REPORTABLE

IN TH SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7314       OF 2008 (Arising out of SLP (C) No.10870 of 2006)

Wada Arun Asbestos (P) Ltd. … Appellant

Versus

Gujarat Water Supply & Sewerage Board … Respondent

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. This appeal is directed against a judgment and order dated 31.8.2005

passed by the High Court of Judicature at Gujarat whereby and whereunder

a first  appeal  filed  by the respondent  herein was allowed setting  aside a

decree passed in favour of the appellant herein under Order 37 Rule 3(6)(b)

of the Code of Civil Procedure and remitting the suit to the trial court with

the direction that the amount already deposited with the respondent by them

in  terms  of  the  directions  of  the  High  Court  shall  be  deemed to  be  the

amount deposited under the lease granted by the trial court.

3. The basic fact of the matter is not in dispute.   

Appellants supplied AC pressure pipes to the respondents.  A sum of

Rs.1,57,488/- became due. On the premise that as a small scale industrial

unit, it cannot afford to block such a huge amount, plaintiff requested the

defendants to release the said payment.  The defendants having not released

the outstanding payment, plaintiff became entitled to interest at the rate of

23% per annum being 5% higher than the bank rate per annum thereupon.

Plaintiff  filed  a  Summary  Civil  Suit  in  the  court  of  Civil  Judge  (SD),

Gandhinagar.  Respondent filed an application for grant of leave to defend

the suit.   By reason of an order dated 27.11.2002, conditional  leave was

granted, directing  :

“The  application  for  leave  to  defend  is  hereby granted  with  a condition  that  the defendant  may give security of 50% amount of the suit claim.”

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4. Concededly,  the said  amount was not  deposited and, thus,  the said

condition  was  not  complied  with.   On  the  premise  that  the  defendants-

respondents  having not complied with the said directions,  the conditional

leave granted by the court would be deemed to have been refused, a decree

as prayed for  in  paragraph 17 of  the  plaint  was passed  in  the following

terms:

“The  present  suit  of  the  plaintiff  is  hereby allowed.

The decree as prayed for in para 17 of the suit as per Order XXXVII, Rule 3(6)(b) of the CPC is  hereby  passed  accordingly  and  the defendants are hereby directed to pay the sum of Rs.21,18,335.65 ps. Jointly and Severally to the  Plaintiff  along  with  interest  @  23%  per annum.”

5. An appeal was preferred thereagainst.  By an Order dated 3.3.2004,

the High Court directed as under :

“At the suggestion of the Court,  learned counsel for the parties pray for time to explore possibility of  an  amicable  settlement.   Hence  S.O.  to 16.3.2004.

In  the  meantime,  the  cheque  for  the  amount  of Rs.15,50,000/-  deposited  by  the  appellant  – Gujarat  Water  Supply  and  Sewerage  Board (original  defendants)  may  be  encashed  by  the Court  of  the  learned  Civil  Judge  (S.D.),

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Gandhinagar,  but  the  amount  shall  not  be permitted to be withdrawn by the decree holder till further orders.  Till further orders there shall also be  further  ad-interim  stay  of  further  execution proceedings.”

6. Indisputably, the said order has been complied with.  By reason of the

impugned judgment, the High Court allowed First Appeal, opining :

“True it  is  that  details  of  such defence were not given  by  the  defendant,  but  non-supply  of  the material  would  not  deter  the  defendant  from raising a defence that the plaintiff did not perform his part of the agreement in supplying the material. True  it  is  that  the  Court  had  granted  the conditional  leave in  favour  of  the defendant  and the defendant  did not  comply with the order but according  to  Mr.  Munshaw,  a  big  amount  of Rs.10,59,168/- was to be deposited and before the amount  could  be  arranged  after  due  negotiation, the plaintiff  applied  for  grant  of  a  decree  in  his favour.   It  is  submitted  by  Mr.  Munshaw,  that present  is  the  case  where  this  Court  should condone lapses in making deposit and remit matter back to the trial  court  with a direction to decide matter on merits.

