Holding

A conditional leave to defend may be validly imposed under Order 37 Rule 3(5) when the defendant has a triable defence, and the Single Judge's discretionary order requiring a Rs 15 lakh deposit was proper.

Summary

Sify Ltd., a network services provider, filed a summary suit under Order 37 Rule 2 of the CPC to recover unpaid dues from First Flight Couriers Ltd. The respondent sought unconditional leave to defend, but the Single Judge of the Bombay High Court granted conditional leave, requiring a deposit of Rs 15 lakh, which the respondent complied with. The Division Bench of the High Court set aside that order and allowed the respondent to defend without any condition. On appeal, the Supreme Court held that under Order 37 Rule 3(5) the court may impose conditions on leave to defend when the defence is triable but not clearly established, and that the Single Judge's order was a valid discretionary exercise, not arbitrary. The Court observed that the respondent had admitted liability and had already deposited the stipulated amount, so the Division Bench erred in interfering. Consequently, the Supreme Court set aside the Division Bench order, restored the conditional leave, and granted two months for the respondent to deposit the amount, allowing the appeal in part.

Issues considered

Whether a defendant in a summary suit under Order 37 CPC is entitled to unconditional leave to defend the suit.
Whether the High Court can impose a condition, such as a monetary deposit, on the grant of leave to defend under Order 37 Rule 3(5).

Legislation cited

Code of Civil Procedure, 1908s. Order 37 Rule 3(5)

Subjects

summary suitconditional leave to defendOrder 37 CPCdiscretionary orderdeposit conditioncivil procedure

Judgment

[2008] 1 S.C.R. 339

'Y M/S. SIFY LTD. A
I
V.
M/S. FIRST FLIGHT COURIERS LTD.
(C.A. No. 90 of 2008)
JANUARY 8, 2008
B
[TARUN CHATTERJEE & DALVEER BHANDARI, JJ.]

Code of Civil Procedure, 1908 - 0.37 - Summary suit
under - Conditional leave to defend - Grant of - Default in
payment of outstanding dues despite various demands - c
Recovery suit against respondent - Single Judge of High
Court observed that there was no evidence of deficiency of
service and granted leave to defend on condition of deposit of
Rs. 15 lacs - On appeal, Division Bench held that respondent
was entitled to defend the suit without any condition - Held: D
Division Bench erred in interfering with order of Single Judge
- The order of Single judge was discretionary order - Also the
amount of Rs. 15 lacs was already deposited by respondent -
Claim regarding deficiency of services was not raised when
demand was made for services rendered - Once liability is
admitted, it is not open to take stand that services provided E
were deficient.
The respondent hired the services of the appellant
. engaged in the business of providing service in setting
up of networks and other value added services in the field F
of information and technology. As the respondent
committed defaults in making payments in respect of
services provided, the appellant filed a summary suit under
0.37 r.2 CPC for recovery of the outstanding dues. The
appellant filed the summons for judgment. The G
respondent filed reply to the summary suit and to the
summons for judgment seeking unconditional leave to
defend the suit. The Single Judge of High court granted
leave to defend on a condition of deposit of Rs.15 lacs.
On appeal, Division Bench of High Court held the H
339
340 SUPREME COURT REPORTS [2008] 1 S.C.R.

A respondent entitled to defend the suit without any
~
condition. Hence the instant appeal.
Partly allowing the appeal, the Court
HELD: 1. A bare reading of Sub-rule (5) of Rule 3 of
B 0.37 CPC would clearly indicate that leave to defend may
be granted to a defendant unconditionally or upon such
terms as may appear to the Court or Judge to be just, that
is to say, the discretion is left to the Court to put the >-
defendant on terms, in the facts and circumstances of a "
c particular case, on compliance whereof the defendant
shall be entitled to defend the suit. Proviso to Sub-rule (5)
lays down 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
defence to raise or that the defence intended to be put
D up by the defendant is frivolous or vexatious. [Para 6]
[344-A, B, C]
2.1 The order of the Single Judge imposing the ,,
'f.

