Conditional leave to defend in summary suits where the defence is improbable and good faith is doubtful

Under Order XXXVII Rule 3 CPC, a defendant is not entitled to unconditional leave to defend where the defence is only plausible but improbable, or where the Court doubts its good faith. The amended provision requires the Court to assess whether there is a substantial defence, a fair or reasonable defence raising triable issues, or no genuine defence at all, and the earlier Mechelec approach is no longer controlling. On the facts, alleged FEMA and FDI policy illegality was not clearly established at this stage, so leave to defend was granted only on condition of deposit or security to protect the plaintiff. The appeal was allowed and the suit was permitted to proceed on those terms.

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Issues: Whether the defendant was entitled to unconditional leave to defend in the summary suit, or whether leave should be granted only on condition of depositing the principal sum or furnishing security, in view of the defence based on alleged FEMA and FDI policy violations.

Analysis: Order XXXVII Rule 3 of the Code of Civil Procedure, 1908, as amended, requires the Court to test whether the defendant has a substantial defence, a fair or reasonable defence raising triable issues, a defence that is plausible but improbable, or no genuine defence at all. The earlier formulation in Mechelec was held to stand superseded. The Court also considered that the transaction, including the corporate guarantee, was structured around FDI invested through an Indian company and that the alleged illegality under FEMA and the FDI policy was not clearly established at this stage. While the defence did not amount to a substantial defence, the Court found a real doubt about the defendant's good faith and the genuineness of the triable issue, and therefore held that protection of the plaintiff was warranted by imposing terms.

Conclusion: The defendant was not entitled to unconditional leave to defend; leave was granted only on condition that the principal sum be deposited or secured.

Final Conclusion: The appeal was allowed, the High Court's order was set aside, and the suit was permitted to proceed subject to the conditional leave terms imposed by the Court.

Ratio Decidendi: Under Order XXXVII Rule 3, where the defence is not substantial and appears only plausible but improbable, or where the Court has a genuine doubt about its good faith, leave to defend may be granted subject to security or deposit, and the earlier unconditional-leave approach is no longer controlling after the amendment.

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