Analysis of Order XXXVII Rule 3(5) CPC

Apr 30, 2024
EDITORIAL BOARD Legal Editor Apr 30, 2024

An Analytical Study of Order XXXVII Rule 3(5) of the Code of Civil Procedure, 1908: Principles Governing Leave to Defend in Summary Suits in India

Introduction

Order XXXVII of the Code of Civil Procedure, 1908 (CPC) provides for a summary procedure in respect of certain classes of suits, primarily those based on negotiable instruments or where the plaintiff seeks to recover a debt or liquidated demand in money payable by the defendant, with or without interest, arising on a written contract, an enactment, or a guarantee. The underlying object of this procedure is to ensure a speedy trial and to prevent unreasonable obstruction by a defendant who has no substantial defence (Rajesh Arora v. Mukesh Jain & Ors. (Delhi High Court, 2001)). A critical stage in such summary suits is the determination of whether the defendant should be granted leave to defend. This determination is governed by Rule 3, sub-rule (5) of Order XXXVII, which empowers the court to grant or refuse such leave, either unconditionally or upon such terms as may appear to be just. This article undertakes a comprehensive analysis of Order XXXVII Rule 3(5), examining its legislative intent, judicial interpretation, and the principles that guide the courts in exercising their discretion.

The Legislative Mandate: Order XXXVII Rule 3(5)

Order XXXVII Rule 3 of the CPC outlines the procedure for the appearance of the defendant and the subsequent application for leave to defend. After the defendant enters an appearance, the plaintiff serves a summons for judgment. Within ten days of service of such summons, the defendant may apply for leave to defend. Sub-rule (5) of Rule 3 is pivotal and, as extracted in V.K.K Nair Petitioner v. Mrs. Kanchan Kawar (Madras High Court, 2005), states:

"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 Judge to be just: 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."

This provision thus requires the defendant to disclose facts that would entitle him to defend. The court then has discretion to grant unconditional leave, conditional leave, or, in certain circumstances, refuse leave. The first proviso sets a threshold for refusal – essentially, leave must be granted unless the defense is not substantial, or is frivolous or vexatious. The second proviso mandates deposit of the admitted amount as a pre-condition for grant of leave to defend concerning that part.

Judicial Interpretation: Evolution of Principles

The interpretation of Order XXXVII Rule 3(5) and its precursors has evolved through numerous judicial pronouncements, establishing a framework for the exercise of judicial discretion.

Early Principles: The Test of a 'Triable Issue'

Early judicial decisions emphasized that if a defendant raises a 'triable issue' or a 'bona fide' defence, leave to defend should ordinarily be granted. The Supreme Court in Raj Duggal v. Ramesh Kumar Bansal (1991 SUPP SCC 1 191, 1990) articulated 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." Leave is declined where granting it would merely prolong litigation with untenable defences.

The Calcutta High Court in Kiranmoyee Dassi v. Dr. J. Chatterjee (1945 SCC ONLINE CAL 114), while interpreting analogous provisions, extensively reviewed English precedents and concluded that if a defendant establishes a reasonable or bona fide defence (a 'triable issue'), imposing conditions like payment into court could render the leave to defend illusory. Unconditional leave was granted in that case. The court distinguished between procedural conditions (like mode of trial) and financial conditions that could bar a genuine defence. This principle underscores that conditions should not be so onerous as to effectively deny the right to defend a meritorious case.

The Mechelec Era: Bona Fides and Triable Issues

In Mechelec Engineers & Manufacturers v. Basic Equipment Corporation (1976 SCC 4 687), the Supreme Court dealt with a case where the trial court had granted unconditional leave, finding triable issues, but the High Court reversed this, opining that the defences were not bona fide. The Supreme Court restored the trial court's order, emphasizing that a conclusion that a defence is not bona fide cannot be reached arbitrarily. The Court noted that "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." If the defence is arguable or raises a triable issue, even if not strong, unconditional leave should be granted. This case reinforced the importance of both the existence of a triable issue and the bona fides of the defence.

