' AJMAL MIAN, J.---This is an appeal against the judgment dated 11-5-1992 of a Division bench of the Peshawar High Court passed in R.F.A. No,29 of 1988 filed by the appellants against the judgment/decree dated 13-4-1988 of the learned Special Court Banking under the Banking Companies (Recovery of Loans) Ordinance, 1979, as amended by Ordinance No,II of 1983 (hereinafter referred to as the Ordinance), decreeing the respondent's suit for recovery of Rs,11,58,420.69 alongwith 14% compound interest plus 2% penal interest, dismissing the same with the following observation:-- "Since the learned counsel for the appellants has not been able to point out any illegality or any substantial error apparent in the procedure provided by the Ordinance, therefore, we do not find any substance in the appeal and would dismiss it with costs with the observations as made above that the Banking company cannot charge the penal interest when there is no agreement to the effect; in the circumstances given above the bank, if possible may consider to waive miscellaneous charges charged from the appellant."
2. The brief facts are that the appellants were allowed loan of Rs,5,00,000, over draft of Rs,1,00,000 and cash credit facility of Rs,2,50,000 through respondent's Letter No,CO/405/MKM, dated 9-7-1975 against registered mortgage of machinery, land and property, hypothecation of stock of chemicals and finished goods, and pledge of timber. After that, the appellants applied for grant of advance/fixed loan limit to the tune of Rs,8,00,000, which was also allowed on 18-3-1979 subject to the security, the detail of which is given in para. 2 of the judgment under appeal. It appears that in respect of the above transactions, the respondent filed aforesaid suit for the various reliefs mentioned in para. 20 of the plaint. After service of summons of the suit, two of the appellants filed an application for leave to defend, which inter alia contained the following grounds:-- "(6) That the suit is based on fictitious documents.
(7) That the statement of account is incorrect. It contains unauthorised entries and is also inadmissible in evidence. Counter-statement of account will be placed before the Honourable Court.
(8) That the defendants have repaid the entire loan amount and the plaintiff cannot claim anything in excess.
(9) That as alleged in the plaint, the plaintiff's amount is fully secured.
(10) That plaintiff suit is self-contradictory. The defendants have sufficient evidence (oral and documentary) to rebut the claim of the plaintiff."
3. The above application was opposed by the respondent. The learned Special Banking Court after hearing the parties on the aforesaid application, through its above order/judgment dated 13-4- 1988 held that the appellants failed to make out a case for leave to defend. Consequently, leave was refused and the suit was decreed. Against the aforementioned judgment/decree, the appellants filed aforesaid R.FA., which was dismissed in the above terms. Thereupon, the appellants filed the present appeal.
4. In support of the above appeal, Hafiz SA. Rehman, learned Ad ocate Supreme Court appearing for the appellants, has contended that since the appellants had in fact applied for leave to defend, their case was not covered by sub-rule (2) of Rule 2 of Order XXXVII, C.P.C. And, therefore, the learned Special Banking Court -was under an obligation to have recorded evidence to find out, whether factually the appellants were liable to the reliefs which were prayed for by the respondent-bank. In furtherance of his above submission, he has pointed out that sub-rule (2) of Rule 2 of Order XXXVII, C.P.C. Is attracted when a defendant fails to file an application for leave to defend or fails to appear in response to the summons served under the above provision and not to a case in which defendant's application for leave to defend is dismissed. To reinforce the above submission, he has referred to a judgment of a learned Single Judge of the Lahore High Court in the case of Muhammad Aslam v. Falak Sher (1990 CLC 1119), in which the following observations have been made:- "A bare reading of sub-rule (2) makes it clear that the same applies only in cases where no application for leave to defend is filed or where the defendant commits default in his appearance and defence in pursuance of the leave to defend. In case the application for leave to defend is filed and the defendant also appears in the Court in pursuance thereof, the Court, after rejecting the application, cannot decree the suit, presuming the averments of the, plaint to be true. In such a case the Court ought to record evidence of the plaintiff and pass a proper judgment under the law."
' His second submission was that since the loan was secured inasmuch as sufficient security in the form of mortgage and pledge was provided, the learned Special Banking Court was bound to grant leave.
