Mechanical denial of leave to defend in summary suits not sustainable: Rajasthan High Court allows appeal

Jaipur: The Rajasthan High Court has set aside the judgment and decree of a Commercial Court in Kota directing repayment of Rs. 5,14,000 to UCO Bank in a summary suit, holding that an application seeking leave to defend under Order XXXVII Rule 3(5) of the Code of Civil Procedure cannot be refused in a routine or mechanical manner, and that refusal of leave is sustainable only where the trial court records categorical satisfaction that the defence raised is frivolous or vexatious.

A division bench of the Acting Chief Justice Sanjeev Prakash Sharma and Justice Bipin Gupta, in a judgment authored by Justice Bipin Gupta, observed that the principles governing Order XXXVII CPC require the trial court to apply its judicial mind to the substance of the proposed defence, and that where the defendant raises substantial triable issues, unconditional leave to defend ought to be granted.

The bench held:

“The aforesaid principles clearly indicate that the matter lies within the judicial discretion of the Court and depends upon the facts and circumstances of each case. While exercising such discretion, the Court is required to apply its judicial mind to determine whether the application for leave to defend deserves acceptance or rejection, as the provisions of Order XXXVII CPC do not contemplate dismissal of such applications in a routine or mechanical manner.”

The appeal had been filed against the judgment and decree dated 06.10.2025 passed by the Commercial Court, Kota, in Civil Suit No. 21/2024 (CNR No. RJKT1D0001242024), whereby the Court below had dismissed the defendant-appellant’s application dated 12.09.2025 seeking leave to defend, and had decreed the suit in favour of UCO Bank for a sum of Rs. 5,14,000 along with interest at the rate of 6 per cent per annum from the date of institution of the suit.

The plaintiff-respondent, UCO Bank, had filed the suit against M/s Rajesh Footwear (through its proprietor Harish Kumar Dhamija) of Kota seeking recovery of dues said to be outstanding on a Cash Credit limit of Rs. 4,00,000 (sanctioned on 16.10.2017) and a General Emergency Credit Line loan of Rs. 80,000 (sanctioned on 17.06.2020). The accounts having become irregular as on 30.04.2022, the bank issued demand notices, sought mediation through the District Legal Services Authority, Kota, on 25.04.2023, and on receipt of a non-starter report dated 13.06.2023 instituted the suit under Order XXXVII CPC.

Before the Commercial Court, the defendant-appellant filed an application under Order XXXVII Rule 2 and Rule 3 CPC for leave to defend, contending that the bank had declared his account as a Non-Performing Asset (NPA) despite payments having been made during the Covid-19 pandemic and without notice of NPA classification, and that the bank had already attached and auctioned his residential property to recover dues. The Commercial Court dismissed the application and decreed the suit.

On appeal, the High Court found that the application for leave to defend had raised at least two substantial questions requiring adjudication on evidence — whether the mandatory notice and information regarding declaration of the account as NPA had been duly served on the defendant-appellant, and whether the prior auction of his residential property had been conducted in relation to the very same loan transaction forming the subject matter of the suit, or in respect of some other independent liability. The bench observed:

“The absence of any clear material or finding on this aspect gives rise to a substantial triable issue. Equally, the question as to whether the mandatory notice and information regarding declaration of the account as NPA were duly served upon the defendant-appellant also constitutes a serious disputed question of fact requiring adjudication upon evidence.”

The Court further noted that the impugned judgment did not disclose any categorical satisfaction recorded by the trial court that the defence raised by the defendant was either frivolous or vexatious as contemplated under Order XXXVII Rule 3(5) CPC, and that in the absence of such finding, refusal of leave to defend was not legally sustainable.

Allowing the appeal, the division bench quashed and set aside the judgment and decree dated 06.10.2025 and remanded the matter to the Commercial Court, Kota, with a direction to grant leave to defend and thereafter proceed in accordance with law. Given that the dispute pertained to a loan, the trial court was further directed to endeavour to decide the matter as expeditiously as possible, within a reasonable period from the date of receipt of a certified copy of the order.

Title: M/s Rajesh Footwear v UCO Bank

Case No.: D.B. Civil First Appeal No. 1917/2025

Counsel for appellant: Mr. Jai Kishan Yogi

Counsel for respondent: Mr. C. P. Sharma