Trial courts given guidelines on granting leave to defend

By Vivek Vashi and Aishwarya Singh, Bharucha & Partners
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The Supreme Court of India, in its recent judgment in IDBI Trusteeship Services Ltd v Hubtown Ltd, has reviewed the principles governing the grant of “leave to defend” in a summary suit as per the amended order XXXVII rule 3 of the Code of Civil Procedure, 1908.The case involved a summary suit filed by IDBI against Hubtown for a guarantee issued in favour of IDBI.

Vivek Vashi, Mainstay of the litigation team, Bharucha_&_Partners
Vivek Vashi
Mainstay of the litigation team
Bharucha_&_Partners

The judgment sets aside the finding of Bombay High Court, which allowed unconditional leave to defend to Hubtown in view of “triable issues which require adjudication on further evidence”.

While scrutinizing the defence raised by Hubtown, the Supreme Court considered whether the guidelines set out in Mechelec Engineers & Manufacturers v M/s Basic Equipment Corporation (1976) stood superseded in view of the amendment to order XXXVII in 1976, and considered the provisions of the order as it stood prior to the amendment and as it now stands.

The court also discussed the judgment in Milkhiram (India) (P) Ltd v Chamanlal Bros (1965), which was decided in accordance with order XXXVII rule 3 as amended by Bombay High Court at the relevant time (which is the same as the amendment of 1976). The Supreme Court held the Milkhiram judgment to be a direct authority in view of the amended provision.

In view of the Milkhiram decision, which allows trial judges to exercise their discretionary powers in granting leave to defend, the Supreme Court recognized the need to frame guidelines to obviate the exercise of judicial discretion in an arbitrary manner. Superseding the guidelines laid down in the Mechelec case, the Supreme Court set out the following guidelines:

a. “If the defendant satisfies the court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit;

b. If the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend;

c. Even if the defendant raises triable issues, if a doubt is left with the trial judge about the defendant’s good faith, or the genuineness of the triable issues, the trial judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security;

d. If the defendant raises a defence which is plausible but improbable, the trial judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires;

e. If the defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith;

f. If any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant in court.”

Aishwarya Singh Associate Bharucha & Partners
Aishwarya Singh
Associate
Bharucha & Partners

The Supreme Court observed that Hubtown’s defence was “plausible but improbable” and accordingly imposed conditions on its leave to defend.

By enunciating the above guidelines, the Supreme Court has set to rest the issue of conditional and unconditional leave to defend and provided much needed assistance to prevent arbitrary exercise of judicial discretion in granting such leave.

The guidelines set out in this judgment will promote uniformity and reduce arbitrariness in the decisions of judges by requiring consideration of relevant issues involving good faith, genuineness of defence and triable issues raised by the defendant. This will also help ensure that justice is done.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Aishwarya Singh is an associate.

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