs. 21 ,265.28

as principal

and Rs. 7655/-, as interest at 12% per annum, according

to law and Mercantile usage, on the strength of a cheque drawn

by the

defendant on 12th May, 1971, on

the

State Bank of India, which, on

presentation, was dishonoured. ·The plaintiff alleged that the cheque

I

l

' '

~

' .

MECHELEC ENG. V. BASIC EQ. CORP. (Beg, J.) 1061

was give!! as price of goods supplied. The defendant-appellant firm

admitted the issue

of the cheque by its Managing partner, but, it denied

any privity of contract with the plaintiff firm. The defendant-appellant

had its own version as

to the reasons and purposes for which the

cheque was drawn.

The suit was instituted under the provisions of

Order 3 7 Civil Pro­

cedure Code so that the defendant-appellant had to apply for leave

under Order 37, Rule 2, of the Code to defend. This leave was granted

unconditionally by the Tria~ Court after a perusal of the cases of the

t~ sides. Order 37, Rule 3, Civil Procedure Code Jays down :

"(1) The Court shall, upon application by the defendant,

~ive leave to appear and to defend the suit,. upon affidavits

which disclose such facts as would make it incumbent on the

holder to prove consideration,

or such 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 thinks

fit".

A learned Judge of the High Court of Delhi had on a revision

application under Section 11 5 Civil Procedure Code interfered with

the order of the Additional District Judge of Delhi granting uncondi­

tiollftl leave, after setting out not less than seven questions on which

the parties were

at issue. The learned Judge had, after discussing the

cases of the two sides and holding that triable issues arose for adjudi­

cation, nevertheless, concluded that the defences were not

bona fide.

He, therefore, ordered :

"For these reasons I would allow the revision petition and

set aside the order of the trial Court. Instead I would

grant leave

to the defendant on their paying into Court the

amount

of Rs. 21,265.28 together with interest at the rate of

6 per cent

per annum from the date of suit till payment and

costs

of the suit (only court fee amount at this stage and not

the lawyer's fee).

The amount will be deposited within two

months. There

wm be no order as to costs of this revision".

The only ql!estion; which arises before us in this appeal by special

A

B

c

D

E

F

leave : Could the High Court interfere,

in exercise of its

powers G

under section 115, Civil Procedure Code, with the discretion of the

Additional District Judge, in granting unconditional leave to defend. to

the defendant-appellant upon grounds which even a perusal of the

order of the High Court shows to be reasonable

?

Santosh Kumar v. Bhai Mool

Sin1?h(1), was a case where a cheque,

the execution of which was admitted by the defendant, had been dis­

honoured.

The defendant had. set up his defences for refusal to pay.

(l) [1958]

SCR 1211-1215.

H

•

•

1062 SUPREME COURT REPORTS ( 1977] 1 S.C.R.

A This Court noticed the case of Jacobs v. Booth's Distil/en;, Com­

pany('), where it was held that, whenever a defence raises a really

triable issue, leave must be given. Other cases too were noticed there

to show that this leave must be given unconditionally where the defence

could not be shown to be dishonest

in limine. This Court observed

there

(at p. 1215) :

B

c

D

"The learned Counsel for the plaintiff-respondent relied

on

Gopala Rao v.

Subba Rao (AIR 1936 Mad. 246,

Manohar Lal v. Nanhe Mal (AIR 1938 Lah. 548), and

Shib Karan Das v. Mohammed Sadiq (AIR 1936 Lah. 584). ••

All that we need say about them is that if the Court is of

opinion that the defence

is not

bona fide, the.n it can impose

conditions and

is not tied down to refusing leave to defend.

•

We agree with Varadachariar J. in the Madras case that the

Court has this third course open

to it in a suitable case. But,

it cannot reach the conclusion that the defence is not bona

fide

arbitrarily. It is as much bound by judicial rules and

judicial procedure in reaching a conclusion of this kind as

in

any other

matter".

