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IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2008
(@ Special Leave Petition(Civil) No.20544 of 2008)
Southern Sales & Services & Ors. ...Appellants
Vs.
Sauermilch Design & Handels GMBH ...Respondent
J U D G M E N T
ALTAMAS KABIR,J.
1. Leave granted.
2. This appeal, which is directed against the order
passed by the Karnataka High Court on 26th June,
2008, in a proceeding under Order 37 of the Code
of Civil Procedure, raises an interesting
question of law regarding the interpretation of
Rule 3, Sub-rule (5) thereof.
3. Rule 3, as it now reads, was introduced in Order
37 of the Code by way of amendment with effect
from 1st February, 1977. Prior to such amendment,
Rule 3 of Order 37 was as follows :-
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“Rule 3. (1) The Court shall, upon an
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.”
By virtue of the Code of Civil Procedure
(Amendment) Act, 1976, Rule (3) of Order 37 was
substituted by Rule 3 as it now exists and introduced
various changes of which one of the more significant
changes was the introduction of Sub-rules (4) and (5)
which read as follows:-
“3. (4) If the defendant enters an
appearance, the plaintiff shall thereafter
serve on the defendant a summons for
judgment in Form No.4A in Appendix B or such
other Form as may be prescribed from time to
time, returnable not less than ten days from
the date of service supported by an
affidavit verifying the cause of action and
the amount claimed and stating that in his
belief there is no defence to the suit.
(5) 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 Judges to be
just:
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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.”
It may also be profitable to refer to Sub-rule (6)
which provides as follows:-
“(6) At the hearing of such summons for
judgment, –
(a) if the defendant has not applied for
leave to defend, or if such application
has been made and is refused, the
plaintiff shall be entitled to judgment
forthwith; or
(b) if the defendant is permitted to defend
as to the whole or any part of the
claim, the Court or Judge may direct
him to give such security and within
such time as may be fixed by the Court
or Judge and that, on failure to give
such security within the time specified
by the Court or Judge or to carry out
such other directions as may have been
given by the Court or Judge, the
plaintiff shall be entitled to judgment
forthwith.”
4. In the instant case, the respondent filed a suit
under Order 37 of the Code of Civil Procedure,
4hereinafter referred to as “the Code”, for
recovery of a sum of Euro 757,885.42 equivalent
to Rs.3,86,52,156.42 in Indian currency. On
being served with Summons for Judgment in terms
of Rule 3, Sub-rule (4), of Order 37 of the Code,
the petitioner filed an affidavit providing
various details which made out triable issues in
the suit. On the basis of the said affidavit the
learned XXXI Additional City Civil Judge,
Bangalore, granted conditional leave to the
petitioner to defend the suit.
5. Being aggrieved by the said order, the
respondent company moved in revision before the
High Court which after considering the
submissions made and the defence taken by the
defendant/appellant came to the conclusion that a
triable issue had been raised in the suit which
would have to be decided in a full-fledged trial.
However, the High Court also came to a finding
that though the defendant/appellant had raised a
triable issue, the defence taken did not
exonerate them from payment of the entire amount
claimed by the respondent herein.
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6. The High Court held that despite the admission
of the defendant regarding the amount claimed by
the respondent in the suit, since the same had
not been paid to the plaintiff/respondent, it
would be in the fitness of things to direct the
defendant/appellant to deposit a substantial
portion of the amount which had been admitted to
be due and payable even if the defence set up by
the defendant/appellant was not sham, moonshine
or illusory. The High Court accordingly modified
the unconditional leave granted to the
defendant/appellant to defend the suit and
restricted the same to the claim of the
plaintiff-company to the amount excluding the
total demand of Euro 3,20,967.51 covered under
the documents Annexures G-1 and G-2. The High
Court directed that leave to defend the suit in
respect of the claim of the plaintiff-company for
the said amount of Euro 3,20,967.51 would be
subject to the condition that the
defendant/appellant firm would deposit in the
trial court 55% of the said amount within eight
weeks from the date of the orders of the High
Court.
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7. The defendant/appellant has come up to this Court
challenging the said order of the High Court.
8. On behalf of the defendant/appellant it was urged
that the consistent view taken by this Court in
relation to summary trials under Order 37 of the
Code is that when a Court is satisfied that a
triable issue has been raised in defence of the
claim made on behalf of the plaintiff,
unconditional leave has to be granted to the
defendant to contest the suit and no direction
could be given while granting such leave to the
defendant to deposit any amount by way of
security. Mr. T.V. Ratnam, learned advocate, who
appeared for the defendant/appellant submitted
that this view had been taken by the Calcutta
High Court as far back as in 1949 in the case of
Kiranmoyee Dassi vs. Dr. J. Chatterjee, [AIR 1949
Calcutta, page 479] and was subsequently
reiterated and followed by this Court in the case
of Santosh Kumar Vs. Bhai Mool Singh, [1958 SCR
1211], in which this Court set aside the order of
the High Court upon holding that the imposition
of a condition while granting leave to defend a
suit in which a triable issue has been raised was
illegal. If the Court was satisfied that there
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was a genuine triable issue, leave had to be
given and given unconditionally to defend the
suit.
9. Mr. Ratnam submitted that same view was taken by
this Court in Milkhiram (India) Private Ltd. vs.
