Shankar Kamal Narain & Anr Vs. M/S. M.D. Overseas Ltd.  Insc 280 (14 March
Dr. ARIJIT PASAYAT & S.H. KAPADIA
(Arising out of SLP(C) No. 7593 of 2006) Dr. ARIJIT PASAYAT, J.
Challenge in this appeal is to the order passed by a Division Bench of the
Delhi High Court granting conditional leave to the appellants to defend in a
summary suit in terms of Order XXXVII Rule 1 of the Code of Civil Procedure,
1908 (in short the 'CPC'). Appellants are the defendants in the said suit. The
appellants filed an application for leave to defend in the same suit. Learned
Single Judge of the High Court found that the grounds taken in the application
for leave to defend were sham and moonshine. The plaintiff/respondent had filed
the suit in terms of Rule XXXVII Rule 1 based upon four cheques which were
purportedly issued by defendant No. 2 i.e.
appellant No.2 herein, in favour of the plaintiffs/respondents. The cheques
were dishonored with the remark that the payments were stopped by the drawer.
The learned Single Judge after considering the various stands taken in the
petition came to hold that the defence as raised by the defendants is a
moonshine defence and the same is raised only for the purpose of delaying
payment for the amount which is due for payment. Learned Single Judge refused
to grant leave to defend. The plaintiff was held to be entitled for decree for
recovery of the concerned amount i.e. Rs.39,30,856/- along with interest at the
rate of 12% p.a. from the date of suit till realization. The plaintiff was also
held to be entitled to cost. The said order was challenged in RFA (OS) Nos. 18
and 19 of 2006.
Stand of the appellants was that the defence was not moonshine as was
observed by a learned Single Judge.
The High Court noted that there was no substantial stand of the appellants,
particularly in relation to the plea regarding whether the transaction took
place between the parties and whether any sales tax forms were given or
required to be given.
It was contended by the appellants before the High Court that the issue
relating to the delivery of the goods could not have been decided by learned
Single Judge. The High Court was of the view that there was no substance in the
argument. There is a presumption in favour of any negotiable instrument which
has been executed in favour of a party in whose favour the instrument has been
drawn. However, the Division Bench felt that on perusal of application for
leave to defend it was of the considered opinion that the case would fall in the
category where interest of justice would be met if direction for deposit should
be made. The appellants were directed to deposit the amount of Rs.39,30,856/-
to the registry of the High Court. Conditional leave to defend in the aforesaid
circumstances was granted to the appellants. Respondent wanted liberty to
withdraw the amount on deposit. High Court refused to accede to the prayer.
However, it was permitted to move appropriate application before learned Single
Judge for withdrawal of the amount, if any. It was observed by the High Court
that if there is a default in deposit of the amount as indicated by the
appellant, the order and decree passed by the learned Single Judge was to
According to learned counsel for the appellants the High Court was not
justified in directing the entire decretal amount to be deposited after having
held that leave to defend was to be granted.
Learned counsel for the respondent on the other hand submitted that the High
Court's order is not only fair but it is equitable. The amount which appears to
be prima facie undisputed is much more than the amount which the High Court has
directed to deposit.
The position in law has been explained by this Court in Milkhiram (India)
Private Ltd. & Ors. v. Chamanlal Bros.
(AIR 1965 SC 1698) and Mechelec Engineers &
Manufacturers v. Basic Equipment Corporation (1976( 4) SCC 687). In Sunil
Enterprises and Anr. v. SBI Commercial & International Bank Ltd. (1998 (5)
SCC 354) the position was again highlighted and with reference to the aforesaid
decisions it was noted as follows:
(a) If the defendant satisfied 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 made of trial but not as to payment into Court or
(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 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
The said principles were recently highlighted in Defiance Knitting
Industries (P) Ltd. v. Jay Arts 2006 (8) SCC 25.
Keeping the principles laid down by this court in several cases noted above,
we think it would be appropriate to direct the appellants to deposit a sum of
Rs.20,00,000/- within a period of three months in the registry of the High
Court. If the amount is not deposited within the time stipulated, the order
shall not be operative and the order passed by the Single Judge would become operative.
The appeal is disposed of accordingly. No costs.