Court rules statutory presumptions under Negotiable Instruments Act insufficient to deny defence when foundational transaction is disputed; unconditional leave to defend granted to respondents
In a significant judgment delivered on October 14, 2026, the Jammu & Kashmir and Ladakh High Court, Srinagar bench, presided over by Justice Rajnesh Oswal, dismissed a petition challenging the grant of unconditional leave to defend in a summary suit arising from dishonoured cheques. The suit involved a dispute over land ownership and payment obligations amounting to Rs. 1.35 crore.
The petitioner, Mushtaq Ahmad Rafiqee, had filed a summary suit under Order XXXVII of the Civil Procedure Code (CPC) seeking recovery of the sum based on dishonoured cheques issued allegedly as sale consideration for a portion of land situated at Rawalpora, Srinagar. The respondents, Mohammad Amin Wani and another, contested the suit by asserting that the land in question was actually State land and that the petitioner had no title to it. They further contended that the cheques were issued only as security for a proposed arrangement related to identifying buyers and not as discharge of any legally enforceable debt.
The Trial Court had granted unconditional leave to defend to the respondents, a decision that the petitioner challenged before the High Court under Article 227 of the Constitution of India. The petitioner argued that the statutory presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act, 1881, applied once the issuance and dishonour of the cheques were admitted, thus mandating dismissal of the defence. He also relied on an agreement to sell dated March 2, 2022, to assert respondents' prior knowledge of land disputes and alleged that the Trial Court failed to consider this vital document.
However, the High Court meticulously analyzed the foundational facts and legal principles and observed that the suit was not solely based on the dishonoured cheques but also on the underlying transaction of sale of land. The respondents had raised a substantial defence disputing the petitioner's ownership and the nature of the land. The Court held that when the foundational basis for issuance of the cheques is seriously disputed, whether the cheques were issued in discharge of a legally enforceable debt becomes a triable issue. Therefore, the statutory presumptions under the Negotiable Instruments Act do not, by themselves, disentitle the defendants from obtaining leave to defend.
Citing the Supreme Court's ruling in B.L. Kashyap and Sons Ltd. v. M/S JMS Steels and Power Corporation (2022) 3 SCC 294, the Court reaffirmed that grant of leave to defend is the ordinary rule and refusal is the exception. If a defendant raises substantial or fair triable issues, unconditional leave to defend must ordinarily be granted unless the defence is frivolous or vexatious.
The Court also rejected the petitioner's reliance on the agreement to sell dated March 2, 2022, noting that the said agreement related to different survey numbers and was not pleaded in the plaint. Hence, it could not be used to establish respondents' knowledge of the disputes concerning the suit land.
Further, the Court took judicial notice of allegations and police investigations into fraudulent mutations and illegal dispossession of State land, supporting the respondents' claim that the land was State land and not owned by the petitioner.
Ultimately, the High Court found no infirmity in the Trial Court's order granting unconditional leave to defend and dismissed the petition. This judgment underscores the principle that even in summary proceedings based on dishonoured cheques, where the underlying transaction is disputed, the defendants are entitled to a fair opportunity to defend their case.
Bottom Line:
Order XXXVII CPC - Leave to defend - In a summary suit based on dishonoured cheques issued allegedly towards sale consideration of land, where defendants specifically dispute plaintiff's title and assert that the land was State land and cheques were issued only as security, such defence raises genuine triable issues - Statutory presumptions under Negotiable Instruments Act do not by themselves disentitle defendants from leave to defend when foundational transaction itself is seriously disputed - Unconditional leave to defend upheld.
Statutory provision(s):
Order XXXVII CPC Rule 3, Sections 118(a) and 139 of the Negotiable Instruments Act, 1881, Article 227 of the Constitution of India
