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Saturday, October 3, 2015

whether the Courts below were right in decreeing the Summary Suit without granting the relief of leave to defend to the defendant/appellant as envisaged under Order 37 Rule 3 C.P.C.? 11. Taking into consideration the totality of the facts and circumstances of the case, we are of the opinion that the defendant/appellant has made out a prima facie case of triable issues in the Suit which needs to be adjudicated. Therefore, the defendant is entitled to grant of unconditional leave to defend the Suit. Although certain other issues are raised by both the parties, in view of our finding that the defendant/appellant is entitled to leave to defend the Suit, we do not find it necessary to go into other issues at this stage. As regards the contention advanced on behalf of the respondent/plaintiff that the mere denial of liability by the appellant Bank saying that the Officer in charge of the Foreign Exchange Department of the appellant Bank was not authorized to give co-acceptance to the Bills and thereby alleging a fraud by the officials cannot be sustained as those are the internal affairs of the defendant Bank for which the plaintiff/respondent cannot be penalized and the international trade practices and banking regulations have to be respected, this Court need not to go in detail in respect of these issues when we have come to an irresistible conclusion that the appellant/defendant is entitled to defend the Suit. Hence, we are reluctant to give findings on any of these issues which may adversely affect the trial of the Suit. Accordingly, we allow the appeal by setting aside the judgment and decree passed by the Courts below. The appellant/defendant is granted unconditional leave to defend the Summons for Judgment in Summary Suit No. 1586 of 2001. The learned Single Judge of the High Court has to deal all the issues raised by the parties afresh and any observation made by this Court while dealing with this appeal should not be construed as an expression of this Court. There shall, however, be no order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 8194 OF 2015
                               ARISING OUT OF
              SPECIAL LEAVE PETITION (CIVIL) NO. 33549 OF 2014


STATE BANK OF HYDERABAD                      … APPELLANT

VERSUS

RABO BANK                                    … RESPONDENT


                                  JUDGMENT

N.V. RAMANA, J.


