MILKHIRAM INDIA PRIVATE LIMITED Vs. CHAMANLAL BROS

JUDGEMENT

(1.) The question which we have to consider in this appeal by special leave is whether the trial Judge was right in granting leave to the appellants to defend the suit based upon promissory notes executed by the appellant No. 1, which was instituted on the original side of the High Court at Bombay on condition that the appellants deposited security to the extent of Rs. 70,000. The other appellants are sought to be made liable upon an indenture of guarantee dated 20-11-62 with respect to the amounts advanced to the appellant No. 1. The procedure followed in the case was that set out in Order 37, Civil Procedure Code. Rules 2 and 3' of this Order have been amended by the Bombay High Court. Sub-rule (1) of R. 2 provides that suits of certain kinds specified therein may be instituted by presenting a plaint in the form prescribed but the summons shall be in Form 4 in Appendix III or in such other Form as may from time to time be prescribed. Suits upon bills of exchange, hundis or promissory notes or for liquidated amounts are some of the kinds of suits which can be instituted under this provision. Sub-r. 2 provides that in suits of this kind the defendant shall not defend the suit unless he enters an appearance and obtains leave from the judge as provided in O. 37 so to defend. It further provides that in default of entering an appearance and of his obtaining such leave to defend the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree as prayed for in the plaint. Sub-rr. 2 and 3 of R. 3 of O. 37 as amended by the High Court run thus :

(2.) It will be convenient to deal with the second point first. The respondents in their plaint have alleged that from time to time they advanced monies to the appellants and obtained promissory notes from them. They are four in number and the total amount advanced under them was Rs. 3,45,000. The execution and consideration for these promissory notes is admitted by the appellants. The respondents have further stated in their plaint that Mikhiram (India) Private Ltd., appellant No. 1, had been permitted by the Government of India to export 5250 tons of pulses on certain conditions and that at the request of the other appellants the respondents agreed to finance the company's business of export of pulses on the terms and conditions set out in a letter dated February 7, 1962 addressed to them by the company. One of the terms set out in the letter is to the effect that the company will act in consultation with the respondents and also under their control. Another term is that 50 per cent of the profits will be paid to the respondents in consideration of the financial accommodation given by them. The plaint proceeds to state that on account of a change in the political and economic condition in India soon after the agreement was entered it became necessary to revise and alter the terms of the agreement of February 7, 1962 and that a further agreement was arrived at between the parties the terms of which are set out in a letter D/- November 20, 1962 addressed by the company to the respondents. One of the revised terms was that if the business which the company was to do became impossible or "obviously unprofitable" the agreement dated February 7, 1962 would stand cancelled forthwith and that in that event the company would repay to the respondents on demand the advance made to the company under the first agreement together with interest at 9 per cent per annum from the date of the advance till realisation. The company further agreed to reimburse the respondents for and on account of any loss incurred by them up to the date of the cancellation of the first agreement with further interest at 9 per cent. The revised agreement also provided that the company would try to obtain a revision of the conditions concerning export of pulses from the Ministry of Commerce and Industry and that thereupon it would be in the absolute discretion of respondents to decide whether to continue the financing of the business thereafter or to cancel and terminate the original agreement. The plaint recites that on November 20, 1962 the appellants 2 to 4 executed an indenture of guarantee to secure repayment to the respondents up to the limit of Rs. 7,00,000 and interest thereon. The Ministry, however, did not revise the original terms and conditions relating to the export of pulses but only extended the period from that originally fixed upto June 30, 1963. For these reasons and for some other reasons set out in the plaint the respondents formed an opinion that it became unprofitable for them to continue to finance the appellants any further and cancelled the agreement dated February 7, 1962. It is because of this that they called upon the appellant to repay the amounts advanced by the respondents together with interest at 9 per cent. In paragraph 12 of the plaint the plaintiffs have averred as follows:

(3.) Mr. Yogeshwar Prasad contended that it was incumbent upon respondents to claim in their suit not only what they say was payable to them under the promissory notes but also the damages to which they were entitled by virtue of the agreement between the parties. A suit of this kind would certainly be out of purview of O. 37, R. 2. The short answer to the question is that the respondent did make an application to the Court under O. 2, R. 2, subr.3, C.P.C., for leave to reserve their claim under the agreement for being adjudicated in another suit. The Court granted leave to them and, therefore, no further question arises. Moreover what we are concerned with is the claim made by the respondents in the present suit. Here they have sought relief only on the basis of the promissory notes and the indenture of guarantee. Even assuming that they were also entitled to other relief on the same cause of action it was certainly open to them even to relinquish their claims for other reliefs. The mere fact that they did so to avail themselves of the summary procedure provided in O. 37, could not affect their suit adversely. However, in this case the respondents obtained leave to reserve their claim based upon the agreement before they took out summons against the appellants under O. 37, R. 2, sub-r. 2. That order was not challenged by the appellants and has become final between the parties so far as the present suit is concerned.