' On the other hand, Mr. M. Tariq Khan, learned Advocate-on-Record appearing for the respondent, has contended that since in the application for leave to defend or the affidavit in support thereof, no ground was made out for granting leave, the learned Special Banking Court was justified in declining leave and that since there was no plausible defence to the respondent's claim, the Banking Court was justified in decreeing the suit.
5. Adverting to the above first submission of Hafiz S.A. Rehman, learned Advocate Supreme Court appearing for the appellants, it may be pertinent to reproduce Rules 1 to 4 of Order XXXVII, C.P.C., which read as follows:-- "1. This order shall apply only to the High Court, to the District Court, and to any other Civil Court notified in this behalf by the High Court.
2. (1) All suits upon bills of exchange, Hundies or promissory notes, may, in case the plaintiff desires to proceed hereunder, be instituted by presenting a plaint in the form prescribed; but the summons shall be in Form No,4 in Appendix B or in such other form as may be from time to time prescribed.
(2) In any case in which the plaint and summonses are in such forms, respectively the defendant shall not appear or defend the suit unless he obtains leave from a Judge as hereinafter provided so to appear and defend; and, in default of his obtaining such leave or of his appearance and defence in pursuance thereof, the allegations in the plaint shall be deemed to be admitted, and the plaintiff shall be entitled to a decree--
(a) for the principal sum due on the instrument and for interest calculated in accordance with the provisions of section 79 or section 80, as the case may be, of the Negotiable Instruments Act, 1881 up to the date of the institution of the suit, or for the sum mentioned in the summons, whichever is less, and for interest up to the date of the decree at the same rate or at such other rate as the Court thinks fit; and
(b) for such subsequent interest, if any, as the Court may order under section 34 of this Code; and
(c) for such sum for costs as may be prescribed: ' Provided that, if the plaintiff claims more than such fixed sum for costs, the costs shall be ascertained in the ordinary way.
(3) A decree passed under this rule may be executed forthwith.
3.--(1) The Court shall, upon application by the defendant, give leave to appear and to defend the suit, upon affidavits which disclose such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application.
(2) Leave to defend may be given unconditionally or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Court thinks fit.
(3) The provisions of section 5 of the Limitation Act, 1908 (IX of 1908), shall apply to applications under sub-rule (1).
4. After decree the Court may, under special circumstances, set aside the decree, and if necessary stay or set aside execution, and may give leave to the defendant to appear to the summons and to defend the suit, if it seems reasonable to the Court so to do, and on such terms as the Court thinks fit."
A perusal of the above-quoted Rule 1 indicates that the above Order is applicable to the High Court, to the District Court and to any other Civil Court notified in this behalf by the High Court.
' It may further be noticed that under sub-rule (1) of Rule 2, it has been laid down that all suits upon bills of exchange, Hundies or promissory notes, may, in case the plaintiff so desires, be instituted by presenting a plaint in the form prescribed, but the summons shall be in Form No,4 in Appendix B or any such other form as may be from time to time prescribed.
' It may also be noticed that sub-rule (2) of Rule 2 of the above Order envisages that if a suit is filed in terms of sub-rule (1), the defendant shall not appear or defend the suit unless he obtains leave from a Judge as hereinafter provided so to appear and defend. It further contemplates that in default of his obtaining such leave or of his appearance and defence in pursuance thereof, the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree in terms of sub-clauses (a), (b) and (c) provided in aforesaid sub-rule (2). Whereas, sub- rule (3) thereof lays down that a decree passed under the above rule may be executed forthwith.
' It may be pointed out that Rule 3 deals with a case in which a defendant after receipt of the summons in Form No, 4 as provided in Appendix B to the C.P.C. Appears in Court within the prescribed time, namely, 10 days specified in, the above Form and applies for leave to defend by disclosing upon an affidavit such facts as would make it incumbent on the holder i,e, the holder of the documents referred to in sub-rule (1) of Rule 2, namely, bills of exchange, Hundies or promissory notes, to prove consideration or such other facts as the Court may deem sufficient to support the application. Whereas sub-rule (2) of Rule 3 lays down that leave to defend may be given unconditionally or subject to such terms as to payment into Court, giving security, framing and recording issues or otherwise as the Court may think fit. It may further be noticed that sub-rule (3) thereof, which was incorporated by Ordinance No,X of 1980, makes the provisions of section 5 of the Limitation Act, 1908, applicable to application under sub-rule (1) of Rule 3.
