2015 (9) TMI 1738 - HC - Indian Laws

Summary suit granted for dishonored cheques under Order XXXVII, interest claim allowed under NI Act, deposit required.

The court found the summary suit maintainable under Order XXXVII as it was based on dishonored cheques, falling within the scope of negotiable ... Dishonor of Cheque - grant of conditional leave to defend when the claim for interest was not backed by any written contract - whether the trial court was justified in directing the defendants to deposit only Rs.50,00,000/- when the entire principal amount of Rs.96,03,766/- had been admitted by them? - HELD THAT:- The principal amount of Rs.96,03,766/- claimed in the summary suit has not been disputed by the defendants. The sole ground raised in the petition filed by the defendants is that the claim of interest, not being based upon a written contract, could not have been made in a summary suit. The cause of action for filing the suit arose on the date when the defendants issued various cheques, on the date when the cheques were returned, and on 30th October, 1996, when the defendants failed to make the remaining payment of Rs.96,03,766/- on 27th November, 1996 when the notice was served to the defendants, on 10th December, 1996, when the defendants replied the notice and that the same cause of action is continuous. The notice dated 27th November, 1996 referred to in the above paragraph is the notice issued under section 138 of the Negotiable Instruments Act upon dishonour of the cheques in question. Evidently, therefore, as rightly contended by the learned counsel for the plaintiff, the suit has been instituted on a negotiable instrument. Sub-rule (2) of rule 1 of Order XXXVII of the Code provides that rule 1 applies to all the classes of suits mentioned therein, which includes (a) suits upon bills of exchange, hundies and promissory notes - the statute itself provides for the grant of interest and hence, when a suit is instituted on a negotiable instrument, a claim for interest can be made in view of section 80 of the Act and does not need a written contract in that regard. Besides, in the opinion of this court, where the interest claimed by the plaintiff is on the amount in respect of which cheques have been issued by the defendants, such claim is governed by section 80 of the Negotiable Instruments Act and consequently, the claim of interest made by the plaintiff is a claim of interest under an enactment, therefore, such claim can also be said to be governed by the provisions of Order XXXVII rule 1(2)(b)(ii) of the Code. Accordingly, no relief which does not fall within the ambit of rule 2 of Order XXXVII of the Code can be said to have been claimed in the plaint. Therefore, having regard to the facts of the present case, it cannot be said that the claim of interest is beyond the scope of Order XXXVII of the Code. A suit can be said to fall outside the ambit of Order XXXVII only if the relief claimed therein is based on an action the nature of which does not fall within the classes specified in Order XXXVII rule 1(2). The relief cannot be said to fall outside the ambit of Order XXXVII rule 2 merely because the quantum thereof is excessive, so long as the nature of the relief falls within the clause specified in Order XXXVII rule 1(2) of the Code - the trial court was justified in granting conditional leave to defend to the defendants when the claim for interest was not backed by any written contract in view of the fact that the claim of the plaintiff was based upon bills of exchange (cheques). Liability to pay the principal amount of Rs.96,03,766/- - HELD THAT:- It may be germane to refer to the second proviso to sub-rule (5) of rule 3 of Order XXXVII of the Code which provides that where a part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in court. Thus, from the language employed in the said proviso, it is mandatory for the defendant to deposit the admitted amount as a pre-condition for grant of leave to defend the suit. Under the circumstances, having regard to the fact that the principal amount is admitted as due from them by the defendants, the trial court was not justified in directing the defendants to deposit only Rs.50,00,000/- and ought to have directed them to deposit the entire amount admitted by them. The summary suit for the claim of interest in the facts and circumstances of the present case is maintainable - Application dismissed. Issues Involved:1. Maintainability of the summary suit under Order XXXVII of the Code of Civil Procedure, 1908.2. Claim of interest without a written contract.3. Conditional leave to defend granted by the trial court.4. Admission of the principal amount by the defendants.5. Requirement to deposit the admitted amount as a pre-condition for leave to defend.Detailed Analysis:1. Maintainability of the Summary Suit:The plaintiff filed a summary suit for the recovery of Rs.96,03,766/- along with interest. The defendants contended that the suit does not fall within the ambit of Order XXXVII of the Code since the claim of interest was not based on a written contract. The court examined the provisions of Order XXXVII rule 1(2) and noted that the suit was based on dishonoured cheques, which are negotiable instruments under section 6 of the Negotiable Instruments Act, 1881. The court held that the suit was maintainable as it was instituted upon bills of exchange (cheques), and the claim of interest was supported by section 80 of the NI Act.2. Claim of Interest Without a Written Contract:The defendants argued that the claim for interest at 24% per annum was not backed by any written contract and thus could not be part of a summary suit. The court referred to previous judgments, including Zonal Manager v. Akhilbhai B. Mehta and Chlochem Limited v. Lifeline Industries Limited, which held that claims for interest without a written contract take the suit out of the ambit of Order XXXVII. However, the court distinguished these cases, noting that the present suit was based on negotiable instruments and that section 80 of the NI Act allows for interest even without a specific agreement. The court concluded that the claim of interest did not take the suit outside the scope of Order XXXVII.3. Conditional Leave to Defend Granted by the Trial Court:The trial court granted conditional leave to defend, requiring the defendants to deposit Rs.50,00,000/-. The defendants challenged this, arguing that triable issues arose, and the trial court should have granted unconditional leave. The court noted that the defendants' primary defense was an alleged MOU, which was not produced in court, and the trial court found this defense to be moonshine and sham. The court upheld the trial court's decision to grant conditional leave to defend, emphasizing that the principal amount was undisputed and the claim for interest was statutorily supported.4. Admission of the Principal Amount by the Defendants:The court observed that the defendants admitted the principal amount of Rs.96,03,766/- as due and payable. This admission was crucial in determining the conditions for leave to defend. The court noted that the defendants' admission of the principal amount made it mandatory for them to deposit the admitted amount as a pre-condition for leave to defend under the second proviso to rule 3(5) of Order XXXVII of the Code.5. Requirement to Deposit the Admitted Amount:The court held that the trial court erred in directing the defendants to deposit only Rs.50,00,000/- instead of the entire admitted principal amount of Rs.96,03,766/-. The court emphasized that the second proviso to rule 3(5) of Order XXXVII mandates the deposit of the admitted amount as a pre-condition for leave to defend. Consequently, the court modified the trial court's order, requiring the defendants to deposit the entire principal amount.Conclusion:The court dismissed the defendants' petition (Special Civil Application No.8601/2013) and upheld the trial court's decision to grant conditional leave to defend. The court allowed the plaintiff's petition (Special Civil Application No.17153/2013), modifying the trial court's order to require the defendants to deposit the entire principal amount of Rs.96,03,766/-. The operation of the judgment was stayed for ten weeks to allow the defendants to seek further remedies.