Though  learned  cousel  for  the  plaintiff  opposed the prayer but taking into consideration the totality of  the  circumstances  and the  fact  that  under  the directions and orders of this Court 50 per cent of the  suit  amount  has  already  been  deposited  and further  that  the  defendant  is  raising  certain defences which if are allowed then same may non- suit  the  plaintiff,  we  are  of  the  opinion  that  the decree  granted  in  favour  of  the  plaintiff  under Order 37 Rule 3(6)(b) of the Civil Procedure Code

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deserves to be set aside.  The matter is remitted to the trial  court  with the direction that  the amount already  deposited  by  the  defendant  under  the directions  of  this  Court  shall  be  deemed  to  be amount deposited under the leave granted by that Court.   The  defendant  would  be  allowed  proper opportunity to submit his written statement.  The appeal is allowed.  No order as to costs.”

7. Mr.  Shridhar  Chitale,  learned  counsel  appearing  on  behalf  of  the

appellant, in support of this appeal, would submit :

(1) Respondent having been granted conditional leave to defend the

suit and as a Revision Application was maintainable thereagainst

which having not been availed of, their contention before the High

Court that unconditional leave should not have been granted was

liable to be rejected.

(2) The decree passed in a summary suit by the Trial Judge should not

have been overturned without adequate reasons.

8. Mr.  Pritesh  Kapoor,  learned  counsel  appearing  on  behalf  of  the

respondent, on the other hand, would contend :  

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(1) That  the  appeal  having  been  preferred  against  the  decree  under

Section 96 of the Code of Civil Procedure, the appellate Court could

exercise its jurisdiction in the manner as has been done.   

(2) It  is  not  correct  to  contend  that  the  High  Court  accepted  the

respondent’s contention that in a case of this nature, the Trial Judge

should have granted unconditional leave but it proceeded on the basis

that the direction to deposit the amount in terms of the High Court’s

order dated 3.3.2004 having been complied with, the lapse on the part

of the respondents to comply with the Trial Judge’s order should be

condoned.   

(3) In any event unconditional leave ought to have been granted as was

prayed for by the appellant.   

(4) For grant of interest  at  the rate of 23% per annum in terms of the

Interest on the Late Payment on Small Scale and Ancillary Industrial

Undertakings  Act,  1993,  appellant  was  bound  to  prove  that  the

provisions  of  the  said  Act  were  applicable  in  which  event,

respondents were entitled to take recourse to the provision for taking

recourse to arbitration as  contained in sub-section (2) of Section 6

thereof.

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9. Indisputably,  an  appeal  was  preferred  against  the  decree  and  not

against the order dated 3.3.2004 granting conditional leave in favour of the

respondent.  Indisputably again, the said condition was not complied with.

The question which, therefore, arises for consideration is as to whether in

the aforementioned situation, the respondent could raise a contention that it

was a fit case where unconditional leave should have been granted.

10. Order  XXXVII  of  the  Code  of  Civil  Procedure  provides  for  a

summary procedure.  It  is not in dispute that having regard to the prayer

made in the suit, Order XXXVII of the Code was attracted. Rule 3 of Order

XXXVII provides for the procedure for appearance of the defendant.  Rule

5 reads as under :

“5. Power to order bill, etc. to be deposited with officer  of  Court—In any proceeding  under  this Order the Court may order the bill, hundi or note on  which  the  suit  is  founded  to  be  forthwith depositing with an officer of the Court,  and may further order that all  proceedings shall  be stayed until  the  plaintiff  gives  security  for  the  costs thereof.

11. Whether leave is granted unconditionally or upon terms, in view of

the  aforementioned  provision  in  a  case  of  this  nature  for  all  intent  and

purport,  stand on the same footing.   However,  it  is  well  settled  that  the

defence in the suit should not be considered to be a mere ‘moonshine’ ruse

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or sham.  Ordinarily, the court shall grant leave to defend the suit in favour

of the defendant in terms of the first proviso appended thereto.  Rule 3 of

Order XXXVII provides for a judgment at the hearing of such summons;

clause 6(b) whereof reads as under :

“(6)  At  the  hearing  of  such  summons  for judgment—

(a)  …

(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.”

12. Where a conditional leave is granted and the conditions therefor are

not complied with, a judgment in favour of the plaintiff can be passed.  It is

not  in  dispute that  the  first  appeal  was maintainable.   Where a decree is

appealed from, any error, defect or irregularity in any order affecting the

decision  of  the  case  may  be  set  forth  as  a  ground  of  objection  in  the

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memorandum of appeal as envisaged under Section 105 of the Code of Civil

Procedure.  