' It may also be mentioned that Rule 4 of the above Order deals with the situation when a decree is already passed by the Court. It confers power on the Court to set aside decree under special circumstances and if necessary stay or set aside execution. It further empowers a Court to give leave to the defendant to appear to the summons and to defend the suit if it seems reasonable so to do and on such terms as it thinks fit.
6. It will not be out of context to observe that generally above Rule 4 will cover a case in which a defendant for sufficient cause has failed to appear and to file an application for leave to defend within the prescribed period.
7. The judgment in the case of Muhammad Aslam v. Falak Sher (supra) is based on an earlier judgment of a learned Single Judge of the Lahore High Court in the case of Muhammad Yousaf v.
Allah Yar (PLD 1987 Lahore 101). The observation in the case of Muhammad Aslam v. Falak Sher (supra) that sub-rule (2) of Rule 2 applies only in cases where no application for leave to defend is filed or where the defendant commits default in his appearance and defence in pursuance of leave to defend, seems to be correct, but the further observation to the effect that the plaintiff would not be relieved of normal obligation to prove his case and that the plaintiff would continue to remain under a duty to discharge the above burden, seems to be not correct as pointed out by this Court in the case Messrs Ahmad Autos and another v. Allied Bank of Pakistan Limited PLD 1990 SC 497 referred to hereinbelow in para. 8(i), in which the above earlier judgment of the learned Single Judge of the Lahore High Court in the case of Muhammad Yousaf v. Allah Yar (supra) was adversely commented upon.
8. It may also be pointed out that in the case of Bagh Ali v. Habib Bank Ltd. And 2 others (PLD 1986 Lahore 124), somewhat contrary view was taken by another learned Single Judge of the same High Court, but there seems to be no discussion as to the import of sub-rule (2) of Rule 2. We may also refer to the following cases:
(i) Messrs Ahmad Autos and another v. Allied Bank of Pakistan Limited (PLD 1990 SC 497);
(ii) Haji Sheikh Muhammad Hussain and others v. Citibank (1985 CLC 2467);
(iii) Grindlays Bank v. Messrs Fancy Investment Ltd. And another (1986 CLC 438);
(iv) United Bank Limited v. Nishat Corporation Ltd. And others (1986 CLC 2498);
(v) Muslim Commercial Bank Ltd. v. Darabshah B. Dalal (1988 MLD 1275);
(vi) National Bank of Pakistan v. Tradewell (Pakistan) Corporation and 2 others (1991 CLC 1243);
(vii) Messrs Cepcon (Pvt.) Ltd. v. Messrs Rizwan Builders Ltd. (1990 MLD 2027); (viii)Ramkarandas Radhavallabh v. Bhagwandas Dwarkadas (AIR 1965 SC 1144).
' In the first case this Court, while declining leave to appeal against the judgment of the Banking Court, made the following observations as to the import of Order XXXVII, Rule 2(2), C.P.C. And has also commented adversely on the judgment in the case of Muhammad Yousaf v. Allah Yar (PLD 1987 Lahore 101) as under:-- "12. Reverting to Mr. Shaukat's third submission, it may be observed that in furtherance of the above submission, he has referred to the case of Muhammad Yousaf v. Allah Yar reported in PLD 1987 Lah.
101, in which a learned Single Judge of the Lahore High Court while construing Order XXXVII, Rule 2(2), C.P.C. Has inter alia held that where there is refusal to grant leave by the Court the plaintiff would not be relieved of normal obligation to prove his case and that the plaintiff would continue to remain under a duty to discharge the above burden.
13. With due deference to the learned Judge, we may point out that the above observation of the learned Single Judge seems to be not in consonance with the provision of Rule 2 of Order XXXVII, C.P.C. Which inter alia provides that in case a defendant does not obtain such leave, the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree. Additionally in the instant case the Special Court before passing the judgment and decree had examined the above question and observed that the suit claim was verified on oath, which was not controverted?
