S.P. Chopra vs Chopra Gems
2005 Latest Caselaw 470 Del

JUDGMENT

T.S. Thakur, J.

1. In this suit for recovery of money under Order xxxvII of the CPC, the defendant company has made an application for the grant of leave to defend. The striking feature of the defendant's case is that the liability to pay the suit amount of Rs. 52,16,334/- is undisputed. The documents placed on record by the defendant itself amply demonstrate that the suit amount is indeed outstanding against the defendant and that the defendant has been over the years paying interest to the plaintiff on the principal sum @ 6% per annum and deducting tax at source on such payments. Copies of the balance sheets and other documents leave no doubt about the existence of the liability, which fact is acknowledged even by the defendant. What is, all the same, argued in support of the application for grant of leave to defend the suit is that the payment of the suit amount to the plaintiff is in terms of an oral arrangement arrived at between the parties contingent upon vacation of a certain premises of which the plaintiff as put in possession. The defendant argues that since the plaintiff has not vacated the premises in question, his right to recover the outstanding debt from the defendant remains inchoate and unenforceable. The short question that, therefore, falls for consideration is whether the proposed defense to the suit as set out in the leave application is a substantial defense within the meaning of proviso to Order xxxvII Rule 3(v) of the Code of Civil Procedure to justify grant of leave. Time now to state the facts in brief :-

2. The defendant company is, it appears, a company closely held by the plaintiff, his father and brother. The plaintiff's case as set out in the plaint is that a sum of Rs. 47,79,194/- was advanced by the plaintiff as a loan to the defendant company on 5th September, 1997. The loan amount was to earn interest @ 6% per annum. The defendant was, according to the plaintiff, paying interest at the said rate and even deducting tax at source from out of such payments. In the income tax returns and the balance sheets enclosed therewith, the defendant clearly acknowledged the amount outstanding against it from time to time. The plaintiff has, in support of that assertion, produced the true copies of the balance sheets for the period from 1.4.97 to 31.3.2001. The plaintiff has also indicated the amount of tax deducted at source including surcharge from out of the payments due to the plaintiff towards interest. Copies of the TDS certificates and the accounts maintained by the company in the course of its business have been placed on record. The plaintiff in that background claims that apart from a principal sum of Rs. 48,41,157/- due from the defendant as on 16th October, 2001, the plaintiff is entitled to a sum of Rs. 3,75,177/- towards interest at the rate of 16% per annum up to 31st January, 2003 making a total of Rs. 52,16,334/-. This amount, the defendant has despite its acknowledgement in the books of accounts and other documents, failed to pay thereby entitling the plaintiff to a decree for the recovery of the same.