      Leave granted.
2.    This appeal has been directed against the Judgment  and  Decree  dated
9th October, 2014 passed  by  the  Division  Bench  of  the  High  Court  of
Judicature at Bombay in Appeal No. 415 of 2014 arising out  of  Summons  for
Judgment No. 238 of 2008 in Summary Suit No.  1586  of  2001.  By  the  said
judgment, which is impugned herein, the Division Bench  of  the  High  Court
dismissed the appeal preferred by the appellant/defendant thereby  upholding
the Judgment of the learned Single Judge.
3.    In order to adjudicate the controversy between  the  parties,  at  the
outset it is necessary to cull out the facts of the case to  the  extent  of
deciding the dispute before us.
4.     The  respondent/plaintiff  is  a  banking  institution   located   in
Singapore and on behalf of its constituent namely  M/S  Gloland  (Far  East)
Pte. Ltd., the respondent/plaintiff carried on business  dealings  with  the
appellant/defendant. The constituent of the respondent  is  engaged  in  the
business of export of Chick Peas and it shipped a consignment to its  Indian
clients, namely, M/S Kothari Global Ltd. and M/S Marudhar Edible Oils  Ltd.,
while  handing  over  three  sets  of  relevant  documents  dated  4.2.1998,
24.2.1998 and 13.7.1998  to  the  respondent/plaintiff  for  collecting  the
payment  totaling  US  $  8,19,199.35   from   its   Indian   clients.   The
respondent/plaintiff   in   turn   forwarded   those   documents   to    the
appellant/defendant on  the  condition  of  releasing  them  to  the  Indian
clients  of  its  constituent  against  payment.   It   appears   that   the
appellant/defendant  did  not  receive  payment  from  the  clients  of  the
respondent and hence did not release the documents to them.
5.     While  the  things   stood   so,   on   9th   September,   1998   the
respondent/plaintiff sent a fax message  to  the  appellant  Bank  enquiring
whether they would accept Bills  of  Exchange  (Drafts)  payable  after  170
days, to which the appellant Bank conveyed its acceptance. Accordingly,  the
respondent sent four Bills of Exchange, all dated  9th  September,  1998  in
favour of the appellant Bank for an amount of US  $  8,19,198.75.  Again  on
21st September, 1998, the respondent sent another set of documents  together
with Bills of Exchange to  the  appellant  Bank  for  the  amount  of  US  $
11,12,428.54 for collection from the Indian clients of  constituent  of  the
respondent. The collection tenor was specified as 170 days  after  the  date
of Draft (Bill of Exchange). The respondent by a Telex  message  dated  23rd
October, 1998 instructed the appellant Bank to deposit the  payment  against
Bills  of  Exchange  totaling  US  $  19,31,627.89  into  their   New   York
Correspondent Bank viz., Bankers Trust Company  on  the  due  date  of  27th
February, 1999.
6.    When the appellant Bank did  not  remit  the  amount  even  after  the
expiry of due date, the respondent/plaintiff  on  9th  March,  1999  sent  a
Telex message to the appellant/defendant to remit the  proceeds  along  with
interest @ 9.75% for the late payment. It appears that on the same day,  the
appellant Bank replied to  the  respondent  denying  its  liability  on  the
ground that the manner and mode in which the  transactions  took  place  was
not in ordinary course of business and the acceptance given by  its  Kolkata
Branch at Burra Bazar appears to be in total  disregard  to  the  prevailing
procedure in Banks. It has also been informed to  the  respondent  that  the
matter has been entrusted to the  Central  Bureau  of  Investigation  (CBI).
This was followed by various correspondences exchanged between  the  parties
alleging and denying the liability till 31st March, 2001 on which  date  the
respondent filed Summary Suit No. 1586 of 2001 before the High Court.
7.      The   learned   Trial   Judge   fixed   the   liability    on    the
appellant/defendant and made absolute  the  summons  for  judgment  awarding
interest @ 9.75% p.a. w.e.f. 27th February, 1999 i.e. the maturity  date  of
Bills of Exchange, till realization of principal amount. Aggrieved  thereby,
the defendant/appellant filed an intra-Court appeal before  the  High  Court
which came to be dismissed by the Division Bench upholding the order of  the
learned Single Judge. Not satisfied with the Judgment  of  the  High  Court,
the appellant/defendant filed the appeal on hand by way  of  special  leave.
On 15th December, 2014, this Court while issuing  notice,  stayed  operation
of the impugned order of the High Court.
8.    Mr. Mukul Rohtagi, learned Attorney  General  for  India,  arguing  on
behalf of the appellant Bank submitted that the Single Judge as well as  the
Division Bench of the High Court were not justified in fixing the  liability
upon the appellant Bank. In the absence of an opportunity to  the  appellant
Bank to defend its case and file written statement in such a  case  where  a
huge amount of US $ 19,31,627.89 is  involved,  the  decision  of  the  High
Court cannot be appreciated  to  be  a  correct  one.  While  assailing  the
judgment of the High Court, learned  Attorney  General  submitted  that  the