Chamanlal Bros., [AIR 1965 SC 1698] and in M/s.
Mechelec Engineers and Manufacturers Vs. M/s.
Basic Equipment Corporation, [1976 (4) SCC 687]
wherein it was further clarified that 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
unconditional leave to defend may be questioned.
10. In addition to his aforesaid submissions Mr.
Ratnam urged that in the absence of any error of
jurisdiction or the illegal exercise of
jurisdiction or the exercise of jurisdiction with
material irregularity, the High Court had no
jurisdiction to entertain the revisional
application filed by the respondent. Mr. Ratnam
submitted that as a legal proposition, it was
well established that in revisional jurisdiction
even a wrong order cannot be corrected or
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interfered with and that the scope of
interference is limited to jurisdictional error
only as was explained in the case of The Managing
Director (MIG) Hindustan Aeronautics Ltd.,
Balanagar, Hyderabad vs. Ajit Prasad Tarway. [AIR
1973 SC 76]. Mr. Ratnam submitted that on both
counts the order of the High Court impugned in
the appeal was liable to be set aside.
11. Replying to the submissions made on behalf of the
appellant, Mr. Niraj Sharma, counsel for the
respondent submitted that the legal parameters in
which the earlier decisions cited on behalf of
the appellant had been rendered stood
significantly altered after the amendment of the
Code in 1976. Learned counsel submitted that
with the substitution of Rule 3 of Order 37, the
earlier decisions, right up to the decision in
the case of M/s. Mechelec Engineers and
Manufacturers (supra) were to a large extent
rendered ineffective in view of the addition of
Sub-rules (4), (5) and (6) to Rule 3.
12. It was urged that Sub-rule (5) of Rule 3 of Order
37 is important to this case in the sense that it
recognizes a dichotomy between a disputed claim
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and an admitted claim in a suit filed under Order
37 of the Code. As far as the disputed claim is
concerned, once the Court comes to a conclusion
that there is a triable issue, unconditional
leave has to be given to the defendant to defend
the suit. However, in view of the second proviso
to Sub-rule (5) of Rule 3, any amount of the
claim, if admitted by the defendant to be due
from him, has to be deposited in Court before the
leave to defend a suit can be granted.
13. Mr. Sharma submitted that the admission by the
appellant that there were certain dues which
would be paid by the end of December, 2002, the
High Court was justified in directing the
appellant to deposit 55% of the admitted amount
as a condition precedent for grant of leave to
defend the suit in accordance with the provisions
of the second proviso to Sub-rule (5) of Rule 3
of Order 37 as it now stands after the amendment
effected with effect from 1st February, 1977. Mr.
Sharma urged that there was, therefore, no ground
or reason for this Court to interfere with the
discretion exercised by the High Court in the
impugned order.
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14. Having considered the submissions made on behalf
of the respective parties and the decisions
cited, there appears to be force in Mr. Sharma’s
submissions regarding the object intended to be
achieved by the introduction of Sub-rules (4),
(5) and (6) in Rule 3 of Order 37 of the Code.
Whereas in the unamended provisions of Rule 3,
there was no compulsion for making any deposit as
a condition precedent to grant of leave to defend
a suit by virtue of the second proviso to Sub-
rule (5), the said provision was altered to the
extent that the deposit of any admitted amount is
now a condition precedent for grant of leave to
defend a suit filed under Order 37 of the Code.
A distinction has been made in respect of any
part of the claim, which is admitted. The second
proviso to Sub-rule (5) of Rule 3 makes it very
clear that leave to defend a suit shall not be
granted unless the amount as admitted to be due
by the defendant is deposited in Court.
15. The High Court has come to a finding that a
certain portion of the plaint has been duly
admitted by the appellant herein and accordingly
directed 55% thereof to be deposited as a pre-
condition for grant of leave to defend the suit.
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16. As has been pointed out by Mr. Sharma, it is now
well established as a principle of law that even
if a wrong order is passed by a Court having
jurisdiction to pass an order in such cases, the
revisional Court will not interfere with such an
order unless a jurisdictional error is pointed
out and established by the person who questions
such order.
17. In the instant case, the High Court did not lack
jurisdiction to pass an order with regard to the
subject matter of dispute, though the order
itself may be incorrect. There is, therefore,
little scope for this Court to interfere with the
directions given to the appellant herein to
deposit in Court 55% of the admitted dues as a
pre-condition to grant of leave to defend a suit.
The judgment of the High Court impugned in this
appeal does not warrant any interference since
the trial Court had exercised its jurisdiction
under the second proviso to Sub-rule (5) of Rule
3 of Order 37 of the Code. The earlier concept
of granting unconditional leave when a triable
issue is raised on behalf of the defendant, has
been supplemented by the addition of a mandate,
which has been imposed on the defendant, to
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deposit any amount as admitted before leave to
defend the suit can be granted. The question as
to whether leave to defend a suit can be granted
or not is within the discretionary powers of the
High Court and it does not appear to us that such
discretion has been exercised erroneously or with
any irregularity which warrants interference by
this Court.
18. The appeal is, therefore, dismissed.
19. There will be no order as to costs.
…………….J.
(ALTAMAS KABIR)
…………….J.
(MARKANDEY KATJU)
New Delhi
Dated: 3.10.2008