Anil Fabrics vs Khanna Sales Corporation
1990 Latest Caselaw 524 Del

JUDGMENT

R.L. Gupta, J.

(1) [ED facts: Pff. filed summary suit of recovery of more then Rs. 13 lakh for goods supplied and hundies issued against bids bills. The Deft. applied for permission to defend on the plea that hundies were without consideration and were given to accommodate pff. That Deft. is a wholesaler and never bought goods from pff. and latter has sued him fraudulently.] After detailing above, judgment is :

(2) Learned Counsel for Deft. has cited two Supreme Court cases to show in what circumstances conditional or un-conditional leave can be granted by the Court. It will be quite instructive first to understand the principles laid down by these authorities. In Santosh Kumar vs. Bhai Moot Singh , their Lordship ruled. "ALL that we need say about them is that if the Court is of opinion that the defense is not bona fide, then it can impose conditions and is not tied down to refusing leave to defend......But it cannot reach the conclusion that the defense is not bona fide arbitrarily. It is as much bound by judicial rules and judicial procedure in reaching a conclusion of this kind as in any other matter. It is undesirable, and indeed impossible, to lay down hard and fast rules in matters that affect discretion. The object is explained in Kesavan vs. South India Bank Ltd. 2nd (1950) Mad 251 (K). The object is to see that the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defenses in a class of cases where speedy decisions arc desirable in the interests of trade and commerce. In general, therefore, the test is to see whether the defense raises a real issue and not a sham one, in the cines that, if the facts alleged by the defendant are established, there would be a good, or even a plausible defense on those facts."

(3) In the aforesaid case the deft. had admitted the execution of the cheque, on the basis of which the suit was filed but pleaded that it was only given as collateral security for the price of the goods which the pff. supplied to the deft. They further said that those goods were paid for by cash payments made from time to time and by other cheques and that therefore the cheque in suit had served its end and should now be returned. The defts. also set out the exact dates on which, according to them, the payments had been made and gave the numbers of the cheques. Therefore, it was held that, "such a defense at once raised an issue of fact, the truth and good faith of which could only be tested by going into the evidence The second case is of M/s Mechalec Eng. & Mfs. vs. Basic Equipment Corp. . The various considerations carved out in Sm. Kiranmoyee Dassi vs. Dr. J. Chaterjee (1945)49 Calcutta Wn 246 applicable to such a case were quoted with approval as follow :- "(A)If -the defendant satisfies the Court that he has a good defense to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the defendant is entitled to unconditional leave to defend. (b) If the defendant raises a friable issue indicating that he has a fair or bona fide or reasonable defense although not a positively good defense the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend. (c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he bad a defense, yet, shows such a state of facts as lead to the inference that at the trial of the action he may be able to establish a defense to the plaintiff's claim the plaintiff is not entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but .not as to payment into Court or furnishing security. (d) If the defendant has no defense or the defense set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend. (e) If the defendant has no defense or the defense is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defense to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition, and thereby show mercy to the defendant by enabling him to try to prove a defense."

(4) The facts of the above case were that the plaintiff, a registered partnership firm, filed a suit through one of its registered partner for recovery of Rs. 21,265.28 as Principal and Rs. 7655.00 as interest at 12% p.a. on the strength of a cheque drawn by the deft. on 12.5.71 which on presentation was dishonoured. Plaintiff alleged that the cheque was given as price of the goods supplied. The deft. admitted the issue of the cheque by its Managing partner but it denied any privity of contract with the pff. firm. The deft. had its own version as to the reasons and purposes for which the cheque was drawn. Learned trial; court granted un-conditional leave on the above facts, while in revision u/S. 115 of the C.P.C. it was converted into a leave conditional on deposit of the suit amount with interest at 6% p.a. within two months. Their, Lordship held that the High Court had ignored the principles governing jurisdiction u/S. 115 in interfering with the discretionary order and thereafter quoted with approval the aforesaid principles carved out by the Calcutta High Court. Ultimately the order of the learned trial court was restored.

(5) In this case, therefore, we will have to see on the facts whether the defense raised by the defendant raises any friable issue or not or if it raises any friable issue whether the same is raised in a bona fide manner. The Court will also have to see whether the defense is sham or illusory or practically moonshine so that it will require imposition of certain conditions on the defendant for grant of leave to defend the suit.

(6) The main defense argued at the bar on behalf of the defendant is that the hundies in question were accepted by the defendant only by way of accommodation to the plaintiff withQ.uf any consideration. In fact, defendant itself 11 a firm of wholesale trade of nylon/. polyester yarn which it procures from its own family concern Khanna Rayon Ind. Ltd. and supplies the same regularly to a number of dealers including the plaintiff. The defendant then goes on to give details 6f various bills through which it sold the aforesaid yarn to the plaintiff totalling to Rs 15,20, 427. 90 P. vide 19 bills running from 2.8.1988 to 14.1.1989. Thus there was no question of purchase of any yarn by the deft. from the pff. and the hundies in suit were fraudulently got accepted by the pff. from the deft. In reply to this allegation the pff. emphatically denied that the bundles were accepted by the deft. by way of accommodation without consideration. The details of 19 bills referred above given by the deft. had no relevance. On the other hand the pff. claims to have sold yarn to the deft. worth crores of rupees since 1982-83. That the deft. had actually been purchasing yarn from the pff. it evidenced by production of a certificate of the Syndicate Bank, which is Annexure A. According to the pff. it supplied the yarn through 12 bills running from 23.5.1988 to 16.11.1988 to the deft. for the amount ranging into lacs of rupees, the payment of which also were duly made by the deft. on various dates as reflected in this very statement. On behalf of the deft. in spite of opportunities having been granted to the deft. no rejoinder was filed. This would, therefore, clearly mean that the allegations made in the reply of the pff. that various quantities of yarn ware supplied by the pff. to the deft. through various bills referred above stands accepted. Therefore, it can be said that the plea of the deft. that the deft. itself being a wholesaler procuring its supplies from its family concern and then supplying the saw to the pff. and other dealers is not wholly correct. Therefore, on basis of pleadings before me I am of the view that in the past also the pff. had been supplying yarn to the deft. payments of which were, also made by the deft. as evidenced in the statement of the Syndicate Bank, and filed by the pff

