If Defendant Shows Plausible Defense Under Order 37 CPC, Court Must Grant Leave Unconditionally Without Requiring Any Security: J&K High Court

Order 37 of the CPC provides a summary procedure for money recovery suits based on written contracts, promissory notes, or bills of exchange, ensuring speedy disposal of cases where the defendant lacks a real defense. Unlike regular suits, the defendant must seek leave to defend, which is granted unconditionally if a plausible defense is disclosed.

Citing Mechelec Engineers and Manufacturers V. Basic Equipment Corporation” reported in 1976 Justice Javed Iqbal Wani explained,

“.. if the defendant discloses such facts as may be deemed sufficient to entitle him to defend which leads 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 judgement and the defendant is entitled to leave to defend, but in such a case the Court may in its discretion impose condition as to the time or mode of trial but not as to the payment into Court or furnishing security”

These observations came in a dispute that originated from a suit filed by one Mohammad Shafi Bhat against Bilal Ahmad Bhat under Order 37 of the Code of Civil Procedure for the recovery of ₹11 crores along with 18% interest.

The plaintiff alleged that the defendant had received this amount for purchasing land and executed multiple agreements, including an agreement to sell, a demand promissory note, and receipts. A subsequent agreement was executed after the defendant allegedly failed to comply with the original terms. When the defendant failed to repay the amount, the plaintiff initiated the suit.

During the proceedings, the defendant entered an appearance and sought leave to defend the suit. He contended that the agreements relied upon by the plaintiff were fraudulent, obtained under coercion and blackmail, and that he had actually paid ₹4.10 crores to the plaintiff from January 2020 to August 2020. The defendant argued that the plaintiff had concealed material facts and approached the court with unclean hands.

The trial court, while considering the defendant's application for leave to defend, acknowledged that the defense was "plausible but improbable." However, instead of granting unconditional leave, it imposed a condition requiring the defendant to furnish a bank guarantee covering 50% of the claimed amount within a month.

Aggrieved by this decision, the defendant filed a revision petition before the High Court under Section 115 of the CPC, challenging the imposition of such a condition.

Justice Wani, while adjudicating the matter, cited the above Supreme Court's ruling which laid down the principles governing leave to defend. He reiterated that If a defendant has a strong defense, unconditional leave must be granted and If the defense is fair and bona fide, even if not conclusively strong, unconditional leave must still be allowed.

Elaborating further the court added that if the defendant presents facts suggesting a possible defense, leave must be granted, and while the court can regulate the time and mode of trial, it cannot impose conditions requiring security or prepayment of the claim. Only when the defense is illusory, sham, or moonshine can the court deny leave or impose financial conditions, the bench underscored.

Applying these principles, Justice Wani held that the trial court's observation that the defense was "plausible but improbable" was itself sufficient to entitle the defendant to unconditional leave. By imposing a bank guarantee requirement, the trial court had overlooked settled law and erred in a manner that resulted in injustice, he reasoned.

In light of these conclusions the High Court set aside the portion of the trial court's order that required the defendant to furnish a bank guarantee, granting him unconditional leave to defend. The trial court was directed to proceed with the case strictly in accordance with law.

Case Title: Bilal Ahmad Bhat Vs Mohammad Shafi Bhat

Citation: 2025 LiveLaw (JKL) 35

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