Southern Sales & Services & Ors vs Sauermilch Design & Handels Gmbh

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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:

3 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, 4

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 7

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 8

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 9

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. 11

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 12

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