' Whereas in the second case, a Division Bench of the Lahore High Court headed by Saad Saood Jan, J. (as his Lordship then was) repelled somewhat similar contention, what has been urged by Hafiz S.A. Rehman, learned counsel for the appellants, in the following words:-- "14. Finally, the learned counsel for the appellants contended that the learned Special Judge had acted illegally in passing decrees upon documents and statements of accounts before these had been proved or exhibited and that the learned Judge was not right in assuming that after leave had been refused he had no further responsibility in the matter and that the decrees had to follow as a matter of course. Learned counsel further stated that even though the Bankers-Books Evidence Act did permit a banker to file a certified copy of a statement of accounts as proof thereof it did not attach any presumption of correctness to such a statement. We find little merit in this contention. When the appellants failed to comply with the condition upon which leave was granted to them they had to be treated as if their prayer for leave had been refused. Now rule 2, sub-rule (2) of Order XXXVII of the Code of Civil Procedure states that when a defendant fails to obtain leave the allegations in the plaint shall be deemed to have been admitted and the plaintiff shall be entitled to a decree. Accordingly the learned Special Judge was not required to call upon the banks to formally prove their documents and statements of accounts or show their genuineness. On the other hand the banks became entitled to obtain decrees in accordance with the claims made by them in their plaints."
' In the third case, Nasir Aslam Zahid, J. (as his Lordship then was) has dilated upon the application of summary procedure provided in Order XXXVII, C.P.C. By virtue of section 7 of the Ordinance and has also highlighted the factum that if a defendant fails to make out a case for grant of leave, the plaintiff is entitled to a decree. It may be advantageous to reproduce the relevant portion of paras.
3 and 4 of the above judgment, which reads as follows:-- "As regards the present suit not being based on promissory note, it may be observed that under the provisions of the Banking Companies (Recovery of Loans) Ordinance, 1979, the Special Court is required to follow the summary procedure provided in Order XXXVII of the Code of Civil Procedure.
In such suits, the defendant-borrower has to file an application under Order XXXVII, rule 3, C.P.C. For seeking leave to defend, and without grant of such application, the defendant-borrower is not entitled to defend the suit. It is precisely for this reason that the defendant has filed Civil Miscellaneous Application No,1824 of 1983 for leave to defend this suit. The fact that the suit is not based on a promissory note does not make this suit an ordinary suit as was wrongly contended by the learned counsel for the defendants.
' The last contention of the learned counsel for the defendants was that the statement of accounts filed alongwith the plaint is not complete. In this connection reference may be made to the 10 letters of the defendants addressed to the plaintiff-bank, copies whereof have been filed alongwith the counter-affidavit of the bank, which acknowledge the amount due to the plaintiff-bank by the defendants. Specifically reference may be made to the letter, dated 31-10-1981 in which the subject is written as follows:-- "RE-PAYMENT OF DEBIT BALANCE OF OUR ACCOUNT Rs,11,70,622.05 PLUS INTEREST UP TO DATE OF REPAYMENT."
' And as the amount has been admitted in letter, dated 31-10-1981 and in various other letters of the defendants which letters have not been denied, the contention of learned counsel that complete statement of accounts has not been filed loses its force.
4. No ground has been made out for grant of leave to defend. The claim is admitted in the correspondence by the defendants. Civil Miscellaneous Application No,1824 of 1983 filed by the defendants under Order XXXVII, Rule 3, C.P.C. Is accordingly dismissed. As a result other plaintiff- bank is entitled to a decree as prayed."
' Whereas in the fourth case, Saleem Akhtar, J. (as his Lordship then was) has dealt with the effect of non-fulfilling the condition on which leave to defend is granted in a case under the Ordinance as follows:-- "Be that as it may, the fact on record is that the defendant No,1 has failed to furnish security in terms of order, dated 29-1-1984. This suit has been filed under the Banking Companies (Recovery of Loans) Ordinance, 1979 and is based on promissory note and the statement of account. The plaintiff has produced the original document including the promissory note today copies of which are annexed with the plaint. As Order XXXVII, C.P.C. Is applicable to the present suit and no security has been furnished the leave granted conditionally does not exist in law. In these circumstances under Order XXXVII, Rule 2(2) the allegations made in the plaint shall be deemed to be admitted and the plaintiff is entitled to a decree."
