2004 (1) TMI 435 - HC - Companies Law

Summary

Issues Involved:
1. Whether the provisions of Rules 5 and 6 of Chapter XIII-A of the Original Side Rules (OS Rules) were properly applied.
2. Whether the defendant had a good defense or raised a triable issue.
3. Whether the court could call for records and examine witnesses, including third parties.
4. The legality of the Reserve Bank of India's refusal to permit the transmission of funds.
5. Whether the plaintiff was entitled to a refund of the deposited amount.

Detailed Analysis:

1. Application of Rules 5 and 6 of Chapter XIII-A of the OS Rules:
The case primarily revolved around the interpretation and application of Rules 5 and 6 of Chapter XIII-A of the OS Rules. The court emphasized that these rules allow for a summary procedure where the defendant must show cause by affidavit against the application for a decree on admission. The procedure is exceptional and deviates from the normal adversary system, requiring careful exercise to ensure the defendant's right to defend is not unjustly taken away. The court must determine whether the defense is sham or illusory, and only in such cases can the summary procedure be applied.

2. Good Defense or Triable Issue:
The court examined whether the defendant bank had a good defense or raised a triable issue. It was noted that the defendant does not need to prove a positively good defense but must show a fair, bona fide, or reasonable defense. The court cited the principles laid down in Mechalec Engineers & Mfrs. v. Basic Equipment Corpn., which states that if the defendant raises a triable issue or a fair dispute, leave to defend should not be denied. The court concluded that the defendant had indeed raised a triable issue, indicating a fair probability of a bona fide defense.

3. Examination of Records and Witnesses:
The court addressed whether it was permissible to call for records and examine witnesses, including third parties, under Rule 5(c) of Chapter XIII-A. It was held that the power to order the defendant or its officers to attend and be examined does not extend to third parties. The scheme of Chapter XIII-A does not permit the plaintiff to call for records or examine witnesses outside the affidavits filed by the parties. The court found that the examination of documents from the Reserve Bank of India and the affidavit filed by it indicated the raising of a triable issue, thus making the summary procedure inappropriate.

4. Legality of the Reserve Bank's Refusal:
The court observed that the legality of the Reserve Bank of India's refusal to permit the transmission of funds could not be decided within the summary procedure of Chapter XIII-A. The court noted that the Reserve Bank was not a party to the proceedings and had no opportunity to defend its order. The judgment under appeal had declared the Reserve Bank's order illegal without proper trial and evidence, which was beyond the scope of the summary procedure.

5. Entitlement to Refund:
The court also considered whether the plaintiff was entitled to a refund of the deposited amount. It was noted that the amount was initially deposited for transmission to a foreigner's account, subject to the Reserve Bank's permission. The refusal of permission by the Reserve Bank raised questions that required a full trial to resolve. The court found that these issues constituted a bona fide defense, thus entitling the defendant to leave to defend the suit.

Conclusion:
The appeal succeeded, and the judgment under appeal was set aside. The court granted leave to the defendant to defend the suit, emphasizing the need for a proper trial to resolve the issues raised. The written statement was to be filed within four weeks, and no order as to costs was made.