Santosh Kumar vs Bhai Mool Singh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 96 of 1957

Decision Date: 5 February 1958

Coram: BOSE, VIVIAN, SUDHI RANJAN (CJ), AIYYAR, T.L. VENKATARAMA SARKAR, A.K.

In the matter titled Santosh Kumar versus Bhai Mool Singh, the judgment was delivered on 5 February 1958 by the Supreme Court of India. The opinion was authored by Justice A. K. Sarkar, who also constituted one of the benches hearing the case. The petition was presented by Santosh Kumar as the petitioner and the respondent was Bhai Mool Singh. The citation for this decision appears in the 1958 volume of the All India Reporter at page 321 and in the Supreme Court Reports at page 1211. The dispute arose under the provisions of the Negotiable Instruments Act concerning a summary suit filed under Order XXXVII of the Code of Civil Procedure for a cheque of Rs 60,000 that had been dishonoured upon presentation to the bank. The respondent instituted the suit on the basis that the cheque, drawn by the petitioner, remained unpaid. The petitioner applied for leave to appear and defend the suit under Rule 3 of Order XXXVII, contending that the cheque had been given merely as collateral security for the price of goods supplied, that the goods had already been paid for in cash and by other cheques, and therefore the cheque in question was no longer seasoned and lacked consideration. The headnote records that the Court identified the defence as raising a triable issue but described it as vague and not made in good faith because the petitioner had failed to produce documentary evidence to substantiate his contentions. Consequently, the lower court granted conditional leave to defend, obliging the petitioner to furnish security for the amount claimed in the suit and for the costs of the proceedings.

The Court examined the propriety of imposing the condition of security and held that such a condition was illegal. It affirmed that the object of the special procedure contained in Order XXXVII is to prevent defendants from unnecessarily extending litigation by advancing untenable or frivolous defences. The test, according to the Court, is whether the defence raises a genuine issue rather than a sham one, meaning that if the facts alleged by the defendant were established, a plausible defence would exist on those facts. When the Court is satisfied that a real issue is raised, leave must be granted without conditions. The Court further observed that the trial stage for producing documentary evidence cannot commence until leave to defend has been awarded; therefore, the lower court’s imposition of security on the basis of the defence being vague and not bona fide was erroneous. While acknowledging that the trial court possesses discretion to impose conditions, the Court emphasised that such discretion must be exercised judicially, in line with the principles of natural justice, and must not be arbitrary or based on a misapprehension of the governing principles. When discretion is exercised improperly, interference is warranted to prevent a failure of justice. Accordingly, the Court concluded that the petitioner was entitled to defend the suit without being required to provide security.

In 1957 the appellant obtained special leave to appeal from a judgment and order dated 17 December 1956 of the Punjab High Court, Circuit Bench, Delhi, which itself arose from a decision of the Commercial Subordinate Judge, Delhi, dated 1 November 1956 in Suit No. 264 of 1956 under Order XXXVII of the Code of Civil Procedure. The appellant was represented by A V Vishwanatha Sastri and Naunit Lal, while the respondent was represented by Bakhshi Gurcharan Singh and Sardar Singh. On 5 February 1958 the Court delivered its judgment through Justice Bose. The defendants, Santosh Kumar and the Northern General Agencies, had been granted special leave to appeal. The suit that gave rise to the appeal was based on a cheque for Rs 60,000 drawn by the defendants in favour of the plaintiff; the cheque was presented to the bank and subsequently dishonoured. The plaintiff instituted the suit before the Commercial Subordinate Judge, Delhi, invoking Order XXXVII of the CPC. The defendants applied for leave to defend the suit under Rule 3 of that Order. The learned trial Judge observed that the defence raised by the defendants raised a triable issue, but he concluded that the defendants had not placed any material on the record to demonstrate that their defence was bona fide. Consequently, the judge permitted the defendants to appear and defend the suit only on the condition that they furnish security equal to the amount of the suit and the costs thereof. The defendants sought a review of this order and were denied; they then filed an application under Article 227 of the Constitution before the Delhi Circuit Bench of the Punjab High Court, which was also dismissed. Subsequently they invoked Article 136 of the Constitution before this Court and were granted special leave to appeal.

