Bombay High Court Decrees Four IL&FS Loan Recovery Suits After Defendants Breach Deposit Condition; Holds Order XXXVII Entitles Plaintiff to Judgment Forthwith
Bombay High Court Grants IL&FS Recovery Decrees After Defendants Ignore Eight-Week Deposit Direction; Keeps Claims Against Insolvency-Protected Parties in Abeyance
Facts
The Bombay High Court decided together four Commercial Summary Suits instituted by IL & FS Financial Services Limited for recovery of amounts advanced under written contracts and negotiable instruments. In each suit, the first defendant was the principal borrower, while the remaining defendants were corporate and personal guarantors.
The four proceedings were Commercial Summary Suit Nos. 779, 886, 887 and 923 of 2019. The first of these was instituted against SKIL Infrastructure Limited and various guarantors.
By a common judgment dated 18 February 2020, the Court had granted the defendants conditional leave to defend, subject to depositing the amounts actually disbursed to the respective borrowers. The original loan agreements, guarantees and pledge agreements relied upon by IL&FS were also impounded because they were insufficiently stamped.
The defendants failed to comply with the deposit condition. Consequently, non-deposit certificates were issued in all four suits.
Meanwhile, the stamping authorities adjudicated the documents and IL&FS paid the requisite deficit stamp duty. It placed the original impounded documents, adjudication orders and stamp-duty receipts on record.
A separate complication arose because insolvency proceedings were pending against SKIL Infrastructure Limited and personal guarantor Nikhil Gandhi. By an earlier order dated 7 April 2026, the Court therefore kept the suits stayed against those defendants while permitting them to proceed against the remaining defendants.
IL&FS accordingly sought judgment against the remaining defendants under Order XXXVII Rule 3(6)(b) CPC.
Issues
The principal issues were:
- Whether failure to comply with the deposit/security condition imposed while granting conditional leave to defend entitled IL&FS to judgment forthwith under Order XXXVII Rule 3(6)(b).
- Whether any further factual inquiry into IL&FS’s loan claims was necessary after the defendants failed to satisfy the conditional-leave order.
- Whether the earlier insufficiency of stamp duty prevented the Court from granting decrees after IL&FS subsequently paid the adjudicated deficit stamp duty.
- Whether the Court must still examine questions of law, limitation, jurisdiction or other apparent legal bars before granting a decree despite the defendants’ default.
- Whether IL&FS was entitled to all contractual interest, additional interest, penal interest and delayed-payment interest claimed.
- What effect the insolvency moratoriums concerning SKIL Infrastructure and Nikhil Gandhi had on the four suits.
Plaintiff’s Arguments
IL&FS contended that the Court had already examined its documentary case when deciding the summons for judgment in February 2020.
At that stage, the Court considered the defendants’ proposed defences and the loan, guarantee, pledge and other written documents. Conditional leave was then granted subject to deposit of the amount actually disbursed.
IL&FS submitted that it had subsequently complied with the directions concerning insufficient stamping by paying the deficit stamp duty.
Since the defendants had failed to comply with the corresponding condition requiring security/deposit, no further inquiry was necessary and IL&FS became entitled to judgment forthwith.
It relied upon Order XXXVII Rule 3(6)(b), read with Rule 224 of the Bombay High Court Original Side Rules, to argue that non-compliance with conditional leave permitted the suit to be immediately set down for judgment.
IL&FS sought decrees against all defendants not protected by the insolvency moratorium.
Respondents’ Position
The judgment does not record substantive arguments advanced by the defendants at this stage.
Significantly, after conditional leave was granted subject to deposit, the defendants failed to comply with the condition and subsequently failed to appear before the Court. Non-deposit certificates formally recorded their non-compliance.
The case was therefore determined principally on the legal consequences of their failure to satisfy the condition attached to leave to defend.
Analysis of the Law
Failure to Satisfy Conditional Leave Entitles Plaintiff to Judgment Forthwith
The central provision was Order XXXVII Rule 3(6)(b) CPC.
The Court held that where a defendant is granted leave to defend subject to furnishing security and fails to furnish that security within the stipulated time, the plaintiff becomes entitled to judgment forthwith.
