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Sunil Enterprises And Another v. Sbi Commercial & International Bank Ltd. .
Factual and Procedural Background
The respondent-Bank filed a summary suit under Order 37 of the Code of Civil Procedure to recover Rs 37,51,519.43 with interest and incidental charges. The claim was founded on nine bills of exchange discounted by M/s Khanna Sales Corporation, the drawee with a bill-discounting facility at the Bank. The appellants were the acceptors of those bills.
When the bills were presented, payment was not received; notice of demand also went unanswered. The trial Judge issued summons for judgment, made it absolute, and passed a decree against the appellants. The appellants sought leave to defend, alleging absence of consideration and fraud involving officers of the respondent-Bank and M/s Khanna Sales Corporation. The trial court refused leave, and a Division Bench of the Bombay High Court affirmed that refusal, holding the defence to be frivolous. The appellants then approached the Supreme Court in this appeal.
Legal Issues Presented
- Whether the appellants were entitled to leave to defend the summary suit under Order 37 CPC.
- What standard should be applied in determining if a defence is genuine, triable, or merely sham/illusory at the leave-to-defend stage.
Arguments of the Parties
Appellants' Arguments
- The trial court, at the leave-to-defend stage, must only decide whether the defence is real or sham; it should not test the truth of the asserted facts.
- The bills of exchange lacked consideration because no goods were ever sold or supplied by M/s Khanna Sales Corporation to the appellants.
- There was alleged fraud, collusion, and connivance between Bank officers and M/s Khanna Sales Corporation.
- If the court was sceptical of the defence, it could impose a security condition rather than deny leave outright.
The opinion does not contain a detailed account of the respondent-Bank'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 | Sets out when unconditional leave must be granted under Order 37. | Used to formulate propositions (a)–(e) guiding the leave-to-defend decision. |
| Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698 | Clarifies criteria for determining bona fide defences in summary suits. | Formed part of the combined propositions informing the Court’s assessment of the appellants’ defence. |
| Mechelec Engineers & Manufacturers v. Basic Equipment Corporation, (1976) 4 SCC 687 | Enumerates categories of defences and corresponding judicial responses in Order 37 proceedings. | Cited for the same propositions; the Court measured the appellants’ defence against these categories. |
| Dena Bank v. Sunil Enterprises (Summary Suit No. 2963 of 1990, Bombay HC) | Illustrative instance where leave to defend was granted in similar factual circumstances. | Reinforced the view that situations like the present one merit a full trial. |
| Bank of India v. Mahendra Sarabhai Choksi (Summary Suit No. 1153 of 1989, Bombay HC) | Another example of leave being granted despite outstanding bills. | Provided persuasive support for allowing the appellants to defend. |
Court's Reasoning and Analysis
The Supreme Court distilled the governing law from the three leading decisions it cited, summarising the propositions about unconditional leave, conditional leave, and denial of leave (propositions (a)–(e)). Applying these standards, the Court observed:
- The appellants’ allegation that the bills lacked consideration because no goods were supplied, if proven, would constitute a substantive defence.
- Allegations of fraud and collusion between Bank officers and M/s Khanna Sales Corporation raise triable issues that cannot be dismissed as “moonshine.”
- Earlier comparable matters before the Bombay High Court had resulted in leave being granted, indicating that such defences warrant examination at trial.
Consequently, the Court concluded that the defence was neither illusory nor sham and therefore the appellants were entitled to unconditional leave to defend.
Holding and Implications
HOLDING: The appeals are allowed; the orders of the Bombay High Court (both the Division Bench and the trial Judge) are set aside. The summons for judgment is dismissed and the appellants are granted unconditional leave to defend the suit.
Implications: The suit will now proceed to full trial on merits before the High Court. The decision re-affirms existing Supreme Court jurisprudence on Order 37 but does not create a new legal precedent beyond applying established principles to the facts.
