ESQUIRE (GARMENTS) INDUSTRY LTD. v. SADHWANI (JAPAN) LTD.

023-SLLR-SLLR-1983-2-ESQUIRE-GARMENTS-INDUSTRY-LTD.-v.-SADHWANI-JAPAN-LTD..pdf


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ESQUIRE (GARMENTS) INDUSTRY LTD.
v.SADHWANI (JAPAN) LTD.
COURT OF APPEAL
TAMBIAH. J. & G. P. S. DE SILVA J..
A. (LA) APPLICATION NO. CA 136/82,
REV. APPLICATION NO. C.A. 1313/82. •
C. COLOMBO NO. 32699/5MARCH 21, 22. 23. 24. 25. 30. 31. ANDJUNE 01 AND 02. 1983.
Civil Procedure Code — Summary procedure in liquid claims — Bills ofExchange — Civil Procedure Code s. 703 — Unconditional leave to appear anddefend — Acceptance of Bills — Triable issue.
In a suit filed jn terms of s. 703 C.P.C. the District Judge had issued summonsalthough the originals of the Bills of Exchange had not been filed. The defendantin asking for leave to appear and defend unconditionally had claimed that theBills were not properly accepted or accepted by directors who had beenremoved.
Held —
The correct question is whether a triable issue arose on the affidavits anddocuments before Court.
The failure to produce the originals of the documents at the time of thepresentation of the plaint raises a triable issue. The failure of the defendant toplead this question should not be held against him because he could havediscovered this only after the inquiry commenced. Further none of the bills hadbeen stamped.
Sections 704 and 706 C.P.C. are relevant to the question of granting leave toappear and defend unconditionally. The Court should have considered thedefence and if it was prima facie sustainable or it feels reasonable doubt as to itsgood faith, given leave to appear and defend unconditionally.
At this stage, the Court is not called upon to adjudicate upon the merits of thedefence.
The question whether these bills had been signed by two directors at a timewhen they were removed from office also raises a triable issue.
Cases referred to:
James Lament & Company Ltd., v. Hyland Ltd. [ 1950) 1 All ER 929.
CA
Esquire (Garments) Industry Ltd. v. Sadhwani
(Japan) Ltd. (G. P. S. de Silva, J.)
243
Meyappah Chettyv. Yusuf 5 NLR 265.
Santosh Kumar v. Bhai Moot Singh A1R 1958 SC 321.
Jacobs v. Booth's Distillery Company 85 Law Times Reports 262.
APPEAL from order of the District Judge of Colombo.
W. Jayewardene. Q.C. with K. Kanag-lswaran and Rohan de Alwis fordefendant-appellant
K. N. Choksy. S.A with S. A. Parathalingam. Miss R. Rajapakse and NimalFernando for plaintiff-respondent.
Cur. adv. vult
15 July. 1983,
P. S. DE SILVA, J.
The defendant is a private company incorporated under theprovisions of the Companies Ordinance while the plaintiff is acompany incorporated in Japan. The shareholders of the twocompanies belong to the Sadhwani family. At all material timesthere appear to have been serious disputes amongst thedirectors who are members of the same family. The plaintiffinstituted this action by way of summary procedure on liquidclaims (Chapter 53 of the Civil Procedure Code) on six bills ofexchange marked 'A', ‘B 'C'. 'D'. 'E' and 'F. The drawer of eachbill of exchange is the plaintiff and the drawee is the defendant. Itis the case for the plaintiff that the defendant had duly acceptedeach of the bills of exchange. The total amount claimed in theaction was Rs. 9,457.179/17.
The defendant was served with summons in Form No. 19prescribed by section 703 of the Civil Procedure Code, requiringthe defendant to appear within 14 days and obtain leave toappear and defend. Copies of the plaint and affidavit togetherwith photostat copies of the bills of exchange marked 'A'. *B *C'D 'E' and 'F. were annexed to the summons. The defendant filedits affidavit together with the annexes marked X, to X^ic). andmoved for unconditional leave to appear and defend the action.
