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Khera Handloom Supply v. O.B. Exports
Factual and Procedural Background
The plaintiff filed a suit under Order 37 of the Code of Civil Procedure for recovery of Rs. 1,50,502.10 with costs and interest at 18% per annum from the date of the suit until realization. The defendants were served summons and appeared through counsel within ten days. An application was filed by the plaintiff to serve summons through the defendants' counsel, which was allowed. The defendants then filed an application asserting that summons should be served at their residential address, and the Deputy Registrar recorded that service was effected at the defendants' residence on 20th October 1986 under Order 37, Rule 3(2) of the Code. No leave to defend was filed by the defendants.
The matter was heard by Charanjit Talwar, J. on 24th April 1987, who upheld the Deputy Registrar’s order on proper service and noted that defendants could have appealed but did not. The defendants contended that the plaint should not have been entertained under Order 37 as it did not comply with mandatory provisions of Order 37, Rule 2(1) & (c). A Division Bench held on 4th April 1989 that substantial compliance with Order 37 Rule 2(1) suffices for the plaint to be treated as filed under Order 37.
The defendants never filed an application for leave to defend. They later contended that the suit was not maintainable under Order 37 for other reasons, including absence of an agreement for interest at 18%, improper service, and wrongful impleading of defendant No. 3.
Legal Issues Presented
- Whether the plaint filed under Order 37 of the Code was maintainable despite alleged non-compliance with mandatory provisions of Order 37 Rule 2(1) and (c).
- Whether the defendants were properly served with summons under Order 37.
- Whether the plaintiff was entitled to claim interest at the rate of 18% per annum in absence of an explicit agreement for such interest.
- Whether defendant No. 3 was wrongly impleaded as a party to the suit.
Arguments of the Parties
Defendants' Arguments
- The plaint did not comply with mandatory provisions of Order 37, Rule 2(1) and (c), making the suit not maintainable under Order 37.
- The defendants were not properly served with summons at their residential address.
- There was no agreement, written or oral, for payment of interest at 18% per annum, so the suit did not fall within the ambit of Order 37 Rule 2.
- Defendant No. 3 had no concern with the firm defendant No. 1 and was wrongly impleaded.
Plaintiff's Arguments
- The plaint substantially complied with the provisions of Order 37, Rule 2(1), as held by the Division Bench.
- The defendants were properly served summons at their residence as recorded by the Deputy Registrar and upheld by the court.
- The claim for interest at 18% per annum is reasonable and permissible under Order 37, even in absence of an explicit agreement, as the order applies to promissory notes and commercial transactions.
- Defendant No. 3 was rightly impleaded under the principle of holding out as a partner under Section 28 of the Indian Partnership Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Order 37, Rule 2(1) of the Code of Civil Procedure | Mandatory provisions for plaint under Order 37 | Held that substantial compliance suffices for the plaint to be valid under Order 37 |
| Order 37, Rule 3(2) of the Code of Civil Procedure | Service of summons under Order 37 | Service on defendants at residence was proper and binding |
| Rule 4 of Chapter II of Delhi High Court (Original Side) Rules | Right to appeal against Deputy Registrar’s orders | Defendants failed to file appeal against order on service, thus cannot challenge service later |
| Section 28 of the Indian Partnership Act | Principle of holding out making a person liable as partner | Defendant No. 3 held liable as partner based on holding out despite lack of formal partnership |
| Order 37, Rule 1(2) of the Code of Civil Procedure | Scope of summary suits under Order 37 including promissory notes | Permitted suit based on promissory note even without explicit interest agreement |
| Section 34 of the Code of Civil Procedure | Court’s power to grant interest on decrees for money | Interest at 18% per annum allowed as reasonable commercial interest |
Court's Reasoning and Analysis
The court began by affirming the validity of service of summons on the defendants at their residence as recorded by the Deputy Registrar and upheld by the court. The defendants’ failure to appeal this order was decisive in rejecting their challenge to service at a later stage. The court noted that the defendants had appeared through counsel for about three years, further confirming acceptance of service.