13. It is  in the aforementioned backdrop,  the question  as  to  whether  a

revision  petition  was  maintainable  against  an  order  granting  conditional

leave  must  be  considered.   We will  proceed  on  the  basis  that  an  order

imposing a conditional leave to defend the suit was a jurisdictional question

and, thus, a revision application would be maintainable as has been held by

various  High  Courts,  notable  amongst  them are  The  New Ashapuri  Co-

operative Housing Society Ltd. & Anr. v. Arvindkumar Manilal Patel [AIR

1975 Gujarat 76]; Fateh Lal v. Sunder Lal [AIR 1980 Rajasthan 220]; Modi

Ram & Anr. v. Smt. Sugan Bai [AIR 2005 Rajasthan 12]; and A.K. Velan v.

M/s. Narnyanan and Co. (P) Ltd. [AIR 1972 Madras 118].

14. But if a right of appeal from the decree is conceded to a defendant, in

our opinion, he cannot be denied a right to challenge an order which was

subject  to  revision  in  his  memorandum of  appeal  filed  from the  decree

ultimately passed.   

15. This Court in Santosh Kumar v. Bhai Mool Singh [1958 SCR 1211]

noticing that a clear defence to the suit having been made out, no condition

could be imposed, stated the law thus :

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“This is a surprising conclusion. The facts given in the  affidavit  are  clear  and  precise,  the  defence could hardly have been clearer. We find it difficult to see how a defence that, on the face of it, is clear becomes  vague  simply  because  the  evidence  by which it is to be proved is not brought on file at the time the defence is put in.  

18.  The learned Judge has  failed  to  see that  the stage of proof can only come after the defendant has  been  allowed  to  enter  an  appearance  and defend the suit, and that the nature of the defence has to be determined at the time when the affidavit is  put  in.  At  that  stage  all  that  the  Court  has  to determine is  whether "if  the facts  alleged by the defendant  are  duly  proved"  they  will  afford  a good, or even a plausible, answer to the plaintiff's claim. Once the Court is satisfied about that, leave cannot  be  withheld  and  no  question  about imposing conditions can arise; and once leave is granted, the normal procedure of a suit, so far as evidence and proof go, obtains.  

19. The learned High Court Judge is also error in thinking that even when the defence is a good and valid one, conditions can be imposed. As we have explained, the power to impose conditions is only there to ensure that there will be a speedy trial. If there  is  reason  to  believe  that  the  defendant  is trying to prolong the litigation and evade a speedy trial,  then  conditions  can  be  imposed.  But  that conclusion cannot be reached simply because the defendant  does  not  adduce  his  evidence  even before he is told that he may defend the action.”

This  Court  again  in  M/s.  Mechalec  Engineers  & Manufacturers v.

M/s.  Basic  Equipment  Corporation [AIR  1977  SC  577]  reiterated  the

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following principles laid down in respect of grant of leave in a summary suit

by Das J. in  Sm. Kiranmoyee Dassi v.  Dr. J. Chatterjee [(1945) 49 CWN

249] :

“(a) If the defendant satisfies the court that he has a  good  defence  to  the  claim  on  its  merits  the plaintiff  is not entitled to leave to sign judgment and  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 positively good defence the plaintiff  is not  entitled to sign judgment  and 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 to  say, although the affidavit  does not  positively and  immediately  make  it  clear  that  he  has  a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action be 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 ordinarily 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

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although ordinarily the plaintiff is entitled to leave to  sign  judgment,  the  court  may  protect  the plaintiff by only allowing the defence to proceed if the amount claimed is paid into court or otherwise secured and give leave to the  defendant  on such condition,  and  thereby  show  mercy  to  the defendant  by  enabling  him  to  try  to  prove  a defence.”

It  was  opined  that  the  case  did  not  fall  within  clause  (e)  and

unconditional leave should have been granted.