3. In the application seeking grant of leave to defend the suit, the defendant company has given the background in which the plaintiff and his father and brother had started a partnership business in the name and style of M/s Chopra Gems. The application states that in April 1993, the partnership purchased a shop/showroom out of property No. 2440/10, Beaden Pura, Karol Bagh in terms of the sale deed executed jointly in the name of the plaintiff and his brother V.P. Chopra. The sale deed recorded two purchasers as joint owners with the plaintiff having an undivided one-third share in the property while the remaining two-third vesting in the plaintiff's brother V.P. Chopra. The application goes on to state that accounts of partnership were settled between the partners on 31st March, 1994 and a balance sheet drawn up in which the shop/showroom mentioned above was shown as an asset of the partnership concern and the value thereof fixed at Rs. 86,400/-. The defendant's further case is that the shop/show room was a partnership asset no matter the purchase was in the names of the plaintiff and his brother. The defendant company was in the meantime floated in October, 1993 with the plaintiff, his brother Shri V.P. Chopra and father Shri Deshpal Chopra as shareholders and Directors in the same. The partnership business was taken over by the company w.e.f. 1st April, 1994 Along with its assets and liabilities and the partnership wound up w.e.f. 31st March, 1994. The credit standing in the capital accounts of the partners of the firm also appears to have been taken over by the company. The defendant's case is that in the audited balance sheets of the company for the years commencing 31st March, 1995, the shop/showroom in question was shown as an asset of the company. The application then goes on to state that the plaintiff had voluntarily resigned from the directorship of the defendant company in September, 2000. At the time of the said resignation, the plaintiff had, according to the defendant, retained possession of two motor cars one of which belonged to the company and the other to M/s Chopra Gems whose assets and liabilities were taken over by the defendant. The defendant's case which constitutes the very basis of its defense is that according to a mutual unwritten agreement between the plaintiff and his brother and father who controlled the defendant company, the market value of the cars was to be ascertained and adjusted against the loan which the defendant company owed to the plaintiff. The defendant further alleges that at the time of his resignation from the Board of Directors, the plaintiff had demanded payment of the amount remaining to his credit in the accounts of the company, which amount the defendant was unable to pay on account of lack of liquidity as the loan amount was on 13th September, 2000 as high as Rs. 47,16,638/-. The defendant's case, therefore, is that by mutual agreement between the plaintiff and the defendant and to provide comfort to the plaintiff and to put to rest his anxiety regarding the outstanding loan amount, the plaintiff was allowed to occupy and utilise the shop/showroom in question without any charge so long as the defendant remained indebted to the plaintiff. The defendant's case is that ever since April, 2000, it has been requesting the plaintiff to collect the outstanding loan amount Along with interest @ 6% per annum which was the agreed rate of interest paid by the company to all its creditors and to return the peaceful and vacant possession of the showroom to it. The plaintiff has not, according to the defendant, done the needful. Instead, he issued a notice demanding repayment of the loan with interest @ 18% per annum and the TDS certificates. In the reply sent to the said notice, the defendant had reminded the plaintiff that the outstanding loan amount could be refunded only if the shop/showroom in his occupation was surrendered. The plaintiff has despite the said reply failed to vacate the shop/showroom or collect the outstanding amount. He has, at the same time, claimed title to the shop in Suit No. 1834/2001 which is pending in this court. The defendant company has also instituted suit No. 1997/2002 for declaration of its title and interest in the suit shop and for injunction restraining the plaintiff herein from dealing with the said shop in any manner on the strength of the sale deed dated 19th April, 1993 executed in his name. It is in the above background that the defendant claims leave to defend the suit refusal whereof would according to it, cause irreparable injury to the defendant.

4. Appearing for the defendant applicant, Mr. Vipin Sanghi, strenuously argued that the facts stated in the application for grant of leave made out a substantial defense to the suit. He urged that the right of the plaintiff to demand payment of the outstanding loan amount about which there was no dispute was dependent on the plaintiff complying with the terms of the oral understanding between the parties under which the shop/showroom in his possession had to be vacated before the loan amount could be pad to him. He argued that although there was no written instrument connecting the repayment of the loan with the surrender/vacation of the shop in question, such a document or instrument was unnecessary especially when the parties were closely related. It was urged that the pendency of the other two suits in relation to the shop/showroom was also a circumstance that had to be taken into consideration while examining whether or not the defendant had made out a case for grant of leave.

5. On behalf of the plaintiff, it was, on the other hand, argued by Mr. Ahuja that the application for grant of leave did not disclose any defense much less a substantial defense to the suit. He urged that the debt claimed in the suit was clearly admitted by the defendant not only in its balance sheets, and other documents including the reply to the notice sent on its behalf, but even in the application for grant of leave. Such being the position, the defendant had no legal justification to resist the assing of a decree against it. The plea that an oral understanding between the parties had made the repayment of the loan dependent upon the vacation of the shop was frivolous and wholly untenable. There was nothing on record to even ex facie suggest that any such understanding had ever been arrived at or agreed to between the parties. The suit filed by the company for a declaration regarding its title over the shop/showroom was according to Mr. Ahuja an after thought and a counter blast to the plaintiff's suit for partition which was prior in point of time. In any case, the question whether the shop was an asset of the partnership or the company as claimed by the defendant on the one hand or jointly held by the plaintiff and his brother as asserted by the plaintiff on the other, was an issue which was wholly extraneous to the present claim and had to be examined and determined in the suits that had been separately filed in that regard. The liability to pay the outstanding amount was according to M. Ahuja independent of the rights and obligations of the parties qua the alleged partnership asset. The proposed defense to the suit was frivolous and nothing but moonshine.

6. Proviso to Rule 3(v) of Order xxxvII requires that leave to the defendant shall not be refused unless the court is satisfied that the facts disclosed by the defendant do not indicate that he has a substantial defense to raise or that the defense intended to be put up by the defendant is frivolous or vexatious. The second proviso to the same provision stipulates 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.

