REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7410-7411        OF 2008 (Arising out of SLP (C) No. 18095-18096 of 2008)

M/S. MALWA STRIPS PVT. LTD.     … APPELLANT

Versus

M/S. JYOTI LTD.                     … RESPONDENT

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. Appellant  is  a  company  incorporated  and  registered  under  the

Companies  Act,  1956  (for  short,  “the  said  Act”).   It  is  engaged  in

manufacturing of copper strips  and copper foils  etc.   It  has its  registered

office at 17-20, Industrial Area No.2, AB Road, Dewas, Madhya Pradesh.

Respondent is also a company registered and incorporated under the said

Act.   It has its registered office at Nanubhai Amin Marg, Industrial Area,

Vadodara.  Respondent used to place orders for supply of copper rods strips

and foils  from time to time with the appellant.   Allegedly, the  payments

used to be made towards the said supply from time to time.  Appellant, inter

alia, on the premise that a sum of Rs. 49,03,908.29 was owed to it by the

respondent filed a Summary Suit under Order XXXVII of the Code of Civil

Procedure, 1908 (for short, “the Code”).   An application for leave to defend

the  suit  was  filed  by  the  respondent.   Appellant  contended  that  as  the

respondent raised a defence only as regards the rate of interest and not the

principal amount, its application should be dismissed.  By an order dated

23.08.2007, the application for leave to defend the suit was allowed, subject

to the condition that the respondent shall make payment of undisputed and

admitted  amount  of  Rs.22,64,789.52.   Such  deposit  was  to  be  made  by

22.9.2007. Respondent obtained extension of time to deposit  the amount.

However,  as  the  said  amount  was not  deposited,  the  trial  court  passed  a

judgment  on  or  about  14.11.2007  decreeing  the  suit  in  favour  of  the

appellant.  Respondent preferred an appeal thereagainst.  An application for

stay of the said judgment and decree passed by the trial Court was also filed.

By reason of the impugned judgment, the High Court stayed the operation

and execution of the decree in its entirety.  While doing so, the High Court

opined:

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“ We are  conscious  of  the  fact  that  usually money decrees  are  not  stayed in  appeal.   At the same time, it  is  not  a universal  principle  of  law that the stay can never be granted in cases relating to  money  decree.   The  Court  has  discretion  to grant  a  stay  keeping  in  view  all  facts  and circumstances of the case, including the manner in which the trial of the suit was conducted and the impugned decree was passed.

We are prima facie of the view that a case for stay of execution of the decree is made out by the appellant on the facts on record.  We do not, however,  wish  to  express  any  opinion  on  the merits  and  demerits  of  the  case  at  this  stage, which, in our opinion, will be gone into at the time of hearing of the appeal.  For the purpose of grant of stay, we are of the view that a ground for stay, as contemplated under O.41 R.5 CPC is made out. We are, therefore, inclined to stay execution of the decree pending appeal.”

Appellant is, thus, before us.

3. Mr. Shiv Sagar Tiwari,  learned counsel  appearing on behalf of the

appellant would submit that the High Court committed a serious error of law

in  passing  the  impugned  judgment  insofar  as  it  failed  to  take  into

consideration that the defendant – respondent had raised no substantive and

bona fide defence and that in view of the matter it was not a case where the

execution of the decree should have been stayed.   

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4. Ms.  Kamini  Jaiswal,  learned  counsel  appearing  on  behalf  of  the

respondent, on the other hand, would urge that compound interest was not

payable and in any event a suit under Order XXXVII of the Code being not

maintainable, the manner in which the judgment and decree passed by the

learned trial judge being wholly unsustainable, the High Court could not be

said to have committed any error of law in passing the impugned judgment.  

5. The decree passed by the learned trial judge is a money decree.  A

conditional leave to defend was granted.  The said condition has not been

fulfilled.   Leave  to  defend,  therefore,  would  be  deemed  to  have  been

refused.  Correctness of the said order had not been questioned.   