At first glance Rule 2(2) of Order XXXVII appears to severely restrict a litigant’s ordinary right to appear and defend himself, because it provides that when a suit is instituted on a bill of exchange, hundi or promissory note, the defendant shall not appear or defend the suit unless he first obtains leave from a judge as specified. However, the strictness of that provision is moderated by Rule 3(1), which obligates the Court to grant leave when the applicant satisfies the conditions laid down therein. Rule 3(1) requires the defendant, on application, to submit affidavits disclosing facts that would make it incumbent upon the holder to prove consideration, or any other facts that the Court deems sufficient to support the application. Yet the broad discretion conferred by Rule 2(2) is again expanded by Rule 3(2), which provides that leave to defend may be granted either unconditionally or subject to such terms as the Court thinks fit, including payment into Court, giving security, framing and recording of issues, or any other appropriate conditions. Counsel for the plaintiff argued that the discretion conferred by Rule 3(2) is unfettered and that, having been exercised by the learned trial Judge, it cannot be challenged on appeal unless there is a grave miscarriage of justice or a flagrant violation of law, citing the authorities D N Banerji v P R Mukherjee and Waryam Singh v Amarnath. The Court noted that the matter at hand involves procedural law, and that the spirit in which procedural questions are to be approached, as well as the manner of interpreting procedural rules, is outlined in Sangrayn Singh v Election Tribunal, Kotah, Bhurey Lal Baya. The Court emphasized that a code of procedure is designed to facilitate justice, not to impose penalties or to create traps for litigants.

Rule 3(2) provides that leave to defend a suit may be granted either without conditions or subject to such terms as the Court deems appropriate, including payment into Court, the furnishing of security, the framing and recording of issues, or any other conditions it thinks fit. The plaintiff’s counsel contended that the discretion conferred by Rule 3(2) is absolute and that, once exercised by the learned trial Judge, it cannot be appealed unless there is a grave miscarriage of justice or a flagrant violation of law, relying on the authorities D. N. Banerji v. P.R. Mukherjee (1) and Waryam Singh v. Amarnath (2). The matter under consideration involves procedural law, and the Court emphasized that the approach to procedural questions and the interpretation of the relevant rules should follow the principles set out in Sangrayn Singh v. Election Tribunal, Kotah, Bhurey Lal Baya (1). According to that decision, a code of procedure must be viewed as a mechanism designed to facilitate justice rather than as a punitive instrument; it must not be construed in an overly technical manner that leaves no room for reasonable flexibility, provided that justice is afforded to both parties. The Court recalled that procedural statutes are grounded in natural‑justice principles that forbid condemning a person unheard, making decisions behind their back, or allowing proceedings that affect their life or property to continue in their absence. While exceptions exist and must be given effect where clearly defined, the general rule is that procedural provisions should, wherever reasonably possible, be interpreted in a manner consistent with natural‑justice ideals.

Applying these observations to the present case, the Court held that, although the statute grants the Court discretion, such discretion must be exercised in accordance with judicial standards and the foundational principles of natural justice. The Court noted that these principles have been repeatedly affirmed in numerous decisions, including a leading House of Lords judgment, Jacobs v. Booth’s Distillery Company (1), delivered in 1901. In that case, the Lords observed that whenever a defence raises a “triable issue,” the Court must grant leave, and subsequent authorities have required that such leave be unconditional; otherwise, the leave would be illusory. The Court cited the decision of Powszechny Bank Zwiazkowy W. Polsce v. Paros (2) as an example of the application of the “triable issue” test. This line of authority underscores that, when a genuine issue for trial exists, the Court must not impose conditions that would render the grant of leave ineffective, thereby ensuring that procedural mechanisms serve their intended purpose of delivering justice.

The Court referred to several authorities that have applied the “triable issue” test, beginning with the English decision in Paros (2) and the Indian case Sundaram Chettiar v. Valli Ammal (3). Additional decisions that adopt the same test include Kiranmoyee Dassi v. J. Chatterjee and Gopala Rao v. Subba Rao (5). The learned counsel for the plaintiff‑respondent also placed reliance upon Gopala Rao v. Subba Rao (5), Manohar Lal v. Nanhe Mal (6) and Shib Karan Das v. Mohammed Sadiq (7). The essential principle drawn from those authorities, as the Court explained, is that when the Court is of the opinion that a defence is not put forward in good faith, it may impose conditions on the defence and is not compelled to refuse leave to defend altogether. The Court agreed with the view expressed by Varadachariar J. in the Madras decision that a third course—imposing conditions—remains available in appropriate cases. However, the Court emphasized that the conclusion that a defence lacks bona‑fide intention cannot be reached arbitrarily; the Court must observe the same judicial rules and procedural requirements that govern all other determinations. The Court noted that it was unnecessary to examine the detailed facts of the cited authorities because those cases are not before the Court on appeal; the focus is solely on the legal principle they illustrate. The Court observed that it is both undesirable and practically impossible to lay down rigid rules where discretion is involved, yet it is essential to understand the purpose of the special procedure in order to exercise that discretion correctly. The object of the procedure, as explained in Kesavan v. South Indian Bank Ltd. (1) and discussed more fully in Sundaram Chettiar v. Valli Ammal, is to prevent a defendant from unnecessarily extending litigation or from raising untenable and frivolous defences that would deny the plaintiff an early decree, especially in matters where swift resolution serves the interests of trade and commerce. Accordingly, the general test is to determine whether the defence raises a genuine issue rather than a sham one—that is, whether, if the defendant’s factual allegations were proved, there would be a credible or at least plausible defence.

