Viswa Niryath (P) Ltd. & Madras Sheets Industries (P) Ltd. v. State Bank of India & others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE V.CHITAMBARESH & THE HONOURABLE MR. JUSTICE SATHISH NINAN** **MONDAY, THE 20TH DAY OF MARCH 2017/29TH PHALGUNA, 1938** **AS.NO. 523 OF 1991 (D) ----------------------AGAINST THE JUDGMENT IN O.S. NO.153 OF 1984 OF THE PRINCIPAL SUB COURT, KOCHI DATED 16-06-1987** **APPELLANT(S)/DEFENDANTS 5 & 6: -----------------------------** **1. VISWA NIRYATH (P) LTD., JEEVAN TARA BUILDING, NO.5 PALIAMENT STREET, NEW DELHI - 110 011.** **2. MADRAS SHEETS INDUSTRIES (P) LTD., HEAD OFFICE, JEEVAN TARA BUILDING, DO. DO.** **BY ADVOCATE SHRI R.RAMADAS** **RESPONDENT(S)/PLAINTIFF & DEFENDANTS 1, 2, 4 & 7 & 8 TO 11: -----------------------------------------------------------** **1. STATE BANK OF INDIA, A BANKING COMPANY INCORPORATED UNDER THE STATE BANK OF INDIA ACT 1955, HAVING CENTRAL OFFICE AT BOMBAY AND BRANCHES AT WELLINGDON ISLAND AND OTHER PLACES** **2. M.J. DANIEL, RESIDING AT COCHIN - 5.** **3. RAVINDAR AGARWAL, C/O.AMBIKA SALES CORPORATION, NO.13, NEW BAMBOO BAZAR, BANGALORE -2.** **4. V. SASI, RESIDING AT KARUVELIPADY, MATTANCHERRY VILLAGE, COCHIN - 5.** **5. E.K. ANDREW, S/O.EDATTU KOCHAPPU, RESIDING AT EDATTUKARA, ASOKA ROAD, KALOOR, COCHIN - 18.** ## **AS.NO. 523 OF 1991 (D)** **ADDITIONAL. 6. K.G. THANKAMMA, W/O.D.D. ELAYATH, KOCHUKOTTARAM, PUZHAVATH, CHANGANACHERRY.** **7. D.MOHAN, S/O.LATE D.D.ELAYATH, RESIDING AT DO. DO.** **8. D. REMESH, DO. DO.** **9. LATHA, J.KUMAR, DO. DO.** **ADDITIONAL RESPONDENTS 6 TO 9 WERE IMPLEADED IN THE LOWER COURT AS LEGAL REPRESENTATIVES OF DECEASED 3[RD] DEFENDANT AS PER ORDER ON I.A. NO.280 OF 1985 24.06.1986.** **R, BY SENIOR ADVOCATE SHRI K.JAYAKUMAR R1 BY ADV. SRI.P.V.SURENDRANATH** **THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 10.03.2017, THE COURT ON 20.03.2017 DELIVERED THE FOLLOWING:** ## **V. CHITAMBARESH & SATHISH NINAN, JJ.** **= = = = = = = = = = = = = = = = = = A.S. No.523 of 1991 = = = = = = = = = = = = = = = = = = Dated this the 20[th] day of March, 2017** ## **J U D G M E N T** ## **SATHISH NINAN, JJ.** This appeal is filed by defendants 5 and 6 in a suit for money due to the plaintiff/1[st] respondent bank under loan transactions. 2. The 7[th] defendant was the Chairman of the Bank of Cochin who was the original plaintiff. Defendants 1 to 4 are the borrowers. They are the employees of the 5[th] defendant company which is the guarantor to the transactions. The 6[th] defendant company has offered its immovable property by way of equitable mortgage in favour of the plaintiff as security for the loan transactions. ## **A.S. No.523 of 1991** -: 2 :- 3. According to the plaintiff, the 7[th] defendant who is the Chairman of the Bank had unauthorisedly and exceeding his powers sanctioned loans to 3 subsidiary companies of the 5[th] defendant. When these transactions came to light, in order to cover up the lapses, the 7[th] defendant colluding with the 5[th] defendant and defendants 1 to 4 who are employees of the 5[th] defendant, caused loans to be availed of by defendants 1 to 4, the amounts of which were used for closure of the loans of the three subsidiary companies of the 5[th] defendant and also towards partial payment of the loan accounts of the 5[th] defendant. The suit is filed for realisation of the amounts due under the loan accounts of defendants 1 to 4. As per judgment dated 16.06.1987, the suit was decreed. This appeal is filed by defendants 5 and 6; the 5[th] defendant is liable on his personal guarantee and the 6[th] defendant on the ## **A.S. No.523 of 1991** -: 3 :- mortgage of immovable property as regards item No.5 in schedule A to the plaint. This appeal is confined regarding the liability of defendants 5 and 6. There is no appeal by other defendants. 