The Impact of Milkhiram: Judicial Discretion and Conditional Leave

The Supreme Court in Milkhiram (India) Private Ltd. And Other v. Chamanlal Bros. (1965 AIR SC 1698) further clarified the court's discretion. It upheld conditional leave to defend (deposit of security). The Court referred to Santosh Kumar v. Bhai Mool Singh (1958 SCR 1211), which stated that leave must be granted if the defence raises a real issue. However, Milkhiram acknowledged the trial judge's discretion, especially under amended rules (like the Bombay High Court's amendment to Order 37 Rule 2, which influenced the principles applied), to impose conditions if there were doubts about the genuineness of the defence, even if a triable issue was presented. The Court observed that if the defence is plausible but not positively good, or if the defendant's conduct or the circumstances suggest a need for security, conditional leave may be appropriate. The objective is to prevent frivolous defences from delaying justice while not shutting out genuine ones.

The Modern Framework: IDBI Trusteeship and Sunil Enterprises

A significant refinement of the principles governing leave to defend under Order XXXVII Rule 3(5) came with the Supreme Court's decision in Idbi Trusteeship Services Limited v. Hubtown Limited (2017 SCC 1 568, 2016). This judgment, as noted in FOX MANDAL AND CO. AND ANR v. RAVI BISHNOI & ANR. (Delhi High Court, 2022), postulated principles in supersession of those enunciated in Mechelec Engineers. The Court in IDBI Trusteeship laid down the following guiding propositions for trial courts:

(a) If the defendant satisfies the Court that he has a substantial defence, that is, a defence that is likely to succeed, 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 triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend.
(c) Even if the defendant raises triable issues, if a doubt is left with the trial judge about the defendant's good faith, or the genuineness of the triable issues, or if the defendant’s defence is prima facie plausible but improbable, the trial judge may impose conditions as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe conditions.
(d) If the defendant has no substantial defence and/or raises no genuine triable issues, and the Court finds such defence to be frivolous or vexatious, then leave to defend should be refused, and the plaintiff is entitled to judgment forthwith.
(e) If any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant in Court.

This structured approach provides comprehensive guidance. Earlier, in Sunil Enterprises And Another v. Sbi Commercial & International Bank Ltd. (1998 SCC 5 354), the Supreme Court had clearly stated that "if the defendant has no defence, or if the defence is sham or illusory or practically moonshine, the defendant is not entitled to leave to defend." Conversely, if the defence raised is not "totally defenceless or moonshine or illusory," unconditional leave should be granted.

Key Considerations in Granting Leave to Defend

Nature of Defence: Substantial v. Frivolous

The first proviso to Order XXXVII Rule 3(5) explicitly states that leave to defend shall not be refused unless the court is satisfied that the facts disclosed do not indicate a "substantial defence" or that the defence is "frivolous or vexatious" (V.K.K Nair Petitioner v. Mrs. Kanchan Kawar (Madras High Court, 2005)). A substantial defence is one that, if proved, would result in the dismissal of the plaintiff's suit. A frivolous or vexatious defence is one that is manifestly meritless, raised only to delay proceedings.

Conditional Leave: Striking a Balance

The power to grant conditional leave is a crucial tool for balancing the interests of the plaintiff and the defendant. Conditions, typically requiring the deposit of the suit amount or a part thereof, or furnishing security, are imposed when the defence is not entirely convincing but still raises triable issues, or where there are doubts about the defendant's bona fides (IDBI Trusteeship, principle (c)). As seen in G.M.VIKRANTH v. M.C.RAVIKUMAR (Madras High Court, 2023), the trial court directed a deposit of 50% of the promissory note amount as a condition for leave. Similarly, in A.C Traders v. Nawal Kishore (1987 SCC ONLINE RAJ 9), conditional leave requiring security was imposed where the defence (forgery of a document) was considered in light of surrounding circumstances. The failure to comply with such conditions can lead to the suit being decreed, as was the ultimate outcome when conditional leave granted in M/S KONARK INFRA DEVELOPERS PVT LTD & ORS v. INDIA AFFORDABLE HOUSING SOCIETY SOLUTIONS (IAHS) (Delhi High Court, 2019) was not met.

However, as cautioned in Kiranmoyee Dassi and reiterated in IDBI Trusteeship, conditions should not be so onerous as to effectively deny a fair opportunity to defend, especially if the defence appears arguable.

