SCA/20185/2007 1/24 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 20185 of 2007 With SPECIAL CIVIL APPLICATION No. 20189 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH ============================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ============================================= JINAL CHEM PVT. LTD. - Petitioner(s) Versus BHARATBHAI RATSANSHI SHAH - Respondent(s) ============================================= Appearance : MR MIHIR JOSHI, SR.ADVOCATE with MR TANVISH BHATT for Petitioner(s) : 1, MR KAMAL B.TRIVEDI, SR.ADVOCATE with MR KV SHELAT for Respondent(s) : 1, ============================================= CORAM : HONOURABLE MR.JUSTICE M.R. SHAH Date : 12 /11/2008 CAV JUDGMENT 1. Special Civil Application No.20185 of 2007 is filed by SCA/20185/2007 2/24 JUDGMENT the petitioner-original defendant No.1 under Article 227 of the Constitution of India for an appropriate writ, order or direction quashing and setting aside the order dated 13.7.2007 passed by the learned Chamber Judge, City Civil Court No.5, Ahmedabad passed below Exh.27 below summons for judgment in Summary Civil Suit No.1536 of 2001 by which the learned Chamber Judge has granted conditional leave to the petitioner to defend the said suit on condition to deposit Rs.50.00 lacs (Rupees Fifty Lacs). 1.1 Special Civil Application No.20189 of 2007 is filed by the petitioners-original defendants No.2 to 4 challenging the very order dated 13.7.2007 passed by the learned Chamber Judge, City Civil Court No.5, Ahmedabad passed below Exh.27 below summons for judgment in Summary Civil Suit No.1536 of 2001 by which the learned Chamber Judge has granted conditional leave to the said petitioners to defend the aforesaid suit on condition to deposit Rs.50.00 lacs (Rupees Fifty Lacs). SCA/20185/2007 3/24 JUDGMENT 2. As both these special civil applications arise out of the same order but by different defendants, they are being disposed of by this common judgment and order. 3. Common respondent herein-original plaintiff had instituted Summary Civil Suit No.1536 of 2001 in the City Civil Court at Ahmedabad under Order XXXVII of the Code of Civil Procedure seeking recovery of Rs.1,88,72,000/- with interest at the rate of 18% p.a. from the date of the suit till realisation. It was the case on behalf of the plaintiff that he was the director of the original defendant No.1 company and he resigned as the director with effect from 1.4.1998. According to the plaintiff, he had deposited various deposits with the defendant No.1 company and it was agreed by the defendant No.1 company to pay interest at the rate of 18% p.a. on said deposits. As per the plaintiff, the defendant No.1 used to give balance confirmation based on the books of accounts of the company showing the amount of deposit, which stood to the credit of the plaintiff, and accordingly, as per the last SCA/20185/2007 4/24 JUDGMENT confirmation, an amount of Rs.1,18,00,000/- was to be paid to the plaintiff by the defendant No.1 company towards deposits. As per the plaintiff, since the defendants failed and neglected to pay the said outstanding dues of the plaintiff with interest, the plaintiff served notice to the defendants, and in spite of that, the defendants failed to make the payment and therefore the plaintiff filed the aforesaid suit seeking recovery of the said dues. 3.1 Plaintiff had taken out the summons for judgment seeking decree of the said amount by submitting that the defendants have no genuine and bonafide defence in the suit. All the defendants filed application seeking leave to defend the suit at Exh.39 raising number of defences and it was requested to grant unconditional leave to defend the aforesaid suit, as, according to the defendants, there are very serious bonafide, genuine and triable issues. The plaintiff filed affidavit-in- rejoinder at Exh.53. SCA/20185/2007 5/24 JUDGMENT 4. At the outset it is required to be noted that the summary suit was filed in the year 2001 and the plaintiff took out the aforesaid summons for judgment on 12.5.2006 i.e. after the period of almost five years. 