Southern Sales &
Services & Ors. Vs. Sauermilch Design & Handels Gmbh  INSC 1700
(3 October 2008)
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 Sauermilch Design & Handels GMBH ...Respondent
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, 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 :- 2 "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
(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
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:
3 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:
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
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."
the instant case, the respondent filed a suit under Order 37 of the Code of
Civil Procedure, 4 hereinafter 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.
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.
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.
defendant/appellant has come up to this Court challenging the said order of the
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 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 7 was a genuine triable issue, leave had to be
given and given unconditionally to defend the suit.
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. 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
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 8
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.
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.
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 9 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.
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
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.
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.
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.
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 12 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.
appeal is, therefore, dismissed.
will be no order as to costs.
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