2002 (4) TMI 997 - SC - Indian Laws

Summary

Issues Involved:
1. Nature of the document (Indemnity Bond vs. Guarantee)
2. Jurisdiction of the Gandhidham Court
3. Allegations of fraud and collusion
4. Application of Order 37 of the Code of Civil Procedure (CPC)
5. Entitlement to leave to defend

Issue-wise Detailed Analysis:

1. Nature of the Document (Indemnity Bond vs. Guarantee):
The primary dispute revolves around whether the document in question is an indemnity bond or a guarantee. The 1st Respondent termed the document as an indemnity/guarantee, while the Appellants denied it being a guarantee. The court observed that, prima facie, the document appears to be an indemnity bond rather than a guarantee. The distinction is crucial as, in cases of indemnity, proof of loss is necessary before any claim can be made, unlike a guarantee where the obligation is more direct.

2. Jurisdiction of the Gandhidham Court:
The Appellants contended that the Gandhidham Court had no jurisdiction to entertain the suit. However, this issue was not elaborated upon in the judgment, and the focus remained on whether the document was an indemnity bond or a guarantee and whether fraud was involved.

3. Allegations of Fraud and Collusion:
The Appellants alleged that the document was fraudulently obtained by the 1st Respondent in collusion with the 2nd Respondent and the then Branch Manager. They claimed that the document was not recorded in the bank's records and that discrepancies in the documents submitted to the negotiating bank led to their non-negotiation. The court noted that these serious allegations of fraud and collusion were not denied by the 1st Respondent, making them significant enough to warrant a trial.

4. Application of Order 37 of the Code of Civil Procedure (CPC):
The trial court and the High Court had refused leave to defend, holding that no triable issue had been raised and that the defence was "nothing but a sham." However, the Supreme Court highlighted the principles from the case of Mechalec Engineers & Manufacturers v. Basis Equipment Corporation, which states that leave to defend should be granted if the defendant raises a fair or bona fide defence. The court emphasized that the document's nature (indemnity vs. guarantee) and the allegations of fraud necessitated granting leave to defend.

5. Entitlement to Leave to Defend:
The Supreme Court held that the Appellants should have been granted leave to defend due to the disputes regarding the document's nature and the allegations of fraud. The court noted that the document appeared to be an indemnity bond, which requires proof of loss, making a summary procedure under Order 37 CPC inappropriate. The court also referenced the case of Oil & Natural Gas Corpn. Ltd. v. SBI, Overseas Branch, distinguishing it by noting that the present case did not involve an unconditional bank guarantee and had allegations of fraud.

Conclusion:
The Supreme Court set aside the impugned judgment and the trial court's order, granting the Appellants leave to defend the suit. The Appellants were instructed to file their written statement within eight weeks, and the parties were given the liberty to disclose documents and apply for an expeditious hearing of the suit. The court clarified that the leave to defend was granted only to the Appellants and not to the 2nd Respondent, who was not before the court. The observations made were prima facie and not to be considered at the final hearing of the suit. The appeal was disposed of with no order as to costs.