respondent/plaintiff has no valid legal reason to institute the  Suit  under
Order 37, CPC. The Suit does not qualify the test of  Order  37  1(ii)(b)(i)
as there was no specific averment with respect to a “written  contract”  and
the averment so pleaded by the plaintiff/respondent is with respect  to  “an
agreement”. There was no consideration to the appellant Bank and merely  the
telex/fax  messages  do  not  constitute  a  written  contract  between  the
parties. The instruments in question (Bills of Exchange) did  not  bear  the
“acceptance” on behalf of the appellant Bank. The provisions  of  Negotiable
Instruments Act  mandate  that  the  “acceptance”  shall  be  given  by  the
drawee/acceptor by signing his assent on the face of the Bill  of  Exchange.
However, in the present case, no such endorsement of acceptance  is  present
on behalf of the appellant  Bank,  nor  any  document  was  appended  giving
acceptance. Merely the telex/fax messages, purportedly issued on  behalf  of
the  appellant  Bank,  cannot  give  rise  to  the  claim  advanced  by  the
plaintiff/respondent.  In  such  a  situation,  the  enforcement  is   clear
violation of public policy envisaged under Section 23 of the  Contract  Act.
The Head Office  of  the  appellant-Bank  has  already  instructed  all  its
Branches to prohibit even co-acceptance of Bills or purchase/discounting  of
Bills  accepted  by  other  Banks,  unless  otherwise  a  specific   written
confirmation is made by the respective controlling office of the  Bank.  The
telex/fax messages, on which the respondent has been relying  on,  were  not
issued with the authority of the appellant Bank. It was  purely  an  act  of
mischief by certain persons representing the clients of the  constituent  of
the respondent done with connivance of some officers of the  appellant-Bank,
and the High Court ought to have appreciated  this  fact.  Learned  Attorney
General   drawing   our   attention   to   an   affidavit   filed   by   the
defendant/appellant seeking leave to defend  the  Summary  Suit  enumerating
the factual aspects of the case, submitted that the  learned  Single  Judge,
ignoring the case of the defendant, decreed  the  Suit  making  Summons  for
Judgment absolute.  The Division Bench of the High Court  also  committed  a
grave error in  not  appreciating  the  legal  requirements  in  their  true
perspective and hence the judgments of the Courts below  are  liable  to  be
set aside.
9.    Learned senior counsel appearing for the respondent/plaintiff, on  the
other hand, supported the Judgment of the Courts below  and  submitted  that
the respondent/plaintiff has made the payment to the  exporter  M/S  Gloland
(Far   East)   Pte.   Ltd.   only   after   the   representation   of    the
appellant/defendant to accept the Bills of  Exchange.  The  conduct  of  the
appellant Bank in not fulfilling its obligation, on  a  bald  allegation  of
fraud made by its officials acting beyond their authority,  is  not  in  the
interest of justice. International banking activities  operate  on  implicit
faith and trust between the parties and  escaping  from  the  responsibility
showing a truncated reason of internal fraud, cannot be sustained. Even  the
reason of internal fraud as shown by the  appellant  Bank  is  not  strongly
based, because the tested telexes  sent  by  the  senior  officials  of  the
appellant Bank ensure their authenticity and leads to the  presumption  that
the message was sent under the authority of the Bank.  The  appellant  Bank,
in fact, had obtained letters of indemnity on stamp  paper  duly  signed  by
the  authorized  signatory  of  the  Indian  clients  of  the   respondent’s
constituent, thereby indemnifying the  appellant  Bank  in  respect  of  co-
acceptance for the tested telex messages.  Learned  senior  counsel  finally
submitted that there is no error apparent in the  judgments  of  the  Courts
below and the appeal deserves to be dismissed.
10.   Having heard learned counsel for the parties, the short question  that
falls for our consideration is  whether  the  Courts  below  were  right  in
decreeing the Summary Suit without granting the relief of  leave  to  defend
to the defendant/appellant as envisaged under Order 37 Rule 3 C.P.C.?
11.   We think that for  the  adjudication  of  the  said  question,  it  is
appropriate first to examine the  affidavit  filed  by  the  appellant  Bank
seeking leave to defend, after receiving Summons for Judgment. In  the  said
affidavit, it is categorically mentioned that the Suit in  question  is  not
maintainable to be a Summary Suit as per law. Paras 5 to 8 of the  affidavit
filed  by  the  Branch  Manager   and   the   Principal   Officer   of   the
Defendant/appellant, reads thus:
5)    I say that the plaintiff has filed the present  suit  in  March,  2001
praying for various reliefs as set out  therein.  The  plaintiff  thereafter
preferred the Summons for Judgment in the same in the month  of  June,  2001
being the Summons for Judgment No. 1305 of 2001. I crave leave to  refer  to
and rely upon the records and proceedings in respect  to  the  said  Summons
for Judgment as and when produced.