7. While examining the prayer for grant of leave to defend, the Court has, therefore, to satisfy itself that the defense set up by the defendant is substantial and that the same is not frivolous or vexatious. A defense that may be termed substantial cannot be said to be frivolous or vexatious just as anything that is frivolous or vexatious cannot be termed as substantial. The essence of the legal requirement is that the defendant must satisfy the court that he has a good defense to the claim on its merits which implies that he has a defense which is otherwise fair and bona fide and which raises a friable issue. If the defendant discloses facts as may be shown to be sufficient to entitle him to defend the claim, the plaintiff may not be entitled to a judgment. But where the defendant has no defense or the defense is illusory or moonshine, the plaintiff would be entitled to a judgment in its favor. Suffice it to say whether or not a defense is substantial, fair and bona fide, is a matter which shall always have to be seen in the facts and circumstances of each case.

8. Coming then to the present case, the most significant feature of the defendant's case is that it does not dispute its liability qua the suit amount not only in the balance sheets which the defendants had itself produced but even in the application for grant of leave to defend. The defendant has on the contrary in unequivocal terms admitted its outstanding liability towards the plaintiff. This is evident from the following passages from the application for leave to defend:-

" XXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXX

At that stage the Defendant Company, though being solvent and having sufficient assets to meet all its liabilities and obligations, did not have the liquidity to immediately take out the amount of loan owed by the Defendant to the Plaintiff as on 13.

9.2000 from its business, which on the said date amounted to Rs. 47,16,338/-."

XXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXX

"That since the beginning of April, 2001 the Defendant had been requesting the plaintiff to collect his outstanding loan along with interest @ 6% p.a., which was the agreed rate of interest paid by the Defendant to all its creditors including the Plaintiff on loans taken by the Defendant Company since long, and to return the peaceful and vacant possession of the said shop (showroom) to the Defendant, since the Defendant did not wish to keep the loan or allow utilisation/occupation of the said shop (showroom) any further by the Plaintiff. The Plaintiff, however, avoided the issue and did not come forward to close the transaction."

9. There is thus not even a pretence of a dispute in so far as the right of the plaintiff to recover the suit amount from the defendant is concerned. The solitary reason why the said amount cannot, according to the defendant be decreed in favor of the plaintiff is the existence of an alleged understanding between the plaintiff and the company according to which the amount was payable only after the plaintiff would vacate the show/showroom in his occupation. There is nothing on record apart from a bald assertion of the defendant that the repayment of the loan amount was made contingent upon the vacation of the shop/showroom by the plaintiff. There is also nothing to show that the plaintiff was put in possession of the shop pursuant to any such understanding. The plaintiff's case on the contrary is that he is the owner of one-third undivided share in the showroom in his occupation according to the instrument of sale executed by the seller. He has on that basis demanded partition. The company has disputed that position and sought a declaration in the suit filed by it. Suffice it to say that the question whether the shop/showroom in dispute in the two separate pending suits is jointly owned by the plaintiff and his brother or exclusively owned by the company is a matter that will fall for determination in the said suits, and cannot be dragged into the present suit which claims no relief qua the said property. The existence of a dispute regarding the showroom/shop or the pendency of the two suits regarding the same does not, therefore, make any material difference in the present case. That is so because the liability to pay the amount stood independent of any such dispute. The liability was not incurred in relation to the showroom/shop. The obligation to pay the outstanding amount was independent of any arrangement between the parties regarding the ownership, possession or use of the showroom. Even assuming that the shop/showroom was actually an asset of the company, the same could be got vacated by the defendant in appropriate legal proceedings, with an appropriate relief in the form of compensation/mesne profits for its use and occupation. More importantly, there is no connection whatsoever between the payment of the outstanding amount and the ownership of the showroom which as per the sale instrument is jointly vested in the two brothers. If the plaintiff is asserting his right of ownership and demanding a partition of the showroom, the defendant cannot in the absence of anything tangible made the repayment of the loan amount contingent upon the vacation of the shop/showroom.

10. All told the defense set up by the defendant appears to be anything but substantial. The prayer for grant of leave to defend is not, therefore, well founded. The application is accordingly dismissed and the suit of the plaintiff decreed with costs and interest @ 6% per annum pendente lite and till realisation.