Rajesh Kumar Aggarwal vs Punjab And Sind Bank And Ors.
2006 Latest Caselaw 760 Del

JUDGMENT

Swatanter Kumar, J.

1. The plaintiff, Punjab & Sind Bank filed a suit against three defendants for recovery of Rs. 4,85,250.40/- with pendente lite and future interest. According to the case pleaded by the plaintiff, Sh. Mathura Yadav, Sole Proprietor of defendant No. 1. i.e. Shree Ganesh Trading Company was having a current account with the plaintiff bank and during the course of their business and on their request made on 3.4.1997, the plaintiff bank agreed to extend the financial facility to defendant No. 1 in relation to the bills for sale of goods worth Rs. 3,17,804.40/- to M/s. Parul Poultary Farm vide bill No. 291 dated 1.4.1997. Defendant Nos. 1 and 2 had drawn hundi on the said buyer for the amount of the above stated bill. Defendant Nos. 1 and 2 had represented that they were in dire need of money and wanted an advance/purchase of the bill hundi which was granted to the defendants on the assurance that the amount would be adjusted upon payment. The bill and hundi was sent to the State Bank of India but the plaintiff bank was informed on 10.7.1997 that the purchaser had refused to accept the consignment and the hundi and the defendants refused to pay the amount despite request. Defendant No. 3 is stated to have stood as a guarantor for repayment of the amount. The demand was raised by the plaintiff bank on the defendants through legal notices dated 20.7.99 and 3.8.99 which according to the plaintiff were received by the defendants and still they refused to make the payment resulting in filing of the suit under the provisions of Order 37 of the CPC, claiming the relief on the basis of the hundi and the guarantee deed.

2. Summons in the suit were issued to the defendants. Defendant Nos. 1 and 2 did not put in appearance and file any application for leave to defend. Thus, the suit was decreed against defendant Nos. 1 and 2 by the court. Defendant No. 3 filed an application for leave to defend and took up the plea that he had never stood as guarantor for defendant Nos. 1 and 2. It was stated that the suit against defendant No. 3 was frivolous, vexatious and illegal. The specific stand taken was that M/s. Rajesh Sales Corporation, a partnership firm was having its O.D.P. Account No. 5005 with the plaintiff bank where the said defendant was a partner and credit facility was given to the said concern. Still, there was another current account being operated by brother of defendant No. 3, Sh. Deepak Kumar in the name of his sole proprietor ship concern M/s. Anand Kumar Deepak Kumar and the said firm was also availing the credit facilities from the plaintiff bank. Defendant No. 3 had stood surety for his brother in respect of the current account of M/s. Anand Kumar Deepak Kumar and the blank papers were got signed by the bank officials to provide credit facility to the brother of defendant No. 3 and he had never stood ever any surety for defendant Nos. 1 and 2 in the suit. It was also stated that a sum of Rs. 40,000/-, without any instructions from the partnership concern of defendant No. 3 M/s. Rajesh Sales Corporation, was also got debited from its account and credited in the account of defendant Nos. 1 and 2 illegally and in a arbitrary manner. It was specific pleading of the said defendant that the blank papers got signed by the bank officials have been misused by the plaintiff bank. The case of the plaintiff thus was based on fabricated and manipulated documents. It was also stated that the suit of the plaintiff was not covered under the provisions of Order 37 of the CPC.

3. This application for leave to defend was rejected by the learned trial court vide its order dated 18.9.2001 whereupon a decree was passed in favor of the plaintiff bank and against defendant No. 3 for a sum of Rs. 4,85,250.40/- with pendente and future interest @ 12% p.a. The findings of the trial court in the impugned order read as under:-

