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Supreme Court of India

Mechelec Engineers And ... vs M/S. Basic Equipment Corporation on 1 November, 1976


"(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, shows such a state of facts as leads to the infer- ence 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 judg- ment 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 practi- cally 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 although ordinarily the Plain- tiff 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 se- cured 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".


Delhi High Court

M/S. K&K Health Care Pvt. Ltd. vs M/S. Pehachan Advertising on 23 January, 2012


This latter statement of account is a part of the statement of account running into a total number of eight pages. This second statement of account, in addition to the two payments reflected in the first statement of account, admitted and reflected as many as five other payments. The fact that payments have been made as reflected in aforesaid two statements of account is not in dispute between the parties. The suit really therefore is a suit for the balance due at the foot of the account and is not one which is only and only on the basis of the amounts contained in the bills. The suit thus could not have been filed under Order 37 CPC as the amount claimed in the suit was not the amount as mentioned in the bills which are stated to be written contracts containing the liquidated demands of moneys payable.


4. Learned counsel for the respondent relies upon a decision of learned Single Judge of this Court in the case of M/s. Lohmann Rausher Gmbh. Vs. M/s. Medisphere Marketing Pvt. Ltd.; 2005 II AD (Delhi) 604 to argue that the suit on the basis of invoices is maintainable under Order 37 CPC. Of course, I am bound by the decision of the learned Single Judge and therefore a suit on the basis of invoices can be said to be maintainable under Order 37 CPC, however, in the present case the suit is not based on the invoices only but the amount claimed in the suit is the balance due at the foot of a running account i.e. after giving adjustment/credit for certain payments made for the invoices/bills. The suit is therefore definitely not only on the basis of invoice amounts alone for the same to be covered under Order 37 CPC. Also, in my opinion, in an appropriate case this issue will have to be examined whether a suit under Order 37 CPC can be filed on the basis of invoices alleging the same to be „written contracts containing a debt or liquidated demand‟- the necessary requirement of Order 37 CPC. The whole purpose of the provision of Order 37 Rule 1 CPC entitling filing of the suit on a debt or liquidated demand was that there is an agreement showing that there is an admitted liability and a liquidated liability or debt which is claimed in an Order 37 suit. When an Order 37 suit is filed on bills, the bills only reflect goods supplied and therefore I feel that it cannot be said that bills should be taken as agreements containing liquidated demands or an acknowledgment or promise to pay or an admitted liability or such other factor so as to bring the claim as "claim for debt or liquidated demand arising on a written contract" as found in Order 37 CPC.


5. In view of the above, I need not go into the merits of the matter inasmuch as the plaintiff cannot arm-twist a defendant by filing a suit under Order 37 CPC, and argue in the trial Court and also before this Court, that it has a prima facie strong case on merits and therefore the impugned order granting conditional leave to defend must be sustained. Merely because a plaintiff/respondent feels it has a strong case on merits cannot mean that the suit can be filed under Order 37 unless the mandatory requirement of basing the suit on one of the four requirements of Order 37 Rule 1 sub Rule 2 is complied with. If the suit is not maintainable under Order 37, there does not arise an issue of any conditional leave to defend as was granted by the trial Court.






The expression 'special circumstances' appearing in the above provision was considered by the Hon'ble Supreme Court in Rajni Kumar v. Suresh Kumar Malhotra (2003) 5 SCC 315 and it was observed as under:


"9. The expression 'special circumstances' is not defined in the CPC nor is it capable of any precise definition by the court because problems of human beings are so varied and complex. In its ordinary dictionary meaning it connotes something exceptional in character, extraordinary, significant, uncommon. It is an antonym of common, ordinary and general. It is neither practicable nor advisable to enumerate such circumstances. Non­service of summons will undoubtedly to be a special circumstance. In an application under Order 37 Rule 4 CPC, the court has to determine the question, on the facts of each case, as to whether circumstances pleaded are so unusual or extra ordinary as to justify putting the clock back by setting aside the decree; to grant further relief in regard to post­decree matters, namely, staying or setting aside the execution and also in regard to pre decree matters viz. to give leave to the defendant to appear to the summons and to defend the suit.


(It is important to note here that the power under Rule 4 of Order 37 is not confined to setting aside the ex parte decree, it extends to staying or setting aside the execution and giving leave to appear to the summons and to defend the suit. We may point out that as the very purpose of Order 37 is to ensure an expeditious hearing and disposal of the suit filed thereunder, Rule 4 empowers the court to grant leave to the defendant to appear to summons and defend the suit if the Court considers it reasonable so to do, on such terms as court thinks fit in addition to setting aside the decree. Where on an application, more than one among the specified reliefs may be granted by the Court all such reliefs must be claimed in one application. It is not permissible to claim such reliefs in successive petitions as it would be contrary to the letter and spirit of the provision. That is why where an application under Rule 4 of Order 37 is filed to set aside a decree either because the defendant did not appear in response to summons and limitation expired, or having appeared, did not apply for leave to defend the suit in the prescribed period, the court is empowered to grant leave to defendant to appear to the summons and to defend the suit in the same application. It is, therefore, not enough for the defendant to show special circumstances which prevented him from appearing or applying for leave to defend, he has also to show by affidavit or otherwise, facts which would entitle him leave to defend the suit. In this respect, Rule 4 of Order 37 is different from Rule 13 of Order 9.)


