M/S SHRI COLONIZERS & DEVELOPERS PVT LTD v. M/S FELICIA REALCON INDIA PVT LTD

1. The present appeal is directed against the order dated 27.07.2018 passed by a learned Single Judge of this Court by which an application filed by the appellant herein under Order XXXVII Rule 3(5) of the Code of Civil Procedure,1908 (CPC) has been decided and a conditional leave to defend has been granted, directing the appellant herein to deposit the entire amount of the subject matter of the suit filed by the respondent under Order XXXVII CPC for the sum of Rs. 3 crores.

2. Some necessary facts which are required to be noticed for the disposal of this appeal are that the respondent herein had instituted a suit for recovery for the sum of Rs. 3, 48, 70, 000/- against the appellant herein. 2019:DHC:5941-DB The suit was based on 3 cheques bearing numbers 066056 dated 10.01.2015, 066057 dated 20.01.2015 and 066058 dated 30.01.2015 drawn on Punjab National Bank, K.G.Marg, New Delhi for Rs. 1 crore each.

3. The appellant represented to the respondent to be engaged in bulk land acquisition and structure development which offered allied real estate services to its clients such as Township planning, marketing and sales support. The Directors of the appellant fraudulently represented to the respondent about their terms with the principal developer and manipulated the respondent to participate in the development project of high-tech Township which was being developed by M/s U.P. Infraestate Pvt. Ltd, a subsidiary of the appellant.

4. The Directors of the appellant induced the respondent to invest a sum of Rs.[3] crores. The said amount of Rs.[3] crores was handed over by the respondent vide cheques bearing numbers 000011 and 000012 for a sum of Rs. 1 crore each dated 31.07.2014 and number 000013 for a sum of Rs. 1 crore dated 07.08.2014 in favour of the appellant, although the appellant was only an economic entity created by directors of the appellant. The directors of the appellant assured the respondent that this amount will be refunded in the event if the joint ventures were not accomplished. The payment of Rs. 3 crores made by the respondent in favour of appellant was duly encashed by the appellant through its directors.

5. While analyzing the project details, it came to the knowledge of the respondent that the principal developer M/s Rivaj Infratech Private Ltd, who had permitted the development of township to the subsidiary of appellant, had sued the appellant and its directors due to the unaccomplished transactions. Thus, all the representations given by appellant were bogus and sham. The respondent was induced by the directors of the appellant to part with a sum of Rs. 3 crores on a false representation about their contract with the developer and possibility of their success in carrying out the project of high-tech Township, Uttar Pradesh.

6. As per the agreed terms, the Directors of the appellant had assured the respondent to refund the amount of Rs. 3 crores in case the transaction was not accomplished. Therefore, the appellant, with consent and knowledge of its directors, issued the following cheques which were signed by one of the directors of appellant, details whereof are as under:

(i) Cheque no. 066056 dated 10.01.2015 for Rs 1 crore drawn on

(ii) Cheque no. 066057 dated 20.01.2015 for Rs.[1] crore drawn on

(iii) Cheque no. 066058 dated 30.01.2015 for Rs. 1 crore drawn on

7. It is the case of the respondent that aforesaid cheques were presented for encashment with the bankers of the appellant, however, the same were returned unpaid with the endorsement being ‘insufficient funds’. It is also the case of the respondent that upon the dishonor of the cheques it had issued notices dated 03.04.2015 and 05.05.2015 calling upon the appellant to pay the amount of Rs. 3 crores within 15 days of receipt of the notice. Despite the notices having been received, no payments were made which led to the filing of a summary suit by the respondent under Order XXXVII, CPC.

8. The appellant had filed an application seeking leave to defend. Various grounds were raised before the learned Single Judge including the ground urged before us that the respondent had approached the Court with unclean hands; the respondent had suppressed and withheld material documents, more particularly, an agreement dated 26.07.2014, pursuant to which the respondent had paid a sum of Rs. 3 crores. It is also contended that in addition to Rs. 3 crores which was paid, the respondent defaulted to pay a further amount as per the terms of the agreement and on account of breach, the appellant had forfeited the already paid amount of Rs. 3 crores. It has also been urged before us that the learned Single Judge has failed to notice the fact that M/s Shri Infratech Pvt. Ltd. was only a domain name and it is in fact not a company. It is also contended that parties were ad idem that the respondent was dealing with the appellant only and Rs. 3 crores were thus paid to the appellant. Post dated cheques which were handed over to the respondents were only for the purpose of providing security and were not to be presented for encashment. It is also contended that since the appellant has been able to raise a plausible defence it has a strong prima facie case and is entitled to an unconditional leave to defend.