4. Shri T.Sivadasan, learned counsel for the appellants and Shri Syamanthak, learned counsel for the 1[st] respondent. 5. Learned counsel for the appellants raised three contentions; the suit is bad for mis-joinder of causes of action; the guarantee given by the 5[th] defendant is not valid; no mortgage has been created by the 6[th] defendant. 6. According to the learned counsel for the appellants, the subject matter of the suit are four different loans availed by defendants 1 to 4, the non-payment of which constitute distinct and separate causes of action against each defendant. Having clubbed the different causes of action ## **A.S. No.523 of 1991** -: 4 :- against different defendants in a single suit, the provisions of Order II of the Code of Civil Procedure are violated, the learned counsel contends. It is to be noted that very same immovable property has been offered as security in the form of mortgage for all the loan transactions. Section 67A of the Transfer of Property provides that when the same property is offered as security for more than one transaction and the mortgage money is due under all the accounts, the same shall be brought as the subject matter of a single suit. In the light of the above, the contention of the learned counsel cannot be sustained. Apart from the above, Section 99 CPC provides that no decree shall be varied in appeal on account of mis-joinder of causes of action which did not affect the merits or jurisdiction of the court. Therefore, the contention that the suit is bad for mis-joiner of causes of action, fails. ## **A.S. No.523 of 1991** -: 5 :- 7. As regards the contention regarding the invalidity of the guarantee given by the 5[th] defendant, learned counsel submits that the alleged loan transactions were on 06.11.1981 and Ext.25 the letter of guarantee, which does not mention the date, was executed and handed over to the plaintiff in January, 1982 subsequent to the grant of loan. Therefore the said document is not supported by consideration since there has been no disbursal of loan subsequent to the execution of the guarantee. Therefore the guarantee fails, is the contention. Learned counsel relied on the decisions reported in **Petsonji v. Bai Meherbai** (AIR 1928 Bombay 539), **J.H.Agarwal v. State Bank of India** (AIR 1976 Madras 211), **Bank of Credit & C.Internatinal v. Abdul Rahiman** (1988[1] KLT 292) and **Central Bank of India v. Virudhunagar Steel Rolling Mills Ltd.** (AIR 2016 SC 191) to contend that a contract of guarantee ## **A.S. No.523 of 1991** -: 6 :- given subsequent to the contracting of debt is void as it is not supported by consideration. 8. Here it would be relevant to refer to paragraph 5 of the written statement filed by the 5[th] defendant which reads as under: “5. It is true that the guarantee was executed on 6.11.1981 for an amount of Rs.75 lakhs. However, as the said amount had not been disbursed to the principal debtors, there cannot be any liability of this defendant and as such this defendant is not liable to pay the plaintiff.” The 5[th] defendant admits execution of the letter of guarantee on 06.01.1981 which is the date of sanction of loan. Therefore, the argument that the loan agreement was executed subsequently and that it is not supported by consideration is unsustainable. Coming to the contention of the 5[th] defendant that the guarantee agreement was executed in January, 1982 which is much subsequent to the grant of loan and therefore the same is unsupported by any ## **A.S. No.523 of 1991** -: 7 :- consideration and hence invalid, the judgments relied on by the learned counsel, no doubt, hold that the contract of guarantee given subsequent to the contracting of the debt, if not supported by consideration is void. However, in the instant case, it is the definite case of the plaintiff that loans were granted on the understanding that it will be closed within a period of three weeks, that the loans