On general principles, relating to the exercise of jurisdiction of

High Courts under section 115, Oivil Procedure Code, several cases

were cited before us by Mr. Andlcy: M. L. Sethi v. R. P. Kapur(2);

The Managing Director (MIG) Hindustan Aeronautics Ltd. Bala­

nagar, Hyderabad

& Anr. v. Ajit

Prasad Tarway, Manager, (Pur­

chase & Stores), Hindustan Aeronautics Ltd., Balanagar, Hydcra-

E bad(3); D. L. F. Housing & Construction Co. Pvt. Ltd. New Delhi v.

F

G

H

Sarup Singh & Ors.(

4

); Milkhiram (India) Pvt. Ltd. & Ors. v. Chaman­

lal Bros.(")

We need not dilate on the well established principles repeatedly

laid down by this Court which govern jurisdiction of the High Courts

under section 115 C.P.C. We think that these principles were ignored

by the learned Judge of the High Court in interfering with the discre­

tionary order after a very detailed discussion of the facts of the case

by the learned Judge of the High Court who had differred on a pure

question of

fact-whether the defences could be honest and bona fide.

Any decision on such. a question, even before"evidence has been led

by the two sides,

is generally hazardous. We do not

ihink that it is

fair to pronounce a categorical opinion on such a matter before the

evidence of the parties

is taken so that its effects could be examined.

In the case before us, the defendant had denied, inter alia, liability to

pay anything to the plaintiff for an alleged supply of goods. 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 leave unconditionally may

be

(I) (1901] 85 L.T. 262.

(3) . A IR 1973. SC 76.

(5) AIR 1965 SC 1698.

(2) [1973] 1 S.C.R. 697.

(4) (1970] (2) SCR 368.

;

'

'

I

)

•

MECHELEC ENG. v. BASIC EQ. CORP. (Beg, J.) 1063

.questioned. · In the judgment of the High Court we are unable to find, A

a ground' !if interference covered by Section 115 C.P.C. .

In

Smt. Kiranmoyee Dassi & Anr. v. Dr. J.

Chatterjee('), Das. J.,

after a comprehensive review of authorities on, the subject: stated the

principles applicable to cases covered by order

17

C.P.C. m the form

of the following propositions (at p. 253) :

"(a) If the Defendant satisfies the Court that he has a

good defence to the claim on its merits the plaintiff !s not. en­

titled to leave to sign judgment and the Defendant

1s

entitled

• • to unconditional leave to defend.

• (b) If the Defendant raises a triable issue indicating that

he has a fair

or bona fide or reasonable defence although not

a

positively good defence the plaintiff is not entitled to sign

judgment and the Defendant

is entitled to unconditional

leave to defend.

( c)

H tht:'1 Defendant discloses such facts as may be

deemed sufficient

to entitle him to defend, that is to say, al­

though the affidavit does not positively and immediately

make it clear that he has

ai defence, yet, shews such a state

of facts

as leads to the inference that at the trial of the action

he may be able to establish a defence to the plaintiff's claim

the Plaintiff

is not entitled to judgment and the Defendant is

entitled to leave to defend but in such a case the Court may

in its discretion

impose conditions as to the time or mode

of trial but not as

to payment into Court or furnishing

security.

(d)

If the Defendant has no defence or the defence set

up

is illusory or sham or practically moonshine then ordi­

narily the Plaintiff

is entitled to leave to sign judgment and

the Defendant

is not entitled to leave to defend.

( e)

If the Defendant has no defence or the defence is

illusory or sham or practically moonshine then although ordi­

narily the Plaintiff

is. entitled to leave to sign judgment, the

Court may protect the Plaintiff by only allowing the defence

to proceed

a the amount claimed is.paid into Court or other­

wise secured and give leave to the Defendant on such condi­

tion, and thereby show mercy to the Defendant by enabling

him to try to prove a defence" .

The case before us certainly does not fall within the class ( e) set

-out ~~ove. It is o_nly in that cl~ss of case ).!.lat an impo~ition of the

B

c

D

E

F

G

-cond1tion ·to deposit an amount m Court before proceeding further is

justifiable. · H

49 C.W.N. 246, 253.

•

•

1064 SUPREME COURT REPORTS (1977] 1 S.C.R.

A Consequently, we set aside the judgment and order of the High

Court and restore that of the Additional District Judge. Tb parties

will bear their own costs.

M.R.

Appeal allowed.

••

•

•

•

I

'

I

(

"