' In the fifth case, Naimuddin, J. (as his Lordship then was) has also touched upon as to the effect of non-fulfilment of the condition on which leave to defend is granted in the following terms:-- "On the basis of the observations of their Lordships of the Supreme Court, Mr. Muhammad Arif, argued that he was entitled to raise this plea even without furnishing the security. There is no doubt that the defendant would have been entitled to defend the suit on any plea available to him provided he had fulfilled the condition on which he was granted leave to defend the suit, but since he has failed to furnish the security he cannot be allowed, so far as this Court is concerned to agitate an issue which could be raised in defence of the suit. Of course, it will be open to the defendant to agitate this issue as and when he takes the case before the Supreme Court in accordance with the observations of their Lordships of the Supreme Court.
' Under the aforesaid circumstances, I am left with no alternative but to decree the suit for Rs,4,22,559 with interest at 9 per cent. Per annum for the date of the suit till payment. The plaintiffs shall also have their costs of the suit from the defendants."
' The above sixth case, which is a judgment of a learned Single Judge of the erstwhile High Courts of Sindh and Balochistan, does not deal with the point in issue as it touches upon the scope of a suit under Order XXXVII, C.P.C. And the power of the Court under Rule 4 thereof to set aside a decree if special circumstances are made out.
' In the seventh case, a learned Single Judge of the High Court of Sindh has made general observation to the effect that if under Rule 3 of Order XXXVII permission is not granted or has not applied for or condition on which leave was granted, is not complied with by the defendant, a decree in consequence will follow as provided under Order XXXVII, Rule 2, C.P.C.
' In the last case, the provisions of Order XXXVII, C.P.C. Were made applicable to the proceedings under Bombay Rents Hotel and Lodging House Rates (Control) Act (57 of 1947), in which the following observation as to the effect of refusal to grant leave has been made:-- "10. On the merits too, we think that the contention is fallacious. It proceeds on the basis that when leave to defend has been refused to a defendant, the Court is bound to pass decree. It seems to us that what sub-rule (2) of Rule 2 of Order 37 contemplates is that the Court will accept the statements in the plaint as correct and on those statements pass such decree as the plaintiff may in law be entitled to. If, for example, the plaint discloses no cause of action, the Court cannot pass any decree in favour of the plaintiff. If this were not so, the words `allegations in the plaint shall be deemed to be admitted' in sub-rule (2) of Rule 2 of Order 37 would have been unnecessary. The Court in making a decree under sub-rule (2) of Rule 2 of Order 37 has to keep the law in mind. If the law requires the Court to exercise a discretion on the facts deemed to be admitted, it will have to do so."
9. At this stage it may be pertinent to point out that sub-rule (1) of Rule 2 of Order XXXVII, C.P.C. As pointed out hereinabove, covers a suit which is based been a bill of exchange or a Hundi or a promissory note. This limitation has been done away by subsection (2) of section 7 of the Ordinance, which lays down as under:-- "(2) In the exercise of its civil jurisdiction, the Special Court shall in all suits before it, including suits based on mortgages of all kinds on statement of accounts for recovery of money paid to, or to the order of, the defendant, follow the summary procedure provided for in Order XXXVII in the First Schedule to the Code of Civil Procedure, 1908 (Act V of 1908)."
A plain reading of above subsection (2) of section 7 shows that the Special Court is obliged to follow the summary procedure provided under Order XXXVII, C.P.C. In all suits before it including suits based on mortgages of all kinds on statement of accounts for recovery of money paid to, or to the order of, the defendant. In other words, even if a suit is not based on the above three documents referred to in sub-rule (1) of Rule 2, the Special Court is bound to follow the procedure laid down in above Order XXXVII, C.P.C.; meaning thereby, that a defendant shall have to obtain leave to defend in terms of the above provisions of the C.P.C. This point has been highlighted by Nasir Aslam Zahid, J. In his above judgment in the case of Grindlay's Bank v. Messrs Fancy Investment Ltd. And others (supra).
