- Bookmark
- Share
- CaseIQ
Mechelec Engineers & Manufacturers v. Basic Equipment Corporation .
Factual and Procedural Background
The plaintiff-respondent, a registered partnership firm, instituted a summary suit on 25 April 1974 for recovery of Rs 21,265.28 (principal) and Rs 7,655 (interest at 12 % p.a.) on the basis of a cheque dated 12 May 1971 drawn by the defendant-appellant firm on the State Bank of India. The cheque, allegedly issued as the price for goods supplied, was dishonoured on presentation. While admitting issuance of the cheque, the defendant denied any privity of contract with the plaintiff and put forward an alternative explanation for issuing the cheque.
The suit was filed under Order 37 CPC, requiring the defendant to seek leave to defend. The Additional District Judge granted the defendant unconditional leave. In revision under Section 115 CPC, a Single Judge of the Delhi High Court set aside that order, characterised the defences as not bona fide, and granted leave only on the condition that the defendant deposit the entire suit amount with 6 % interest and court-fee costs within two months.
The defendant obtained special leave to appeal to the Supreme Court, challenging the High Court’s power to interfere with the trial court’s discretionary order.
Legal Issues Presented
- Whether, under Section 115 of the Civil Procedure Code, the High Court could interfere with the trial court’s discretionary grant of unconditional leave to defend under Order 37 Rule 3 CPC.
Arguments of the Parties
Appellant's Arguments
- The High Court exceeded its revisional jurisdiction under Section 115 CPC by re-evaluating facts and substituting its discretion for that of the trial court.
- Relying on precedents such as Santosh Kumar v. Bhai Mool Singh and other Supreme Court authorities (e.g., M.L. Sethi v. R.P. Kapur), the appellant contended that where triable issues exist and the defence is not patently dishonest, unconditional leave must be granted and cannot be converted into a conditional leave requiring security.
Respondent's Arguments
The opinion does not contain a detailed account of the respondent's legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Santosh Kumar v. Bhai Mool Singh, AIR 1958 SC 321 | If a defence raises triable issues, leave to defend must be given; unconditional leave is appropriate unless the defence is shown to be dishonest in limine. | Relied upon as primary authority to affirm that the trial court correctly granted unconditional leave because the defendant’s defence could not be pronounced dishonest at this stage. |
| Jacobs v. Booth's Distillery Co., (1901) 85 LT 262 | Whenever a defence raises a “really triable issue,” leave must be granted. | Cited to reinforce that the presence of triable issues barred the High Court from imposing conditions. |
| Chitukuri Gopala Rao v. Parachuri Subba Rao, AIR 1936 Mad 246 | The court may impose conditions only if satisfied on judicial grounds that the defence lacks bona fides. | Used to show that any finding of lack of bona fides must not be arbitrary; the High Court’s contrary view was unsustainable. |
| Manohar Lal v. Nanhe Mal, AIR 1938 Lah 548 | Same principle as above—imposition of conditions requires a bona fide assessment. | Reiterated to underline the limited circumstances for conditional leave. |
| Shib Karan Das v. Mohammed Sadiq, AIR 1936 Lah 584 | Evaluates when conditions can be imposed in summary suits. | Referenced as supportive authority for appellant’s stance. |
| M.L. Sethi v. R.P. Kapur, (1972) 2 SCC 427 | Limits of High Court’s revisional jurisdiction under Section 115 CPC. | Cited to argue that the High Court transgressed its jurisdictional boundaries. |
| Hindustan Aeronautics Ltd. v. Ajit Prasad Tarway, (1972) 3 SCC 195 | Scope of interference under Section 115 CPC is confined to jurisdictional errors. | Used to show that mere disagreement on facts is insufficient basis for revision. |
| DLF Housing & Construction Co. v. Sarup Singh, (1969) 3 SCC 807 | Reiterates narrow compass of Section 115 CPC. | Supports conclusion that the High Court acted beyond jurisdiction. |
| Milkhiram (India) Pvt. Ltd. v. Chamanlal Bros., AIR 1965 SC 1698 | Principles guiding revisional powers. | Reinforced the appellant’s jurisdictional objection. |
| Kiranmoyee Dassi v. Dr. J. Chatterjee, AIR 1949 Cal 479 | Classifies situations (a)–(e) for granting unconditional or conditional leave in Order 37 suits. | Supreme Court held the present case falls outside class (e), therefore conditions were unjustified. |
Court's Reasoning and Analysis
The Supreme Court emphasised that under Order 37 Rule 3 CPC, unconditional leave must be granted where the defendant discloses a defence that is not patently dishonest. Referring to Santosh Kumar and Jacobs, the Court observed that the Additional District Judge correctly found multiple triable issues, making unconditional leave appropriate.