The District Judge held an inquiry into the defendant'sapplication for unconditional leave to appear and defend the
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action, heard submissions of Counsel and arrived at the findingthat "the defence set out is not prima facie sustainable".Accordingly, the defendant was given leave to appear and defendthe action only upon depositing in Court as security a sum ofRs. nine million. It is against this order that the defendant hasnow appealed, having obtained the leave of this Court.
By its affidavit, dated 6th May, 1 982, filed in the District Court,the defendant averred, inter alia
that it is not liable on the bills marked 'A' and 'B' for theteason that only one director had purported to signsignifying acceptance whereas two directors shouldhave signed the bill in terms of the resolution of 18thAugust, 1980, marked X2;
two persons, namely, Deepu Sadhwani and his wifeMrs. P. Sadhwani, purporting to be directors of thedefendant-company, had signed the bills marked 'D'and 'E' on 25th March, 1981 when they had beenremoved as directors on 21 st March, 1981 in terms ofthe resolution marked X6;
that the bills 'C' and 'F relate to the manufacture andexport of goods by the defendant-company during thetime the defendant-company was under the solecontrol and management of K. N. Sadhwani, theChairman of the plaintiff-company and his son DeepuSadhwani; no explanation was offered by K. N.Sadhwani and Deepu Sadhwani as to why these billswere not met. This is the subject matter of a probe bythe defendant-company and its auditors.
Apart from these facts set out in the defendant's affidavit toshow that there was no due acceptance of the bills by thedefendant-company, it was discovered in the course of theinquiry before the District Judge on 21st July, 1982. that theplaintiff had failed to produce the originals of the six bills ofexchange at the time of presenting the plaint to Court. It
CA
Esquire (Garments) Industry Ltd. v. Sadhwani
(Japan) Ltd. (G. P. S. de Silva. J.)
245
appeared that the Court had ordered the issue of summons inForm No. 19 without having before it the originals of thedocuments sued upon.
The District Judge in his order requiring the defendant todeposit Rs. nine million in court as a condition precedent toappearing and defending the action, held :—
That since the defendant has not averred in hisaffidavit, the failure to produce the originals of thebills of exchange, the question whether the plaintiffhas complied with the provisions of section 705,does not arise for consideration; that before thedefendant can be heard to object to procedure, hemust obtain leave of court to appear and defend;that the defendant having appeared on summonsissued in Form 19. cannot take up any defence onthe alleged irregularity in the issue of summons.
As regards the defendant's plea that there has beenno valid acceptance of the bills, the District Judgerejected this defence for the reason that "thedefendant-company having had the benefit of thegoods imported under the said bills of exchange,cannot now repudiate its obligations on the groundthat the said bills have not been signed by thedefendant-company”.
The principal submission of Mr. Jayewardene, Counsel for thedefendant-appellant, was that the approach of the District Judgeto the matters that arose for decision on the application of thedefendant for leave to appear and defend the actionunconditionally, was completely erroneous in law.Mr. Jayewardene referred us to the provisions of section 704(2)and section 706 of the Civil Procedure Code and contended thatall that the District Judge had to consider at that stage was,whether on the material placed before court, a triable issuearose, Mr. Jayewardene urged that the District Judge instead ofapproaching the matter in this way. proceeded to hear anddetermine the issues of fact and law.