8. I have gone through the documents placed on record by the plaintiff, the plaintiff has placed on record a G.I.R. No. 6150 dated 1.4.97 through which the goods were sent to the consignee, another documents placed on record is the letter of advice of unpaid bill, the plaintiff has also placed on record a letter dated 3.4.97 stating therein that on demand a sum of Rs. 3,17,804.40/- be paid to Punjab and Sind Bank against bill No. 291 dated 1.4.97. A bill dated 1.4.97 for Rs. 3,17,804.40/- is also on record. The plaintiff bank has also filed a certified copy of the statement of account. The legal notices are also on record. The defendants have not filed any reply to the legal notices of the plaintiff. The bill/hundi had returned unpaid as the purchaser party M/S Parul Poultary Farm had refused to honour the same as the consignment was not accepted by the purchaser. The contention of the defendant No. 3 that the document of surety was got signed blank has no force in it as no objection to it was taken by the defendant No. 3 before filing of his leave to defend. The reply to the legal notices were also not sent, there is no denial of receipt of the legal notice. Counsel for the plaintiff had placed reliance on Kalu Ram v. Sitam 1970 RLF (NCTE) 44, in which it was held that if plaintiff before filing the suit makes serious assertions in the notice to the defendant then defendant must not remain silent by ignoring the reply, if he does not, then adverse inference may be raised against him. I have perused the legal notice dt. 3.8.99 in which the plaintiff has clearly stated that the defendant No. 3 stood as guarantor but the defendant No. 3 has failed reply the same. The surety bond executed by the defendant No. 3 is a printed form and only coloumn in blank pertaining to names of borrower, names of surety, amount of laon, rate of interest and date of execution have been got signed in ink so this would not have been got signed in blank for no valid explanation coming from the side of defendant No. 3 as no objection was raised before the filing of the leave to defend that the signatures were obtained on blank paper which suggest that the plea is belated and an after though and is not bonafide. The other contention raised by defendant No. 3 is leave to defend application is that a sum of Rs. 40,000/- was transferred in the account of defendant No. 1 without his consent but the transfer of the said amount was never objected to by the defendant No. 3 before the filing of the present application. No where in the leave application, the defendant No. 3 has statedany ground as to why the plaintiff bank would forge the documents. The defendant No. 3 has also contended that he was strong apprehension that the plaintiff bank has misused the papes of the defendant No. 3 submitted in the account of M/S Anand Kumar & Deepak Kumar and on the other hand the counsel for the plaintiff has urged that the debit made were never objected to by the defendants. He further urged that no reply of the notices were sent which clearly shows the malafides on the part of the defendant No. 3. The defendant No. 3 has not denied that he has not received the legal notices issued by the plaintiff bank. No arguments were addressed on behalf of defendant No. 3 as to show how the interest is not permissible. The counsel for the plaintiff has relied upon P.N.B. v. Joginder Pal Minocha and Ors. .

9. Under Order 37 Rule 3(5) the defendant in support of his application for leave to defend is required to disclose in the affidavit or otherwise such facts are may be deemed sufficient to enable him to defend. This shows that the defendant is required to plead in his application for leave statement of act which may constitute a valid ground for leave to defend the suit. The defendant No. 3 has failed to raise any friable issue, the leave to defend application is, therefore, dismissed.

4. Aggrieved from the above findings, defendant No. 3 in the suit has filed the present appeal challenging the correctness of the above findings inter alia on the following grounds:-

1. There is no previty of contract between defendant No. 3 and the plaintiff bank as he never stood surety for defendant Nos. 1 and 2.

2. The suit of the plaintiff is based on manipulated and fabricated documents.

3. The learned trial court has failed to appreciate the pleas taken in the application for leave to defend particularly keeping in mind the fact that the various pleas raised including the above friable issues which could not be proved by the plaintiff unless the plaintiff was permitted to lead documentary and oral evidence. Before we proceed to discuss the merit of these contentions with reference to the factual matrix of the present case, we may notice that it is a settled position of law that wherever an application for leave to defend raises or discloses friable issues and such application is bonafide, normally the court would grant leave to defend may be with or without any conditions depending upon the facts and circumstances of each case. In the present case, deed of guarantee has been placed on record. According to the learned Counsel appearing for the appellant, this deed is dated 7.4.97 while the transaction took place on 3.4.97. On this basis and even otherwise it is argued that there is no previty of contract between the plaintiff bank and defendant No. 3. We had examined the original documents from the record of the trial court and it bears a stamp which appears to be and can easily be read as '91'. The fact that the guarantee deed was alleged to have been executed in the year 1991 for the transaction of 1997 is again a question which can be decided not at this stage but only after the parties were given opportunity to lead evidence. The fact that the guarantee deed was executed in the year 1991 is not even mentioned in the plaint. The entire plaint of the plaintiff bank is based upon the guarantee deed and there being no reference to the date of execution and the only transaction which took place on 3rd April, 1997. There is no doubt to the fact that bill No. 291 is dated 1.4.97 and the entire suit is based upon the said bill for which the hundi was submitted to the bank for collection and was not accepted by the purchaser. The said being based for a definite transaction, it hardly stands to reasoning that the guarantee deed was executed in the year 1991. If it was so executed what was its purpose. It is not stated in the plaint by the plaintiff bank that defendant Nos. 1 and 2 were having transactions of this kind since 1991 or that the guarantee deed was executed in relation to a current account. Absence of such specific pleadings does give some credibility to the case pleaded by defendant No. 3.

