Mechelec Engineers & Manufacturers v Basic Equipment Corporation

Facts

The respondent partnership firm sued the appellant under the summary procedure of Order 37 CPC to recover Rs. 21,265.28 with interest on a cheque dated 12 May 1971 that had been dishonoured, claiming the cheque was payment for goods supplied. The appellant admitted issuing the cheque but denied any contractual relationship with the respondent and offered an alternative explanation for the cheque's issuance. The trial court granted the appellant unconditional leave to defend. On the respondent's revision, the High Court interfered under Section 115 CPC, taking the view that the defence was not bona fide and that conditions (security) should be imposed.

Issues

• What are the principles governing the grant of leave to defend in a summary suit under Order 37 CPC?
• Whether the High Court, exercising revisional jurisdiction under Section 115 CPC, could interfere with the trial court's discretionary order granting the defendant unconditional leave to defend on the ground that the defence was not bona fide.

Arguments

The appellant contended that the trial court had rightly granted unconditional leave to defend because triable issues existed, in particular whether any contractual obligation existed between the parties, and that the High Court ought not to have re-assessed those facts before evidence. The respondent contended that the defence was illusory and lacked bona fides, so that the court should at least have made leave conditional on the defendant furnishing security or depositing the amount claimed.

Held

The Supreme Court allowed the appeal and restored the trial court's order granting unconditional leave to defend. Adopting the five-fold classification laid down in Smt. Kiranmoyee Dassi v. Dr. J. Chatterjee, the Court held that where the defendant raises a triable issue or discloses a bona fide defence, he is entitled to unconditional leave, and conditions such as security or deposit are justified only where the defence is illusory or sham and the court extends discretionary mercy. The Court held it was not fair to pronounce a categorical opinion on the bona fides of the defence before the evidence of the parties was taken so that its effect could be examined. Accordingly, the High Court had erred in interfering under Section 115 CPC, since interference with the trial court's discretion was warranted only where the defence was patently dishonest or so unreasonable that it could not reasonably be expected to succeed.

Ratio decidendi

In a summary suit under Order 37 CPC, a defendant who raises a triable issue or a bona fide defence must be granted unconditional leave to defend; conditional leave requiring security or deposit is permissible only where the defence is illusory or sham. A High Court cannot, under Section 115 CPC, substitute its own assessment of the defence's bona fides for the trial court's discretion unless the defence is patently dishonest or wholly unreasonable.

Significance

A landmark decision that settled the modern principles for granting leave to defend in summary suits by endorsing the five categories from Kiranmoyee Dassi v. J. Chatterjee. It has been consistently followed and is the leading authority repeatedly cited (e.g. in IDBI Trusteeship Services Ltd. v. Hubtown Ltd.) on when unconditional, conditional or no leave to defend should be granted under Order 37, and on the limits of revisional interference with such discretionary orders.

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