Turning to Section 115 CPC, the Court recounted its own jurisprudence (M.L. Sethi, Hindustan Aeronautics, DLF, Milkhiram) that the High Court’s revisional power is limited to jurisdictional errors. Disagreement with the trial court on factual appreciation or discretionary conclusions does not furnish a ground for interference.
The High Court, despite identifying seven triable questions, labelled the defence as not bona fide and imposed a deposit condition. The Supreme Court criticised this as “hazardous” and premature: honesty of a defence cannot be conclusively determined before evidence is led. Only when a defence is “patently dishonest or so unreasonable that it could not reasonably be expected to succeed” can a trial court’s grant of unconditional leave be revisited, a threshold not met in the present case.
Applying Das J.’s classification in Kiranmoyee Dassi, the Court held that the matter falls within classes (a)–(c), not class (e); hence, conditional leave was unwarranted.
Holding and Implications
Order: The Supreme Court set aside the Delhi High Court’s order and restored the unqualified leave to defend granted by the Additional District Judge; each party to bear its own costs.
Implications: The judgment reaffirms the limited scope of High Court interference under Section 115 CPC and the settled principles governing summary suits under Order 37. It underscores that conditional leave requiring a deposit is permissible only when a defence is demonstrably frivolous or dishonest, thereby providing guidance for lower courts in exercising discretion without overreach. No new precedent is created, but existing doctrinal boundaries are reinforced.
M.H Beg, J.— The plaintiff-respondent alleged to be a registered partnership firm filed a suit on April 25, 1974, through Smt Pushpa Mittal, shown as one of its partners, for the recovery of Rs 21, 265 5.28 as principal and Rs 7655, as interest at 12% per annum, according to law and mercantile usage, on the strength of a cheque drawn by the defendant on May 12, 1971, on the State Bank of India, which, on presentation, was dishonoured. The plaintiff alleged that the cheque was given as price of goods supplied. The defendant-appellant firm admitted the issue of the cheque by its managing partner, but, it denied any privity of contract with the plaintiff firm. The defendant-appellant had its own version as to the reasons and purposes for which the cheque was drawn.
2. The suit was instituted under the provisions of Order 37 of the Civil Procedure Code so that the defendant-appellant had to apply for leave under Order 37 Rule 2 of the Code to defend. This leave was granted unconditionally by the trial court after a perusal of the cases of the two sides. Order 37 Rule 3 of the Civil Procedure Code lays down:
“(1) The Court shall, upon 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.”
3. A learned Judge of the High Court of Delhi had, on a revision application under Section 115 Civil Procedure Code, interfered with the order of the Additional District Judge of Delhi granting unconditional leave, after setting out not less than seven questions on which the parties were at issue. The learned Judge had, after discussing the cases of the two sides and holding that triable issues arose for adjudication, nevertheless, concluded that the defences were not bona fide. He, therefore, ordered:
“For these reasons I would allow the revision petition and set aside the order of the trial court. Instead I would grant leave to the defendant on their paying into court the amount of Rs 21,265.28 together with interest at the rate of 6 per cent per annum from the date of suit till payment and costs of the suit (only court fee amount at this stage and not the lawyer's fee). The amount will be deposited within two months. There will be no order as to costs of this revision.”