9. Mr. Gandhi, learned counsel for the appellant, while relying on a decision rendered in the case of IDBI Trusteeship Services Ltd. Vs Hubtown Ltd. reported in AIR 2016 SC 5321, submits that the rights of the appellant herein would be seriously affected as the learned Single Judge has failed to take note of the fact that it is only upon the grant of an unconditional leave that an opportunity for filing a written statement would be given. When the opportunity to lead evidence will be given the appellant would be in a position to show that the respondent had entered into an agreement with the appellant only and not the company which is not in existence. The appellant and ‘Shri Infratech’ are the same entities as Shri Infratech is registered trademark of the appellant and it is only upon leading of evidence that the appellant would be able to prove its case. Additionally, Mr. Gandhi submits that the appellant had to satisfy the court only with regards to the fact that a triable issue had been raised. He further submits that in the absence of an opportunity to lead evidence, the appellant could not quantify the loss suffered on account of the breach of the terms and conditions of the agreement dated 26.07.2014. The relevant paragraphs 12, 13 and 18 of the aforementioned judgment are reproduced below:-

13. The trial court found that the defence disclosed by the affidavit required by sub-rule (3) was sufficient to grant leave to defend the suit, but as against a claim of Rs. 4,05,434.38/-, the Court ordered the appellant to deposit security worth Rs. 70,000/-. The first appeal having been dismissed, the Supreme Court had to decide whether it was incumbent upon the trial court to grant unconditional leave to defend, having found that a triable issue exists. Since this judgment is of seminal importance in deciding the issue raised before us, it is necessary for us to quote parts of this judgment, as follows: “Learned counsel relied upon a decision of this court in Santosh Kumar v. Bhai Mool Singh [ (1958) SCR 1211] and particularly upon a passage at p. 1216. That was a case in which the Court of Commercial Subordinate Judge, Delhi, had held that the defence raised a triable issue but that defence was vague and was not bona fide because the defendant had produced no evidence to prove his assertion. For these reasons the court granted leave to defend the suit on the condition of the defendant giving security for the entire claim in the suit and costs thereon. This court held that 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 unconditionally. This Court further held that the trial court was wrong in imposing a condition about giving security on the ground that documentary evidence had not been adduced by the defendant. This Court pointed out that the stage of proof can only arise after leave to defend has been granted and that the omission to adduce documentary evidence would not justify the inference the defence sought to be raised was vague and not bona fide. While dealing with the matter Bose, J., who spoke for the Court observed (p. 1216): “Taken by and large, the object is to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce. In general, therefore, 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.” The latter part of the observations of the learned Judge have to be under- stood in the background of the facts of the case this Court was called upon to consider. The trial Judge being already satisfied that the defence raised a triable issue was not justified in imposing a condition to the effect that the defendant must deposit security because he had not adduced any documentary evidence in support of the defence. The stage for evidence had not been reached. Whether the defence raises a triable issue or not has to be ascertained by the court from the pleadings before it and the affidavits of parties and it is not open to it to call for evidence at that stage. If upon consideration of material placed before it the court comes to the conclusion that the defence is a sham one or is fantastic or highly improbable it would be justified in putting the defendant upon terms before granting leave to defend. Even when a defence is plausible but is improbable the court would be justified in coming to the conclusion that the issue is not a triable issue and put the defendant on terms while granting leave to defend. To hold otherwise would make it impossible to give effect to the provisions of Order 37 which have been enacted, as rightly pointed out by Bose, J., to ensure speedy decision in cases of certain types. It will be seen that Order 37 Rule 2 is applicable to what may be compendiously described as commercial causes. Trading and commercial operations are liable to be seriously impeded if, in particular, money disputes between the parties are not adjudicated upon expeditiously. It is these considerations which have to be borne in mind for