Tarun Sharma vs Ali Zulfikar Ahmed & Anr
2016 Latest Caselaw 1005 Del

              *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Date of decision: 9th February, 2016

+         RFA 231/2014 & CMs No.9769/2014 (for stay) & 25830/2015 (of
          R-1 for vacation of interim order dated 30.5.2014)

          TARUN SHARMA                                      ..... Appellant
                     Through:          Mr. K.K. Sharma, Sr. Adv. with Mr.
                                       Rajiv Bakshi, Mr. D.K. Sharma, Ms.
                                       Bhanita Patawary and Ms. Supnita
                                       Roy, Advs.

                                   Versus

    ALI ZULFIKAR AHMED & ANR                                ..... Respondents

Through: R-1 in person.

CORAM:-

HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1. This appeal under Section 96 of the Civil Procedure Code, 1908

(CPC) impugns the judgment and money decree (dated 28th March, 2014 of

the Court of Sh. Rakesh Pandit, Additional District Judge (ADJ)-3, South

East District, Saket Courts, New Delhi in Civil Suit No.42/2014 filed by the

respondent No.1/plaintiff against the appellant and the respondent No.2 Sh.

Mahender Singh), consequent to dismissal of the applications of the

appellant and the respondent No.2 for leave to defend the suit.

2. Notice of the appeal was issued and subject to the appellant depositing

the entire decretal amount in this Court, execution stayed.

3. The respondent No.2 Sh. Mahender Singh failed to appear despite

service and was proceeded against ex-parte. The Trial Court record has

been requisitioned.

4. The respondent No.1/plaintiff has filed an application sating that the

appellant had not deposited the entire decretal amount.

5. The counsel for the appellant today states that the entire decretal

amount stands deposited.

6. Admit.

7. Considering that in the event of the appeal being allowed, the matter

will have to be remanded and the suit will have to go on, it is deemed

appropriate to hear the appeal at this stage only.

8. On a reading of the impugned order of dismissal of application for

leave to defend, it appeared that the suit was wrongly entertained under

Order XXXVII of the Code of Civil Procedure, 1908 (CPC). The respondent

No.1/plaintiff claiming to be an Advocate practising at Delhi appears in

person and has been heard. The need to call upon the appellant did not arise.

9. The respondent No.1/plaintiff filed the suit pleading:

(i) that the appellant/defendant No.1 had on 24 th May, 2012 taken

a loan of Rs.15 lakhs from the respondent/defendant No.2 and the

respondent No.1/plaintiff had stood guarantor for re-payment of the

said loan by the appellant/defendant No.1 to the respondent/defendant

No.2;

(ii) that the appellant/defendant No.1 issued two cheques of

Rs.7,50,000/- each in favour of the respondent/defendant No.2

towards repayment of the said loan and also deposited the title deeds

of his properties with the respondent/defendant No.2 to secure the

loan;

(iii) that the said cheques issued by the appellant/defendant No.1 in

repayment of the loan were dishonoured and it was also learnt by the

respondent / defendant no.2 that the title deeds deposited by the

appellant/defendant No.1 of his property with the respondent /

defendant no.2 had been stolen by the appellant / defendant no.1 from

the office of the GIC Housing Finance Limited; the

respondent/defendant No.2, to avoid himself being charged as an

accomplice of the appellant/defendant No.1 in the theft of the

documents, returned the said title deeds to the GIC Housing Finance

Limited;

(iv) that the appellant/defendant No.1 took back the dishonoured

cheques aforesaid and issued a fresh cheque in favour of the

respondent/defendant No.2 for Rs.15,00,000/-;

(v) that the respondent/defendant No.2 pressed the respondent

No.1/plaintiff for payment as guarantor and the respondent

No.1/plaintiff paid Rs.15 lakhs to the respondent/defendant No.2 (on

enquiry, the respondent No.1/plaintiff states that the said amount was

paid to the respondent/defendant No.2 in cash and he has not filed any

documents of withdrawal of the said amount from any bank account

and he was not an income tax assessee at that time);

(vi) that the respondent/defendant No.2 issued a receipt of Rs.15

lakhs in cash from the respondent No.1/plaintiff and also assured the

respondent No.1/plaintiff that upon encashment of the cheque for

Rs.15 lakhs issued by the appellant/defendant No.1 in favour of the

respondent/defendant No.2, the respondent/defendant No.2 shall

refund Rs.15 lakhs received from the respondent No.1/plaintiff to the

respondent No.1/plaintiff;

(vii) that the respondent No.1/plaintiff called upon the

appellant/defendant No.1 as well as the respondent/defendant No.2 to

make payment but neither did.

