The Bombay High Court has clarified the threshold for granting conditional leave to defend in summary suits under Order XXXVII of the CPC, emphasizing that where a substantial portion of the claim remains undisputed and triable issues are raised, the defendant must deposit the undisputed principal amount to proceed with defence.
Background & Facts
The Dispute
The Plaintiffs, Ashwin Khater and another, filed a summary suit under Order XXXVII of the Code of Civil Procedure, 1908, seeking recovery of Rs.11,99,27,500/-, comprising a principal amount of Rs.5,69,27,500/- and interest at 12% per annum, arising from a Memorandum of Understanding (MOU) dated 29th May 2018. The MOU involved family members and companies controlled by the parties, primarily concerning the transfer of immovable properties and financial obligations.
Key Facts
- The MOU was executed on 29.05.2018 between Plaintiff No.1, Defendant No.1, and Defendant No.4.
- Plaintiff No.1 and Defendant No.1 are brothers; Defendant No.4 is their mother.
- Defendant Nos.2 and 3 are private limited companies promoted by Defendant No.1, in which he is majority shareholder and director.
- Under Clause 1(f) of the MOU, Plaintiff No.1 transferred his interest in the Imperial Windsor property in Juhu via a Deed of Gift executed on the same date (29.05.2018).
- Under Clause 1(g), the Plaintiffs and the estate of late Mr. Bharat Khater were obligated to hand over title deeds of the 17th Road, Khar Property to Defendant No.1, with deeds held in escrow by Advocate Veena Advani.
- Clause 2 required Defendant No.1 to repay a loan from Religare Finvest Limited, which he did.
- Under Clause 2(a)-(e), Defendant Nos.1, 2, and 3 were jointly and severally liable to pay Rs.7,00,00,000/- in five instalments:
- Rs.70,00,000/- paid on 20.05.2018
- Rs.1,75,00,000/- due 30 days after 29.05.2018 - unpaid
- Rs.2,10,00,000/- due 60 days after 29.05.2018 - unpaid
- Rs.2,32,00,000/- due 60 days after 29.05.2018 - unpaid
- Rs.13,00,000/- due 60 days after 29.05.2018 - unpaid
- Total unpaid amount: Rs.6,30,00,000/-.
- Demand Notice No.1 dated 19.10.2019 sought Rs.9,15,42,500/-.
- Defendant No.1 responded on 14.11.2019 with a holding reply.
- A second demand notice dated 16.07.2020 sought Rs.10,85,87,500/-.
- The suit was filed on 12.01.2021 seeking Rs.11,99,27,500/- including liquidated damages.
Procedural History
- 29.05.2018: Execution of MOU and Deed of Gift.
- 20.05.2018: Payment of Rs.70,00,000/- made by Defendant No.1 to Plaintiff No.2.
- 19.10.2019: First demand notice issued.
- 14.11.2019: Defendant No.1’s response.
- 16.07.2020: Second demand notice issued.
- 12.01.2021: Summary suit filed under Order XXXVII CPC.
- 17.12.2025: Arguments concluded.
- 01.04.2026: Judgment pronounced.
The Parties' Positions
Plaintiffs: Asserted full compliance with MOU obligations, including transfer of Juhu property and non-interference with Khar property. Argued that Defendant No.1’s partial performance (payment of Rs.70,00,000/- and loan repayment) constituted acceptance of the MOU’s terms and estopped him from denying liability. Contended that Plaintiff No.2, as beneficiary and recipient of payment, had standing to sue.
Defendants: Raised multiple defences:
- Plaintiff No.2 is not a party to the MOU.
- Defendant Nos.2 and 3 are not signatories and lack privity.
- MOU is insufficiently stamped.
- Plaintiffs breached the MOU and the Deed of Family Settlement dated 09.01.2015.
- Third-party rights created over Khar Property in favour of Daman Vendors.
- Summary suit cannot be maintained for claim of damages.
Relief Sought
The Plaintiffs sought a decree for Rs.11,99,27,500/-, comprising:
- Principal amount of Rs.5,69,27,500/- (liquidated damages)
- Interest at 12% per annum on the outstanding amount from the date of filing of the suit until realization.
The Legal Issue
Whether a defendant in a summary suit under Order XXXVII CPC may be granted conditional leave to defend when substantial undisputed amounts remain due, and triable issues such as stamping, privity, and damages are raised, and if so, whether the deposit requirement must be limited to the undisputed principal.
