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JUDGMENT Devinder Gupta, J.
1. This appeal by the defendant is against the order passed on 1.4.1997 by learned Single Judge in IA No. 54 of 1995. By the said order, learned Single Judge allowed the defendant's application (IA. 54/95) filed under Order 37 Rule 3(5) of the Code of Civil Procedure thereby granting leave to the defendant to defend the suit of the plaintiff but subject to the defendant's depositing in Court a sum of Rs. 8,57,500/- within four weeks making it clear that on failure to deposit the amount, the application seeking leave to contest shall stand dismissed.
2. In so far as basic facts are concerned, the same are not in dispute. A suit for recovery of Rs. 14,50,000/- along with interest at the rate of 24% per month from the date of filing of suit till payment has been filed by the plaintiff against the defendant, inter alia, alleging that the defendants approached the plaintiff for supply of black and white television picture tubes being manufactured by the plaintiff. Defendant No. 1 assured the plaintiff that it had overdraft facilities with Vijaya Bank, Bhikaji Cama Place, New Delhi and goods could be delivered against post dated cheques, which could be encashed. The plaintiff accordingly, agreed to supply the goods to the defendant. According to the plaintiff, after adjusting the amounts received for the supplies made earlier, a sum of Rs. 8,87,450/- was payable by the defendants for the supplies made from 1.6.1991 to 13.7.1991. In addition to the principle, the plaintiff claimed interest at the rate of 24% per month. The interest claimed besides principal is Rs. 5,57,550/- based on the allegation that the defendant had issued 10 cheques, which were dishonoured one by one grossly for the reason of insufficient funds or on account of payment being stopped. The plaintiff alleged that by letter dated 17.7.1991 defendant No. 2 acknowledged the liability stating that due to unvoidable circumstances, payment had been delayed. Notice of demand was served but the defendants failed to clear the outstanding. Accordingly, suit was filed under Order 37 of the Code of Civil Procedure.
3. The defendant entered appearance and after summons for judgment were served, an application was filed seeking leave to defend pleading that picture tubes supplied by the plaintiff were defective. By at least four letters defective quality of the tubes was brought to the notice of the plaintiff. Defendant also brought to the notice of the plaintiff the complaints, which were being received by the defendants about the defective nature of the picture tubes from its customers. In May, 1991 the plaintiff had replaced the defective tubes that had been supplied vide invoice No. 67. The plaintiff thereafter failed to take corrective measures or to replace the defective tubes, which were having defects of gun sparking etc. In these circumstances, the defendants were constrained to stop payment of the cheques. Defendants also claimed that as a result of supply of defective tubes the television sets could not be disposed of and about 1071 T.Vs. were lying with defective picture tubes with one distributor, who had in fact withheld an amount of rupees twenty lakhs payable to the defendants. The defendants claimed that they suffered heavy losses on account of defective picture tubes resulting in closure of their work. The defendants also claimed that they are entitled to claim set off and are also entitled to damages for the loss suffered on account of defective picture tubes supplied. In addition, the defendants on merits also raised a plea about correctness of the amount claimed by the plaintiff.
4. The plaintiff resisted the defendant's application labelling the defense raised as frivolous and untenable. It was claimed that cheques in fact had been dishonoured on account of insufficient funds and not on account of payment being stopped.
5. Learned Single Judge on critical examination of the stand of the defendants as if he was trying to finally adjudicate on the merits and correctness of the pleas raised by the defendants, proceeded to held that the defendants had some defense, which may at the best be said to be a case for partial failure of consideration and then proceeded to hold that this partial failure, as claimed by the defendants would not be ascertainable in money without collateral inquiry. It was also held that though it was at the best a case of partial failure of consideration, which was raised by the defendants for the principal amount, the defendants do not have any plausible or probable defense, however, as regards interest, the defendants had raised friable issues, which require trial and evidence. Consequently, the learned Single Judge allowed the application but subject to the conditions aforementioned.
6. We have duly considered the submissions made at the bar.
7. Learned counsel for the appellant has urged that the appellant is entitled to unconditional leave to defend otherwise leave to defend is totally meaningless since the defendants are unable to deposit the amount. Learned counsel for the plaintiff placed reliance on the reasons, adopted by learned Single Judge and contended that learned Single Judge while considering the facts and circumstances of the case has taken a view that leave ought to be granted. Accordingly, subject to deposit of the amount, leave was granted. As such no interference was called for in the appeal since discretion had been exercised in accordance with the settled principles governing grant or refusal of leave to defend. It was further contended that considering the conduct of the appellant leave in this case could not have been granted without deposit of the principal amount.