condition for deposit of Rs. 15 lacs on the respondent to
E defend the suit cannot be, said to be an arbitrary or
unreasonable order. The Division Bench of the High Court
ought not have interfered with the order passed by the
Single Judge as (i) the order of the Single Judge was a
discretionary order and (ii) the amount of Rs. 15 lacs was
already deposited by the respondent. [Para 9] [347-C, D]
F
~
Mis. Meche/ec Engineers and Manufacturers v. Mis.
Basic Equipment Corporation (1976) 4 SCC 687; Sunil
r
Enterprises and Anr v, SB/ Commercial and International Bank
Ltd. (1998) 5 sec 354 - relied on.
G 2.2. It is also an admitted finding that the respondent
used the services of the appellant and failed to pay the
outstanding dues despite various demands. The Single r "
Judge observed that there was no material evidence to
show that there was any such deficiency ·of service of the
H appellant in not providing services to the respondent. The
MIS. SIFY LTD. v. M/S. FIRST FLIGHT COURIERS LTD. 341

letter dated 26th of June, 2002 produced by the respondent A
claiming for the first time after 2000 that there was
deficiency of service must be, prima facie, found to be an
afterthought exercise on the part of the respondent The
materials, as admitted by the respondent, would clearly
show that the respondent was making payments towards s
various invoices raised by the appellant. It is also evident
from the record that the respondent did not raise any such
claim regarding deficiency of service when the appellant
was demanding its past balance/dues for the services
rendered. Once the respondent admitted its liability to pay c
for the services rendered by the appellant, it was not open
to it to repudiate the same by taking a stand that the
services provided by the appellant were deficient. That
apart, from the available record, the respondent had not
satisfied even the Division Bench that it was entitled to
D
defend its case without any condition. [Para 10) [347-E, F,
G; 348-A, BJ
2.3. The respondent had also accepted the order of
the Single Judge and complied with the condition imposed
therein. When the respondent had duly complied with the E
conditions imposed by the Single Judge in its
discretionary order, the Division Bench was not justified
in interfering with such discretionary order. In any view
of the matter, the order of t~e Division Bench, granting
leave to the respondent without any condition, in the facts F
and circumstances of the case, was not justified. The order
of the Division Bench is set aside and the order of the
Single Judge by which the leave to defend the suit was
granted to the respondent on the condition of deposit of
Rs. 15 lacs in the court is restored. As the amount of Rs'. G
15 lacs was withdrawn by the respondent, 2 months time
is granted to the respondent to deposit the aforesaid
amount in.the High Court and in default of such deposit,
the leave granted to the respondent to defend shall stand
refused. [Paras 10-11] [349-A, B, C, D, E]
H
•
342 SUPREME COURT REPORTS [2008) 1 S. C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 90
'T
of 2008.
From the final Judgment and Order dated 13.12.2005 of
the High Court of Judicature at Bombay in Appeal No. 1128/
2005.
B
K. V. Mohan for the Appellant.
Ramji Srinivasan, Syed Naqvi, Smita Inna and Rajesh
i
Kumar for the Respondent.
The Judgment of the Court was delivered by
c
TARUN CHATIERJEE, J. 1. Leave granted.
2. This appeal is directed against the order dated 13th of
December, 2005 passed by a Division Bench of the High Court
of Judicature at Bombay in Appeal No. 1128 of 2005 whereby
D the Division Bench had allowed the appeal of the respondent
thereby setting aside the order passed by a learned Single
l
Judge of the same High Court granting conditional leave to
defend, to the respondent on deposit of a sum of Rs. 15 lacs. ,....
3. The facts giving rise to the filing of this appeal may be
E
briefly stated as follows.
4. The appellant company is engaged in the business of
providing service in setting up of Networks and other value
added services in the field of information and technology. The
F respondent company is engaged in the business of providing
Courier services. The respondent hired the services of the
appellant as the service provider for the connection of its f
Networks ae:ross India, which included Internet Access and
Virtual Private Network (VPN). It is the case of the appellant
that the respondent committed defaults in making payments in
G respect of the services provided by the appellant to the
respondent. In view of the continued failure of the respondent to
clear the outstanding dues in respect of invoices, the appellant
.,, .?----

