Raj Rahul Contractors And ... vs Viking Traders
2006 Latest Caselaw 1018 Del

JUDGMENT

Swatanter Kumar, J.

1. M/s. Viking Traders, a partnership concern filed a suit for recovery of Rs. 1,11,853/- with pendente lite and future interest @ 24% per annum. The suit was filed under the provisions of Order 37 of the Code of Civil Procedure (for short 'CPC'). The learned Trial Court vide its judgment and decree dated 11.11.2002 decreed the suit of the plaintiff for the above sum with interest @ 12% per annum from the date of filing of the suit till realisation of the decreetal amount. Aggrieved from the said judgment and decree of the learned Trial Court, M/s. Raj Rahul Contractors and Builders Pvt. Ltd., a company duly incorporated under the provisions of the Companies Act, has filed the present appeal praying for setting aside the judgment and decree passed by the learned Trial Court.

2. Notice of this appeal was issued to the respondent. As despite service the respondent did not appear on 28.4.2006 the court directed that in the event of nobody appearing on behalf of the respondent on the next date, ex-parte proceedings would be directed against them. Even on the next date of hearing i.e. 16.5.2006, nobody appeared on their behalf and resultantly they were ordered to be proceeded against ex-parte in these proceedings. Ex-parte arguments were heard and the orders were reserved for judgment on 18.5.2006.

3. According to the facts as they emerge from the record of this appeal, the appellants had approached the respondent requiring them to make investment in a building 'Rajendra Jaina Apartments' proposed to be constructed by the appellant at New Rohtak Road, New Delhi. On the assurance/undertaking given by the appellant that the money invested by the respondent would be returned and/or repaid to them forthwith when demanded, the respondent agreed to make the investment. The respondent invested a total sum of Rs. 65,032.50, by way of six different cheques drawn on Corporation Bank, Greater Kailash, Part II, New Delhi, issued during the period 14.8.1981 to 14.12.1981. Since the respondent was not happy with the project they informed the appellants about their disinterest in continuing with the said investment and requested them for refund of the money Along with interest as was agreed to between the parties. This money was subsequently treated as the money lent to the appellants and was repayable to the respondent on demand with interest @ 24% per annum. In furtherance to this understanding, a promisory note was executed by the appellants on 14.5.1983. The receipt was also executed and in terms of the pronote they had agreed to refund this amount with interest @ 24% per annum. The said amount was not refunded despite request of the respondent, thus, compelling the respondent to file a suit in the year 1986. Since the summons in the suit were issued under Order 37 of the CPC, the present appellants filed an application for leave to defend wherein they took up the stand that the suit was barred by time and it was not maintainable under the provisions of Order 37 of the CPC. It was the case of the appellants that the respondent had booked two flats measuring about 367 and 300 sq. ft. of super areas @ Rs. 325/- per sq. ft. on 14.8.1981. It was denied that any request for refund of the money was made, or it was agreed that the same would be treated as an investment. It is further stated that the agreement was executed and the schedule of payment was duly provided. The execution of the pronote was not disputed, but it was stated that it was given as a collateral security for ensuring that the investment was protected. In fact, it was stated that as soon as the building would be complete and possession given to the respondent, the pronote dated 14.5.1983 would be deemed to have been cancelled and same would be handed over by the respondent to the appellant. It was never the intention of the parties to enforce the pronote. This application for leave to defend was contested by the respondent. As already noticed, the learned Trial Court vide its judgment and decree dated 11.11.2002 dismissed the application of the appellant stating that the defense raised was baseless and decreed the suit in favor of the respondent.

4. The learned Counsel appearing for the appellant argued with some emphasis that the payments in relation to booking of the flats was made in the year 1981 by different cheques and as per the schedule agreed to between the parties. The booking and investment was never cancelled but a pronote was issued in the year 1983. Thus, the pronote had only the object of ensuring that the parties would perform their part of the agreement. No document of cancellation had been placed on record which would convert the sale price of the immovable property into a loan, pure and simple. This dispute was thus, a bonafide dispute which could only be proved by having an opportunity to lead the requisite evidence.

5. It appears that the applicant has admitted its liability with regard to the transfer of the property for which the agreement was entered into. There is definitely no document which shows the cancellation of this agreement entered into between the parties or in regard to transfer of the immovable property. It is quite possible that it was converted into a pure case of loan but this was a fact which certainly required some evidence from either side. It is more a question of law rather than a question of fact. The liability of money as such is not disputed but the question whether the pronote was by way of collateral security, particularly when learned Counsel appearing for the appellant has argued in the present appeal that the said flats have still been kept for the respondent. The correctness of the pronote per se is not in dispute. What is material is, the pronote being a collateral security or entirely an independent liability arising out of a cash transaction. Reference to the judgment of this Court in the case of Indian Bank v. Cheese Wafers (India) Pvt. Ltd. 76 (1998) DLT 892 and Vinod Kumar v. Keshav Anand can hardly be a matter of dispute. Presumption is in favor of a negotiable instrument and the liability to pay can hardly be denied. But in the present case, the court has to examine whether the plea of collateral security and the property still being kept for sale in favor of the respondent was entirely a sham or a baseless plea or was it a plea which could fully and finally be determined only upon completion of the trial in accordance with law.

