CRA/28/2005 1/45 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CIVIL REVISION APPLICATION No. 28 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT ========================================= = 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 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 ? 5 Whether it is to be circulated to the civil judge ? ========================================= = SANJAY HIRALAL SHAH - Applicant Versus HDFC BANK LIMITED - Opponent ========================================= = Appearance : MR PARCY KAVINA WITH MR ASHISH M DAGLI for Applicant: MR AC GANDHI for Opponent: ========================================= = CORAM : HONOURABLE MR.JUSTICE S.R.BRAHMBHATT Date : 04/04/2008 CAV JUDGMENT 1. The applicant, original plaintiff [herein after referred to CRA/28/2005 2/45 JUDGMENT as the plaintiff] has approached this Court under section 115 of the Code of Civil Procedure, 1908, challenging the order dated 28/12/2004 passed by learned 4th Jt. Civil Judge, (S.D.), Vadodara, below exhibit-64 in Civil Misc. Application No. 179 of 2003 preferred by the original defendant No.7, respondent herein above, under provision of Order XXXVII Rule 4 of Civil Procedure Code for setting aside the decree dated 15.09.2003 passed by 9th Jt. Civil Judge (S.D.), Vadodara, in Special Summary Suit No. 202 of 2001 preferred by the plaintiff against Cherotar Nagrik Sahkari Bank, a co-operative bank, and others, including the present respondent i.e. HDFC Bank for recovery of Rs. 7,08,10,040 (Rs. Seven crore eight lacs ten thousand and forty only) 2. Facts in brief giving rise to this Revision Application deserve to be set out as under. The original plaintiff runs his business in the name of Apex Chemicals and is also a freelance Financial Consultant. Defendants No. 1 is Charotar Nagrik Sahakari Bank a co-operative bank, Defendant No. 2 to 4 were its Directors, and Defendants No. 5 & 6 were its Branch Managers, while Defendant no. 7, respondent herein above, is HDFC Bank, a banking company incorporated under the Companies Act 1956. 3. It was the case of the plaintiff that the Cherotar Nagrik Sahkari Bank Ltd, which has now been under liquidation, at the relevant time consulted the plaintiff CRA/28/2005 3/45 JUDGMENT and hired his services and expertise for procuring deposits worth about Rs.200 Crores. The defendant No. 1 to 6 agreed to pay to the plaintiff, 6% of Rs.200 Crores deposits that might be procured with his help and expertise. 4. The plaintiff has averred in the plaint that the defendant no.1’s Directors and Chief Managers were taken to various offices at Delhi, particularly in the Ministry of Agriculture, who were ready to deposit Rs.200 Crores in four installments and also took them to Mineral Corporation of India, New Delhi which finalized the scheme of depositing Rs.200 crores on 5/11/1999 and also finalized scheme of depositing with Coal India Ltd, Calcutta. 5. The defendant no.1 to 6 were to arrange for providing repayment guarantee from any Nationalized Bank, as it was most essential condition for loan. Defendant No.1 to 6 were to obtain repayment guarantee from HDFC Bank, which they could not obtain and they informed plaintiff that instead thereof they would then make arrangement with Central Bank of India for such repayment guarantee. The plaintiff averred in paragraph 6 of the plaint that thus the entire deposit of Rs.200 crores was available to the Defendant No.1 Bank and acceptance of deposit was however through Central Bank of India and stated that defendant No.1 to 6 procured deposits worth Rs.200 Crores. 6. The defendant No.1 to 6 in the meantime realized that CRA/28/2005 4/45 JUDGMENT 6% of 200 crore rupees would be a huge amount for such expertise and help rendered, and therefore, after much persuasion and negotiations ultimately with great reluctance plaintiff agreed to settle the matter for Rs.7 crores for his professional service charges. The plaintiff prepared bill for Rs.7 Crores along with his letter dated 20.11.1999 requesting the Defendants No. 1 to 6 to pay Rs. 6.65 Crores after deducting 5 % TDS, accordingly the Defendants No.1to 6 issued total 7 Demand Drafts/ Bankers Cheques dated 6.12.1999 for the amounts mentioned therein-totaling Rs. 6,50,00000. The plaintiff has given the details in paragraph 8 of the plaint. 