Gautam Kataria vs La Exotica
2001 Latest Caselaw 1630 Del

JUDGMENT

V.S. Aggarwal, J.

1. Plaintiff Gautam Kataria has filed the present suit for recovery of Rs. 7,80,452.80 paise invoking Order xxxvII of the Code of Civil Procedure. The sum and substance of the facts alleged are that the plaintiff has been supplying to the defendant (M/s. La Exotica) goods as per the specifications and orders. The plaintiff is maintaining an open and running account in the defendants' name for the transaction the plaintiff had with the defendant. On 1.4.1997, a sum of Rs. 7,80,452.80 was due and payable by the defendant. The defendant issues three cheques on 10.5.1997, drawn on Overseas Bank, all dated 10.5.1997. The amount of each cheque was Rs. 2,50,000/-, Rs. 2,50,000/- and Rs. 2,05,875.40 paise. Defendant had assured the plaintiff that all the cheques would be honoured on presentation. The cheques were dishonoured. The plaintiff had been approaching the defendant and the defendant paid Rs. 1.50 lakhs by three cheque leaving balance to be due. The case of the plaintiff is that after adding the interest, the amount claimed is due.

2. The defendant preferred an application under Order xxxvII Rule 3(5) of the Civil Procedure Code, seeking grant of unconditional leave to defend. It has been asserted that the defendant is a reputed exporter of various designs of garments, handicrafts and other related items. It is a sole proprietorship firm of Sanjeev Khokha. Over the years, since 1992, the defendant ordered goods from the plaintiff on various occasions. In January 1997, the defendant provided a loan of Rs. 5.5. lakhs to plaintiff, who was in desperate need of cash, to enable him to preform a vital export contract. The relations between the parties were friendly. It was agreed that the amount would be adjusted during the later transactions. The post-dated cheques that were given were not to be encashed. The transactions between the parties were always based on the mutual understanding that in case of any quality complaints the same would have to be provided by the supplier. A meeting took place in July 1997 between the parties and it was agreed between the parties:

i) That the goods allegedly to the tune of Rs. 7,08,452.80 had been supplied by the plaintiff to the defendant towards its export commitments;

ii) that of the above said amount, Rs. 5.5. lacs were to be adjusted towards the amount already loaned by the defendant;.

iii) that the balance amount, would however, be paid by the defendant;

iv) that compensation towards defective quality of goods would be paid by the plaintiff, based on the compensation demanded upon the defendant by the overseas buyer;

v) that the aforesaid compensation, would subsequently be adjusted in the subsequent orders placed by the defendant;

vi) that post dated cheques earlier provided, to the tune of Rs. 7,05,875.40 would not be presented for their encashment.

Immediately, a sum of Rs. 1.50 lakhs was provided by the defendant. The same was received and the remaining amount was agreed to be adjusted towards the loan. In these circumstances, it is claimed that permission to contest may be granted.

3. In the reply filed, the assertions of defendant have been controverter. It is denied that there was any such agreement or that the loan, as such, had been taken.

4. The principle of law as to whether a permission to contest or leave to defend has to be granted, is well settled. The Supreme Court had considered the same in the case of M/s.MECHALEC ENGINEERS & v. BASIC EQUIPMENT CORPORATION . The decision of the Calcutta High Court in the case of Kiranmoyee Dassi v. J. Chatterjee (1945) 49 Cal. Weekly Notes 246 was approved and it was held:

(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 the 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 had a defense, yet, shows such a state of facts as leads 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 judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to 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 try to prove a defense.

5. It is on the strength of these facts that necessarily one has to look into the facts of the case but before proceedings further, one can conveniently refer to the facts that were before the Supreme Court in the case of M/s. Mechalec Engineers & Manufacturers (supra). In the cited case, the plaintiff therein had also alleged that the cheque was given as price of goods supplied. The defendant admitted the issue of cheque but denied any privity of contract. It had its own version as to the reasons and purposes for which the cheque was drawn. The Supreme Court held that it is not fair to pronounce a judgment in those facts when the evidence has not been recorded. When liability has been denied, it requires investigation. It is only in cases where defense is patently dishonest or unreasonable that a decree can be passed.

6. Identical is the position herein. When the liability as such is not admitted and at this stage it is difficult to state that the the defense referred to above is dishonest, it will not be appropriate to refuse permission to contest.

7. Obvious question that comes up for consideration is as to whether any condition should be imposed or not. Certain basis facts that can not be ignored are that with respect to the loan the defendant had not made any demand. When the cheques were given no writing was taken. Even reply to the notice had not been sent. Therefore, keeping in view these factors, which do cast some shadow of doubt, it is appropriate to grant to the defendant permission to contest but by imposing the condition that he shall furnish as security to the amount of Rs. 5.00 lakhs to the satisfaction of the Registrar within four weeks from today. After furnishing of the security, the defendant will be permitted to file the written statement with advance copy to the plaintiff's counsel. Replication, if any, be also filed.

8. The application stands disposed of. It is made clear that nothing said herein should be taken as expression of opinion on the merits of the matter.

Suit No. 26001/1999

9. List it for admission/denial of documents before the Joint Registrar (O) on 19.2.2002.