Supreme Court allows appeal, directs expedited trial within a year. Defendant granted conditional leave to defend.

The Supreme Court allowed the appeal, setting aside the judgment of the High Court. The Court directed the suit to be tried expeditiously within a year. The Defendant was granted conditional leave to defend, subject to depositing or securing the principal amount claimed.

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Issues Involved:
1. Validity and enforceability of the Corporate Guarantee.
2. Alleged violation of FEMA Regulations and FDI Policy.
3. Application of the doctrine of Pari Delicto.
4. Grant of leave to defend in a summary suit based on the Corporate Guarantee.

Issue-wise Analysis:

1. Validity and Enforceability of the Corporate Guarantee:
The case revolves around the enforcement of a Corporate Guarantee executed by the Respondent-defendant. The Plaintiff, acting as a debenture trustee, sought to recover dues under the Corporate Guarantee issued to secure payments on debentures. The Corporate Guarantee was unconditional, absolute, and irrevocable, ensuring the punctual payment of obligations by Amazia and Rubix. The Plaintiff argued that the Defendant failed to honor this guarantee, resulting in the suit to recover the outstanding amount.

2. Alleged Violation of FEMA Regulations and FDI Policy:
The Defendant raised a defense based on alleged violations of FEMA Regulations and the FDI Policy. The Defendant claimed that the investment structure was devised to circumvent prohibitions on assured returns in the real estate sector, which is not permissible under FEMA Regulations. The investment was structured such that FMO, a foreign entity, invested in Vinca, which then invested in OPCDs of Amazia and Rubix, ensuring a fixed return for FMO. The Defendant argued that this structure was a colorable device to bypass regulatory prohibitions and was thus illegal and opposed to public policy.

3. Application of the Doctrine of Pari Delicto:
The Defendant contended that the Plaintiff's claim should be barred by the doctrine of Pari Delicto, which prevents parties involved in an illegal transaction from seeking relief from the court. The Defendant argued that FMO, being aware of the regulatory prohibitions, structured the transaction to secure an assured return, making the entire transaction illegal. The Plaintiff countered that IDBI, acting as the debenture trustee, was not a party to any alleged conspiracy and was merely enforcing the Corporate Guarantee.

4. Grant of Leave to Defend in a Summary Suit:
The Single Judge granted unconditional leave to defend, stating that the Defendant raised triable issues regarding the legality of the transaction under FEMA Regulations. The Plaintiff appealed, arguing that the defense was frivolous and vexatious, and that the Defendant should be required to secure the claimed amount as a condition for leave to defend. The Supreme Court examined the principles governing the grant of leave to defend in summary suits, particularly in light of the amendments to Order XXXVII of the CPC.

Judgment Analysis:

Validity and Enforceability of the Corporate Guarantee:
The Supreme Court noted that the Corporate Guarantee was unconditional and not disputed by the Defendant. The Court emphasized that the suit was based on this guarantee, and payment was to be made to an Indian entity, IDBI, for the benefit of another Indian entity, Vinca. Therefore, prima facie, there was no violation of FEMA Regulations.

Alleged Violation of FEMA Regulations and FDI Policy:
The Court observed that the investment by FMO in Vinca, and subsequently in OPCDs of Amazia and Rubix, was not inherently violative of FEMA Regulations. The Court noted that the transaction structure, involving the conversion of CCDs into equity shares, did not contravene the regulations. Additionally, any repatriation of funds would require RBI approval, ensuring compliance with FEMA Regulations.

Application of the Doctrine of Pari Delicto:
The Court held that the doctrine of Pari Delicto would only apply if the illegal purpose was fully carried out. Since the transaction had not yet resulted in any illegal repatriation of funds, the doctrine was not applicable at this stage.

Grant of Leave to Defend in a Summary Suit:
The Supreme Court clarified that the principles laid down in Mechelec Engineers & Manufacturers v. Basic Equipment Corporation were superseded by the amendments to Order XXXVII of the CPC and the binding decision in Milkhiram (India) (P) Ltd. v. Chamanlal Bros. The Court outlined the conditions under which leave to defend should be granted, emphasizing that the trial judge must exercise discretion judiciously. The Court concluded that the Defendant raised a plausible but improbable defense, warranting conditional leave to defend. The Defendant was directed to deposit the principal sum of Rs. 418 crores or provide security for the same within three months.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgment of the Bombay High Court. The Court directed that the suit be tried expeditiously, preferably within one year, without being influenced by the observations made in the judgment. The Defendant was granted conditional leave to defend, subject to depositing or securing the principal amount claimed.

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