Supreme Court of India

State Bank Of Saurashtra vs M/S Ashit Shipping Services P. ... on 12 April, 2002

In the case of Raj Duggal v. Ramesh Kumar Bansal reported in AIR (1990) SC page 2218, it has been held that leave to defend must be declined where the Court is of the opinion that grant of leave would merely enable the defendant to prolong the litigation by raising untenable and frivolous defences. It has been held that the test is to see whether the defence raises a real issue and not a sham one. It has been held that when there is a plausible defence leave to defend must be granted. It has been held that if there is a dispute as to the meaning of a document or uncertainty as to the amount actually due or the facts are of such a nature as to entitle the defendant to interrogate the plaintiff or to cross-examine his witness leave should not be denied.


12. In this case, as already set out hereinabove, there is a dispute as to whether the document is a guarantee or merely an Indemnity. The 1st Respondent termed the document to be an indemnity/guarantee. The Appellants denied that the document was a Guarantee. On the face of it the document appears to be an Indemnity and not a Guarantee. The Court was therefore required to consider the nature and meaning of the document. This by itself necessitated granting of leave to defend.


13. Further this is a document given by the 2nd Respondent to the 1st Respondent. On this document, contrary to the normal practice, the Manager of the Appellant Bank has merely affixed the stamp of the Appellants and signed under a paragraph which states that they had joined in the indemnity. The Appellants had also set out in their application for leave to defend that the documents submitted to the negotiating Bank were not negotiated as there were discrepancies in those documents. To this averment there was no reply or denial by the 1st Respondent. The Appellants have made serious allegations of fraud and collusion. They had stated that such a document did not exist in their records. This was not a defence which could be characterised, at this stage, as sham or illusory or practically moonshine. These triable issues should not have been summarily rejected by the trial Court and/or the High Court.


14. As stated above, prima facie, the document appears to be an Indemnity Bond. In cases of Indemnities the question of making good the loss arises only when there is proof that loss is suffered.

Oil & Natural Gas Corpn. Ltd. v. SBI, Overseas Branch reported in (2000) 6 SCC 385. In this case the question was whether leave to defend could have been granted in a summary suit based on an unconditional bank guarantee. This Court held that such bank guarantees must be honoured unless fraud had been played. This Court held that in the absence of any fraud leave to defend should not be granted in cases of unconditional bank guarantees. There can be no dispute with the above proposition. However, this decision is based on the law regarding unconditional bank guarantees. Courts have consistently held that unconditional bank guarantees must be honoured by the banks. In the present case, it is not clear whether the document is an indemnity or a guarantee. In any event, there is no unconditional bank guarantee. Even if the document is held to be a guarantee it is only on proof of loss. Also in this case fraud has been alleged.

Kamlesh Kohli v. Escortrac Finance & Investment Ltd. reported in (2000) 1 SCC 324. In this case it has been held that leave to defend could be granted to one of the defendants and not the others. It was held that the Court was not obliged to grant leave to defend to other defendants merely because leave to defend is granted to one of the defendants. We clarify that the leave to defend has been granted only to the Appellants. The 2nd Respondent is not before this Court. We have not considered the case of the 2nd Respondent. Merely because leave to defend is granted to the Appellant does not necessarily mean that the 2nd Respondent is also to be entitled as of right to leave to defend. We also clarify that all observations made herein are prima facie and that they shall not be taken into account at the final hearing of the Suit.


Supreme Court of India

Santosh Kumar vs Bhai Mool Singh on 5 February, 1958

The learned High Court Judge is also in 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.


We do not wish to throw doubt on those decisions which decide that ordinarily an appeal will not be entertained against an exercise of discretion that has been exercised along sound judicial lines. But if the discretion is exercised arbitrarily, or is based on a mis- understanding of the principles that govern its exercise, then interference is called for if there has been a resultant failure of justice. As we have said, the only ground given for concluding that the defence is not bona fide is that the defendant did not prove his assertions before he was allowed to put in his defence ; and there is an obvious failure of justice if judgment is entered against a man who, if he is allowed to prove his case, cannot but succeed. Accordingly, interference is called for here. The appeal is allowed. We set aside the orders of the High Court and the learned trial Judge and remand the case to the first Court for trial of the issues raised by the defendants. The costs of the appellants in this Court will be paid by the respondent who has failed here. Appeal allowed.

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