7. As per the say of the plaintiff in para-8 of the plaint the defendant no.1 to 6 issued seven demand drafts/Banker’s cheques for the amounts mentioned therein. These Banker’s cheques dated 6/12/1999 were drawn upon HDFC Bank. The plaintiff presented 6 demand drafts / bankers’ cheques through his banker Union of India to HDFC bank for encashment on two occasions, which returned the same under “Stop Payment” instructions from its Drawer i.e. Defendant No.1. The plaintiff through his advocate issued Notice under Section 138 of the Negotiable Instrument Act (herein after referred to as N.I.Act for brevity) on 7.03.2000 to Defendant no.1 to 6 for making payment against those cheques within statutory period or face criminal complainant. It may be noted here that the plaintiff did not issue any notice under Section 138 of N.I. Act to the Defendant no.7 i.e. HDFC Bank. The CRA/28/2005 5/45 JUDGMENT defendant no.1 to 6 replied through their advocate on 17.03.2000 to the plaintiff that those cheques were given to the plaintiff without any consideration, only for the purpose of showing them to other prospective depositors for inspiring confidence and the plaintiff was not to deposit it at all. The plaintiff could not procure deposits and hence nothing was payable to the plaintiff. The Charotar Nagrik Sahakari Bank would file criminal case for cheating against the plaintiff. In fact the Charotar Nagrik Sahkari Bank i.e defendant No.1 did file criminal complainant being FIR I – 20 of 2000 against the plaintiff for offence punishable under Section 420 of the Indian Penal Code. As the concerned Sessions Court did not grant anticipatory bail to the plaintiff he had to move Criminal Miscellaneous Application No. 2526 of 2000 in the High Court and obtained anticipatory bail on 22.05.2000. 8. The plaintiff had to issue one more notice under Section 138 of N.I.Act to the defendant no.1 to 6 as another lot of cheques issued by them had also been returned due to their “Stop Payment” instructions. Ultimately plaintiff instituted Criminal cases being Criminal Case No. 1172 of 2000, Criminal Case No. 1173 of 2000 on 7.04.2000 and Criminal Cases being Criminal cases no. 2653/00, 2654/00, 2655/00 and 2656/00 on 18.07.2000 against the defendant no.1 to 6 in respect of all these Banker Cheques/Demand Draft under Section 138 of the N.I.Act. 9. The plaintiff did not issue any notice nor did he file CRA/28/2005 6/45 JUDGMENT any Criminal Case against HDFC i.e. defendant no.7 under Section 138 of the N. I. Act. As it appears from the record the plaintiff for the first time issued notice to HDFC defendant no.7 and present respondent only on 4.09.2000 for payment on the ground that the bankers’ cheques issued by Defendant no.1 to 6 were in fact Demand Draft and as such HDFC could not have acted upon the illegal instructions of stopping payment issued by the defendants no.1 to 6. On this premise the plaintiff instituted Special Summery Suit under O.37 of CPC in the court of Chief Judicial Magistrate (SD) Vadodara against defendant 1 to 6 and present respondent HDFC Bank being defendant no.7 for recovering an amount of Rs.7,08,10,040/- The suit was instituted on 13/3/2001. In the Special Summery Suit, being Spl..Suit No.202 of 2001 under O.37 of the CPC against defendant no. 1 to 6 as well as defendant no.7, the Plaintiff has alleged that there existed an agreement between Charotar Nagrik Sahkari Bank Defendant No.1 and HDFC Defendant no.7 for issuing Demand Drafts. Therefore HDFC Defendant No.7 could not have returned the Demand Drafts issued by the Charotar Nagrik Sahkari Bank Defendant No.1 upon HDFC on the ground of “stop payment” instructions received from the drawer. The plaintiff on this basis contended that the Banker’s cheques were in fact demand draft only and the HDFC Bank ought to have honoured the same. 10.In the Suit, the plaintiff contended that on account of existing agency agreement between Cherotar Nagrik CRA/28/2005 7/45 JUDGMENT Sahkari Bank and HDFC Bank that the Cherotar Nagrik Sahkari Bank would issue demand draft drawn upon HDFC Bank, which would be honored by the HDFC Bank. Therefore HDFC bank even on the instructions of the drawer could not have stopped the payment. 11.The summonses for appearance under O.37 R. 2 of CPC were served upon the defendants. The defendant No.7 i.e. HDFC also received the same on 22.03.2001. The Defendants No. 1 to 6 appeared and filed appearance however the Defendant no.7 could not appear within 10 days from the receipt of summons. The summons for Judgment were also issued and duly served upon the defendants. The Defendant No.7 without filing appearance or seeking leave to defend straight way filed its Written Statement at exhibit 17 for the first time on 25.04.2001 in the suit proceedings. 12.The advocate for the defendant no.7 also filed application exhibit 37 under O.7 R. 11 for seeking dismissal of suit qua the HDFC Bank as there was no privity of contract and the cheques issued by the Defendant no. 1 from its current account maintained with HDFC Bank cannot be termed to be Demand draft issued by HDFC Bank so as to compelled it to honor. This application was never decided and it is still pending. 