XXXVII Rule 3 CPC | Claim Of 24% Interest Without Prima Facie Contract Cannot Be Blindly Accepted In Summary Proceedings : Madras High Court On Summary Suit Defence

"Proprietary Concern Is Not A Separate Legal Entity – Payment To Business Account Is Payment To Proprietor", In a significant ruling on the scope of leave to defend in summary suits, the Madras High Court held that triable issues regarding discrepancy in the amount transferred and absence of proof for 24% contractual interest justified grant of leave to defend, though on conditions. Justice S. Sounthar set aside the trial court’s order which had dismissed the defendants’ application for leave under Order XXXVII Rule 3 CPC and granted conditional leave subject to deposit of Rs.5,00,000/- within four weeks.

The ruling reiterates that while summary procedure aims at speedy disposal of commercial claims, it cannot override genuine triable issues raised by the defendant.

The respondent/plaintiff had filed a summary suit for recovery of Rs.8,50,000/- along with interest at 24% per annum. It was alleged that in 2016, the first petitioner sought financial assistance and the plaintiff transferred substantial sums, including Rs.8,33,000/- on 06.09.2016, from a loan availed from Indian Bank. According to the plaintiff, only Rs.3,50,000/- was repaid and two cheques subsequently issued were dishonoured for “funds insufficient.”

The defendants sought leave to defend, contending that the transfer was made not to the first petitioner personally but to “I Shines,” his business entity; that there was no agreement to pay 24% interest; that the actual transferred amount was Rs.8,23,100/- and not Rs.8,33,000/-; and that the payments were towards interior design services rendered to the plaintiff. They also alleged that the cheques relied upon were stolen.

Addressing the contention regarding the proprietary concern, the Court made a categorical observation that strikes at the heart of the defence. Justice S. Sounthar held that “any payment transferred to the proprietary concern of the first petitioner can be treated as a payment to the 1st petitioner in his individual capacity as proprietary concern is not a separate legal entity different from the proprietor.” The argument that the amount was not received in an individual capacity was therefore rejected.

On the allegation that the cheques were stolen, the Court found the plea doubtful at this stage, noting the absence of any police complaint or contemporaneous action. The Court observed that “a holder of the blank cheque is entitled to fill up blanks in the cheque,” while adding that whether such protection extends to an allegedly stolen cheque “is a question to be decided at the time of final disposal.” The defence was not accepted outright but was left open for trial.

Crucially, the Court noted a discrepancy between the plaint and the bank statement. While the plaint mentioned transfer of Rs.8,33,000/-, the statement reflected Rs.8,23,100/-. The Court observed that “the discrepancy in the figure has to be explained by the plaintiff.” This inconsistency, coupled with the plea that the amount was towards interior work, was treated as raising a triable issue.

On the claim of 24% interest, the Court emphasized that no prima facie material had been produced to establish a contractual stipulation. It held that “the plaintiff has not produced any prima facie material to suggest that there was a contract to pay interest at the rate of 24% per annum. Therefore, the claim of the plaintiff with regard to the interest component also raises a triable issue.” In summary suits, inflated or unsupported interest claims cannot pass unquestioned.

Balancing the existence of triable issues with the absence of documentary support from the defendants, the Court concluded that conditional leave was appropriate. The impugned order was set aside and the defendants were directed to deposit Rs.5,00,000/- within four weeks, failing which “the petition seeking leave to defend the suit shall stand automatically dismissed.”

The decision serves as a reminder that while Order XXXVII CPC provides an expeditious remedy, courts must ensure that genuine disputes—especially those involving discrepancies in amounts and absence of proof for high contractual interest—are not shut out at the threshold. At the same time, defendants cannot rely on bare allegations without supporting material to secure unconditional leave.