6. At this stage, reference can be made to the judgment of this Court in CS(OS) No. 630/2004 titled as Car-O-Liner AB v. TTC Laser Machines Pvt. Ltd. decided on August 04, 2005, where the Court held as under:-

Learned Counsel appearing for the Applicant/Defendant while relying upon the judgment of Mechelec Engineers and Manufacturers v. Basic Equipment Corporation contended that once the Defendant denies liability to pay anything to the Plaintiff for an alleged supply of goods the Defendant would be entitled to unconditional leave to defend. As the Defendant has disclosed the defense which is not illusory or sham or practically moonshine, the Defendant shall be granted the leave. In the present case the defense of the Defendant in the application for leave to defend may not be a moonshine but certainly is not a defense which in its entirety is bonafide and would give rise to friable issues on all aspects of the issues taken up by the Defendant/applicant in the application for leave to defend.

In the case relied upon by the Defendants the Trial Court had granted leave to defend which was interfered by the High Court in granting unconditional leave to defend. In that case the Plaintiff had denied the liability in its entirety and in fact had even denied the receipt of the goods. The Trial Court had in that case formulated 7 issues which require consideration. The facts of the case has no application to the present case. The friable issues that would arise in the present case would be limited to the question of interest and the defective material. Rest claims of the Plaintiff in regard to receipt of the goods and its price and commission being regulated by a written contract between the parties even in view of the stand taken by the Defendant would not be open to much doubt. In accordance with the principle enunciated in the case cited by the Defendant itself, it will be a fit case where the Defendant should not be granted unconditional leave to defend. The case of the Defendant squarely falls in the category where the affidavit does not make out positively and immediately a case for grant of unconditional leave. Court shows such a state of fact has led to the inference that a trial of action may be able to establish a defense partly to the claim of the Plaintiff. In that case the Plaintiff may not be entitled to the judgment and Defendant would be entitled to leave to defend subject to conditions. Such principles are well enunciated, reference can be made to the Judgment of this Court in the case of Harprasad v. Allahabad Bank and in the case of Kiranmoyee Dassi v. J. Chatterjee AIR 1949 Calcutta 479. For grant of unconditional leave to defend, it is necessary for the applicant to show that the defense taken by him is not sham but is bonafide. Reference can also be made to the judgment of the Supreme Court in the case of Gujarat Lease Financing Ltd. v. Abdulla Akbarali and CO. and Ors. where the Court held that even if the injunction was operating against the Defendant from transferring shares of the Company, it would be no ground for grant of unconditional leave. The applicant should show friable issues which would fairly demand a trial and must not appear to be a mere pretence of a friable issue.

The learned Counsel for the Plaintiff has not been able to show as to on what written contract or term of the invoices the Plaintiff claims the interest. This amount claimed by the Plaintiff in absence of such specific stipulation may not even fall under the category of the claim which could be raised strictly within the ambit of Order 37 of the CPC prior to the institution of the Suit. To this extent the Defendant could be entitled to leave to defend unconditionally.

In view of my above discussion the application for leave to defend of the Defendant is allowed, subject to the Defendant furnishing security to the extent of principal amount claimed by the Plaintiff in the Suit.

7. It is clear from the above stated principles of law that an applicant in order to succeed in an application for leave to defend has to show primarily that there is a reasonable defense giving rise to friable issues which would require adjudication by the Court for fully and finally determining the controversy and such issues can be resolved only by placing proper and cogent evidence on record. Hence, we are of the considered view that the stand taken by the appellants cannot be said to be ex facie sham or a moonshine defense, particularly in view of the fact that the appellant has clearly made a statement that the portion of the property in question which was covered by the agreement executed between the parties, is still available for user of the respondent. Consequently, we modify the judgment under appeal to the extent that the present appellants would be entitled to leave to defend but conditionally, subject to their furnishing a bank guarantee to the satisfaction of the learned Trial Court.

8. In view of the above order, the application filed by the appellants stands allowed and the appellant is granted conditional leave to defend in the above terms. The appeal is partially accepted, while leaving the parties to bear their own costs, especially in view of the fact that nobody has appeared on behalf of the respondent in the present appeal.