the purpose of deciding whether leave to defend should be given or withheld and if given should be subjected to a condition. It may be mentioned that this Court relied upon the decision in Jacobs v. Booth's Distillery Co. [(1901) 85 LT 262] in which the House of Lords held that whenever a defence raises a triable issue leave must be given and also referred to two subsequent decisions where it was held that when such is the case leave must be given unconditionally. In this connection we may refer to the following observations of Devlin, L.J. in Fieldrank Ltd. v. Stein [ (1961) 3 AELR 681 at pp 682-3]: “The broad principle, which is founded on Jacob v.Booth's Distillery Co. is summarised on p. 266 of the Annual Practice (1962 Edn.) in the following terms: ‘The principle on which the court acts is that where the defendant can show by affidavit that there is a bona fide triable issue, he is to be allowed to defend as to that issue without condition.'” If that principle were mandatory, then the concession by counsel for the plaintiffs that there is here a triable issue would mean at once that the appeal ought to be allowed; but counsel for the plaintiffs has drawn our attention to some comments that have been made on Jacobs v. Booth's Distillery Co. [(1901) 85 LT 262] They will be found at pp. 251 and 267 of the Annual Practice, 1962. It is suggested (see p. 251) that possibly the case, if it is closely examined, does not go as far as it has hitherto been thought to go; and on the top of p. 267 the learned editors of the Annual Practice have this note: “The condition of payment into court, or giving security, is nowadays more often imposed than formerly, and not only where the defendant consents but also where there is a good ground in the evidence for believing that the defence set up is a sham defence and the master ‘is prepared very nearly to give judgment for the plaintiff.” It is worth noting also that in Lloyd's Banking Co. v.Ogle 1 Ex. D. at p. 264 in a dictum which was said to have been overruled or qualified by Jacob v. Booth's Distillery Co.[ (1901) 85 LT 262] Bramwell, B., had said that “....those conditions (of bringing money into court or giving security) should only be applied when there is something suspicious in the defendant's mode of presenting his case.” I should be very glad to see some relaxation of the strict rule in Jacob v. Booth's Distillery Co. I think that any Judge who has sat in chambers in RSC, Order 14 summonses has had the experience of a case in which, although he cannot say for certain that there is not a triable issue, nevertheless he is left with a real doubt about the defendant's good faith, and would like to protect the plaintiff, especially if there is not grave hardship on the defendant in being made to pay money into court. I should be prepared to accept that there has been a tendency in the last few years to use this condition more often than it has been used in the past, and I think that that is a good tendency;” These observations as well as some observations of Chagla, C.J., in Rawalpindi Theatres Private Ltd. v. Film Group Bombay [ (1958) BLR 1373 at p 1374] may well be borne in mind by the court sitting in appeal upon the order of the trial Judge granting conditional leave to defend. It is indeed not easy to say in many cases whether the defence is a genuine one or not and therefore it should be left to the discretion of the trial Judge who has experience of such matters both at the bar and the bench to form his own tentative conclusion about the quality or nature of the defence and determine the conditions upon which leave to defend may be granted. If the Judge is of opinion that the case raises a triable issue, then leave should ordinarily be granted unconditionally. On the other hand, if he is of opinion that the defence raised is frivolous, or false, or sham, he should refuse leave to defend altogether. Unfortunately, however, the majority of cases cannot be dealt with in a clear cut way like this and the judge may entertain a genuine doubt on the question as to whether the defence is genuine or sham or in other words whether it raises a triable issue or not. It is to meet such cases that the amendment to Order 37 Rule 2 made by the Bombay High Court contemplates that even in cases where an apparently triable issue is raised the Judge may impose conditions in granting leave to defend. Thus this is a matter in the discretion of the trial Judge and in dealing with it, he ought to exercise his discretion judiciously. Care must be taken to see that the object of the rule to assist the expeditious disposal of commercial causes to which the Order applies, is not defeated. Care must also be taken to see that real and genuine triable issues are not shut out by unduly severe orders as to deposit. In a matter of this kind, it would be undesirable and inexpedient to lay down any rule of general application.”