6)    The plaintiff thereafter withdrew the said  summons  for  judgment  on
24th February, 2003 with the liberty. The plaintiff  has  failed  in  taking
out the proceedings for amendment of the said summary  suit.  The  plaintiff
took out the Chamber Summons No. 576 of 2007 in April 2007, praying  of  the
various amendments to the summary suit. Thus, the said Chamber  Summons  was
taken out after a lapse of four years, when the plaintiff had preferred  the
summons for  judgment  in  the  said  suit.  This  clearly  shows  that  the
plaintiff has failed and neglected in prosecuting his rights under the  said
suit and there is a deliberate delay on the part of the plaintiff in  taking
out the chamber summons for the amendment of the said plaint.

7)    I say that the present suit is not maintainable  as  a  Summary  Suit.
The present suit is filed by the plaintiff in respect to  various  Bills  of
Exchange alleged to have been accepted by the  Defendant.  I  say  that  the
drawee is required to sign his assent on the Bill  of  Exchange  itself  and
not on any other part of the instrument/document as per  the  provisions  of
the Negotiable Instrument Act and as per the  practice  followed  by  Banks.
Further,  the  alleged  Bills/Suit  documents  including   Bills   are   not
admissible as they are not stamped as per the provisions of the  Stamp  Act.
If the drawee puts his signature  on  any  other  paper  than  the  Bill  of
Exchange, it would not be construed as acceptance under  the  provisions  of
the Negotiable Instruments Act.

8)    In the present  case,  admittedly  the  drawee  has  not  affixed  his
signature, showing the co-acceptance of the Bills, on the Bills.  Hence  the
alleged acceptance of the Bills of Exchange by the defendant as well as  the
drawee is not proper and the said Bills of Exchange cannot  be  said  to  be
duly accepted by the defendant as well as the drawee.

12.   Thus, the appellant/defendant by way of the  aforementioned  affidavit
took the plea that the contract between the  parties  was  not  a  concluded
contract and the Suit in question is barred  by  limitation.  Prior  to  the
present Suit, the plaintiff/respondent had earlier in the  year  2001  filed
another Suit preferring Summons for Judgment, but withdrew the same  in  the
year 2003. Only  after  taking  out  the  Chamber  Summons  seeking  various
amendments  after  a  lapse  of  four   years   in   the   year   2007   the
plaintiff/respondent preferred the Summons  for  Judgment  in  the  Suit  in
question, with an intention of deliberately delaying  the  process  of  law.
Such a vast delay of about four years clearly indicates  the  negligence  on
the part of the plaintiff in prosecuting its  rights  and  again  initiating
the proceedings after a lapse of four years time  is  clear  abuse  of  law.
Further plea taken by the defendant/appellant is that the  Suit  is  not  at
all maintainable merely for the reason that there  is  no  signature  giving
assent by the drawee on the face of Bills nor there  the  signature  of  the
defendant giving co-acceptance. In addition, the stamping on the  Bills  was
also not done as per the requirements of law. A clear stand has  been  taken
by the defendant/appellant in  the  affidavit  that  the  signature  of  the
drawee giving assent should be affixed on the face of the Bill  of  Exchange
itself under the provisions of the Negotiable Instrument Act and  all  Banks
follow the same principle. Besides, the Bills are not stamped following  the
principles of Stamp Act.
13.   We have further noticed  in  the  affidavit  that  the  defendant  has
levelled an allegation that drawer and drawee of the Bills  had  perpetrated
fraud on  the  defendant  with  the  collusion  of  some  officials  of  the
plaintiff  Bank  and  the  CBI  inquiry  on  this  issue  is  also  pending.
Pertinently, the Reserve Bank of  India  has  also  been  informed  on  this
matter reporting that a fraud had taken place. It is also important to  note
the strong allegation raised in the affidavit that besides  the  Suit  being
barred by limitation, the persons who signed the plaint were not  authorized
or empowered to file the Suit.
14.   Another glaring aspect in the case is that the Division Bench  of  the
High   Court   in   its   order    categorically    mentioned    that    the
appellant/defendant has not actually endorsed its acceptance  on  the  Bills
of Exchange. In spite of recording such a finding, the High Court held  that
the appellant/defendant has agreed to pay the amount due even  de  hors  the
Bills of Exchange, which is sufficient to grant a decree in  favour  of  the
respondent/plaintiff.
15.   As regards the entitlement of a defendant to the  grant  of  leave  to
defend, the law  is  well  settled  long  back  in  the  year  1949  in  Sm.
Kiranmoyee Dassi Vs. Dr. J. Chatterjee, AIR 1949 Cal 479,  in  the  form  of
the following propositions:
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  the
judgment and the defendant is entitled to unconditional leave to defend.