filed a summary suit, being SS No. 1576 of 2004, under 0. 37
R.2 of the Code of Civil Procedure (in short "the CPC") against
H the respondent seeking recovery of a sum of Rs. 25, 73, 793/-
M/S. SIFY LTD. v. MIS. FIRST FLIGHT 343
COURIERS LTD. [TARUN CHATTERJEE, J.]
i~
" along with 18 % interest p.a. in the High Court of Judicature at A
Bombay. The appellant, thereafter, filed the summons for
judgment, being SJ No. 652 of 2004, in the afore said suit
claiming Rs. 25, 73, 793/- and further interest at 18 % on the
principle amount Rs. 23,18,797/- till payment. The respondent
.. filed its reply to the summary suit and the summons for judgment B
seeking unconditional leave to defend the suit. It was the case
> of the respondent that there was deficiency in service provided
• by the appellant and that the appellant's suit was based on
accounts and not on invoices. The learned Single Judge, as
noted herein earlier, disposed of the application for leave to c
defend the suit filed by the appellant holding that the respondent
shall be entitled to defend the suit on condition of deposit of Rs.
15 Lacs. The learned Single Judge, therefore, granted leave to
defend the suit to the respondent on the aforesaid condition. It
is an admitted position that the respondent had deposited the
D
sum of Rs. 15 Lacs in the court within the time specified in the
): aforesaid order. Feeling aggrieved, the respondent preferred
an appeal being Appeal No. 1128 of 2005 which, as noted
herein earlier, was allowed by·the Division Bench of the High
Court of Judicature at Bombay holding that the respondent was
entitled to defend the suit without any condition. It is this order of E
the Division Bench, which is challenged before us by way of a
special leave petition in respect of which leave has already been
granted.

-.'• 5. The question that needs to be decided in this appeal is F
+ whether, in view of the pleadings in the suit as well as the
application filed by the respondent for leave to defend the suit,
it was entitled to an unconditional leave to defend the suit as
was directed by the Division Bench of the High Court of Bombay.

'~ · 6. We have heard the learned counsel for the parties and G
""'i examined the orders passed by the Division Bench and the
learned Single Judge of the High Court of Bombay, the
application for grant of unconditional leave, the pleadings in the
suit and the other materials on record. Before we decide the
question posed before us, it would be appropriate to take into H
344 SUPREME COURT REPORTS [2008] 1 S.C.R.

A consideration Order 37 Rule 3 Sub-rule (5) of the CPC, which
provides for grant of leave to a defendant to defend a suit either
•t
-
unconditionally or upon such terms as may appear to the Court
or Judge to be just. A bare reading of Sub-rule (5) of Rule 3 of
Order 37 would clearly indicate that leave to defend may be
B granted to a defendant unconditionally or upon such terms as ;,_

may appear to the Court or Judge to be just, that is to say, the
discretion is left to the Court to put the defendant on terms, in ~

~
the facts and circumstances of a particular case, on compliance
whereof the defendant shall be entitled to defend the suit.
c Proviso to Sub-rule (5) lays down 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
defence to raise or that the defence intended to be put up by
the defendant is frivolous or vexatious.
D 7. Having noted the aforesaid provisions of the CPC under
Order 37 Rule 3 Sub-rule (5), it would be expedient at this stage
to enumerate the position of law as to when an unconditional ~
leave to defend a summary suit can be granted. In Mis.
Mechelec Engineers & Manufacturers Vs. Mis. Basic
E Equipment Corporation [(1976) 4 SCC 687], this court
enumerated certain propositions as to when an unconditional
leave can be granted or the defendant can be put on terms. The
said propositions, as enumerated by this court in the aforesaid
decision, may be stated as follows: -
F '
a) If the defendant satisfies the court that he has a good ~-
defence to the claim on its merits the plaintiff is not entitled
to leave to sign judgment and the defendant is entitled
to unconditional leave to defend.
b) If the defendant raises a triable issue indicating that
G ..__
he has a fair or bona fide or reasonable defence although )-'
not a positively good defence the plaintiff is not entitled
to sign judgment and the defendant is entitled to
unconditional leave to defend.

