The Supreme Court has upheld a Madras High Court Division Bench decision condoning a delay of 423 days in filing an application to set aside an ex-parte decree, ruling that the defendant should be given an opportunity to contest the case on merits.
However, the Court modified the condition attached to the relief. Instead of paying ₹75 lakh directly to the plaintiff, the amount must remain deposited with the High Court and be subject to the final outcome of the proceedings.
A Bench of Justice Ujjal Bhuyan and Justice Atul S Chandurkar passed the order while disposing of cross-appeals challenging both the condonation of delay and the monetary condition imposed by the Madras High Court.
Dispute Over A ₹21.88 Crore Recovery Claim
The dispute arose from several hire-purchase agreements and a lease agreement allegedly entered into between Integrated Finance Company Limited and partnership firm Business India, represented by three individuals.
In March 2010, the finance company filed a recovery suit seeking ₹21,88,11,451.96, along with future interest at 36% per annum.
The defendants failed to appear despite service of notice. In August 2021, the Madras High Court’s Single Judge placed the firm and two of its representatives ex-parte. One of the defendants had died in the meantime.
The suit was subsequently decreed in November 2021.
Defendant No. 4 later sought condonation of the delay in filing an application under Order IX Rule 13 of the Code of Civil Procedure, 1908, which allows a defendant to seek the setting aside of an ex-parte decree.
The Single Judge rejected his application in March 2023, observing that he had appeared through counsel and filed a common affidavit with the other defendants. The Court concluded that he was aware of the proceedings before the decree was passed.
Madras High Court Reopens The Door To A Contest
Challenging the rejection, Defendant No. 4 approached the Division Bench, arguing that he genuinely believed Defendant No. 2 was handling the case and that efforts were underway to settle the financial claim.
In August 2024, the Division Bench found that although the defendant had not acted with the required diligence, his bona fides in approaching the Court belatedly could not be doubted.
The Bench also took note of the fact that the entire claim had been decreed ex-parte, carrying interest at a steep rate of 36% annually.
It accordingly set aside the Single Judge’s order and condoned the 423-day delay. The relief, however, came with a condition: Defendant No. 4 was required to pay ₹75 lakh to the plaintiff within four weeks, enabling the amount to be distributed among depositors.
He was also permitted to file his written statement within four weeks, with the suit directed to be decided expeditiously.
The decision triggered cross-appeals before the Supreme Court.
Defendant Seeks Unconditional Relief
Appearing for Defendant No. 4, Senior Advocate Siddharth Bhatnagar argued that once the Court had found merit in granting the defendant an opportunity to contest the suit, the delay should have been condoned without imposing a financial condition.
He also objected to the direction requiring payment of ₹75 lakh directly to the plaintiff for distribution among depositors, pointing out that the underlying claim remained seriously disputed and had not yet been examined on merits.
The finance company, on the other hand, argued that the Division Bench had wrongly condoned the delay. It contended that the defendant had introduced additional grounds at the appellate stage that were not raised before the Single Judge.
The plaintiff further maintained that the ₹75 lakh condition had been imposed on the basis of a submission made on behalf of the defendant himself. It also argued that the amount was inadequate considering the scale of the decree.
Supreme Court Modifies Deposit Arrangement
The Supreme Court referred to its earlier order passed in September 2024, where it had identified the principal concern with the Madras High Court’s direction.
The Court had observed that the amount should not have been paid directly to the plaintiff. Instead, it ought to have been deposited with the High Court Registry and invested pending the proceedings.
The execution of the ex-parte decree was stayed subject to Defendant No. 4 depositing ₹75 lakh with the High Court. The amount was to be kept in an interest-bearing fixed deposit.
The Supreme Court noted that the deposit had since been made, though with some delay.
No Reason To Interfere With Condonation Of Delay
On the question of whether the 423-day delay should have been condoned, the Bench examined the grounds raised before the Single Judge as well as the additional submissions made before the Division Bench.
It held that the discretion exercised by the Division Bench could not be described as arbitrary or irrational so as to warrant interference under Article 136 of the Constitution.
The Court emphasised that Defendant No. 4 had already been granted an opportunity to contest the proceedings on merits.
The Supreme Court accordingly upheld the condonation of delay while modifying the direction concerning the ₹75 lakh deposit.
The amount will remain secured with the High Court, with its ultimate treatment dependent on the final outcome of the proceedings.