5. At this stage, reference can be made to a recent judgment of this Court in the case of Mr. Rajinder Paul Jindal v. Mr. Surender Bansal IA Nos. 3136, 3137/2005 in CS(OS) 509/2004 decided on 27th October, 2005 where the law in relation to grant or refusal of leave to defend was summed up as follows:-

At this stage, it will be appropriate to refer to the law governing the grant or refusal of leave to defend. In a recent judgment of this Court in CS(OS) No. 28/2003 titled as Anand Kumar v. Anil Arora, decided on September 08, 2005, the Court after discussing the law came to the following conclusions:-

The applicant would thus be entitled to unconditional leave to defend. He also places reliance upon the case of M/s Mechalec Engineers & Manufacturers v. Basic Equipment Corporation in support of his contentions for seeking an unconditional leave. The Counsel appearing for the Plaintiff also relies upon the same judgment of the Supreme Court to state that the grounds for leave to defend are no longer but a moonshine and is a stand in apparent contradiction to the written documents of the Defendants itself and as such the leave to defend should be declined to the applicant. He also relies upon the judgment of the Supreme Court in Raj Duggal v. Ramesh Kumar Bansal to contend that the friable issue even if raised by the applicant in the present case is not of the nature which would justify grant of unconditional leave to the applicant in face of the fact that issuance of the pro-notes as well as the cheques are admitted.

It may be appropriate at this stage to refer to recent judgment of this Court pronounced in CS(OS) 791/2002 titled as Bush Boake Allen (India) Ltd. v. Mehtajee and Company and Ors. where after discussing the above judgment of the Supreme Court, the Court held as under:

There is no invoice on record wherein payment of interest is stated to be payable to the plaintiff from the defendants. The provisions of Order 37 of the Code are to be construed strictly and only a claim which is based upon a written contract can be allowed within these provisions. In absence of any written contract between the parties, about the payment of interest, the plaintiff cannot press the claim of interest in a suit under Order 37. Order 37 itself is a self-contained code and the plaintiff cannot rely upon custom in trade or the provisions of the interest for payment of interest. Thus the claim of the plaintiff for grant of interest is also declined. The plaintiff has prayed for award of interest @ 24% per annum pendente lite and future.

After amendment of 1976 of the Code the discretion to give leave to defend is delineated by the proviso. The first proviso to Order 37 Rule 3(5) provides that leave to defend 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 forward is frivolous and vexatious. The second proviso to the said Rule further states that claim of the plaintiff if admitted by the defendant, the leave will not be granted unless such amount was deposited. The discretion of the Court is to be guided by well established principals of law, keeping in view the facts and circumstances of each case. But wherever the Court finds and satisfied that there is absence of substantial defense or that the defense is frivolous or vexatious, the Court would decline leave to defend to the applicant. The use of the expression good defense must be understood so as to include in its ambit reasonable friable issue and a bonafide stand. The good defense of the defendant has not to be a defense which is illusory or shown to be ex-facie unbelievable. Grant of leave to defend thus would be relateable to the content and value, in terms of law of the defense put forward by the defendant. The legislative intention in introducing the word good is to emphasise the need of a bonafide defense which is acceptable within the afore corners of law. A dispute raised for the sake of dispute or denial for the sake of denial with intent to delay the proceedings would be a category of cases which cannot fairly fall under this category. It is the duty of Court to amplify act of justice rather than jurisdiction or authority. It is a matter of common knowledge that denial by a party is the easiest method of delaying the proceedings before the Court and in fact without being subjected to rigors of high cost and penal loss. A plea which is put forward by the defendant should go to the root of the liability and must raise an issue which in law would be triable.

Admittedly, the cheques were issued in favor of the Plaintiff by the Defendants in consideration of the execution of the pro-notes. This is a clear admission on the part of the Defendant and the parties to prove that such cheques were not properly and validly issued for consideration or were of collateral security, is upon the Defendant.

In view of the law laid by the Supreme Court in the case of Harprasad v. Allahabad Bank , it will be just fair and equitable to grant conditional leave to the Defendant-Applicant.

The friable issue raised by the Defendant-Applicant are not free of doubt. The defense taken may not be sham or moonshine but is a defense which defies even a common sence that if the cheques were given by the Defendants to the Plaintiff in business transaction where was the occasion for supporting such a liability by issuing pro-notes which at least prima facie is admissible of a liability with a contentment to repay the same with interest.

