IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.     OF 2008

(@ Special Leave Petition(Civil) No.20544 of 2008)

Southern Sales & Services & Ors.      ...Appellants

Vs.

Sauermilch Design & Handels GMBH      ...Respondent  

J U D G M E N T

ALTAMAS KABIR,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 proceeding 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, 1977.  Prior to such amendment,

Rule 3 of Order 37 was as follows :-

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“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  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.”

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 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 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. (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 granted to him unconditionally or upon such terms as may  appear  to  the  Court  or  Judges  to  be just:

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  Provided that leave to defend shall not be  refused  unless  the  Court  is  satisfied that the facts disclosed by the 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 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:-

“(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

(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 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 Order 37 of the Code of Civil Procedure,

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hereinafter  referred  to  as  “the  Code”,  for

recovery of a sum of Euro 757,885.42 equivalent

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

various details which made out triable issues in

the suit.  On the basis of the said affidavit 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 company moved in revision before the

High  Court  which  after  considering  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 finding

that though the defendant/appellant had raised a

triable  issue,  the  defence  taken  did  not

exonerate them from payment of the entire amount

claimed by the respondent herein.

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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/respondent,  it

would be in the fitness of things to direct the

defendant/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

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  be

subject  to  the  condition  that  the

defendant/appellant  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.

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7. The defendant/appellant has come up to this Court

challenging the said order of the High Court.

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 satisfied that a

triable issue has been raised in defence of the

claim  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  submitted

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  subsequently

reiterated and followed by this Court in the case

of Santosh Kumar Vs. Bhai Mool Singh, [1958 SCR

1211], in which this Court set aside the order of

the High Court upon holding that the imposition

of a condition while granting leave to defend a

suit in which a triable issue has been raised was

illegal. If the Court was satisfied that there

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was  a  genuine  triable  issue,  leave  had  to  be

given  and  given  unconditionally  to  defend  the

suit.

9. Mr. Ratnam submitted that same view was taken by

this Court in Milkhiram (India) Private Ltd. vs.

Chamanlal Bros., [AIR 1965 SC 1698] and in M/s.

Mechelec  Engineers  and  Manufacturers  Vs.  M/s.

Basic Equipment Corporation, [1976 (4) SCC 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 defend may be questioned.

10. In  addition  to  his  aforesaid  submissions  Mr.

Ratnam urged that in the absence of any error of

jurisdiction  or  the  illegal  exercise  of

jurisdiction or the exercise of jurisdiction with

material  irregularity,  the  High  Court  had  no

jurisdiction  to  entertain  the  revisional

application filed by the respondent.  Mr. Ratnam

submitted  that  as  a  legal  proposition,  it  was

well established that in revisional jurisdiction

even  a  wrong  order  cannot  be  corrected  or

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interfered  with  and  that  the  scope  of

interference is limited to jurisdictional error

only as was explained in the case of The Managing

Director  (MIG)  Hindustan  Aeronautics  Ltd.,

Balanagar, Hyderabad vs. Ajit Prasad Tarway. [AIR

1973 SC 76].  Mr. Ratnam submitted that on both

counts the order of the High Court impugned in

the appeal was liable to be set aside.

11. Replying to the submissions made on behalf of the

appellant,  Mr.  Niraj  Sharma,  counsel  for  the

respondent submitted 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  counsel  submitted  that

with the substitution of Rule 3 of Order 37, the

earlier decisions, right up to the decision in

the  case  of  M/s.  Mechelec  Engineers  and

Manufacturers  (supra)  were  to  a  large  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

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and an admitted claim in a suit filed 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 defendant to defend

the suit.  However, in view of the second proviso

to  Sub-rule  (5) of Rule  3, any amount  of the

claim, if admitted 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 appellant  that  there  were  certain  dues  which

would be paid by the end 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, therefore, no ground

or reason for this Court to interfere with the

discretion  exercised  by  the  High  Court  in  the

impugned order.

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14. Having considered the submissions made on behalf

of  the  respective  parties  and  the  decisions

cited, there appears to 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 provisions 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 of the second proviso to Sub-

rule (5), the said provision was altered 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 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 herein and accordingly

directed 55% thereof to be deposited as a pre-

condition for grant of leave to defend the suit.

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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 cases, the

revisional Court will not interfere with such an

order unless a jurisdictional error is pointed

out and established by the person who questions

such order.  

17. In the instant case, the High Court did not lack

jurisdiction to pass an order with regard to the

subject  matter  of  dispute,  though  the  order

itself may be incorrect.  There is, therefore,

little scope for this Court to interfere with the

directions  given  to  the  appellant  herein  to

deposit in Court 55% of the admitted dues as a

pre-condition to grant of leave to defend a suit.

The judgment of the High Court impugned in this

appeal does not warrant any interference since

the trial Court had exercised its jurisdiction

under the second proviso to Sub-rule (5) of Rule

3 of Order 37 of the Code.  The earlier concept

of granting 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

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deposit 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 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.     

................J. (ALTAMAS KABIR)

................J. (MARKANDEY KATJU)

New Delhi Dated: 3.10.2008

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