S. Rajendra Babu, J.— Leave granted.
2. This appeal arises out of an order made by the High Court of Bombay affirming an order made by the trial Judge in a summary suit filed under Order 37 of CPC whereby the trial Judge had issued summons for judgment and made it absolute against the appellants and consequently passed a decree against them for a sum of Rs 37,51,519.43 with interest and certain other incidental charges. A suit was brought by the respondents on the basis of bills of exchange in respect of which the appellants are the acceptors. M/s Khanna Sales Corporation are the drawees of the bill who have local bill discounting facility with the respondents. Under the said facility, M/s Khanna Sales Corporation discounted the bills of exchange. The respondent-Bank made payments to M/s Khanna Sales Corporation on the basis of the bills of exchange. Since the amounts under the bills of exchange were not paid and received by the respondent-Bank when they were presented within the stipulated time and since demand did not come forth despite notice of demand, the respondent-Bank filed a summary suit as aforesaid. Nine bills of exchange had been drawn by M/s Khanna Sales Corporation. The appellants before us sought leave to defend themselves contending that the bills of exchange were executed without consideration as neither the goods were sold nor supplied in the transaction in question. The appellants alleged fraud, collusion and connivance between the officers of the respondent-Bank and M/s Khanna Sales Corporation. The learned trial Judge refused the leave to defend the suit. On appeal, the Division Bench considered the matter and held that the undisputed position is that the appellants are the acceptors of the bills of exchange in question and that no goods were supplied or actually sold by M/s Khanna Sales Corporation to the appellants and, therefore, the bills of exchange were not supported by consideration. Section 43 of the Negotiable Instruments Act, 1881 saves the right of the holder in due course like the respondent to claim the amount of bill of exchange. In certain other instances the bills of exchange had been negotiated through the Bank without any difficulty and, therefore, the Division Bench was of the view that there is no logic in the submission made on behalf of the appellants. If any fraud has been alleged that could be reflective on their conduct and, therefore, it would be too much for the respondent-Bank or their officers to be instrumental in perpetration of such a fraud by the appellants and M/s Khanna Sales Corporation and, therefore, the appellants cannot escape their liability and responsibility under the bills of exchange in question. On that basis they took the view that pleas raised by the appellants were frivolous and have no substance and merits in their defence.
3. In this appeal it is contended that what should be examined at the stage of grant of leave to defend is whether there was a real or a sham defence and whether the facts alleged by the appellants if established would be a good defence and the trial court should not go into the question whether the facts alleged were true or not, as that situation would arise only after leave was granted and at the trial. That a condition as to security could be imposed if the Court was of the opinion that the defence was put forward with a view to prolong this suit.
4. The position in law has been explained by this Court in Santosh Kumar v. Bhai Mool Singh AIR 1958 SC 321, 1958 SCR 1211, (1958) 1 MLJ (SC) 159, Milkhiram (India) (P) Ltd. v. Chamanlal Bros. AIR 1965 SC 1698 and Mechelec Engineers & Manufacturers v. Basic Equipment Corpn. (1976) 4 SCC 687, AIR 1977 SC 577 The propositions laid down in these decisions may be summed up as follows:
(a) If the defendant satisfies the court that he has a good defence to the claim on merits, 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 possibly good defence, 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, if the affidavit discloses that at the trial he may be able to establish a defence to the plaintiff's claim, the court may impose conditions at the time of granting leave to defend — the conditions being as to time of trial or mode of trial but not as to payment into court or furnishing security.
(d) 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.
(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine, the court may show mercy to the defendant by enabling him to try to prove a defence but at the same time protect the plaintiff imposing the condition that the amount claimed should be paid into court or otherwise secured.
In fact in identical matters on the file of the said High Court in Summary Suit No. 2963 of 1990 Dena Bank v. Sunil Enterprises and Summary Suit No. 1153 of 1989 Bank of India v. Mahendra Sarabhai Choksi, leave to defend had been granted to the defendants.
5. In those cases the circumstances arising are that the bills of exchange were accepted by the defendant even though they had already discharged earlier bills of exchange as and when they were due and the Bank had continued to pay out such large amounts of bills of exchange accepted by the party who is already a defaulter. It is also contended that some of the bills of exchange were mere secondary documents and, therefore, these matters require examination. It cannot be said that the defence raised by the appellants is totally defenceless or moonshine or illusory as noticed earlier in the course of this order. Therefore, the view taken by the High Court that the appellants have absolutely no prima facie case, may not be correct. And in the circumstances, we allow the appeals, set aside the order made by the Division Bench and the Judge on the original side of the Bombay High Court and dismiss the summons for judgment, grant leave and direct unconditional leave to the defendant to defend the suit. Appeals, therefore, stand allowed accordingly.
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