5. At the time of hearing of the summons for judgment and the application for leave to defend, it was submitted on behalf of the plaintiff that the defendants had not only admitted the dues of the plaintiff in their account but the same were also shown as due and payable in the Income Tax Return for the Assessment Year 1998-1999. It was submitted on behalf of the plaintiff that though in the documents annexed to the Income Tax Return for the Assessment Year 1999-2000, the said outstanding dues were shown as squared up during the year, the defendants have not been able to show as to how the said amount of Rs.1,18,00,000/- was squared up or repaid by the defendants. It was submitted on behalf of the plaintiff that since the negotiations were going on for settlement and the other directors of the company were in jail, the plaintiff had SCA/20185/2007 6/24 JUDGMENT taken out summons for judgment after their release from the jail. It was submitted on behalf of the plaintiff that there being no defence much less substantial defence raised by the defendants in the leave to defend application, the defendants may not be granted unconditional leave to defend the suit. 6. It was submitted on behalf of the defendants in support of their leave to defend application that there was a Memorandum of Understanding (MOU) executed between the parties Mark 57/1. It was submitted that an agreement was entered into on 20.7.1998 between plaintiff and defendant No.2 who is one of the director of the defendant No.1 company, and as per the said agreement, the dues of the plaintiff were to be adjusted on or before 31.3.1999, however, the plaintiff did not fulfill his part of obligation as agreed to in the said agreement. However the dues were squared up by the defendant No.1 company in the books of accounts of defendant No.1 company which accounts were also audited, and accordingly shown in the Income Tax Return Mark 57/7. It SCA/20185/2007 7/24 JUDGMENT was submitted that since the plaintiff did not take out the summons for judgment for long time after filing of the suit, it was requested to grant unconditional leave to the defendants to defend the suit. 7. The learned Chamber Judge considering the documentary evidence on record and considering the submissions made on behalf of the respective parties granted conditional leave to the defendants to defend the suit on condition of depositing of Rs.50.00 lacs within six weeks from the date of the said order i.e. 13.7.2007. Being aggrieved and dissatisfied with the order passed by the learned Chamber Judge, City Civil Court No.5, Ahmedabad passed below Exh.27 below summons for judgment in Summary Civil Suit No.1536 of 2001, the respective petitioners-original defendants have preferred present Special Civil Applications under Article 227 of the Constitution of India. 8. Shri Mihir Joshi, learned Senior Advocate appearing on SCA/20185/2007 8/24 JUDGMENT behalf of the respective petitioners-original defendants has vehemently submitted that the learned Chamber Judge has materially erred in not granting unconditional leave to the petitioners-original defendants. It is submitted that the learned Chamber Judge has not properly appreciated the fact that there are very serious disputes and there are substantial triable issues and therefore the learned trial court ought to have granted unconditional leave to the defendants. It is further submitted that the learned Chamber Judge ought to have appreciated that the summary suit was filed in the year 2001 and the summons for judgment was taken out by the plaintiff in the year 2006 after period of almost five years. It is further submitted by Shri Joshi, learned Senior Advocate appearing on behalf of the respective petitioners-original defendants that the suit notice was issued on behalf of the plaintiff on 6.3.2001 and the same was received by the defendants on 22.3.2001 and though three weeks' time was given to submit the reply, the suit came to be filed within three weeks i.e. 30.3.2001 without even waiting for the reply. It is submitted that the suit notice was replied SCA/20185/2007 9/24 JUDGMENT by the defendants on 10.4.2001 denying the allegations and the averments in the notice and specifically pointing out the MOU was entered into between the parties and the parties were to act as per the MOU, and in spite of the aforesaid reply, though the summons for judgment was taken out in the year 2006, still there is no reference to the said MOU. It is further submitted that initially the plaintiff disputed the execution of the MOU itself, but subsequently the additional affidavit in support of the affidavit-in-rejoinder which was filed in the year 2007, the plaintiff was constrained to admit the execution of the MOU but it was submitted on behalf of the plaintiff that MOU has not been acted upon. It is submitted by Shri Joshi, learned Senior Advocate appearing on behalf of the respective petitioners-original defendants that whether the MOU has been acted upon or not itself is a disputed question and the triable issues and therefore the learned Chamber Judge ought to have granted unconditional leave to the defendants. 