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On the other hand. Mr. Choksy, Counsel for the plaintiff-respondent. submitted that Chapter 53 provides a specialprocedure designed to ensure a speedy and effective remedy fora plaintiff who sues upon a particular class of documents wherethe law presumes consideration — type of documents drawn inthe normal course of trade and commerce. The provisions of thischapter places certain restrictions on the right of a party-defendant to be heard. It was Counsel's contention that at thestage of an application for leave to appear and defend, the courthas to balance the claim of the plaintiff as against the defencedisclosed in the affidavit and other documents filed by thedefendant. It was Mr. Choksy's submission that Chapter 53 givesthe court a wide discretion as to whether the defendant shouldappear and defend unconditionally or subject to conditions andthat this court would not interfere with the exercise of thatdiscretion unless the District Judge has exercised it on a wrongprinciple or has failed to exercise it judicially. I
I shall first deal with Mr. Choksy's submission in regard to thequestion of due acceptance of the bills of exchange. As regardsbills 'A' and 'B', Mr. Choksy submitted that since theMemorandum of Association gives the defendant-companypower to accept bills of exchange, the fact that the bills weresigned by one director only, does not make the acceptance ofsuch bills ultra vires the company. Counsel argued that if it couldbe shown that the defendant-company had obtained the benefiton the contracts, then the company is bound by the contractseven though there is a procedural irregularity for the reason thatonly one director has signed the bill. Mr. Choksy furthersubmitted that in law. there is a presumption of consideration inrespect of each of the bills of exchange. Counsel pointed out thatthere is a statement in the bills, to the effect that specifiedmaterials have been shipped. There is also an averment in theplaint in respect of each cause of action that the bills were "forvalue received by the defendant" — an averment which Counselcontended, had not been denied by the defendant in its affidavit.Mr. Jayewardene. on the other hand, argued that the question.
CA
Esquire (Garments) Industry Ltd. v. Sadhwani
IJapan) Ltd. (G. P. S. de Silva. J.)
247
whether the defendant had the benefit of the goods imported,could be decided only after trial. In regard to the bills 'D' and 'E'.however. Mr. Choksy did not seriously contend that the positionof the defendant that these bills were signed by the two directorsat a time when they had been removed from office, did not raisea triable issue.
The position of the defendant in regard to the other two bills'C' and 'F' was that there was a counterclaim in regard to themoneys due on these bills — Vide paragraph 17 of the- affidavitof the defendant (R2). Mr. Choksy relying on the case of JamesLamont & Company Ltd. v. Hyland Ltd. (1) urged that a counter-claim is not a defence in this type of action. Counsel submittedthat the defendant must set up a defence to the claim and thatsections 704 and 706 of the Civil Procedure Code, do notcontemplate a claim in reconvention as a prima facie sustainabledefence. Mr. Jayewardene. on the other hand, relied on thefollowing statement in the judgment of Bonser, C.J.. in MeyappahChettyv. Yusuf. (2)
"It has been held by this court that such a state of things,a cross claim, is a defence which can be set up to anaction on a promissory note under Chapter 53." I
I turn now to the question of the production of the originals ofthe documents sued upon. It is common ground that the plaintiffhad failed to produce the originals of the bills of exchange at thetime of the presentation of the plaint. Mr. Choksy submitted thatthe object in producing the originals of the documents isevidenced on a reading of section 705(2) of the Civil ProcedureCode. Counsel further pointed out that the first date of inquiry inthe District Court was 21/7/82 and that the originals of the billsof exchange were submitted to court on 26/7/82. Thereafter,the inquiry was continued in the District Court on 10/8/82 and12/8/82. Although the originals of the documents wereproduced in court long before the inquiry concluded, Mr. Choksysubmitted that at no stage did the defendant take up the positionthat the documents were not stamped or that the documents
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were not genuine. Counsel, therefore, contended that the failureto produce the originals of the documents sued upon has causedno prejudice whatever to the defendant. In other words, thecontention was that on this ground, there was no prima faciesustainable defence.
On the other hand, Mr. Jayewardene submitted that theprovisions of section 705 of the Civil Procedure Code aremandatory and go to the jurisdiction of the .court.Mr. Jayewardene urged that the law imposes on the court, animperative duty to examine the documents before issuingsummons in Form 19 and this, the District Judge, has failed todo. Therefore, it was argued that the issue of summons in Form1 9 was without jurisdiction.
On a consideration of the above submissions, it would appearthat fairly substantial issues of fact and law arose for decision.Was the trial Judge right, then, in refusing the defendant'sapplication to appear and defend the action unconditionally ? Inthis context, sections 704 and 706 of the Civil Procedure Code,are the relevant provisions. On the affidavits and the documentsplaced before the court, the primary question to. which theDistrict Judge had to address his mind in this case was whetherthe defence was prima facie sustainable or "feels reasonabledoubt as to its good faith". At this stage, the court is not calledupon to adjudicate upon the merits of the defence. It is. to benoted that section 704(2) speaks of a prima facie sustainabledefence. In other words, the trial Judge need not, at that stage,be satisfied that the defence will ultimately succeed. What theDistrict Judge has to consider is whether a triable issue (and nota sham issue) arises upon the material placed before him.