10. The ratio decidendi of the above-referred cases seems to be that if a defendant fails -to appear or fails to obtain leave to defend in response to a summons served in Form No,4 provided in Appendix B to the C.P.C. Or fails to fulfil the condition on which leave was granted or where the Court refuses to grant leave, the Court is to pass a decree. It may further be observed that in sub- rule (2) of Rule 2, C.P.C., it has been provided that if a defendant fails to appear or defaults in obtaining leave, the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree, but no such consequences are provided for in Rule 3 of the above Order in a case where the Court refuses to grant leave or the defendant fails to fulfil the condition on which leave was granted. In our view, notwithstanding the above omission in Rule 3, the effect of refusal of the Court to grant leave or failure on the part of the defendant to comply with the condition of the leave, will be the same i,e, the defendant shall not be entitled to defend the suit on any ground and the Court would pass a decree in favour of the plaintiff. However, this does not necessarily mean that the Court is not required to apply its mind to the facts and the documents before it. Every Court is required to apply its mind before passing any order or judgment notwithstanding the factum that no person has appeared before it to oppose such an order or that the person who wanted to oppose was not allowed to oppose because he failed to fulfil the requirements of law.
11. Adverting to the facts of the present case, it may be observed that the appellant in his application for leave to defend has made vague general averments, some of which have been quoted hereinabove in para 2. The learned Special Banking Court found that the appellant failed to make out a case for leave. We may say, rightly so. The plaint was supported inter alia with a certified copy of statement of accounts which was admissible under section 4 of the Bankers'
Books Evidence Act, 1891, besides other documents mentioned in the body of the plaint, which included the acknowledgement made by the appellant and the promissory note for the suit amount. It was not pointed out by the appellant before the learned Special Banking Court that any of the entries in the above statement of accounts was not correct. It is true that before the appellate Court the appellant filed a statement of accounts, according to which, he was liable to pay only Rs,6,78,745, which was rightly discarded by the learned appellate Court for the cogent reasons. This statement of accounts was contrary to what was alleged by the appellant in his application for grant of leave, namely, that he had already paid the loan amount.
12. Adverting to the second submission of Hafiz SA.Rehman, learned counsel for the appellants, that since the loan was secured inasmuch as sufficient security in the form of mortgage and pledge was provided, the learned Special Banking Court was bound to grant leave, it may be observed that the factum that the loan was secured, has no nexus with sub-rule (1) of Rule 3 of Order XXXVII, C.P.C. As leave can be granted if a defendant upon affidavit discloses such facts as would make it incumbent on the holder of the document, on the basis of which suit had been filed to prove consideration or such other facts as the Court might deem sufficient to support the leave application. If no case is made out for grant of leave, the same is to be refused irrespective of the fact that the loan was secured. However, the factum that the loan was secured has nexus with sub-rule (2) of Rule 3 of Order XXXVII, C.P.C., which provided as pointed out hereinabove that leave to defend may be given unconditionally or subject to such terms as to the payment into Court, giving security etc. In other words, the Court, while granting leave, may accept the security which was furnished by the defendant at the time of obtaining loan if the Court is of the view that the same is sufficient to cover the suit claim.
13. The upshot of the above discussion is that the above appeal has no merits, it is dismissed.
However, there will be no order as to costs.
(Sd.)
' AJMAL MIAN, J ' FAZAL KARIM, J.--I agree. I have added a note.
' FAZAL KARIM, J.--I respectfully agree, but as on the question of the application of sub-rule (2) of Rule 2 to a case in which the defendant has applied for leave to appeal and defend and the leave has been refused, there appears conflict of judicial opinion and in the only case of this Court, Messrs Ahmad Autos case (PLD 1990 SC 497), leave to appeal was refused, I shall add a few words.
Sub-rule (2) of Rule 2 of Order 37 of the Code should, in my opinion, be given what has become known as purposive construction. The essence of the summary procedure for suits founded on the special documents, bills of exchange, Hundies or promissory notes, as prescribed by Order 37 is that the defendant is not, as in ordinary suits, entitled, as of right, to defend the suit, the object underlying this procedure being to prevent unreasonable obstruction by a defendant who has no good defence to put up. Therefore, when it is a suit upon a bill of exchange, Hundi or promissory note and the plaint and the summonses are in the prescribed form, "the defendant shall not appear or defend the suit unless he obtains leave from a Judge as hereinafter provided so to appear and defend. (Rule 2, sub-rule (2)). The words "as hereinafter provided", it is plain, refer to Rule 3. So, Rules 2 and 3 must be read together. Rule 3, sub-rule (1), provides for the grounds on which the Court shall give leave to appear and defend; the defendant must make an application with affidavits "which discloses such facts as would make it incumbent on the holder to prove consideration, or such other facts as the Court may deem sufficient to support the application."