8. It is a settled position in law that there is a discretion vested in Court under Order 37 Rule 3(2) C.P.C., while considering the question of granting leave, but such discretion is required to be exercised on sound judicial principles, which in turn means, in consonance with the principles of natural justice that form the foundations of our laws. It has been held that whenever the defense raises a friable issue, leave must be granted, whether the defense is legal or a equitable one and even though it may not ultimately turn out to be a good defense. As a rule, where a valid defense or friable issue is disclosed, the defense is bonafide and leave must be granted unconditionally otherwise the grant of leave may be illusory. If the Court is of the opinion that the defense is not bonafide one, it can impose conditions. The Supreme Court in Santosh Kumar v. Bhai Mool Singh held that where defense is good and valid one, conditions cannot be imposed. Power to impose conditions is only there is ensure that there be a speedy trial. If there is reason to believe that the defendant is trying to prolong litigation and evade speedy trial, conditions can be imposed. It was held that it is always undesirable and indeed impossible to lay down hard and fast rules in the matter of proper exercise of discretion. However, in general the test to be applied should be whether the defense raises a real issue and not a sham one, in the sense that, if the facts alleged by the defendant are established, there would a good or even a plausible defense on those facts.
9. In the instant case, learned Single Judge lost sight of an important fact that stage of furnishing proof in support of the defense had not yet come, which would come only after the defendant has been allowed to enter appearance and to defend the suit. Truthfulness of the defense had to be determined at the time of trial. At this stage all that the Court had to determine was that if the facts alleged by the defendants are duly proved, they would afford good or even a plausible answer to the plaintiff's claim and once the Court is satisfied about that, leave cannot be withheld and no question about imposing conditions could arise and once leave is granted, the normal procedure of a suit, so far as evidence and proof would follow.
10. In Kilkhiram (India) Private Ltd. and Ors. v. Chamanlal Bros Supreme Court declined to interfere with the discretion exercised by Single Judge of the High Court in imposing condition of deposit of the amount when no reason had been assigned observing:-
"Care must also be taken to see that real and genuine friable 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."
11. In Mechalec Engineers & Manufacturers v. Basic Equipment Corporation , the following principles as had been evolved, after comprehensive review of the authorities on the subject in Smt. Kiranmoyee Dessi v. Dr. J. Chatterjee (1945) 49 Calcutta Weekly Note 246 were approved by the Supreme Court:-
"(a) If the defendant satisfied the Court that he has a good defense to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave do defend.
(b) If the defendant raises a friable issue indicating that he has a fair or bonafide or reasonable defense although not a positively good defense 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 had a defense, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defense 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 defense or the defense 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 defense or the defense 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 defense 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 defense."
12. In Mrs. Raj Duggal v. Ramesh Kumar Bansal the Supreme Court reiterated the following principle while granting or refusing leave to defend a suit under Order 37 C.P.C.:-
"Leave is declined where the Court is of the opinion that the grant of leave would merely enable the defendant to prolong the litigation by raising untenable and frivolous defenses. The test is to see whether the defense 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 defense on those facts. If the Court is satisfied about that leave must be given. If there is a friable issue in the sense that there is a fair dispute to be tried as to the meaning of a document on which the claim is based or uncertainty as to the amount actually due or where the alleged facts are of such a nature as to entitle the defendant to interrogate the plaintiff or to cross examine his witnesses leave should not be denied. Where also, the defendant shows that even on a fair probability he has a bona fide defense, he ought to have leave. Summary judgments under Order 37 should not be granted where serious conflict as to matter of fact or where any difficulty on issues as to law arises. The Court should not reject the defense of the defendant merely because of its inherent implausibility or its inconsistency."
13. The only question to be decided in this appeal is about the manner of exercise of discretion while granting leave to defend. We have noticed the observations of the learned Single Judge. In case the principles as have been approved by the Supreme Court in M/s. Mechalec Engineers's case (supra) are taken into consideration, we are of the view that the discretion has not been exercised on sound legal principles, in the absence of which the grant of leave becomes illusory. Learned Single Judge has nowhere held that the defendant had no defense or the defense was illusory or sham or practically sham. On the observations of the learned Single Judge, it may not be a case falling either under category "a" or "b" but definitely it is a case, which would fall in category "c" as were approved in M/s. Mechalec Engineers' case (supra). The only condition, which could have been imposed could be as to the mode of trial but not as to the payment into Court or even furnishing of security. Thus, in our view, the impugned order is liable to be interfered with to the extent aforementioned.
14. Consequently, the appeal is allowed. Impugned order is modified, the application of the defendants seeking leave to defend stands allowed and they are permitted to defend the suit, subject to the condition that the suit be disposed of expeditiously. If the defendants have not filed the written statement, it will be filed within a period of four weeks from today. The plaintiff will file replication within a period of four weeks thereafter. The suit will be posted for admission/denial of documents on a date to be fixed by learned Single Judge where after issues will be framed and the suit will be set down for trial. Every endeavor would be made to have the trial concluded within a period of six months from the date of framing of issues. Parties to appear before the learned Single Judge on 22.08.2002.