10. Now, I refer back to the facts and circumstances of the present case. The defense put forward by the applicant lacks bonafides, but cannot be termed as a total sham or moonshine defense as the defendant has placed on record some documents, genuineness and correctness whereof can only be commented upon during the course of trial. The conduct of the defendant himself certainly does not entitle him for a leave to defend unconditionally. In a day-to-day business, particularly when the accounts are clear and settled, where is the occasion for a person to sign blank papers or blank cheques. There is no explanation on record as to why did the defendant fill the cheques of the exact amount due which he would have taken back after delivery of the consignment as per his own version emerging from the meeting of April, 2004. There is no explanation on record in regard to issuance of cheque for Rs. 56,97,715/- earlier which was admittedly dishonoured and two payments made by the defendant to the plaintiff thereafter, still, leaving a balance of Rs. 47,49,409/-. The plaintiff also has to prove these payments. As per the ledger account these two payments have not been paid by cheque. There is also no stipulation contained for payment of interest @ 24% per annum. The cheque, in absence of an argument, obviously would have no presumption in its favor in relation to carry interest. Even the agreement relied upon at page 14 of the document does not postulate payment of interest at the claimed rate. As such this aspect of the matter has to be proved during the course of trial. The ledger account is a creation of the plaintiff and it cannot be taken to be per se admissible evidence and the plaintiff would have to discharge its onus with regard to payment of quantum of amount and the interest, if any, payable to the plaintiff. Balancing the equity between the parties, prima facie it appears a case where the amount claimed is due to the plaintiff but the plea raised by the defendant would have to be gone into. The inadequate pleadings, unbelievable explanations on the part of the defendant and his conduct in the regular course of business would certainly call for imposition of a condition.

6. Learned counsel appearing for the appellant placed emphasis on the judgments of the Supreme Court in the cases of Mechalec Engineers & Manufacturers v. Basic Equipment Corporation and Raj Duggal v. Ramesh Kumar Bansal to contend that the defense put forward by the defendant was neither sham or dishonest and in fact it raised friable issues and thus the trial court should have granted unconditional leave to the applicant.

7. In light of the above settled position of law, it is to be further noticed that defendant No. 3 had specifically pleaded that he had executed blank documents in relation to securing the financial facility provided by the bank to his brother's concern namely M/s. Anand Kumar Deepak Kumar. He has also alleged that the bank had unauthorizedly acted in debiting a sum of Rs. 40,000/- from the account of his partnership concern and crediting it in the account of defendant Nos. 1 and 2. This according to him was done without his consent. Weather the plaintiff had actually signed the documents in relation to M/s. Anand Kmar Deepak Kumar and what was the status of M/s. Rajesh Sales Corporation, are the circumstances which the applicant could prove to the satisfaction of the court only after he was granted an opportunity to defend the suit on merits. To say that the case pleaded by the bank in its plaint is so foolproof and the defense raised by the defendant is sham, illusionary or dishonest, would be more imaginary than legally correct. The only cause of action which the plaintiff has against defendant No. 3 is based upon the sole guarantee deed alleged to have been executed on 13th May, 1991 intending to pay all the monies of the past and future. There is no explanation in the entire plaint why the guarantee was executed to the extent of Rs. 7,84,361.40/- when the transaction was only for Rs. 3,17,804.40/-. This guarantee deed was executed as per its terms on 7th April, 1997 and was witnessed by none. This reflects a somewhat unusual circumstance which at least needs some explanation from the bank as well.

8. We are of the considered view that the three issues raised by the appellant in the present appeal have merit and the learned trial court should have granted conditional leave at least to the defendant to prove his case. We may notice that in order to prove his case, the said defendant has to mainly rely upon the documents and records of the bank itself. It is not a case where the averments made in the application for leave to defend are based upon some fabricated or false documents or documents which have been produced by the defendant himself. They are majorly the documents in possession and power of the bank and are maintained in the normal course of its business. An opportunity to prove his case by leading proper and cogent evidence was least that was needed in the facts and circumstances of the present case. In view of the fact that defendant No. 3 is alleged to have been executed a guarantee document, the execution of which is not disputed by the defendant, however the plea being that it was signed blank. we are of the considered view that the appellant should be entitled to conditional leave.

9. For the reasons afore-recorded, we allow this appeal and set aside the judgment and decree of the trial court dated 18.9.2001. The leave to defend is granted to defendant No. 3 only upon his furnishing a bank guarantee/security of immovable property to the satisfaction of the learned trial court within one month from today. The matter is remanded for trial of the suit on merits by the trial court in accordance with law. Any observations made by us in this order would, in no way, effect the trial of the suit.

10. The appeal and CM 4853/2004 are disposed of while leaving the parties are left to bear their own costs.