And if it is a case entitling the defendant to leave to defend, then, sub-rule (2) of Rule 3 empowers the Court to give it conditionally or subject to such terms as the Court thinks fit. It follows necessarily from the language of Rule 3, sub-rule (1), that if the affidavit does not disclose facts which make it incumbent upon the holder to prove consideration or such other facts as the Court may deem sufficient to support the application, then it is not a case in which leave to appear and defend will be given. Therefore, included in the power to grant leave to appear and defend is the power to refuse such leave. That takes us to sub-rule (2) of rule 2, or it is that rule which provides for the consequences that flow from the refusal to grant leave.
' Returning to sub-rule (2) of rule 2, it goes on to say: "and, in default of his obtaining such leave or of his appearance and defence in pursuance thereof, the allegations in the plaint shall be deemed to be admitted", and the plaintiff shall be entitled to a decree in terms of clauses (a), (b) and (c) thereof. The expression 'in default of' means 'because of the absence of(See the Concise Oxford Dictionary of Current English). Now, there can be absence of leave when the defendant does not, despite the service of the prescribed summons upon him, enter appearance and apply for leave to defend. Equally clearly there is absence of leave when the defendant has applied for leave but the leave is refused. And, when the leave is granted conditionally or subject to terms, but the defendant fails to perform the condition or fulfil the terms to which the leave is subject, then it becomes a case as if no leave to defend had been given. (See "Ramkarandas Radhavallabh v. Bhagwandas Dwarkadas" AIR 1965 SC 1144, 1146).
3. The consequence of the absence of leave is that "the allegations in the plaint shall be deemed to be admitted" and the party shall be entitled to a decree in terms of clauses (a), (b) and (c) of sub- rule (2) of rule 2. Does it mean that the Court must pass a decree although the allegations of fact in the plaint do not entitle him to it. Suppose, that the allegations of fact in the plaint show that the plaintiff has no cause of action for the suit; or that the suit has not been instituted timeously and is barred by time. In neither of these cases, will the plaintiff be entitled to a decree; nor will the Court be bound to pass one. As was observed in "Ramkarandas Radhavalabh v. Bhagwandas Dwarkadas" (AIR 1965 SC 1144) "if this were not so, the words 'allegations in the plaint shall be deemed to be admitted' in sub-rule (2) of Rule 2 would have been unnecessary". It is, in my judgment, in this sense that it has been said that the Court has a discretion. To quote the Earl of Selborne LC from an old case, Gibbings v. Strong (1884) 26 Ch. D 66, 69) which case turned on a similar provision:-- "This means that the Court is to exercise some judgment in the case: it does not necessarily follow the prayer, but gives the plaintiff the relief to which, on the allegations in his statement of claim, he appears to be entitled..."
4. I would hold, therefore, that sub-rule (2) of Rule 2 applies also to cases in which leave to appear and defend is applied for but is refused with the result that the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree in terms of clauses (a), (b) and (c) of sub-rule (2) of Rule 2 if there be nothing in the allegations of fact in the plaint themselves to disentitle him to it. It must follow that the cases, such as "Muhammad Aslam v. Fateh Sher" (1990 CLC 1119) in which it has been held that sub-rule (2) of rule 2 does not apply where leave to appear and defend has been applied for and has been refused, were not correctly decided.
5. I should note that the view of sub-rule (2) of Rule 2 of Order 37, C.P.C. Taken in "Ramkarandas Radhavallabh v. Bhagwandas Dwarkadas" (AIR 1965 SC 1144) referred to above namely that that sub-rule applies also to cases in which an application for leave has been made and has been refused has received legislative recognition in India in the amended Order 37, Rule 3(6)(a) which enacts that "if the defendant has not applied for leave to defend or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith".
6. In this case, the defendants, appellants herein, did not, in their affidavit, disclose such facts as would have made it incumbent on the plaintiff to prove consideration or such other facts as the Court might have deemed to be sufficient to support the application. The Court was, therefore, entitled to take the allegations in the plaint to be deemed to be admitted. And as there was nothing in the allegations of fact to disentitle the plaintiff to a decree, the Court was within its right to pass the decree.
' I would, therefore, dismiss the appeal.
…and 44 more citing cases