The Parliament, by reason of Section 87 of Act 104 of 1976 inserted

sub-rule  (3)  in  Rule  1  of  Order  XLI of  the Code,  which  is  to  be in  the

following effect:

“(3)  Where  the  appeal  is  against  a  decree  for payment of money, the appellant shall, within such time as  the  Appellate  Court  may allow,  deposit, the amount disputed in the appeal or furnish such security in respect thereof as the Court may think fit.”

6. An explanation was also added to sub-rule (1)  of  Rule 5 of Order

XLI.  In terms of sub-rule (1) of Rule 5 of Order XLI, an appeal shall not

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operate as a stay of proceedings.  It is for the Appellate Court who may, for

sufficient cause, order stay of execution of such decree.  The explanation

appended to the said sub-rule reads as under:

“Explanation:-  An  order  by  the  Appellate  Court for  the  stay  of  execution  of  the  decree  shall  be effective  from the  date  of  the communication  of such order  to  the Court  of  first  instance,  but  an affidavit  sworn  by  the  appellant,  based  on  his personal  knowledge, stating that an order for the stay of execution of the decree has been made by the Appellate Court shall, pending the receipt from the  Appellate  Court  of  the  order  for  the  stay  of execution  or  any order  to  the  contrary,  be acted upon by the Court of first instance.”

7. In terms of sub-rule (5) of Rule 5 of Order XLI, the court shall not

make an order staying the execution of the decree notwithstanding anything

contained in the foregoing sub-rules, where the appellant fails to make the

deposit or furnish the security specified in sub-rule (3) of rule 1.   

8. We will proceed on the assumption that although the word ‘shall’ has

been used in Order XLI Rule 1 (3) of the Code, the same is not mandatory

in character, and, thus,  may be read as directory.   

9. In   Rajasthan State Electricity Board and Anr.  vs.  Ram Deo & ors.

[AIR  1999  Rajasthan  264],  after  noticing  some  of  the  aforementioned

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decisions  as  also  the  legislative  history  of  the  said  provision,  a  learned

Single Judge of the Rajasthan High Court held as under:

“19.  After  close  scrutiny  of  the  aforesaid observations, I am of the opinion that in view of the provisions of Sub-Rule (5) of Rule 5 of Order 41 CPC it cannot be held that appeal against the ' decree for payment of money is not maintainable, if  filed  without  making  compliance  of  the provisions contained in Sub-Rule (3) of Rule 1 of Order 41 CPC and it is the duty of the Registry to see that on application under Order 41 Rule 5 CPC seeking stay of money decree the appellant has to incorporate a note in regard to his  readiness  and willingness  to  comply  with  the  directions  under Sub-Rule (3) of Rule 1 of Order 41 CPC. If the appeal is preferred against the decree for payment of money without any stay application under Order 41 Rule 5 CPC then in that event, it is the duty of the appellant to incorporate a note in the memo of appeal in respect of his readiness and willingness to comply with the directions issued by the Court under Sub-Rule (3) of Rule I of Order 41 CPC.”

10. We may, however, notice that although the provisions of sub-rule (3)

of Rule 1 of Order XLI have been held not to be mandatory, this Court in

Kayamuddin Shamsuddin Khan vs. State Bank of India  [(1998) 8 SCC 676]

opined that non-compliance of a direction to deposit the decreetal amount or

part of it or furnish security therefor would result in the dismissal of the stay

application but not the entire appeal, stating:  

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“8. This would mean that non-compliance with the direction  given regarding deposit  under  Sub-rule (3)  of  Rule  1  of  Order  XLI would  result  in  the Court refusing to stay the execution of the decree. In  other  words,  the  application  for  stay  of  the execution  of  the  decree  could  be  dismissed  for such non-compliance but the Court could not give a direction for the dismissal of the appeal itself for such non-compliance.”