8.1 Shri Mihir Joshi, learned Senior Advocate appearing on SCA/20185/2007 10/24 JUDGMENT behalf of the respective petitioners-original defendants has submitted that the learned Chamber Judge has materially erred in holding that the MOU has not been acted upon and/or that the MOU was executed between the defendant No.2 and the plaintiff and not between the defendant No.1 company and the plaintiff and therefore the same is not binding upon the plaintiff. 8.2 Shri Mihir Joshi, learned Senior Advocate appearing on behalf of the respective petitioners-original defendants has relied upon the affidavit of the petitioner (page 14 to page 56) showing how the MOU dated 20.7.1998 has been acted upon so far as the defendants are concerned. However, the plaintiff did not act as per the said MOU. It is submitted that as per the said MOU, the amount which was lying with the defendant No.1 company by way of deposits had been squared up absolutely in terms of the said MOU and the same has been reflected in the Income Tax Return of the defendant No.1 company and the accounts of the defendant No.1 company SCA/20185/2007 11/24 JUDGMENT have been audited. 8.3 Shri Mihir Joshi, learned Senior Advocate appearing on behalf of the respective petitioners-original defendants has further submitted that as such the summary suit itself is not maintainable as the suit is based on sarafi loan amount. It is submitted that Order 37 of the CPC would apply in a case where the suit is filed on written document/contract. It is submitted that the aforesaid aspect has not been considered by the learned Chamber Judge. 8.4 Shri Mihir Joshi, learned Senior Advocate appearing on behalf of the respective petitioners-original defendants has relied upon the decision of the Hon'ble Supreme Court in the case of M/S.MECHALEC ENGINEERS AND MANUFACTURERS VS. M/S.BASIC EQUIPMENT CORPORATION reported in AIR 1977 SC 577 as well as another decision of the Hon'ble Supreme Court in the case of M/S.SUNIL ENTERPRISES AND ANOTHER VS. SBI COMMERCIAL AND INTERNATIONAL BANK LTD., reported in AIR 1998 SC 2317. SCA/20185/2007 12/24 JUDGMENT 8.5 Relying upon the aforesaid decisions and making the above submissions, it is requested to allow both the present special civil applications and grant unconditional leave to the petitioners-original defendants to defend the aforesaid suits. 6. Both these petitions are opposed by Shri Kamal B.Trivedi, learned Senior Advocate appearing on behalf of the respondent-plaintiff. It is submitted that in the balance sheet of the defendant No.1 company for the Financial Year 1998- 1999 an amount of Rs.1,18,00,000/- was shown to be due and payable in the account of the plaintiff and the aforesaid amount was paid to the company by cheques. It is submitted that it is the case on behalf of the defendants that the aforesaid amount was squared up and repaid, however the defendants have not produced any document to show how the amount of Rs.1,18,00,000/- was squared up and or repaid. It is submitted that considering the above the learned Chamber Judge has rightly held that there are no genuine and bonafide defences SCA/20185/2007 13/24 JUDGMENT and therefore the learned Chamber Judge has rightly granted conditional leave to the petitioners to defend the suit of depositing of Rs.50.00 lacs only. 6.1 Now so far as MOU dated 20.7.1998 relying upon by the petitioners is concerned, it is submitted by Shri Kamal B.Trivedi, learned Senior Advocate appearing on behalf of the respondent-plaintiff that so far as the said MOU is concerned it was between the original defendant No.2 in his individual capacity and between the plaintiff and it was not between the defendant No.1 company and the plaintiff and therefore it is rightly held by the learned Chamber Judge that there was no MOU between the original defendant No.1 and the plaintiff. It is further submitted that even otherwise the said MOU has not been acted upon and the certain entries which were required to be reversed are not reversed. It is submitted that even the MOU dated 20.7.1998 was not produced on record by the defendants before the trial court. SCA/20185/2007 14/24 JUDGMENT 6.2 Now so far as the maintainability of the summary suit is concerned, Shri Kamal B.Trivedi, learned Senior Advocate appearing on behalf of the respondent-plaintiff has submitted that considering Rule 142 of the Ahmedabad City Civil Court Rules, 1961, a summary suit in which the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant with or without interest, arising on the contract express or implied is maintainable. It is further submitted that Section 125 to Section 128 confer powers on the High Courts to make rules and accordingly the aforesaid rules are framed and therefore the summary suit is maintainable. 