In the present case, the defendants had been directed to deposit the amount actually disbursed within eight weeks.
They did not do so.
The consequence was that they could no longer contest the suits in the ordinary manner.
Plaint Allegations Become Deemed Admitted
The Court explained that non-compliance with conditional leave has a significant procedural consequence.
Once a defendant loses the right to defend under the summary procedure, the contents of the plaint are treated as deemed admitted.
The Court relied upon the established principle that a defendant who fails to satisfy the security condition cannot subsequently seek to contest the plaintiff’s factual case.
The defendants’ failure therefore eliminated the need for a further factual trial on IL&FS’s loan claims.
But “Judgment Forthwith” Does Not Mean Blind Decree
This is one of the more important propositions in the judgment.
The Court held that although factual allegations stand admitted, Order XXXVII does not remove the Court’s independent obligation to determine whether the decree sought is legally permissible.
A judgment ultimately results in a decree conclusively determining the parties’ rights. Therefore, even where there is no defence, the Court must consider obvious questions of law before granting relief.
For example, the Court must independently consider:
- whether the claim is barred by limitation;
- whether it lacks jurisdiction; or
- whether some other apparent legal prohibition prevents the decree.
The summary procedure curtails the defendant’s ability to contest the claim, but does not extinguish the Court’s judicial duty to ensure that the claim accords with law.
This qualification is important to understanding the ratio of the judgment.
Stamp Duty Defect Had Been Cured
The original loan, guarantee and pledge documents had earlier been impounded for insufficient stamping.
However, the stamping authorities subsequently adjudicated the deficit, and IL&FS paid the additional stamp duty.
The original documents, adjudication orders and payment receipts were placed on record.
The Court therefore found complete compliance with its earlier directions.
Accordingly, insufficient stamping no longer constituted an obstacle to the decrees.
Admissions of Debt Were Already Recorded
While granting conditional leave, the Court had previously found clear admissions of debt to the extent of the principal amounts.
It also noted written admissions and one-time settlement proposals acknowledging an aggregate liability of approximately ₹700 crore.
The underlying principal claims in the four suits were:
- ₹248.70 crore in Suit No. 779/2019;
- ₹250 crore in Suit No. 886/2019;
- ₹120 crore in Suit No. 887/2019; and
- ₹43 lakh in Suit No. 923/2019,
apart from contractual interest and other charges.
Interest-on-Interest Cannot Be Granted
IL&FS’s prayer included contractual interest at 16% per annum, together with additional interest, penal interest and delayed-payment interest.
The Court held that Section 34 CPC confers discretion concerning pendente lite and future interest.
Importantly, a decree cannot grant interest upon interest.
Since the outstanding amounts in the particulars of claim already incorporated contractual, additional, penal and delayed-payment interest, awarding further interest in the manner claimed would result in impermissible interest-on-interest.
Considering the commercial nature of the transactions, the Court instead awarded 9% interest on the decretal amounts from the date of filing of the respective suits until realisation.
Precedent Analysis
D. Shanalal v. Bank of Maharashtra
The Bombay High Court Division Bench had held that refusal of leave to defend deprives the defendant of the right to contest the summary suit.
Where conditional leave requires furnishing security and the defendant fails to do so, the defendant is similarly precluded from contesting the suit.
This formed a central foundation for the present decision.
Ramkarandas Radhavallabh v. Bhagwandas Dwarkadas
The Supreme Court authority was considered through D. Shanalal.
The principle drawn was that failure to perform the conditions attached to leave under Order XXXVII results in the allegations in the plaint being treated as admitted.
K.R. Patel (HUF) v. M.M. Developers
Following D. Shanalal, the Bombay High Court had held that once a defendant fails to file a defence because of non-compliance with Order XXXVII Rule 3(6)(b), there is no further scope for factual inquiry, and the plaintiff becomes entitled to judgment forthwith.
Surge Industries Limited v. Kamal Gupta
The Delhi High Court interpreted “entitled to judgment forthwith” as providing for an immediate decree following default in entering appearance, seeking leave or complying with the conditions imposed for leave.