However decree in the suit was claimed against the appellant /

defendant No.1 only and no relief was claimed against the respondent

/ defendant No.2.

10. I may record that not only did the suit on the basis of averments

aforesaid in the plaint not lie under Order XXXVII of the CPC but even

otherwise the plaint did not comply with the other provisions of Order

XXXVII CPC; there is no endorsement immediately before the number of

the suit of the same being under Order XXXVII CPC and there is no plea in

the plaint to the effect that no relief other than that under Order XXXVII

CPC has been claimed in the suit. Nevertheless, the suit was entertained

under Order XXXVII CPC and summons under Order XXXVII CPC were

ordered to be issued. I may however notice that though on the very first

date, the learned ADJ raised the issue of maintainability of the suit under

Order XXXVII CPC but thereafter without recording satisfaction, issued the

summons.

11. The appellant filed application for leave to defend.

12. Even though no relief was claimed in the suit against the respondent /

defendant No.2 but the respondent / defendant No.2 also filed application for

leave to defend.

13. The learned ADJ, vide order dated 28th March, 2014 has dismissed the

application of the appellant / defendant no.1 for leave to defend and has

decreed the suit of the respondent No.1/plaintiff against the

appellant/defendant No.1 reasoning:

(a) that the respondent/defendant No.2 in his leave to defend

application had admitted the version of the respondent No.1/plaintiff

and had stated that on 24th May, 2012 an amount of Rs.15 lakhs was

transferred by way of loan to the account of the appellant/defendant

No.1 by the respondent/defendant No.2;

(b) the appellant / defendant no.1 in his leave to defend application

has however denied the transaction and any privity with the

respondent no.1 / plaintiff and pleaded that it was in fact the

respondent no.1 / plaintiff who had taken the loan from the respondent

/ defendant no.2 and the appellant / defendant no.1 stood guarantor

therefor and issued his cheques as collateral security to respondent /

defendant no.2; that the appellant / defendant no.1 in his leave to

defend application also controverted that the suit was maintainable

under Order XXXVII CPC;

(c) that it was the admitted case of the parties that the

respondent/defendant No.2 was a creditor and the appellant/defendant

No.1 or the respondent No.1/plaintiff are the principal debtor and the

appellant/defendant No.1 or the respondent No.1/plaintiff are the

guarantor;

(d) that Order XXXVII permits a suit on a contract of guarantee;

(e) that there was no written contract or document of guarantee but

the High Court in Reliance Industries Ltd. Vs. Adarsh Packers Pvt.

Ltd. 71 (1998) DLT 168 has held that suit under Order XXXVII lies

on an oral guarantee also;

(f) that though the appellant/defendant No.1 pleaded in his leave to

defend application that the loan transaction was between the

respondent No.1/plaintiff and the respondent/defendant No.2 and the

appellant/defendant No.1 had given cheques as collateral security but

it is the respondent No.1/plaintiff who had lodged FIR No.485/2013

of Police Station Fateh Beri, Delhi against the appellant/defendant

No.1 and followed it up with the suit;

(g) that the appellant/defendant No.1 had not sought back the

cheque in question of Rs.15 lakhs from the respondent/defendant

No.2;

(h) that the appellant/defendant No.1 had also not given any

demand notice;

(i) that the conduct of the appellant/defendant No.1 was thus

contrary to that of a prudent person;

(j) that money had been shown to have flown from the account of

the respondent/defendant No.2 to the account of the

appellant/defendant No.1 and the appellant/defendant No.1 had failed

to explain the reason therefor;

(k) that the respondent No.1/plaintiff had repaid the said money to

the respondent/defendant No.2 and thus the appellant/defendant No.1

was liable to return the said money to the respondent No.1/plaintiff;

(l) that the fact that the respondent/defendant No.2 inspite of

having a dishonoured cheque of the appellant/defendant No.1 had not

taken any action under Section 138 of the Negotiable Instruments Act,

1881 also supported the respondent No.1/plaintiff having discharged

the liability of the respondent/defendant No.2.

(m) that the defence of the appellant/defendant No.1 appears to be a

moonshine.

Accordingly, the application of the appellant / defendant no.1 for

leave to defend was dismissed; the application of the respondent / defendant

no.2 for leave to defend was also dismissed. However because the

respondent no.1 / plaintiff had not sought any relief against the respondent /

defendant no.2, the decree for recovery of Rs.15,00,000/- with interest in

favour of the respondent no.1/plaintiff was passed against the appellant /

defendant no.1 only.