These principles which govern the exercise of the trial Judge'sdiscretion in granting leave to appear and defend the action,unconditionally or subject to conditions, have been consideredin the Indian and English cases where the statutory provisionsare very similar to those in our Civil Procedure Code. Indeed,Mr. Choksy. conceded that the statutory provisions in India andin England, are very similar to those in our Code.
CA
Esquire (Garments) Industry Ltd. v. Sadhwam
(Japan) Ltd. (G. P. S. de Silva. J.)
249
Mr. Jayewardene relied stronglyon the case of Santosh Kumarv. Bhai Moot Singh. (3). Bose. J.. in the course of his judgment,stated thus
"It is always undesirable, and indeed impossible, to laydown hard and fast rules in matters that affect discretion.But it is necessary to understand the reason for a spe'cialprocedure of this kind, in order that the discretion may beproperly exercised …. Taken by and large, the object is tosee that the defendant does not unnecessarily prolongthe litigation and prevent the plaintiff from obtaining anearly decree by raising untenable and frivolous defencesin a class of cases where speedy decisions are desirablein the interests of trade and commerce. In general,therefore, the test is to see whether the defence raises areal issue and not a sham one, in the sense that if thefacts alleged by the defendant are established, therewould be a good or even a plausible defence on thesefacts."
A similar view was expressed by Lord James in Jacobs v. Booth'sDistillery Company (4)
"The view which I think ought to be taken of Order XIV isthat the tribunal to which the application is made, shouldsimply determine, 'Is there a triable issue to go before ajury or a court ?' It is not for that tribunal to enter into themerits of the case at all."
On a reading of the order of the District Judge, it seems to methat he has not directed his mind to the correct question, namely,whether any triable issues arose on the affidavits and documentsbefore him. On the contrary, the trial Judge has prematurelyarrived at findings against the defendant on important issueswhich should properly have been adjudicated upon at the stageof the trial. In my view, on the question whether the acceptanceof the bills 'A'. 'B'. 'D' and 'E' was valid and binding on thedefendant, a triable issue arose. Even on the question whether a
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counterclaim is a defence to the claims on the bills, theauthorities cited before us, do not appear to speak with onevoice. In any event, the failure to produce the originals of thedocuments at the time of the presentation of the plaint, raises atriable issue. The District Judge was in error when he took theview that the defendant should have averred in its affidavit, thefailure of the plaintiff to produce the originals of the bills ofexchange. This was not a matter which the defendant could haveaverred in the affidavit as it was discovered only after the inquirycommenced. It is right to add that we called for the originals ofthe bills of exchange from the District Court and we observedthat no stamps were affixed or impressed on any of the billsmarked 'A' to 'F. After we reserved judgment, Mr. Choksyconfirmed the fact that none of the bills were stamped.
I accordingly hold, that upon the material placed before thetrial Judge and the submissions made, there arose triable issuesand the defendant should have been granted leave to appear anddefend the action unconditionally. I, therefore, set aside the orderof the District Judge, dated 1 7/9/82, and grant the defendant-appellant unconditional leave to appear and defend this action.The plaintiff-respondent must pay to the defendant-appellant, thecosts of the appeal and of the inquiry in the District Court.
At the request of Counsel, this appeal was takanup for hearingalong with the connected application in revision (C.A. No.1313/82). Counsel agreed that the order made in the appealwould be binding in the connected application in revision.Accordingly, in the revision application, too, the order of the.District Judge, dated 17/9/82, is pro forma set aside, and thedefendant is pro forma granted unconditional leave to appearand defend the action. There will be no costs in the revisionapplication.
The Registrar is directed to return forthwith the record togetherwith the originals of the bills of exchange marked 'A' to 'F, to theDistrict Court.
TAMBIAH, J. — I agree.
Appeal allowed