H c) If the defendant discloses such facts as may be
M/S. SIFY LTD. v. M/S. FIRST FLIGHT 345
COURIERS LTD. [TARUN CHATTERJEE, J.]

deemed sufficient to entitle him to defend, that is to say, A
although the affidavit does not positively and
immediately make it clear that he has a defence, yet,
shows such a state of facts as leads to the inference that
at the trial of the action he may be able to establish a
defence to the plaintiff's claim the plaintiff is not entitled B
to judgment and the defendant is entitled to leave to
defend but in such a case the court may in its discretion
impose conditions as to the time or mode of trial but not
as to payment into court or furnishing security.

d) If the defendant has no defence or the defence set C
up is illusory or sham or practically moonshine then
ordinarily the plaintiff is entitled to leave to sign judgment
and the defendant is not entitled to leave to defend.

e) If the defendant has no defence or the defence is D
illusory or sham or practically moonshine then although
ordinarily the plaintiff is entitled to leave to sign judgment,
the court may protect the plaintiff by only allowing the
defence to proceed if the amount claimed is paid into
court or otherwise secured and give leave to the defendant
on such condition, and thereby show mercy to the E
defendant by enabling him to try to prove a defence."

On the same lines is the decision of this court in Sunil
Enterprises & anr. Vs. SB/ Commercial & International Bank
Ltd. [(1998) 5 SCC 354] wherein the propositions, as noted F
herein above, were summed up.
8. From the propositions, as noted herein above, it is clear
that it is only in cases which fall in class (e) that an imposition of
the condition to deposit an amount in court before proceeding
further is justifiable. We, therefore, have to decide whether the G
case before us falls in class (e) or whether it falls in class (b) or
(c). To answer this question, it is necessary to note the grounds
taken by the learned Single Judge to grant conditional leave to
defend to the respondent and those taken by the Division Bench
to set aside the order of the learned Single Judge. While H
346 SUPREME COURT REPORTS [2008] 1 S.C.R.

A directing the respondent to deposit a sum of Rs. 15 Lacs thereby
...
granting it conditional leave to defend the suit, the learned Single
Judge made the following findings: -
1. There is no material evidence to show that there is
any deficiency of service of the Plaintiffs.
B
2. The suit is based on each of the invoices and is
therefore, a fit case where leave be granted on condition. >(

The Division Bench, while setting aside the order of the
learned Single Judge, recorded the following findings: -
c
1. The defence raised by the Defendant that there was
deficiency of service is not after thought in as much as
way back by the communication dated 26 1h of June, 2002,
the defendant raised the dispute about the deficiency in
service and communicated to the plaintiff that the VPN
D
link was shut down without any prior intimation causing
the loss of goodwill and image in the market. Grievance ;
...,._
was also raised by the defendant that the defendant had
incurred heavy loss to the tune of more than Rs.
1, 00, 00, 0001-.
E
2. The contention of the plaintiff before the learned trial
;udge that the amount paid by the defendant is not towards
the service charges but towards the installation charges
which the defendant was liable to pay even though the
F services were not rendered at the relevant time and that •
the claim was not waived and that contention was }'
contested by the defendant also raises a serious question
to be tried during the trial.
3. The contention of the defendant that a close scan of
G the plaintiff's suit would show that it is based on accounts
and not on invoices and therefore, the summary suit was
not maintainable cannot be said to be frivolous.
4. The defendant has been able to raise triable issues.

H 9. Having heard the learned counsel for the parties and
M/S. SIFY LTD. v. MIS. FIRST FLIGHT 347
COURIERS LTD. [TARUN CHATTERJEE, J.]

. afte'r going through the judgment of the Division Bench as well A
as of the learned Single Judge in detail, we are of the view that
the order passed by the learned single judge, granting conditional
leave to the respondent to defend the suit, ought nofto have
been interfered with by the Division Bench as (i) the order of the
learned Single Judge was a discretionary order and (ii) the B
amount of Rs. 15 Lacs was already deposited by the respondent.
In view of the aforesaid admitted fact, the Division Bench of the
;.
High Court ought not to have interfered with the discretionary
• order of the learned Single Judge granting conditional leave to
defend to the respondent when no case was made out by the c
respondent that the said order was either arbitrary or
unreasonable. The order of the learned Single Judge imposing
the condition for deposit of Rs. 15 Lacs on the respondent to
defend the suit cannot be, in our view, said to be an arbitrary or
unreasonable order. As noted herein earlier, it is an admitted
D
position that in compliance with the order of the learned Single
Judge, the deposit of Rs. 15 Lacs was duly made by the
,;.," respondent. Therefore, it is clear that the respondent had
practically complied with the order of the learned Single Judge
and for this reason, it was not open to the Division Bench to
interfere with the discretionary order of the learned Single Judge. E
10. It is also an admitted finding that the respondent used
the services of the appellant and failed to pay the outstanding
dues despite various demands. The learned Single Judge, after
noting down the contentions of the appellant that the amount F
' paid by the respondent was not towards service charges but it
~ was towards installation charges which they were liable to pay
even though the services were not rendered at the relevant time
and that there was no deficiency of service and after looking at
the correspondence between the parties, found no merit in the
G
defence put up by the respondent. The learned Single Judge
also observed that there was no material evidence to show that
there was any such deficiency of service of the appellant not
providing services to the respondent. A close scrutiny of the
record, in our view, would indicate that no material was produced
H
348 SUPREME COURT REPORTS [2008] 1 S.C.R.

