Delhi High Court Orders Repayment in Loan Dispute, Rejects Leave to Defend: “Conditional Repayment Defence is Frivolous; Defence Raised is Completely Moonshine and Vexatious”

Court’s Decision

The Delhi High Court denied the applications filed by the defendants seeking leave to defend the suits for recovery of Rs.6,42,76,712.33 and Rs.8,81,91,452, concluding that their defence lacked merit and was “completely moonshine.” The court decreed in favor of the plaintiff, directing the defendants to pay the claimed amounts, along with the costs of the suit.

Facts

The plaintiff filed suits under Order XXXVII of the Code of Civil Procedure, seeking recovery of loan amounts with interest. He claimed that these loans were granted to the defendants, who are his relatives, due to financial difficulties. Signed cheques were provided by the defendants for repayment, but they subsequently defaulted. The plaintiff alleged that the cheques presented for repayment were dishonored due to insufficient funds and other issues.

Issues

1. Whether the defendants were entitled to leave to defend the recovery suits.
2. Whether the amounts lent by the plaintiff constituted repayable loans or gratuitous financial assistance.
3. Whether the plaintiff’s addition of dates on the undated cheques amounted to material alteration under Section 87 of the Negotiable Instruments Act (NI Act).

Petitioner’s Arguments

The plaintiff contended that the defendants had borrowed significant sums on the basis of family trust, which they agreed to repay on demand. Despite multiple demands and notices, the defendants failed to honor their repayment obligations. The plaintiff argued that their defence was frivolous and that the loans were intended to be repaid on demand.

Respondent’s Arguments

The defendants argued that the funds were provided as financial aid without a fixed repayment timeline, asserting that repayment was contingent on their financial ability. They further claimed that the plaintiff filled in the dates on the undated cheques, thus materially altering them under Section 87 of the NI Act. The defendants also alleged that they were under duress due to external circumstances involving extortion from a third party, which affected their financial situation.

Analysis of the Law

The court reviewed Order XXXVII Rule 3(5) of the CPC, noting that unconditional leave to defend should be granted only if the defence is substantial or genuine. It cited the Supreme Court’s judgment in B.L. Kashyap and Sons Ltd. v. JMS Steels and Power Corporation to emphasize that denial of leave to defend is an exception rather than the rule. The court also analyzed Section 87 of the NI Act, concluding that the addition of a date to an undated cheque does not constitute a material alteration.

Precedent Analysis

The court examined the judgments in Krishna Finhold Pvt. Ltd. v. Gupta & Co. and BPDL Investments (Pvt) Ltd. v. Maple Leaf Trading International (P) Ltd., but found them inapplicable to the present case due to differences in circumstances. The court relied on the Supreme Court’s ruling in Bir Singh v. Mukesh Kumar, which held that an undated cheque filled in by the holder does not invalidate it under the NI Act.

Court’s Reasoning

The court found that the defendants’ claims of conditional repayment were unsupported and contradicted by their provision of signed cheques. It rejected the defence as frivolous and concluded that the absence of a fixed repayment date implies repayment on demand, not at the debtor’s discretion.

Conclusion

The court decreed the suits in favor of the plaintiff, ordering the defendants to repay the specified amounts along with the costs of the suits.

Implications

This ruling reinforces the principle that loans repayable on demand cannot be deferred at the discretion of the debtor. It also underscores that the addition of a date on an undated cheque by the payee does not invalidate it, emphasizing the need for substantial defences in applications for leave to defend under Order XXXVII of the CPC.

Also Read – Bombay High Court Grants Interim Relief to Petitioner, Directs SFIO to Adhere to Working Hours for Senior Citizens’ Questioning, Emphasizes “Fairness and Reasonableness”; Suspends Coercive Steps Until Further Notice