Regarding the maintainability of the suit under Order 37, the court referred to a Division Bench decision which held that substantial compliance with mandatory provisions of Order 37 Rule 2(1) suffices. Thus, the plaint was deemed properly filed under Order 37.
On the issue of interest, the court analyzed the scope of Order 37, which applies to suits on promissory notes and liquidated demands. It concluded that there is no requirement for a written agreement specifying interest for a plaintiff to claim interest in such suits. The court explained that promissory notes and dishonoured cheques often do not specify interest, yet claims for interest are permissible. Moreover, under Section 34 of the Code, the court may grant interest at a reasonable rate, particularly in commercial transactions, where rates like 18% per annum are common and justified.
Concerning the impleading of defendant No. 3, the court applied Section 28 of the Indian Partnership Act on the principle of holding out, holding that a person who holds themselves out as a partner is liable as such. Since the plaint averred that defendants 2 and 3 held themselves out as partners, and no leave to defend was filed, these allegations were deemed admitted, justifying the inclusion of defendant No. 3.
Holding and Implications
The court granted a decree in favor of the plaintiff under Order 37 of the Code for recovery of Rs. 1,50,502.10 with costs and interest at 18% per annum from the date of the suit until realization.
This decision confirms that substantial compliance with mandatory provisions of Order 37 suffices for maintainability, and that claims for interest at a reasonable commercial rate are permissible even without explicit agreement under Order 37. It also affirms that service of summons properly effected and not appealed against cannot be challenged later, and that the principle of holding out under the Partnership Act can justify impleading parties as partners. No new precedent was set beyond these applications, and the ruling primarily affects the parties involved by upholding the plaintiff’s entitlement to the decree.
R.L Gupta, J.:— Plaintiff filed a suit “under Order 37 of the Code of Civil Procedure (hereinafter called “the Code”) against the defendants for recovery of Rs. 1,50,502/10 P. with costs of the suit and pending and future interest at the rate of. 18% per annum from the date of the suit till realisation of the decretal amount. Defendants were served with the summons and they put in appearance through Sh. B.L Anand Adovcate within ten days of the service. Thereafter summons for judgement were issued against the defendants I.A No. 674/87 was also moved on behalf of the plaintiff praying that defendants may be allowed to be served through their conusel and that they may be given dasti notice for service of the defendants through their counsel. The application was allowed by the Deputy Registrar. It led to the filing of I.A No. 719/87 on behalf of the defendants stating that the address for service of notice/summons on them at their residential address had been given and therefore the summons under Order 37 of the Code should be served upon the defendents themselves and not through their counsel. The order dated 6th February, 1987 recorded by the Deputy Registrar while passing order in this IA No. 719/87 shows that actually the service had been effected on the defendants by the Process Server at their residence on 20th October, 1986 under Order 37, Rule 3(2) of the Code. And since leave to defend application had not been filed on behalf of the defendants, no further orders were necessary in respect of IA No. 719/87.
2. The matter was then listed before Charanjit Talwar, J. on 24-4-1987. His Lordship did not see any reason to differ with the order of the Deputy Registrar holding that the defendants were properly served. The Hon'ble Judge was further of the view that if at all the defendants felt aggrieved by the order of the Deputy Registrar, they were at liberty to file an appeal against the said order under Rule 4 of Chapter II of Delhi High Court (Original side) Rules. But no such appeal was filed. At that point of time Mr. Anand, learned counsel for the defendants submitted that on the plaintiff's own showing i.e on perusal of the plaint itself it was clear that the plaint ought not to have been entertained under Order 37 of the Code. Therefore, he requested some time to address arguments on this aspect of the matter. It then appears that a review application No. 10/87 was also moved on behalf of the defendants seeking review of the order dated 24 4.1987 of Talwar, J but the same was dismissed as withdrawn. Later on it further appears that a contention was raised on behalf of the defendants that in the instant case the plaint under Order 37 of the Code did not comply with the mandatory provisions of Order 37, Rule 2 (I) & (C) of the Code This point was referred by B N Kirpal, J. to Hon'ble the Chief Justice for constituting a larger Bench. Vide judgment dated 4th April 1989 it was held by a Division Bench comprising of B N. Kirpal, J. and Y.K Sabharwal, J. that though the provisions of Order 37 Rule 2(1) are mandatory in nature but if there has been substantial compliance of the same, then the plaint will be regarded as being under Order 37. Therefore, in sum and substance there having been substantial compliance with the provisions of Older 37 of the Code, the plaint in this case was deemed to have been filed under Order 37 of the Code.