13.The plaintiff filed an application at exhibit 52 on CRA/28/2005 8/45 JUDGMENT 19.09.2002 for making decree against the defendant no.7 i.e. HDFC Bank respondent herein above in terms of provisions of O.37 R.2 as they did not bother to appear after summons for appearance was served upon them nor did they file any application for leave to defend and hence the plaintiff was entitled to have decree against the defendant no.7 straight way. A copy of this application was served upon the defendant no.7’s advocate. The Trial Court passed ordered it to be put up for reply and hearing. It was the say of the defendant no.7 that their advocate never supplied this copy to them nor did he inform them about having received any such application. 14.The Advocate for the defendant no.7, i.e. present respondent herein above filed purshis on 28.02.2003 at exhibit no. 57 informing the Court that he had returned all the papers to the HDFC Bank by courier and he did not represent them any more. The Trial Court made an endorsement “recorded” thereon. 15.The plaintiff moved Spl.C.A 12515 of 2003 as the application at exhibit 52 dated 19.02.2002 was not getting heard. This Court (Coram: A.R.Dave J as he then was) on 27.09.2003 passed the following order : “ Rule returnable on 16.09.2003 Learned advocate Shri Dagli has also submitted that he would make an effort to see that the application below exhibit 52 is decided by trial court at an early date and he would also like to place on record of the trial court the copies of the judgments which have been annexed to this petition. CRA/28/2005 9/45 JUDGMENT It was hoped that the trial court shall make all the possible efforts to decide the application below exhibit 52 as soon as possible and preferably before the next date of hearing. Direct service to respondent no.7 is permitted” 16.The defendant no.7 has stated that though order dated 27.08.2003 was required to be served directly as soon as possible the plaintiff served it upon the HDFC Bank only on 10.09.2003 i.e only five days early than the returnable date. 17.The Trial Court on 15.09.2003 ex parte decided the Exhibit 52 application against the defendant no.7. The Trial Court observed that no one was present for the Defendant no.7. The order’s first page indicates the advocate’s name who use to appear for HDFC bank and who had filed purshis at Exhibit 57 on 28.02.2003 informing the Court that he had returned all the papers to HDFC Bank. 18.The Trial Court after deciding Exhibit 52 application against the defendants no.7 straight way proceeded with the hearing of Spl. Suit on accepting the contentions of the plaintiff that as the defendant no.7 has not filed its appearance within 10 days from the service of summons to appear which was served upon it way back on 21.03.2002 their subsequent filing of Written Statement without seeking and obtaining leave to defend would be of no avail and the plaintiff was entitled for decree straight way against the defendant CRA/28/2005 10/45 JUDGMENT no.7. The Trial Court passed decree for the entire suit amount with interest of 6 % from filing of suit till its realization against the defendant no.7 only and adjourned the suit for further proceedings against the rest of the defendants vide its judgment and order dated 15.09.2003. 19.As its revealed from the record the defendant no.7 came to know about the decree on 17.09.2003 and applied for Certified Copy on 18.09.2003. The Defendant No.7 initially filed Restoration Application being Civil Miscellaneous Application 179 of 2003 under Order 9 Rule 13 of CPC Application filed for recalling the ex parte decree dated 15.09.2003 that was later on amended and converted into one filed under Order 37 Rule 4 of CPC. The defendant no. 7 also filed First Appeal No. 356 of 2003 on 19.12.2003 against the decree-dated 15.09.2003, the defendant no.7 also filed Spl.C.A. 1489 of 2003, which came to be disposed of, vide order-dated 20.01.2004, as the appeal and restoration application were pending. 20.It may be noted that the as the decree of entire amount with interest was made against the defendant no.7 the plaintiff filed purshish on 7.10.2003 for deleting other parties namely defendants no. 1 to 6. which came to be allowed by the Trial Court on 7.10.2003 21.The Trial Court passed order and judgment below exhibit 64 on 28.12.2004 in Civil Miscellaneous CRA/28/2005 11/45 JUDGMENT Application No.179 of 2003 setting aside the decree dated 15.09.2003, which is impugned in the present proceedings. 