(7) The next question which falls for consideration is, whether it can. be said that actually these hundies were accepted by the deft by way of accommodation only without any consideration. The present suit is based on 15 hundies allegedly issuer by the daft, in respect of the bills running from 6.12.1988 to 6.2.1989, The total amount payable in respect of these hundies is Rs.12,27, 394. 30 p. It is to be noted that all these hundies were allegedly signed on behalf of the deft. after receiving various bills particulars of which are given in pare 6 of the plaint. Pff, has also placed on record carbon copies of 5 bills. These bills also bear the endorsement of Khanna Sales Corporation that the goods are received in good condition. These endorsements ace signed by Mr Sharad Khanna himself, the one who has filed this application and the affidavit for leave to defend the suit. These bills also bear the same date on which the hundies have been executed. After having made the endorsement on various bills regarding receipt of goods in good condition and having issued the hundies bearing the same dates as those of the bills, doe(r) it lie in the mouth of the deft. now to say that these hundies are issued without consideration ? We have also to keep in mind the supporting plea taken by the deft. that the deft. could not have purchased any goods from the pff. because the deft. itself was a wholesaler which plea has been found false on face of it as the deft. did not like to file any rejoinder to the reply of the pff. in which it alleged that in the past the deft. bad even made payments in respect of the goods supplied by the pff. I am afraid to say that the plea that the hundies were issued only by way of accommodation to the pff. is without any merit and actually is sham or illusory or practically moonshine. Deft. then pleads that his acceptance of the bundles was procured by the pff. in a fraudulent manner to obtain advances against, those hundies from the plaintiff's banker by misrepresenting to them that the pff. had sold yarn to deft. As already stated above it is proved on behalf of the pff. that in the past also it had been supplying yarn to the dett. and the deft. had been making the payments to the plaintiff in respect of those purchases. The hundies in suit themselves suggest that the pff had been giving a credit of about three months to the deTt. for making payments. For instance the date of drawing. the first hundi is 6.12.1988 and/the due date for payment is 6 3.1989. It is also stated in these hundies that after due date 29% interest will be chargeable. According to the common course of commercial transactions, if the pff. has drawn certain percentage of advances of the amounts of the bundies from its bankes, it cannot be said that the pff. has acted in a fraudulent manner or that it has misrepresented the actual facts regarding the Supply of the goods to the deft. In fact, if such a plea as of the Contract being void is permitted to be taken by the deft. it would simply amount to dislodging of all commercial transactrons. A party cannot be permitted to say after admitting in its own hand a receipt of the goods in good condition, issuing hundies on the basis of such bills, that it took all these steps just to accommodate the opposite party.

(8) It may also be noted that the plea of accommodation prime facie does not inspire confidence. The first hundi was issued on 6.12.88. The Statement Annexure B of the Banker of the plaintiff shows that it was discounted by the pff. on 131.1989 i.e. almost after 38 days of the issue of the hundi. Similarly other bundles were also discounted on days varying from 24 to 37 of the issue of the bundles. If, in fact, the hundies had been issued by way of accommodation, as pleaded by the deft., the pff. would have immediately discounted these hundies from his banker to raise money. The very fact that these hundies were discounted after so many days will go to bow that the pff. was not in that urgent need of money which is argued on behalf of the deft. Therefore, for this reason also, I am of the view that prima facie it is not possible to believe that these hundies were issued by the deft. simply by way of accommodation to the pff.

(9) It is then argued on behalf of the deft. that issuance of such hundies by the deft. in favor of the pff. by way of accommodation would be hit by S. 23, Contract Act, In fact, I am of the opinion that in the aforesaid circumstances the raising of such a plea by the deft. may be hit by S. 23 of the Contract Act. Prima fade the hundies appear to be issued when the bills were raised by the pff. These hundies are of the same amount which is stated in various bills. The bills also carry the endorsement of the deft. that the goods of the bills were received in good condition. After having taken all these steps, it does not seem to be open to the defendant to plead that this agreement would be hit by S. 23 of the Contract Act. As already stated, the raising of such a plea by the defendant will be hit by S, 23 of the Contract Act.

(10) Therefore, I am of the view that from the documents placed on record, it is clear that the defense taken up by the defendant is illusory, sham or moonshine. It is not taken in a bona fide manner and it is simply taken to delay the payment which the defendant is liable to make to the plaintiff. In such circumstances as laid down by Hon'ble the Supreme Court the Court may either refuse leave to the defendant or it may protect the plaintiff by only allowing the defendant to proceed if the amount claimed in the suit is paid into Court or otherwise secured. Taking the totality of circumstances into consideration the defendant is granted leave to defend the suit conditionally on furnishing a bank guarantee within a period of one month of the suit amount together with costs and interest at the rate of 20% per annum for a period of one year to the satisfaction of learned Registrar of this Court after notice to the plaintiff. The defendant shall also keep the bank guarantee alive till the disposal of the suit. Ia stands disposed off.