3. At no stage of the case the defendants came forward with any application for leave to defend the suit. It was then urged before G.C Jain, J. on behalf of the defendants that besides the point decided by the Devision: Bench the suit was not maintainable under Order 37 of the Code for other reasons also The defendants were directed to file an affidavit taking all their pleas regarding the non-maintainability of the suit under Order 37 of the Code An affidavit in this respect has been filed of Sh. Balbir Singh, defendant No. 2. The basic contention raised by this affidavit is that there was no agreement written or oral in respect of the payment of interest at the rate of 18% per annum by the deponent and no such agreement had been pleaded in the plaint. Therefore, in the absence of any such agreement the suit was not maintainable under Order 37 of the Code In view of this fact the suit did not fall within the ambit of Order 37 Rule 2 and the averment in this respect in the plaint was manifestly wrong. Another ground raised was that the defendants were not properly served with summons and it was actually a mistake on the part of the court to have held that they were served on 20-10-86. The third point raised by way of this affidavit is that Sh. Balbir Singh defendant No 9 was the sole proprietor of the firm defendant No 1 and defendant No. 3 had no concern whatsoever with defendant No. 1 and, therefore, she had been wrongly impleaded.
4. I have heard arguments advanced by learned counsel for the parties and have given my careful consideration to the points urged at the bar. So far as the aspect of proper service of the defendants is concerned, I am of the view that the defendants in this respect cannot be heard The reason is that the Deputy Registrar had found that they had been served on 20.10 86. Thereafter when the case was listed before Talwar, J. vide order dated 24-4-1987 it was held by the Lordship that he saw no reason to differ with the order of the Deputy Registrar and if at all the defendants felt aggrieved they could have filed appeal against the order of the Deputy Registrar. This step was also not taken by the defendants and therefore it seems to be too late in the day now to urge that defendants were not. served on 20-10-86. In this respect I may also note further that for about three years now the defendants are putting in appearance through their counsel Sh B.L Anand. Vide order dated 6-2-87 the Deputy Registrar had held that the service on the defendants was complete on 20.10 1986 This was done in the presence of Sh. B.L Anand, Advocate who was present during the course of proceedings on that date before the Deputy Registrar. In spite of that when it came to the knowledge of the learned counsel for the defendants no steps were taken to file an application for leave to defend the suit which is ordinarily done within a period of ten days from the date of service of summons for judgment. I may then deal with the other submissions made in this affidavit regarding interest. It is provided in Order 37 of the Code itself that it applies to suits open Bills of Exchange, Hundies and Promissory notes. It also applies when the plaintiff seeks only to recover the debts or liquidated demand in money payable by defendants with or without interest arising on a written contract or on an enactment where the sum sought to be recovered is a fixed sum of money or in the nature of a debt other then a penalty. This order also applies to action based on guarantees where the claim against the Principal is in respect of a debt or liquidated demand only. It does not state at all that before a plaintiff is entitled to recover interest, there must be a written agreement between the parties that interest is payable at a certain specific rate As is clearly stated in this sub-rule the suits can also be filed on the basis of promissory notes The promissory note is defined as follows in the Negotiable Instrument Act, 1981. “A promissory note is an instrument in writing (not being a bank, note or a currency note) containing an un-conditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument”. Some illustrations then are given under this definition contained in Section 4 “I promise to pay B or order Rs. 500/-” is an illustration appended with this Section. A bare perusal of the above form of the promissory note clearly shows that the promissory note may not even contain an agreement between the parties to pay interest. However, it is a matter of common knowledge that generally promissory notes are executed between the parties which contain a promise to pay interest also at a certain rate. But that would not mean that a promissory note which does not contain any such promise to pay interest