22.Learned advocate for the applicant submitted that the order impugned is patently erroneous, untenable and passed contrary to the settled position of law in respect of proceedings under O.37. The Trial Court ought not to have set aside the decree dated 15.09.2003 against defendant no.7 as it was passed in consonance with the principles and provisions of Order 37 R.2 (3) of CPC. 23.The advocate for the plaintiff submitted that it has come on record that the defendant no.7 was served with the summons for appearance right on 22.03.2001 and therefore on its failure to file appearance within stipulated time the plaintiff was entitled to decree against the said defendant under the provisions of O.37 R2(3) of CPC. The subsequent events would be of absolutely no avail to the defendant no.7. 24.The advocate for the plaintiff submitted that the defendant no.7 did not file appearance within 10 days from the date of service of summons for appearance nor did it apply for leave to defend after it was served with summons for judgment. The Written Statement filed without obtaining leave to defend would be of no avail and the plaintiff was entitled for decree against the defendant no.7 in accordance with the provisions of O.37.R. 2(3) of the CPC. CRA/28/2005 12/45 JUDGMENT 25.The advocate for the plaintiff, relying upon the averments by the defendant no.7 in paragraph 3 of their application at exhibit 37 dated 22.02.2002/affirmed on 11.04.2002 under O.7 R.11 for dismissing the suit qua the defendant no.7, submitted that the same amounted to clear admission on the part of defendant no.7 about their existing an agreement between the defendant no.1 and defendant no.7 for issuing demand drafts and defendant no.7 being banker of the defendant no.1. and therefore the judgment and decree dated 15.09.2003 did not call for any interference. 26.The advocate for the plaintiff submitted that under O.37 R.4 the applicant has to make out Special Circumstances as this provisions are different than the provisions of O.9 R.13 wherein setting aside of only ex parte decree is provided. The misplacing of summons for appearance received on 22.03.2001 in the office of Defendant no.7 and their failure in even seeking condoning of delay in filing appearance and seeking leave to defend and straight way filing written statement exhibit 17 surely would not amount to special circumstances entitling them to have the decree set aside under provisions of O37 R.4 of CPC. 27.The advocate for the plaintiff further submitted that requirement of showing reasonable defense on the part of the defendant seeking relief under O.37 R.4 of CPC is subsequent to his establishing, his case on the CRA/28/2005 13/45 JUDGMENT first requirement of Special Circumstances. Thus defendant under O.37 R.4 has not only to establish good case on merit but prior thereto he has to establish special circumstance that prevented him from complying with the provisions of O.37 R.2 in filing appearance in 10 days from the receipt of the summons for appearance. Thus only and only after establishing case under the twine requirement the decree is liable to be set aside. In the instant case the defendant no.7 has not made out any case so far as the first requirement of establishing special circumstance preventing them to file their appearance under O.37 R.2 within stipulated time is concerned and hence the impugned judgment and order dated below exhibit 64 in Civil Misc. Application no.179 of 2003 deserved to be quashed and set aside. 28.The advocate for the plaintiff relied upon the decision reported in AIR 1989 Bom 150 in support of his submission that under O.37 R.4 the party cannot claim better rights than the rights available to appellant. He also relied upon the decision of Ramkarandas Radhavallabh Vs. Bhagwandas Dwarka das AIR 1965 SC 1144 on the point that while considering the plea for setting aside decree under O.37 R.4 the Court cannot have recourse to the inherent powers under Section 151 of CPC. Rajni Kumar Vs.Suresh Kumar Merhotra 2003(5) SCC 315 on the point that special circumstances required to be established for setting aside decree under O37. R.4 are not defined any where in the Code. The defendant not only will have to show CRA/28/2005 14/45 JUDGMENT existence of special circumstances which prevented him from filing appearance and or obtaining leave to defend but he has also to demonstrate that he has reasonably arguable case in trial. In case of Trilok Singh Thakur Vs. Madan Singh Nirala reported in AIR 2000 HP 95 wherein the Himachal Pradesh High Court held that when the ex parte decree is passed under O.37 R.2 than the provisions of O.9 R.13 for setting it