Applying this principle to the present dispute, the defendants acknowledged that the cheque in question had been executed, but they contended that the cheque was given only as collateral security for the purchase price of goods supplied by the plaintiff. The defendants asserted that those goods had been paid for through intermittent cash payments and by the issue of other cheques, and therefore they argued that the contested cheque had fulfilled its purpose and should be returned to them. To support this contention, the defendants provided a detailed chronology of the payments they alleged to have made, specifying the exact dates and the numbers of the cheques involved. By setting out these particulars, the defendants raised a factual issue concerning the truth and good faith of their defence, a matter that, as the Court noted, must be examined by reference to the evidence. The presence of specific dates and cheque numbers meant that the defence was not merely an indefinite claim but raised a real issue that required factual verification.

In this case, the Court observed that the veracity of the defendants’ assertion could be determined only by examining the evidence, and it pointed out that the learned trial Judge had held that the defence indeed raised a triable issue. However, the trial Judge also concluded that the defendants could not rely solely on an affidavit; they were required to produce the writings and documents that they claimed were in their possession, as indicated in I.L.R. 1950 Mad. 251, and which they asserted would demonstrate that the cheques and payments mentioned in their defence were made in settlement of the cheque that was the subject of the suit. The trial Judge further remarked, “In the absence of those documents, the defence of the defendants seems to be vague consisting of indefinite assertions.................” The Court found this conclusion surprising. It noted that the facts set out in the affidavit were clear and precise, and that the defence could hardly be described as unclear. The Court expressed difficulty in understanding how a defence that appears clear on its face could become vague merely because the evidence needed to prove it had not been filed at the time the defence was raised. The Court explained that the stage of proof follows only after the defendant has been permitted to enter an appearance and contest the suit, and that the nature of the defence must be assessed at the moment the affidavit is filed. At that stage, the Court’s duty is to determine whether, if the defendant’s alleged facts are duly proved, they will provide a good or at least a plausible answer to the plaintiff’s claim. Once this satisfaction is achieved, leave should not be withheld, no condition should be imposed, and, after leave is granted, the normal procedural rules governing evidence and proof apply. The Court also held that the learned High Court Judge erred in thinking that conditions could be imposed even when the defence is sound and valid. It reiterated that the power to impose conditions exists solely to ensure a speedy trial; such conditions may be justified only if there is reason to believe the defendant is attempting to delay the litigation. The Court rejected the notion that a mere failure to produce evidence before being invited to defend the action justifies imposing conditions. While the Court did not intend to cast doubt on decisions where discretion was exercised soundly, it affirmed that interference is warranted when discretion is exercised arbitrarily or on a misapprehension of the governing principles, leading to a failure of justice. The Court emphasized that the sole ground for deeming the defence not bona fide was the defendant’s failure to prove his assertions before being allowed to put forward his defence, which constitutes a clear miscarriage of justice.

In this case, the Court observed that the defendant had not been given an opportunity to present his defence before judgement was entered, and that entering a judgment against a person who would inevitably succeed if allowed to prove his case would constitute an evident miscarriage of justice. Consequently, the Court determined that intervention in the earlier orders was required. The appeal was therefore permitted. The Court set aside the orders of the High Court as well as those of the learned trial Judge, and directed that the matter be remitted to the original trial court for a fresh determination of the issues raised by the defendants. Regarding the allocation of costs, the Court ordered that the respondent, having failed in the proceedings, should bear the costs incurred by the appellants in this Court. The appeal was thus allowed, and the case was returned to the first Court for trial on the points raised by the defendants.