would not fall within the ambit of a promissory note. Therefore, in a case under Order 37 of the Code which is based upon a promissory note, there seems to be no bar against a plaintiff prohibiting him from claiming interest as per the rate of interest prevalent in the market Similarly suits are also filed on the basis of dishonoured cheques under Order 37 of the Code The very from a cheque issued by a debtor to the creditor will convince any one that it does not contain any column regarding payment of interest. It is only a promise or direction by a debtor to his bank to pay a certain fixed sum of money to his creditor. Can by any stretch of imagination it be said that in the absence of any agreement to pay interest, the plaintiff is debarred from claiming interest in a suit under Order 37 of the Code. I am of the view that there is nothing to indicate in the language of Order 37 of the Code which may disentitle the plaintiff to claim interest from the defendant. On the other hand it seems rather clear from a bare perusal of Order 37 Rule 1 Sub-rule (2) of the code that summary suits under this order can be filed based on Bills of Exchange. Hundies and Promissory notes where there is even no promise to pay interest at a certain specified rate. Therefore, simply because there was no agreement between the parties to pay interest at the specific rate of 18% per annum will not debar the plaintiff from filing a suit under Order 37 of the Code, In fact, in the circumstances such as prevailing in this case, the plaintiff will always be entitled to recover interest, the transaction in question being of a commercial nature. It is a matter of common knowledge that the rate of interest for procuring money for business these days is not less than 18% per annum. If after issuing of cheque the same is not honoured by the banker of the debtor, certainly the debtor will be liable to pay interest for having deprived the plaintiff of his money. That is why it is recognised in Section 34 of the Code that in so far as a decree is for the payment of money, the Court may order interest at such rate as the court deems reasonable to be paid on the principal sum from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit Proviso to this Section further says that where the liability in relation to the same arises out of a commercial transaction the rate of future or further interest may exceed 6% per annum but it shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which the monies are lent or advanced by a Nationalised bank in relation to commercial transactions. In the present case, therefore, the claim of the plaintiff regarding interest at the rate of 18% per annum is very reasonable, as loans by nationalised banks these days are not allowed below this rate.
5. The third argument raised by learned counsel for the defendanst is that defendants No. 3 had no concern whatsoever with the firm defendant No. 1 and she had been wrongly impleaded as such It is difficult to agree with this contention of the learned counsel for the defendants. The reason is very simple. The plaintiff made averment in para-2 of the plaint that defendant No. 1 is a partnership firm and defendants 2 and 3 held themselves out as partners of the said firm to the plaintiff during transactions in question. Admittedly there is no application for leave to defend the suit In the absence of any such application the allegations made in the plaint shall be deemed to be admitted as correct. The principle of holding out under the Partnership Act is very well known. Even though a person may not be actually a partner in the firm, yet on the principle of holding out as contained in Section 28 of the Indian Partnership Act, as a partner in a particular firm makes such a person liable as a partner of the firm. Therefore, simply because while acknowledging his liability defendant No. 2 issued a cheque with a rubber stamp showing himself to be sole proprietor of the firm defendant No. 1 will not make any difference so far as liability of defendant No. 3 is concerned She is actually the wife of defendant No. 2 and there is nothing improbable about the fact that defendants 2 and 3 held out that they were the partners of the firm defendant No. 1 Therefore, it is not possible to say that the piaint suffers from an misjoinder of parties.
6. In view of what has been stated above, the plaintiff is entitled to the grant of a decree under Order 37 of the Code against the defendants. The plaintiff is therefore, granted a decree for recovery of Rs. 1,50,502.10 P. with costs and pending and future interest at the rate of 18% per annum from the date of the suit till realisation against the defendants.
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