aside would have no applications, In case of Smt Maha Devi Vs. Ravi Kumar reported in AIR 1998 Raj 274 the Court held that when in summary suit the defendant instead of filing an application on affidavit for seeking leave to defend filed written statement along with an application for condonation of delay the said written statement cannot be taken on record and any plea of such irregularity happening bonafide not acceptable. In case of Jitendra Gupta Vs.Ramchandra Sardare 1991(2) GLR 792 on the point that under O.37 R.3 and 6 the defendant has to apply for leave to defend within 10 days from the receipt of summon however the learned judge has power to condon the delay on sufficient cause being made out but in case if no delay condonation application is made there could be no question of condoning delay and the Court have to pass decree in favour of the plaintiff. In case of Salil Dutta Vs.T.M. & M.C (1993) 2 SCC 185, the apex court held that advocate acts as an agent of the party and his acts ordinarily cannot be disowned. While distinguishing observations and facts in case of Rafiq Vs.Munshilal (1981) 2 SCC 788 the Court observed that in given case the ex parte decree could be set aside on CRA/28/2005 15/45 JUDGMENT account of negligence or misdemeanor of the advocate of the party but in all the case decree need not be set aside only on account of negligence of advocate. The Courts have to look to the facts and circumstances of the case on hand. In case of State Bank of India Vs. Jyoti Ranjan Mazumdar reported in AIR 1970 Calcutta 503 wherein the Calcutta High Court held that Draft by a branch of Bank on its Head Office is a bill of exchange. Ordinarily different branches of a bank and their head offices constitutes one legal entity a branch being only an agency of the Head Office but for certain purpose the branch are treated as distinct entities Therefore in a demand draft by a branch of bank on its Head Office drawer and drawee are two different entities drawer being branch and drawee being Head Office and it is bill of exchange. And in case of any uncertainty as to character of instrument due to drawer and drawee being one legal entity holder can insist on treating it as bill of exchange under Section 17, In case of Punjab & Sindh Bank Vs. Vinkar Sahkari Bank Ltd. & Others 2001(6) Supreme 875 in support of the submission that “Pay Order:” is like a demand draft and thus a cheque within the meaning of Section 138 of Negotiable Instruments Act , In case of Raghavendra Sinh Bhadoria Vs. State Bank of Indore and others reported in AIR 1992 MP 148 the division bench of MP High Court relying upon the decision of Bombay HC in case of Tukaji Nikam AIR 1976 Bom 185 held that once the draft has been delivered to the payee or his agent the purchaser is not entitled to ask the issuing bank to stop payment of the draft to payee CRA/28/2005 16/45 JUDGMENT on other grounds such as matters relating to consideration, and the issuing bank can thereafter pay back the amount of the draft to the purchaser of the draft only with the consent of the payee., In case of Suganchand & Co. Vs. Brahmayya & Co. reported in AIR (33) 1951 Madras 910 (2) relying upon the observation of para 6 of the Madras High Court it was contended that a demand draft is a bill of exchange drawn by a bank to another bank or by itself on its own branch and is a negotiable instrument not offending the Reserve Bank of India Act It is very nearly allied to a cheque the difference between it and cheque consisting largely in two facts Firstly it can be drawn only by a bank on another bank and not by private individual as in case of cheque Secondly it cannot so easily be countermanded as a cheque either by the person purchasing it, or by the bank to which it is presented., In case of Smt .Kamlesh Kohli & Anr Vs. Escotrac Finance & Investment Ltd & Ors. Reported in 1999 (8) Supreme 414 the apex court has held that there is no bar under CPC to pass decree against some of defendant, In case of State of Gujarat Vs. Sayed Mohd.Baquir El Edross reported in AIR 1981 SC 1921 the apex court held that strong case on merits not a ground for condonation of delay in absence of any cause for delay, In case of A.C. Ananthswamy and others Vs. Boraiah reported in (2004) 8 SCC 588 the apex court referring the case of Choksi Bhidarbhai Mathurbhai Vs. Purshotamdas Bhogilal Shah reported in Air 1962 Guj 10 Court held that in the case on hand there was no evidence of fraud The case was a matter CRA/28/2005 17/45 JUDGMENT of non service of summons and there was only a bare allegation of fraud and when the only fraud alleged is a bare non-serve of summons then suit to set aside