Arguments Presented
For the Appellant/Petitioner
Mr. Khandekar argued that the MOU was acted upon by all parties, evidenced by Defendant No.1’s payment of Rs.70,00,000/- to Plaintiff No.2, thereby recognizing Plaintiff No.2’s beneficial interest. He cited M/s. Ultra Media and Entertainment Pvt. Ltd. v. M/s. Digitainment India Pvt. Ltd. and Aziz Amirali Ghesani v. Ibrahim Currim & Sons to assert that summary suits are not barred merely because damages are claimed, provided the claim is based on a written contract. He contended that the defences raised were frivolous, speculative, and lacked documentary support, particularly regarding stamping and third-party rights. He urged the Court to refuse leave to defend or, alternatively, impose a condition of depositing the undisputed Rs.6,30,00,000/-.
For the Respondent/State
Mr. Jumani, for Defendant No.1, argued that Plaintiff No.2 had no privity of contract and thus no locus standi. He contended that the MOU was not duly stamped under the Indian Stamp Act, rendering it inadmissible in evidence. He further claimed that the Plaintiffs had breached the MOU by failing to hand over title deeds and by creating third-party encumbrances on the Khar Property. Defendant Nos.2 and 3 asserted they were not parties to the MOU and could not be held liable. He submitted that the claim for damages rendered the suit non-summary in nature.
The Court's Analysis
The Court acknowledged that while the Plaintiffs had prima facie established a claim for Rs.6,30,00,000/- as the unpaid balance under the MOU, several defences raised by the Defendants presented triable issues. The Court noted that the defence of insufficient stamping, though not substantiated with evidence, could not be summarily dismissed as it directly impacts the admissibility of the MOU under Section 35 of the Indian Stamp Act. The Court also observed that the claim for liquidated damages, while framed as part of the principal, raised questions about enforceability under Section 74 of the Indian Contract Act, 1872.
The Court further held that while Plaintiff No.2 was not a signatory, the payment of Rs.70,00,000/- directly to him by Defendant No.1, coupled with his role as director and shareholder of Plaintiff No.2, created a sufficient nexus to permit him to sue as a beneficiary under the doctrine of privity of contract exceptions. However, the Court declined to decide this issue finally at the summary stage.
"The fact that the Defendant No.1 has made partial performance under the MOU, including payment to Plaintiff No.2, indicates recognition of the contractual framework, but does not eliminate the need to examine whether the instrument is properly stamped or whether third-party rights have been created."
The Court relied on IDBI Trusteeship Service Ltd. v. Hubtown Limited and BL Kashyap and Sons Ltd. v. M/s. JMS Steels and Power Corporation to affirm that in summary suits, where the claim is substantial and triable issues exist, leave to defend may be granted conditionally upon deposit of the undisputed portion of the claim. The Court emphasized that the deposit requirement is not a penalty but a safeguard to prevent abuse of the summary procedure.
The Verdict
The Defendants succeeded conditionally. The Court granted leave to defend to Defendant Nos.1, 2, and 3, subject to deposit of Rs.6,30,00,000/- (Rupees Six Crores Thirty Lakhs only) in the Court within four weeks from the date of the order. If deposited, the suit shall be transferred to the regular list, and the Defendants shall file written statements within four weeks of deposit. If the deposit is not made, the Plaintiffs may apply for an ex-parte decree after obtaining a non-deposit certificate from the Prothonotary & Senior Master. The interim application stands disposed of.
What This Means For Similar Cases
Undisputed Principal Must Be Deposited Before Defence
- Practitioners must now identify and isolate the undisputed portion of a claim in summary suits under Order XXXVII CPC.
- Where a defendant admits partial liability but disputes the balance, the court may require deposit of the admitted amount as a condition for leave to defend.
- Failure to deposit triggers automatic entitlement to ex-parte decree - no further hearing required.
Stamp Defects Are Triable, Not Frivolous
- A defence of insufficient stamping, even if unsubstantiated, is sufficient to warrant conditional leave to defend.
- Courts will not summarily dismiss stamping objections; the burden shifts to the plaintiff to prove proper stamping if challenged.
- Practitioners must verify stamp duty compliance before filing summary suits based on contracts.
Beneficiaries May Sue in Summary Suits
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A non-signatory beneficiary who receives performance under a contract may maintain a suit, especially where the defendant has acknowledged the beneficiary’s interest through payment.
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This expands the scope of standing in summary suits beyond strict privity, aligning with equitable principles of unjust enrichment and estoppel.
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Always verify whether the claim includes liquidated damages - if so, ensure the contract is properly stamped and the amount is reasonable under Section 74.
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In family business disputes, document all payments and acknowledgments to establish beneficial interest and estoppel.
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When opposing a summary suit, raise stamping and privity objections early - they are valid grounds for conditional leave, even if weak.
