M/s Mechalec Engineers and Manufacturers v M/s Basic Equipment Corporation (1977)

This is the case that gives the five graded propositions on leave to defend a summary suit. They are quoted in almost every later judgment on Order XXXVII, and an answer on the subject which does not set them out is incomplete.

The case has a second use, and examiners exploit it: it is also an authority on the limits of revisional jurisdiction under s. 115. The High Court had substituted its own view on a question of fact — whether the defence was honest — for that of the trial court. That, said the Supreme Court, is not what s. 115 allows.

The plaintiff-respondent, alleged to be a registered partnership firm, filed a suit on 25 April 1974 through a person shown as one of its partners, to recover Rs 21,265.28 as principal and Rs 7,655 as interest at 12 per cent, on the strength of a cheque dated 12 May 1971 drawn by the defendant on the State Bank of India, which was dishonoured on presentation. The plaintiff said the cheque was given as the price of goods supplied.

The defendant firm admitted that the cheque had been issued by its managing partner, but denied any privity of contract with the plaintiff firm and had its own version of the reasons and purposes for which the cheque was drawn.

The suit being under Order XXXVII, the defendant applied for leave to defend. The trial court, the Additional District Judge of Delhi, granted leave unconditionally after perusing both sides' cases.

In revision under s. 115 the Delhi High Court interfered. After setting out no fewer than seven questions on which the parties were at issue, and holding that triable issues arose, the judge nevertheless concluded that the defences were not bona fide, and granted leave on condition of payment into court of Rs 21,265.28 with interest at 6 per cent from the date of suit and the court-fee, within two months.

Could the High Court interfere under s. 115 with the discretion of the Additional District Judge in granting unconditional leave to defend, on grounds which even the High Court's own order showed to be reasonable?

No. The judgment and order of the High Court were set aside and that of the Additional District Judge restored.

The court adopts the classification of Das J in Smt Kiranmoyee Dassi v Dr J. Chatterjee (1945), made after a comprehensive review of the authorities:

(a) If the defendant satisfies the court that he has a good defence on the 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 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.

(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend — that is, although the affidavit does not positively and immediately make it clear that he has a defence, it shows a state of facts leading to the inference that at the trial he may be able to establish a defence — the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend; but here 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 up is illusory or sham or practically moonshine, then ordinarily the plaintiff is entitled to judgment and the defendant is not entitled to leave to defend.

(e) In that same class of case the court may, instead, protect the plaintiff by allowing the defence to proceed only if the amount claimed is paid into court or otherwise secured, giving leave on that condition and thereby showing mercy to the defendant by enabling him to try to prove a defence.

The controlling sentence of the judgment is that only in class (e) is the imposition of a condition to deposit an amount in court before proceeding further justifiable — and the case before the court certainly did not fall in that class.

The Santosh Kumar line is affirmed. The court recalls Santosh Kumar v Bhai Mool Singh (1958) and, through it, Jacobs v Booth's Distillery Co. (1901): whenever a defence raises a really triable issue, leave must be given, and unconditionally where the defence cannot be shown to be dishonest at the outset. It repeats the caution that a court may impose conditions if it is of opinion that the defence is not bona fide, but cannot reach that conclusion arbitrarily.

The revisional point. The well-established principles governing the jurisdiction of High Courts under s. 115 were ignored by the judge, who interfered with a discretionary order after a very detailed discussion of the facts and who differed on a pure question of fact — whether the defences could be honest and bona fide. Any decision on such a question, before evidence has been led, is generally hazardous, and it is not fair to pronounce a categorical opinion on it before the evidence is taken so that its effect can be examined.

The threshold for questioning unconditional leave. It is only in cases where the defence is patently dishonest, or so unreasonable that it could not reasonably be expected to succeed, that the trial court's exercise of discretion in granting unconditional leave may be questioned. In the judgment of the High Court the Supreme Court was unable to find any ground of interference covered by s. 115.

Reproduce the five propositions in order; they are the mark scheme for the question. Then say which class the facts fall into, and draw the consequence: unconditional leave in classes (a) and (b); leave with conditions as to the time or mode of trial only in class (c); refusal in class (d); and a condition of deposit or security only in class (e).

Where the problem involves a High Court upsetting an order granting leave, add the second holding: s. 115 is not a licence to reappraise a discretionary finding on a question of fact, still less before evidence has been led.

Class (c) is the one students forget, and it is the one that carries the finest distinction in the whole Order. There the defendant does get leave, and the court may impose conditions — but only as to the time or mode of trial. A demand for money into court in a class (c) case is exactly the error that both this case and Santosh Kumar correct.