6.3 Shri Kamal B.Trivedi, learned Senior Advocate appearing on behalf of the respondent-plaintiff has relied upon the decision of the Bombay High Court in the case of GOKULPRASAD PODDAR VS RAMRIKHDAS PARASRAMPURIA AND CO., reported in AIR 1955 BOMBAY 276 in support of his above submission that the summary suit is maintainable. 6.4 Shri Kamal B.Trivedi, learned Senior Advocate appearing SCA/20185/2007 15/24 JUDGMENT on behalf of the respondent-plaintiff has also relied upon the decision of the Hon'ble Supreme Court in the case of DEFIANCE KNITTING INDUSTRIES (P) LTD., VS. JAY ARTS reported in (2006) 8 SCC 25 more particularly para 13 of the said decision, and has submitted that, as observed by the Hon'ble Supreme Court in the said decision in cases where the court entertains a genuine doubt on the question as to whether the defence is genuine or sham or whether it raises a triable issue or not, the court may impose conditions in granting leave to defend. 6.5 Shri Kamal B.Trivedi, learned Senior Advocate appearing on behalf of the respondent-plaintiff has further submitted that in the aforesaid facts and circumstances of the case when the learned Chamber Judge has granted conditional leave to the defendants to defend the suit on imposing the condition of depositing of Rs.50.00 lacs only, the same is not required to be interfered with by this Court in exercise of the powers under Article 227 of the Constitution of India. 6.6 Shri Kamal B.Trivedi, learned Senior Advocate appearing SCA/20185/2007 16/24 JUDGMENT on behalf of the respondent-plaintiff has relied upon the decision of the Hon'ble Supreme Court in the case of SIFY LIMITED VS. FIRST FLIGHT COURIERS LTD., reported in (2008) 4 SCC 246 (para 13), in support of his submission that when the learned trial court has passed the discretionary order granting conditional leave to the defendants to defend the suit unless it is found that the said order is either arbitrary and/or unreasonable, the same is not required to be interfered with by this Court in exercise of the powers under Article 227 of the Constitution of India. Therefore it is requested to dismiss the present special civil applications. 7. In reply Shri Joshi, learned Senior Advocate appearing on behalf of the petitioners-original defendants has submitted that the decision of the Bombay High Court in the case of Defiance Knitting Industries (P) Ltd., (supra) will not be applicable as the said decision is prior to the amendment in Order XXXVII Rule 2 of the CPC and Order XXXVII Rule 2 is amended in 1976. It is submitted that, as per Section 128 of the CPC, the rules shall not be inconsistent with the provisions SCA/20185/2007 17/24 JUDGMENT of the code and therefore it is submitted that the summary suit is not maintainable at all. 8. Heard the learned advocates appearing on behalf of the respective parties. 9. At the outset it is required to be noted that the original plaintiff has filed the summary suit under Order XXXVII of the CPC seeking recovery of Rs.1,88,72,000/- with interest at the rate of 18% p.a. from the date of the suit till realisation, contending inter-alia that he was the director of the original defendant No.1 company and he resigned as the director of the defendant No.1 company with effect from 1.4.1998 and he has deposited various deposits with the defendant No.1 company and time to time the balance confirmation was given by the defendant No.1 company and last balance confirmation was given on 31.3.1998. It is the contention on behalf of the defendants that there was a MOU dated 20.7.1998 and the defendants have acted as per the said MOU and the amount SCA/20185/2007 18/24 JUDGMENT remained due and payable to the plaintiff was squared up and the same has also been reflected in the Income Tax Return of the defendant No.1 company. It is the contention on behalf of the defendants that such a summary suit based on sarafi loan amount/deposits is not maintainable. On the other hand, it is the case on behalf of the plaintiff that, considering Rule 142 of the Ahmedabad City Civil Court Rules, 1961, such a summary suit is maintainable. Considering the amendment in Order XXXVII Rule 2 of the CPC which has brought into effect in the year 1976 whether such a summary suit is maintainable or not is required to be considered in detail and is a triable issue. Whether Rule 142 of the Ahmedabad City Civil Court Rules, 1961 upon which reliance has been placed by the plaintiff will be inconsistent with Order XXXVII Rule 2 of the CPC as amended in 1976 and/or whether such Rule 142 of the Ahmedabad City Civil Court Rules, 1961 would override Order XXXVII Rule 2 as amended in 1976 is the question to be considered by the learned trial court at the time of trial. It is also required to be noted at this stage that even the summary SCA/20185/2007 19/24 JUDGMENT suit was filed on 30.3.2001 based upon the last confirmation of the statement of account on 31.3.1998 and the summons for judgment was taken out by the plaintiff on 12.5.2006 i.e. after period of almost five years. Therefore for five years the plaintiff even did not thought it fit to take out the summons for judgment. 