A to show that the respondent had complained about the
deficiency in service prior to 26th of June, 2002. The learned
..
Single Judge, after considering, inter alia, the contention of the
appellant that the appellant had waived the service charges and
not the installation charges, granted leave to defend the suit to
B the respondent on deposit of Rs. 15 Lacs. That apart, from the
available record, we are of the view that the respondent had not
satisfied even the Division Bench that it was entitled to defend ..
its case without any condition. From the materials produced by
the respondent, it would also be evident that it was liable to pay
'
c for the services provided by the appellant. The letter dated 25th
of June, 2002 produced by the respondent claiming for the first
time after 2000 that there was deficiency of service must be,
prima facie, found to be an afterthought exercise on the part of
the respondent. The materials, as admitted by the respondent,
would clearly show that the respondent was making payments
D
towards various invoices raised by the appellant. It is also
evident from the record that the respondent did not raise any
such claim regarding deficiency of service when the appellant
.
;..
was demanding its past balance/dues for the services rendered.
It also appears from the record that the appellant has established
E that the respondent remitted certain sums against various
invoices raised by it and that the respondent did not raise any
question about the deficiency of service earlier. Once the
respondent admitted its liability to pay for the services rendered
by the appellant, it was not open to it to repudiate the same by
F taking a stand that the services provided by the appellant were _,,.
'
deficient. In any view of the matter, the Division Bench granted
unconditional leave to defend to the respondent without
considering any of the materials produced by the parties. In view
of the aforesaid findings, which, of course, are prima facie in
G nature, it would not be unwise for this court to hold that the
condition (e), enumerated in the decision of this court in Mis.
Mechelec Engineers & Manufacturers Vs. Mis. Basic
Equipment Corporation [supra], as noted herein earlier, was
satisfied in the present case and accordingly, the conditional
H leave granted by the learned Single Judge was a proper order,
M/S. SIFY LTD. v. MIS. FIRST FLIGHT 349
COURIERS LTD. [TARUN CHATTERJEE, J.]

which the Division Bench ought not to have interfered with. At A
~
the risk of repetition, we may also note that the respondent had
also accepted the order of the learned Single Judge and
complied with the condition imposed therein. In view of the
discussions made herein above, we are, therefore, of the view
that the Division Bench was not justified in interfering with the B
discretionary order of the learned Single Judge granting
conditional leave to defend to the respondent on deposit of Rs.
'i 15 Lacs. Vve, therefore, hold that when the respondent had duly
• complied with the conditions imposed by the learned Single
Judge in its discretionary order, the Division Bench was not c
justified in interfering with such discretionary order. In any view
of the matter, we are of the view that the order of the Division
Bench, granting leave to the respondent without any condition,
in the facts and circumstances of the case, was not justified.
11. For the reasons aforesaid, we set aside the order of D
the Division Bench and restore the order of the learned Single
Judge by which the learned Single Judge had granted leave to
_,.,• defend the suit to the respondent on the condition of deposit of
Rs. 15 Lacs in the court. As the amount of Rs. 15 Lacs has
been withdrawn by the respondent, we grant 2 months time to E
the respondent to deposit the aforesaid amount in the High Court
of Bombay and in default of such deposit, the leave granted to
the respondent to defend shall stand refused. The appeal is
thus allowed to the extent indicated above. There will be no order
as to costs. F
I
~\- D.G. Appeal partly allowed.
I