16. Yet  again in  Raj Duggal v.  Ramesh Kumar Bansal [1991 Supp.(1)

SCC 191, this Court held :

“3. Leave  is  declined  where  the  court  is  of  the opinion  that  the  grant  of  leave  would  merely enable the defendant  to  prolong the litigation by raising untenable and frivolous defences. The test is  to  see whether  the  defence raises  a real  issue and not a sham one, in the sense that if the facts alleged  by  the  defendant  are  established  there would be a good or even a plausible defence on those facts. If the court is satisfied about that leave must  be  given.  If  there  is  a  triable  issue  in  the sense that there is a fair dispute to be tried as to the  meaning  of  a  document  on  which  the   claim  is  based  or  uncertainty  as  to  the  amount actually due or where the alleged facts are of such a nature as to entitle the defendant to interrogate the  plaintiff  or  to  cross-examine  his  witnesses leave  should  not  be  denied.  Where  also,  the defendant shows that even on a fair probability he was a bona fide defence, he ought to have leave. Summary judgments under Order 37 should not be

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granted where serious conflict as to matter of fact or where any difficulty on issues as to law arises. The  court  should  not  reject  the  defence  of  the defendant  merely  because  of  its  inherent implausibility or its inconsistency.”

17. We fail  to  persuade  ourselves  to  agree  with  the contention  of  Mr.

Chitale that  although a revision from an order granting conditional  leave

was  maintainable,  the  same  could  not  have  been  a  subject  matter  of

challenge in an appeal from a decree as envisaged under Section 105 of the

Code of Civil Procedure.   

18. A statutory right  conferred on a litigant  cannot  ordinarily be taken

away.  A civil revision application might have been maintainable as against

the order dated 27.11.2002 granting conditional leave.  The said remedy was

also available where leave to defend a suit is refused.  Leave to defend a

suit, as noticed hereinbefore, should ordinarily be granted.  It was, therefore,

permissible  for  the  defendant  to  raise  the  said  contention  in  the  appeal

although it had asked for time to comply with the conditions.

19. Mr. Kapoor, in our opinion, is right in his submission that keeping in

view  the  rate  of  interest  prayed  for  by  the  petitioner  in  terms  of  the

provisions of the 1993 Act, it was obligatory on the part of the plaintiff to

show that he was entitled to take recourse thereto.

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20. This  Court  in  Assam  Small  Scale  Industries  Development

Corporation Ltd. & Ors. v.  J.D. Pharmaceuticals & Anr. [(2005) 13 SCC

19], held :

“40. We,  therefore,  are  of  the  opinion  that  in relation to the transactions made prior to coming into  force of  the said Act,  simple  interest  at  the rate of 9% per annum, which was the bank rate at the relevant  time,  shall  be  payable  both prior  to date of filing of the suit and pendente lite and as future interest in terms of Section 34 of the Code of  Civil  Procedure.  Interest,  however,  will  be payable in terms of the provisions of the 1993 Act (compound  interest  at  the  rate  of  23.5%  per annum) in relation to the transactions made after coming into force  of  the  Act,  both in respect  of interest payable up to the date of institution of the suit  and  pendente  lite  and  till  realisation.  The judgment and decree to that extent requires to be modified. It is directed accordingly.”

In Ajay Bansal v. Anup Mehta & Ors. [(2007) 2 SC 275], this Court

held as under :

“12. A  decree  passed  in  a  summary  suit  where leave to defend the suit has been refused is almost automatic.  The  consequence  of  passing  a  decree cannot be avoided.

13. Ordinarily, an application under Article 227 of the  Constitution  of  India  would  not  be maintainable where an appeal lies. An appeal lay from the  decree  under  Section  96  of  the  Code. When  an  appeal  could  be  filed,  ordinarily,  an application under Article 227 of the Constitution of India would not be entertained.

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14. A decree passed subsequent to the refusal of leave  to  defend  could  either  be  under  Order  37 Rule 3(6) of the Code or it could be based on the affidavit evidence on the side of the plaintiff and the  documents  produced  or  even  based  on  oral evidence formally proving, say, the execution of a promissory note by the defendant.  It  may not be proper  or  necessary  to  apply  the  theory  of “dependent order” in such circumstances. For one, the theory may not apply. Even if this Court were to set aside the order of the court below and give the defendant leave to defend the suit, the decree that  is  passed  may not  go  automatically.  It  may have to be set aside. Secondly, the defendant can always  go  to  the  court  which  passed  the  decree and move under Rule 4 of Order 37 of the Code to reopen the decree.”

21. Keeping in view the facts and circumstances of this case, we are of

the opinion that it is not a fit case where the impugned judgment of the High

Court  should  be  interfered  with.   This  appeal  is  dismissed  accordingly.

However, in the facts and circumstances of this case, there shall be no order

as to costs.

..………………………J.   [S.B. Sinha]

..………………………J.   [Cyriac Joseph]

New Delhi;

December 16, 2008

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