10. Heavy reliance placed on behalf of the defendants upon the MOU dated 20.7.1998 and it is the contention on behalf of the defendants that they have acted as per the said MOU and the amount due and payable by the plaintiff had been squared up and the same is also reflected in the Income Tax Return of the defendant No.1 company in the subsequent Financial Year which is produced at Mark 57/7. 11. At this stage it is required to be noted that the suit notice was given by the plaintiff on 6.3.2001 which was served upon the defendants on 22.3.2001 and though three weeks time was given to the defendants to reply to the said notice, SCA/20185/2007 20/24 JUDGMENT the suit came to be filed by the plaintiff on 30.3.2001, and in the reply to the notice dated 10.4.2001, there was a specific reference to MOU dated 20.7.1998 by the defendants and still in the summons for judgment which was taken out by the plaintiff in 2006, there is no reference to the MOU in the said summons for judgment. It appears from the pleadings that earlier even the plaintiff disputed the MOU dated 20.7.1998 but subsequently by additional affidavit-in-rejoinder in the year 2007 the plaintiff is constrained to admit the said MOU. However, the plaintiff has come out with the case that the MOU has not been acted upon. Even during the course of hearing of summons for judgment and leave to defend application the plaintiff has submitted that the said MOU was between original defendant No.2 in his individual capacity and the plaintiff and not between defendant No.1 company and the plaintiff and therefore the same is not binding. All these aforesaid questions are required to be considered at the time of trial. In the affidavit before this Court the petitioners have given the details how the MOU has been acted upon by the SCA/20185/2007 21/24 JUDGMENT defendants and it was the plaintiff who did not act as per the MOU. The sum and substance of the aforesaid discussion is that the following are the genuine triable issues which are required to be considered at the time of trial. (i) Whether such a summary suit seeking recovery of Rs.1,88,72,000/- on fixed deposits/sarafi loan amount is maintainable? (ii) Considering the MOU dated 20.7.1998 and the defendants acted upon the said MOU and the amount is alleged to have been squared up and the same is reflected in the Income Tax Return of the defendant No.1 company whether the plaintiff is entitled to the relief? (iii) Whether Rule 142 of the Ahmedabad City Civil Court Rules, 1961 will override Order XXXVII Rule 2 of the CPC as amended in 1976? 12. The aforesaid is required to be considered considering the fact that the summons for judgment has been taken out SCA/20185/2007 22/24 JUDGMENT after the period of almost five years. It is the contention on behalf of the plaintiff that as the directors of the defendant No.1 company were in jail, the plaintiff did not take out summons for judgment. When the plaintiff can file the summary suit certainly he could have taken out the summons for judgment immediately and plaintiff ought not to have waited for five years for taking out summons for judgment. Of course there is no limitation for taking out the summons for judgment but to take out summons for judgment after period of five years would be frustrating the purpose for which Order XXXVII of the CPC is meant i.e. summary suit. The object and purpose for summary suit as provided under Order XXXVII of the CPC is that, in certain cases when the suit is filed the same is tried in a summary manner at the earliest. 13. Now so far the law on the point of giving leave to defend the suit is now not res integra. As observed by the Hon'ble Supreme Court in catena of decisions, if the Court is of the opinion that the case raises a triable issue then leave to SCA/20185/2007 23/24 JUDGMENT defend should ordinarily be granted unconditionally. If 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 it may refuse leave to defend altogether. But in cases where the Court entertains a genuine doubt on the question as to whether the defence is genuine or sham or whether it raises a triable issue or not, the Court