14. Before proceeding further, I may notice an interesting facet. Though

the respondent no.1 / plaintiff in the suit had not claimed any relief against

the respondent / defendant no.2 but without considering the said fact

summons under Order XXXVII of the suit appear to have been issued to the

respondent / defendant no.2 also and the respondent / defendant no.2, though

no relief was claimed against him, filed an application for leave to defend

and on the contents of which application for leave to defend the learned ADJ

has heavily relied for dismissing the application for leave to defend of the

appellant / defendant no.1. It appears that the respondent / defendant no.2

was impleaded in the suit only to elicit admissions from him in favour of the

respondent no.1/plaintiff.

15. A suit under order XXXVII can be filed either upon bills of exchange,

hundies and promissory notes or where the plaintiff seeks only to recover a

debt or liquidated demand in money payable by the defendant and arising on

a written contract or on an enactment or on a guarantee where the claim

against the principal is in respect of a debt or liquidated demand only. By the

amendment of the CPC with effect from 1st February, 2012 (vide Factoring

Regulation Act, 2011), a suit for recovery of receivables instituted by any

assignee of a receivable also lies under Order XXXVII.

16. Admittedly, the subject suit was not upon any bill of exchange, hundi

or promissory note and the claim of the respondent no.1 / plaintiff therein

against the appellant / defendant no.1 did not arise by a written contract

between the two of them or on any enactment.

17. The learned ADJ has however held that since the claim of the

respondent no.1 / plaintiff against the appellant / defendant no.1 was on a

guarantee, it was maintainable under Order XXXVII. The guarantee is

claimed to have been given by the respondent no.1 / plaintiff to the

respondent / defendant no.2 for repayment of the loan taken by the appellant

/ defendant no.1 from the respondent / defendant no.2. However the said

guarantee is also not in writing. The learned ADJ, relying on Reliance

Industries Ltd. supra, has held that the guarantee can be verbal also.

18. Reliance by the learned ADJ on Reliance Industries Ltd. supra is

totally misconceived and appears to have been made without reading the full

judgment. The Single Judge of this Court in the said judgment was not

concerned with the issue of maintainability of a suit under Order XXXVII

on the plea of oral guarantee. What was for consideration before the Court

was applications, of the Director of the company which had purchased the

goods from the plaintiff in that case and which Director had also been sued

as guarantor for payment of the price, for deletion of his name as defendant

and for vacation of the ex parte order of injunction restraining him from

alienating his property. It was in this context that the observations on which

the learned ADJ has relied came to be made to refuse the application of the

Director for deletion of his name. The observations are qualified with the

sentence "that it was too preliminary a stage to delete the name of the

director from the array of defendants".

19. Interestingly, I find that in Reliance Industries Ltd. supra the suit was

ultimately not pressed against the Director and was dismissed on 5 th

October, 2012.

20. The observations to the effect that since the word „guarantee‟ in

Order XXVII(1)(2)(b)(iii) is not preceded with the word „written‟ and since

as per Section 126 of the Indian Contract Act, 1872 guarantee may be either

oral or written, a suit on a oral guarantee would also be maintainable under

order XXXVII in Reliance Industries Ltd. are thus not found to constitute a

precedent.

21. In this regard, it may also be noticed that it was not the claim of the

respondent no.1 / plaintiff that any guarantee was given to him by the

appellant / defendant no.1 and on which guarantee he was suing the

appellant /defendant No.1 for recovery of money; his case was that he had

stood as a guarantor for repayment of loan by the appellant / defendant no.1

to the respondent / defendant no.2. The claim of the respondent no.1 /

plaintiff against the appellant / defendant no.1 was thus not on the basis of

any guarantee given by the appellant / defendant no.1 to the respondent no.1

/ plaintiff as is required to be under Order XXXVII of the CPC. From the

language of Order XXXVII Rule 1(2)(b)(iii) "on a guarantee, where the

claim against the principal is in respect of a debt or liquidated demand only",

it is evident that the suit contemplated thereby is a suit by a creditor against

a debtor and the debtor‟s guarantor i.e. a person who had stood guarantee for

repayment of debt by the debtor to the creditor. Here, the suit, on the basis

of the averments in the plaint was by a guarantor against the person on

whose behalf he had given guarantee and under which guarantee, he had

paid.