11. To the same effect is the decision of this Court in Sihor Nagar Palika

Bureau vs.  Bhabhlubhai Virabhai & Co. [(2005) 4 SCC 1], wherein it was

held:  

“6. Order XLI Rule 1(3)  of  the CPC provides that in an appeal against a decree for payment of amount  the  appellant  shall,  within  the  time permitted  by  the  Appellate  Court,  deposit  the amount  disputed  in  the  appeal  or  furnish  such security in respect thereof as the Court may think fit.  Under  Order  XLI  Rule  5(5)  a  deposit  or security, as abovesaid, is a condition precedent for an  order  by  the  Appellate  Court  staying  the execution of the decree. A bare reading of the two provisions  referred  to  hereinabove,  shows  a discretion having been conferred on the Appellate Court  to  direct  either  deposit  of  the  amount disputed in the appeal or to permit such security in respect  thereof  being  furnished  as  the  Appellate Court  may  think  fit.  Needless  to  say  that  the discretion  is  to  be  exercised  judicially  and  not arbitrarily  depending  on  the  facts  and circumstances  of  a  given  case.  Ordinarily, execution  of  a  money  decree  is  not  stayed

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inasmuch as satisfaction of money decree does not amount to irreparable injury and in the event of the appeal being allowed, the remedy of restitution is always available to the successful party. Still  the power  is  there,  of  course,  a  discretionary  power and is meant to be exercised in appropriate cases.”

To the same effect is the decision of this Court in  B.P. Agarwal &

anr. vs. Dhanalakshmi Bank Ltd. & ors. [(2008) 3 SCC 397]

The High Court in this case failed to notice the provisions of sub-rule

(3) of Rule 1 of Order XLI.   

The appellate court, indisputably, has the discretion to direct deposit

of such amount, as it may think fit, although the decreetal amount has not

been deposited in its entirety by the judgment debtor at the time of filing of

the appeal.  But while granting stay of the execution of the decree, it must

take into consideration the facts and circumstances of the case before it.  It

is not to act arbitrarily either way.  If a stay is granted, sufficient cause must

be shown, which means that  the materials on record were required to be

perused and reasons are to be assigned.  Such reasons should be cogent and

adequate.   

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The High Court, with respect, failed to notice that suit was one under

Order XXXVII of the Code.  Whether it was maintainable or not may fall

for  consideration  in  the  appeal.   Even  assuming  that  the  same  was  not

maintainable, the question which should have been posed by the High Court

was as to whether sufficient cause had been made out to reverse the decree

passed in favour of the appellant.  Even a decree could have been passed

having regard to the defence raised by the respondent under Order XII Rule

6 of the Code.  We, therefore, see no justification at all as to why an order of

stay of the nature was passed by the High Court.

12. Even if the said provision is not mandatory, the purpose for which

such a provision has been inserted should be taken into consideration. An

exceptional case has to be made out for stay of execution of a money decree.

The Parliamentary intent should have been given effect to.   The High Court

has not said that any exceptional case has been made out.  It did not arrive at

the conclusion that it would cause undue hardship to the respondent if the

ordinary rule to direct payment of the decreetal amount or a part of it and/or

directly through the judgment debtor to secure the payment of the decreetal

amount is granted.  A strong case should be made out for passing an order

of stay of execution of the decree in its entirety.

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13. We, therefore, having regard to the facts and circumstances of this

case direct the respondent to deposit a sum of Rs.35 lakhs within a period of

four weeks from date.  Respondent shall furnish adequate security for the

rest  of  the decreetal  amount  within  the same period.   Appellant  shall  be

entitled to withdraw a sum of Rs.30 lakhs out of the said deposited amount

without furnishing any security and the rest amount on furnishing security.

In the event the respondent fails to comply with the order, the decree shall

be executable at once.

14. The  appeals  are  allowed  with  the  aforementioned  directions.  No

costs.  

……………….…..………….J. [S.B. Sinha]

..………………..……………J. [Cyriac Joseph]

New Delhi; December 18, 2008

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