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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

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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.

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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 23 rd

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

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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 15 th December, 2014,

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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

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“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

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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

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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:

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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

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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

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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

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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:

(1)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.

(2)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.

(3)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.   

(4)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

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

(5)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

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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.

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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

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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 13 th

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

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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.

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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