If the defendant raised 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.


If the defendant discloses  such  facts  as  may  be  deemed  sufficient  to
entitle him to defend, that is to  say,  although  the  affidavit  does  not
positively and immediately made it clear that he has a defence,  yet,  shows
such a stage 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 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.


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  leave
to sign judgment and the defendant is not entitled to leave to defend.


If the defendant has no defence or  the  defence  is  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 defendant by  enabling  him  to  try  to  prove  a
defence.


16.   It is also  noticed  that  the  law  as  enunciated  above,  has  been
followed by the Courts in several cases [See also : Santosh Kumar  Vs.  Bhai
Mool Singh, AIR 1958 SC 321, Milkhiram (India) (P) Ltd. Vs. Chamanlal  Bros,
AIR 1965 SC 1698, Mechelec Engineers &  Manufacturers  Vs.  Basic  Equipment
Corpn., (1976) 4 SCC 687 and Sunil Enterprises & Anr. Vs. SBI  Commercial  &
International Bank Ltd. (1998) 5 SCC 354].



17.   An analysis of the above principles  makes  it  clear  that  in  cases
where the defendant has raised a triable issue or a reasonable defence,  the
defendant is entitled to unconditional leave to defend. Leave is granted  to
defend even in cases where the defendant  upon  disclosing  a  fact,  though
lacks the defence but makes a positive impression  that  at  the  trial  the
defence would be established to the plaintiff’s claim.  Only  in  the  cases
where the defence set up is illusory or sham or practically  moonshine,  the
plaintiff is entitled to leave to sign judgment.



18.   Insofar as the question of maintainability of  the  Suit  in  question
under Order 37, CPC is concerned, this  Court  has  in  Neebha  Kapoori  Vs.
Jayantilal  Khandwala,  2008  (3)  SCC   770   observed   that   where   the
applicability of Order 37 itself is in question, grant of  leave  to  defend
may be permissible. The Court before passing a decree is  entitled  to  take
into consideration  the  consequences  therefor.  The  Courts  dealing  with
summary trials should act very carefully taking note  of  the  interests  of
both the parties. Merely on the ground that  the  defendant  may  resort  to
prolonged litigation by putting  forth  untenable  and  frivolous  defences,
grant of leave to defend cannot be declined. At the  same  time,  the  Court
must ensure that the defendant raises a real issue and not a sham  one.  The
Court  cannot  reject  the  defence  on  the  ground  of  implausibility  or
inconsistency. Before recording a finding of granting leave to  defend,  the
Court should assess the facts and come to the conclusion that if  the  facts
alleged by the defendant in the affidavit are established, there would be  a
good or even a plausible defence on those facts.



19.   Although the affidavit does not positively  and  immediately  make  it
clear that he had a defence, yet, it shows such a state of facts leading  to
the inference that at the trial of the action, the defendant may be able  to
establish a defence to the plaintiff`s claim the plaintiff is  not  entitled
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  [See
: T. Sukhender Reddy Vs. M. Surender Reddy, 1998 (3) ALD 659].