22. Section 126 of the Contract Act, 1872 defines a contract of guarantee

as a contract to perform the promise, or discharge the liability, of a third

person in case of his default; the person who gives the guarantee is called the

„surety‟; the person in respect of whose default the guarantee is given is

called the „principal debtor‟ and the person to whom the guarantee is given

is called the „creditor‟.

23. Thus, as per the facts pleaded by the respondent No.1/plaintiff, the

respondent No.1/plaintiff was the surety, the appellant/defendant No.1 was

the principal debtor and the respondent/defendant No.2 was the creditor. The

suit was not by the creditor for recovery of money from the principal debtor

and the surety/guarantor but was by the surety against the principal debtor.

In my view, the suit cannot thus be said to be on a guarantee within the

meaning of Order XXXVII Rule 1(2)(b)(iii) of the CPC.

24. Rather, the suit was under Sections 140 & 145 of the Contract Act.

Section 140 of the Act provides that "where a guaranteed debt has become

due, or default of the principal debtor to perform a guaranteed duty has taken

place, the surety, upon payment or performance of all that he is liable for, is

invested with all the rights which the creditor had against the principal

debtor". Similarly, Section 145 of the Act provides that "in every contract

of guarantee there is implied promise by the principal debtor to indemnify

the surety, and the surety is entitled to recovery from the principal debtor

whatever sum he has rightfully paid under the guarantee, but no sums which

he has paid wrongfully". Such a suit is not a suit on a guarantee.

25. Thus, de hors of the proposition whether the suit under Order

XXXVII Rule 1(2)(b)(iii) CPC can be on a verbal / oral guarantee or not, the

subject suit was not on a guarantee.

26. I am also unable to hold that a suit under Order XXXVII CPC can be

filed on a verbal / oral guarantee. To hold so, would be against the grain of

Order XXXVII CPC which lays down a summary procedure for certain

kinds of suits. Such suits are upon bills of exchange, hundis, promissory

notes, written contract, enactment--all of which are documents in writing.

To hold that because the word „guarantee‟ in Order XXXVII Rule

1(2)(b)(iii) CPC is not preceded by the word „written‟, a suit under summary

procedure can be filed on a verbal / oral guarantee as well, would lead to an

anomalous situation, when though on a verbal / oral contract, summary

procedure is not available but if the contract is of a guarantee, then it is

available. If it were to be held that in the cases of contracts of guarantee, the

summary procedure can be availed even where the guarantee given is verbal

/ oral, the same will make Order XXXVII CPC susceptible to challenge

under Article 14 of the Constitution of India as arbitrary and discriminatory

i.e. within the same class providing a different procedure for adjudication of

suits.

27. I therefore hold that a suit under Order XXXVII Rule 1(2)(b)(iii) CPC

has to be by a creditor against a principal debtor and a guarantor / surety on

a written guarantee and not on a verbal / oral guarantee.

28. In the present case there was absolutely nothing before the Trial

Court, except the admission of the respondent /defendant no.2, to show that

the respondent no.1 / plaintiff had so stood guarantee on behalf of the

appellant / defendant no.1. The cheques issued by the appellant / defendant

no.1 were not in favour of the respondent no.1 / plaintiff. The flow of money

even if any from the account of the respondent / defendant no.2 to the

account of the appellant / defendant no.1 would at best entitle the respondent

/ defendant no.2 to sue the appellant / defendant no.1 for recovery thereof.

The appellant / defendant no.1 having disputed the transaction, it had but to

be determined by evidence whether the respondent no.1 / plaintiff had so

stood guarantee and whether the respondent no.1 / plaintiff had so made

payment under the guarantee.

29. The order dismissing the application for leave to defend is thus found

to be erroneous and without application of mind and without reading of the

judgment on which reliance was placed and is axiomatically set aside.

Resultantly, the appeal is allowed; the suit in which decree under Order

XXXVII has been passed is held to be not maintainable under Order

XXXVII and is ordered to be tried as a summary suit.

30. The parties to appear before the Court of ADJ-3, South East District,

Saket Courts, New Delhi and if the said Court no longer exists before the

Court of DJ, South East District, Saket, New Delhi on 15 th March, 2016.

The respondent no.1 / plaintiff is also burdened with costs of Rs.15,000/- of

this appeal to be payable before the learned ADJ as a condition for

proceeding further with the suit.

Decree sheet be drawn.

The monies deposited by the appellant in this Court be refunded to the

appellant with interest if any accrued thereon.

Trial Court record requisitioned in this Court be returned forthwith.

RAJIV SAHAI ENDLAW, J FEBRUARY 09, 2016 „bs/gsr‟..