The Proviso: Admitted Dues

The second proviso to Order XXXVII Rule 3(5) is mandatory. As affirmed in CHIRAGKUMAR LABHUBHAI PATEL v. M/S REALWAX INDUSTRIES (PLASTIC DIVISION) (Gujarat High Court, 2024) and Bhopal Mining Works And Anr. v. Jai Mica Supply Co. And Ors. (Rajasthan High Court, 1981), if the defendant admits any part of the plaintiff's claim to be due, leave to defend shall not be granted unless the defendant deposits the admitted amount in court. This applies even if the defendant raises triable issues or a substantial defence concerning the remainder of the claim (IDBI Trusteeship, principle (e)).

Disclosure of Facts

The onus is on the defendant to disclose, by affidavit or otherwise, "such facts as may be deemed sufficient to entitle him to defend." A mere bald denial or vague assertions will not suffice. The defendant must present a coherent case with supporting particulars that, if proved, would constitute a valid defence. While Rajni Kumar v. Suresh Kumar Malhotra And Another (2003 SCC 5 315) primarily dealt with setting aside an ex-parte decree under Order XXXVII Rule 4, it underscored the necessity for disclosing sufficient facts to warrant a defence, a principle equally applicable at the leave to defend stage.

Procedural Aspects and Consequences

Order XXXVII is a self-contained code (Babu Lal Yadav v. R.S. Yadav (Delhi High Court, 2010)). The procedure involves initial summons for appearance, which the defendant must enter within ten days (Order XXXVII Rule 3(1) as cited in Emmsons International Ltd. v. Harshvardhan Chemicals & Minerals Ltd. (Delhi High Court, 2004); Picky Sharma v. Bhagwati Devi (Himachal Pradesh High Court, 2011); Indraprastha Finance Company v. Diamond Pictures (Delhi High Court, 1979)). Failure to enter appearance can lead to the allegations in the plaint being deemed admitted and a decree being passed (Order XXXVII Rule 2(3) as cited in Tvc Skyshop Limited v. Reliance Communication And Infrastructure Limited (Supreme Court Of India, 2013) and Babu Lal Yadav).

If appearance is entered, the plaintiff serves summons for judgment. The application for leave to defend under Rule 3(5) must be made within ten days thereafter. As observed in NEW INDIA COLOUR COMPANY LTD. v. M/S BHARAT PRINTS & ANR. (2023 DHC 9399, Delhi High Court), an application for leave to defend filed even before the issuance of summons for judgment might be considered premature or non-est, highlighting the importance of adhering to the prescribed procedural sequence.

If leave to defend is refused, or if conditional leave is granted and the defendant fails to comply with the conditions, the plaintiff is entitled to judgment. If leave (conditional or unconditional) is granted, the suit proceeds as an ordinary suit, though the court may impose conditions as to the mode or expedition of trial. The Full Bench decision in SICOM Ltd. v. Futurevikta (cited in SHUBHANGI W/O SATYAJIT WACHASUNDAR AND ANOTHER Vs PRAKASH S/O GOVINDLAL AGRAWAL (Bombay High Court, 2023)) outlines various options available to the court, including passing a decree for part of the claim and granting unconditional leave for the rest, or granting conditional leave for a part and unconditional for another.

Conclusion

Order XXXVII Rule 3(5) of the Code of Civil Procedure, 1908, embodies a critical balance between the plaintiff's right to an expeditious remedy in specific commercial causes and the defendant's fundamental right to defend a claim. The judicial interpretation of this provision, culminating in the structured guidelines laid down by the Supreme Court in Idbi Trusteeship Services Limited v. Hubtown Limited, provides a clear framework for the exercise of discretion by the courts. The emphasis remains on assessing the substantiality and bona fides of the defence. While frivolous or vexatious defences are to be shut out promptly, genuine triable issues must be allowed a fair hearing, with conditions imposed judiciously to safeguard the plaintiff's interests without rendering the right to defend illusory. The mandatory deposit of admitted dues further protects plaintiffs. Ultimately, the application of these principles ensures that the summary procedure serves its intended purpose of swift justice without sacrificing the principles of natural justice.