20.   We are in total agreement with the view taken by  this  Court  in  Raj
Duggal Vs. Ramesh Kumar Bansal, 1991 Suppl.(1) SCC 191 that leave to  defend
the Summons for Judgment shall always  be  granted  to  the  defendant  when
there is a triable issue as to the meaning or correctness of  the  documents
on which the claim is based or the alleged facts are of  such  nature  which
entitle the defendant to interrogate or cross-examine the plaintiff  or  his
witnesses.

21.   In the case on hand, we have perused the material on record  including
the FIR dated 9th August, 1999 registered by the  CBI  at  the  instance  of
Chief Vigilance Officer, SBH and also the Charge Sheet  filed  by  the  CBI.
The charge sheet indicated the involvement of      Mr. Sudhir  Behra,  Chief
Manager of the appellant Bank at Burra Bazar  Branch,  Calcutta.  Acting  at
the requests of representatives from the Indian clients of the  respondent’s
constituent, the Chief Manager had induced some officers  of  the  appellant
Bank who were In-charge of  Foreign  Exchange  Department  to  issue  tested
telex messages of co-acceptance.  The  charge  sheet  further  alleges  that
these officers were not authorized to  issue  such  co-acceptances  and  the
motive behind their illegal  and  unauthorized  action  was  to  enable  the
constituent of the respondent to get their bills discounted by  jeopardizing
the interests of the appellant Bank. It is also on record that the trial  of
the said case was at the stage of evidence as on 13th November, 2014.
22.   Apart  from  these,  the  substantial  revelations  of  the  defendant
(appellant) in the  affidavit  coupled  with  the  views  expressed  by  the
Division Bench of the High Court makes  it  clear  that  there  are  certain
triable issues for adjudication and the defendant/appellant is  entitled  to
defend the Suit. The appellate side of the High Court ought  to  have  taken
into consideration the factual matrix  of  the  case  before  recording  its
finding.  Taking  into  consideration  the  totality  of   the   facts   and
circumstances  of   the   case,   we   are   of   the   opinion   that   the
defendant/appellant has made out a prima facie case  of  triable  issues  in
the Suit  which  needs  to  be  adjudicated.  Therefore,  the  defendant  is
entitled to grant of unconditional leave to defend the Suit.
23.   Although certain other issues are raised by both the parties, in  view
of our finding that the defendant/appellant is entitled to leave  to  defend
the Suit, we do not find it necessary  to  go  into  other  issues  at  this
stage.   As   regards   the   contention   advanced   on   behalf   of   the
respondent/plaintiff that the mere denial  of  liability  by  the  appellant
Bank saying that the Officer in charge of the  Foreign  Exchange  Department
of the appellant Bank was not authorized to give co-acceptance to the  Bills
and thereby alleging a fraud by the officials cannot be sustained  as  those
are  the  internal  affairs  of   the   defendant   Bank   for   which   the
plaintiff/respondent  cannot  be  penalized  and  the  international   trade
practices and banking regulations have to be respected, this Court need  not
to go in detail in  respect  of  these  issues  when  we  have  come  to  an
irresistible conclusion that the appellant/defendant is entitled  to  defend
the Suit. Hence, we are reluctant to give findings on any  of  these  issues
which may adversely affect the trial of the Suit.
24.   Accordingly, we allow the appeal by setting  aside  the  judgment  and
decree passed by  the  Courts  below.  The  appellant/defendant  is  granted
unconditional leave to defend the Summons for Judgment in Summary  Suit  No.
1586 of 2001. The learned Single Judge of the High Court  has  to  deal  all
the issues raised by the parties afresh and any  observation  made  by  this
Court while  dealing  with  this  appeal  should  not  be  construed  as  an
expression of this Court. There shall, however, be no order as to costs.

..................................J.
(RANJAN GOGOI)



……………................J.
(N.V. RAMANA)
New Delhi,
October 1, 2015

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