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CASE NO.: Appeal (civil)  1344 of 2007

PETITIONER: M/s. Uma Shankar Kamal Narain & Anr

RESPONDENT: M/s. M.D. Overseas Ltd.

DATE OF JUDGMENT: 14/03/2007

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T (Arising out of SLP(C) No. 7593 of 2006)  

Dr. ARIJIT PASAYAT, J.

       Leave granted.

Challenge in this appeal is to the order passed by a  Division Bench of the Delhi High Court granting  conditional leave to the appellants to defend in a summary  suit in terms of Order XXXVII Rule 1 of the Code of Civil  Procedure, 1908 (in short the ’CPC’).  Appellants are the  defendants in the said suit.  The appellants filed an  application for leave to defend in the same suit.  Learned  Single Judge of the High Court found that the grounds  taken in the application for leave to defend were sham and  moonshine.  The plaintiff/respondent had filed the suit in  terms of Rule XXXVII Rule 1 based upon four cheques  which were purportedly issued by defendant No. 2 i.e.  appellant No.2 herein, in favour of the  plaintiffs/respondents.  The cheques were dishonored with  the remark that the payments were stopped by the  drawer.

 The learned Single Judge after considering the  various stands taken in the petition came to hold that the  defence as raised by the defendants is a moonshine  defence and the same is raised only for the purpose of  delaying payment for the amount which is due for  payment. Learned Single Judge refused to grant leave to  defend.  The plaintiff was held to be entitled for decree for  recovery of the concerned amount i.e. Rs.39,30,856/-  along with  interest at the rate of 12% p.a. from the date of  suit till realization.  The plaintiff was also held to be  entitled to cost.  The said order was challenged in RFA  (OS) Nos. 18 and 19 of 2006.  

Stand of the appellants was that the defence was not  moonshine as was observed by a learned Single Judge.  The High Court noted that there was no substantial stand  of the appellants, particularly in relation to the plea  regarding whether the transaction took place between the  parties and whether any sales tax forms were given or  required to be given.

 It was contended by the appellants before the High

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Court that the issue relating to the delivery of the goods  could not have been decided by learned Single Judge.  The  High Court was of the view that there was no substance in  the argument. There is a presumption in favour of any  negotiable instrument which has been executed in favour  of a party in whose favour the instrument has been  drawn.  However, the Division Bench felt that on perusal  of application for leave to defend it was of the considered  opinion that the case would fall in the category where  interest of justice would be met if direction for deposit  should be made.  The appellants were directed to deposit  the amount of Rs.39,30,856/- to the registry of the High  Court. Conditional leave to defend in the aforesaid  circumstances was granted to the appellants.  Respondent  wanted liberty to withdraw the amount on deposit. High  Court refused to accede to the prayer. However, it was  permitted to move appropriate application before learned  Single Judge for withdrawal of the amount, if any.  It was  observed by the High Court that if there is a default in  deposit of the amount as indicated by the appellant, the  order and decree passed by the learned Single Judge was  to become operative.  

According to learned counsel for the appellants the  High Court was not justified in directing the entire  decretal amount to be deposited after having held that  leave to defend was to be granted.

Learned counsel for the respondent on the other  hand submitted that the High Court’s order is not only fair  but it is equitable.  The amount which appears to be  prima facie undisputed is much more than the amount  which the High Court has directed to deposit.

The position in law has been explained by this Court in  Milkhiram (India) Private Ltd. & Ors. v. Chamanlal Bros.  (AIR 1965 SC 1698) and Mechelec Engineers &  Manufacturers v. Basic Equipment Corporation  (1976( 4)  SCC 687).  In Sunil Enterprises and Anr. v. SBI  Commercial & International Bank Ltd. (1998 (5) SCC 354)  the position was again highlighted and with reference to  the aforesaid decisions it was noted as follows: (a)     If the defendant satisfied the Court that he has a  good defence to the claim on merits, the defendant  is 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 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 affidavit discloses that at the trial he may be  able to establish a defence to the plaintiff’s claim,  the Court may impose conditions at the time of  granting leave to defend the conditions being as to  time of trial or made of trial but not as to payment  into Court or furnishing security. (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 defend. (e)     If the defendant has no defence or the defence is  illusory or sham or practically moonshine, the Court  may show mercy to the defendant by enabling him  to try to prove a defence but at the same time  protect the plaintiff imposing the condition that the

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amount claimed should be paid into Court or  otherwise secured.

The said principles were recently highlighted in  Defiance Knitting Industries (P) Ltd. v. Jay Arts  2006 (8)  SCC 25.

Keeping the principles laid down by this court in  several cases noted above, we think it would be  appropriate to direct the appellants to deposit a sum of  Rs.20,00,000/- within a period of three months in the  registry of the High Court.  If the amount is not deposited  within the time stipulated, the order shall not be operative  and the order passed by the Single Judge would become  operative.

The appeal is disposed of accordingly.  No costs.