4. The only question which arises before us in this appeal by special leave is: Could the High Court interfere, in exercise of its powers under Section 115 of the Civil Procedure Code, with the discretion of the Additional District Judge, in granting unconditional leave to defend to the defendant-appellant upon grounds which even a perusal of the order of the High Court shows to be reasonable?
5. Santosh Kumar v. Bhai Mool Singh AIR 1958 SC 321, 1958 SCR 1211 was a case where a cheque, the execution of which was admitted by the defendant, had been dishonoured. The defendant had set up his defences for refusal to pay. This Court noticed the case of Jacobs v. Booth's Distillery Company (1901) 85 LT 262 where it was held that, whenever a defence raises a really triable issue, leave must be given. Other cases too were noticed there to show that this leave must be given unconditionally where the defence could not be shewn to be dishonest in limine. This Court observed there (at p. 1215):
“The learned counsel for the plaintiff-respondent relied on Gopala Rao v. Subba Rao AIR 1936 Mad 246, Manohar Lal v. Nanhe Mal AIR 1938 Lah 548, ILR 1938 Lah 289 and Shib Karan Das v. Mohammed Sadiq AIR 1936 Lah 584. All that we need say about them is that if the court is of opinion that the defence is not bona fide, then it can impose conditions and is not tied down to refusing leave to defend. We agree with Varadachariar, J. in the Madras case that the court has this third course open to it in a suitable case. But, it cannot reach the conclusion that the defence is not bona fide arbitrarily. It is as much bound by judicial rules and judicial procedure in reaching a conclusion of this kind as in any other matter.”
6. On general principles, relating to the exercise of jurisdiction of High Courts under Section 115, of the Civil Procedure Code, several cases were cited before us by Mr Andley: M. L. Sethi v. R.P Kapur (1972) 2 SCC 427, (1973) 1 SCR 697; Managing Director (MIG) Hindustan Aeronautics Ltd., Balanagar, Hyderabad v. Ajit Prasad Tarway, Manager, (Purchase & Stores), Hindustan Aeronautics Ltd., Balanagar, Hyderabad (1972) 3 SCC 195, AIR 1973 SC 76; D.L.F Housing & Construction Co. Pvt. Ltd., New Delhi v. Sarup Singh (1969) 3 SCC 807, (1970) 2 SCR 368; Milkhiram (India) Pvt. Ltd. v. Chamanlal Bros. AIR 1965 SC 1698
7. We need not dilate on the well established principles repeatedly laid down by this Court which govern jurisdiction of the High Courts under Section 115 CPC. We think that these principles were ignored by the learned Judge of the High Court in interfering with the discretionary order after a very detailed discussion of the facts of the case by the learned Judge of the High Court who had differed on a pure question of fact — whether the defences could be honest and bona fide. Any decision on such a question, even before evidence has been led by the two sides, is generally hazardous. We do not think that it is fair to pronounce a categorical opinion on such a matter before the evidence of the parties is taken so that its effects could be examined. In the case before us, the defendant had denied, inter alia, liability to pay anything to the plaintiff for an alleged supply of goods. 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 leave unconditionally may be questioned. In the judgment of the High Court we are unable to find a ground of interference covered by Section 115 CPC.
8. In Kiranmoyee Dassi Smt v. Dr J. Chatterjee AIR 1949 Cal 479, ILR (1945) 2 Cal 145 Das, J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by Order 17 CPC in the form of the following propositions (at p. 253):
“(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, shews such a state of facts as leads to the inference that at the trial of the action be may be able to establish a defence to the plaintiff's claim the plaintiff is not entitled to judgment 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 practically 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 plaintiff 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 secured 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.”
9. The case before us certainly does not fall within the class (e) set out above. It is only in that class of case that an imposition of the condition to deposit an amount in court before proceeding further is justifiable.
10. Consequently, we set aside the judgment and order of the High Court and restore that of the Additional District Judge. The parties will bear their own costs.
Alert