Once default occurs, the plaintiff’s entitlement to judgment follows automatically, subject to the Court’s duty to ensure the relief is legally grantable.
Agarwal Developers Pvt. Ltd. v. Icon Buildcon Pvt. Ltd.
The Delhi High Court Division Bench similarly held that Order XXXVII Rule 3(6)(b) contains a clear mandate: where a defendant fails to make the deposit required as a condition of leave, the Court must proceed to judgment forthwith.
National Commodity Clearing Ltd. v. Dita Comtrade Ltd.
The Bombay High Court had interpreted “forthwith” as meaning “without delay” where the condition of deposit was not complied with.
The judgment reinforced the consistent judicial approach that breach of the security/deposit condition attracts the consequence prescribed by Order XXXVII Rule 3(6)(b).
Court’s Reasoning
The Court found that all the essential conditions for granting decrees were satisfied.
First, IL&FS’s underlying written contracts and documentary case had already been examined at the summons-for-judgment stage.
Second, conditional leave was granted because the Court found admissions regarding disbursement and outstanding liability while nevertheless permitting a defence upon deposit.
Third, the defendants failed to make the court-ordered deposits.
Fourth, IL&FS cured the stamp-duty deficiencies identified in the original documents.
Fifth, the defendants’ factual challenge therefore stood foreclosed and the plaint allegations were deemed admitted.
Sixth, the Court independently examined whether any legal bar prevented recovery and found none.
However, the Court declined to mechanically grant the entire interest formulation claimed by IL&FS because doing so would permit interest-on-interest.
Final Decrees
The Court passed substantial monetary decrees in all four suits:
Commercial Summary Suit No. 779/2019: ₹314,19,51,918 against Defendant Nos. 2, 3, 4, 5, 6 and 8, jointly and severally, with 9% interest from filing until realisation.
Commercial Summary Suit No. 886/2019: ₹321,46,29,047 against Defendant Nos. 1, 3, 4, 5, 6, 7 and 9, jointly and severally, with 9% interest.
Commercial Summary Suit No. 887/2019: ₹159,19,81,284 against Defendant Nos. 1 and 4, jointly and severally, with 9% interest.
Commercial Summary Suit No. 923/2019: ₹53,93,87,934 against Defendant Nos. 1 and 4, jointly and severally, with 9% interest.
Thus, the four decrees aggregate to approximately ₹848.80 crore, apart from 9% interest from the respective dates of institution until realisation.
Effect of IBC Moratorium
The Court did not decree the suits presently against SKIL Infrastructure Limited and Nikhil Gandhi where the applicable insolvency moratoriums remained operative.
Instead, it granted IL&FS liberty to apply against the moratorium-protected defendants after the respective moratorium orders cease to operate.
Accordingly, the judgment does not extinguish IL&FS’s claims against those parties; adjudication against them remains deferred because of the IBC protection.
Conclusion
The Bombay High Court held that where defendants in a summary suit are granted conditional leave to defend subject to a deposit or security and fail to comply, Order XXXVII Rule 3(6)(b) entitles the plaintiff to judgment forthwith.
The defendants consequently lose their right to contest the factual allegations, which stand deemed admitted.
At the same time, the Court clarified that summary procedure does not compel a court to grant an unlawful decree. Even after default, it must examine apparent questions of limitation, jurisdiction and other legal bars.
Finding no such impediment to IL&FS’s recovery claims and noting that the stamp-duty deficiencies had been cured, the Court decreed the four suits for approximately ₹848.80 crore, with 9% interest from filing until realisation, while refusing impermissible interest-on-interest and preserving claims against defendants presently protected by IBC moratoriums.
Case Details
Case: IL & FS Financial Services Limited v. SKIL Infrastructure Limited & Ors., with connected Commercial Summary Suits
Court: Bombay High Court, Ordinary Original Civil Jurisdiction
Case Numbers: Commercial Summary Suit Nos. 779, 886, 887 and 923 of 2019
Judge: Justice Gauri Godse
Date: 14 August 2026
Result: Four summary suits decreed against the non-moratorium defendants for approximately ₹848.80 crore in aggregate, with 9% interest from filing until realisation; no order as to costs. Claims against moratorium-protected defendants kept open