were granted at the instance of the 5[th] defendant, the guarantor, that the loans were not closed within the time and the facilities continued on furnishing of guarantee by the 5[th] defendant and also on creation of equitable mortgage by the 6[th] defendant. Therefore, the same constitutes sufficient consideration for the guarantee. In **United Commercial Bank v. Prasun Bose and Another** (AIR 1978 NOC 171 [CAL]) the Bank continuing the existing account of its customer on executing the ## **A.S. No.523 of 1991** -: 8 :- agreement for guarantee, was held to be sufficient consideration for guarantee. Consideration need not be of any particular form. Any act or abstinence or even a promised act or abstinence constitutes consideration. The mere agreeing for continuing of the facilities itself constitute sufficient consideration for the guarantee. There is total lack of evidence on the part of defendants 5 and 6 to discredit the plaintiff's case. Therefore, even assuming that Ext.A25 guarantee was executed in January, 1982 still it could not be held that the guarantee is not supported by consideration. It is not a case of absence of consideration for the guarantee or a case where the guarantee was restricted to future loans as in the cited judgments. The contract of guarantee, Ext.A25 being supported by consideration is valid. The contention of the 5[th] defendant regarding invalidity of the ## **A.S. No.523 of 1991** -: 9 :- guarantee needs to fail. The liability is attempted to be avoided contending that the loan amounts have not been disbursed to the principal debtors, viz., defendants 1 to 4 and therefore, the 5[th] defendant cannot be made liable as a guarantor. The loan application signed by defendants 1 to 4 have been produced as Exts.A1 to A4. Execution of loan documents by defendants 1 to 4 is not disputed. Exhibits A17 to A20 are the debit slips signed by defendants 1 to 4, the borrowers, respectively. The genuineness of the said documents are not under challenge. The said documents reveal the disbursal of the sanctioned loan amounts to defendants 1 to 4. It is the contention of the plaintiff that defendants 1 to 7 colluded together for availing the loans in question in order to clear off the loans of the 3 sister companies of the 5[th] defendant. As noticed supra, there is total lack of evidence on ## **A.S. No.523 of 1991** -: 10 :- the part of defendants 5 and 6. Since the availing and disbursal of loans to defendants 1 to 4 are sufficiently proved by documents, the contention of the 5[th] defendant that the loans were not disbursed to defendants 1 to 4 does not stand. It is held that the 5[th] defendant is liable on Ext.A25 guarantee. 9. The next contention is regarding the mortgage. The 6[th] defendant challenges the alleged mortgage and contends that the creation of the mortgage is not substantiated. Exhibit A26 is the title deed relating to the property. Though the learned counsel for the appellants would contend that there is no evidence regarding creation of the mortgage, it is pertinent to refer to the written statement filed by the 6[th] defendant wherein the creation of mortgage is rather admitted. Paragraph 4 of the written statement of the 6[th] defendant runs ## **A.S. No.523 of 1991** -: 11 :- ## thus: “It is true that this defendant had entrusted the documents relating to the properties described in item V schedule A of the plaint to the plaintiff for facilitating the defendants No.1 to 4 to take loans from the plaintiff. This was done on the basis of the resolution adopted by the 6[th] defendant company on 15.2.1982.......” Therefore, it is futile to contend as against the clear admissions in the written statement, challenging the creation of the mortgage. It is also worthwhile to refer to the decision in **State of Haryana v. Narvir Singh** ([2014] 1 SCC 105) where the Apex Court held that for creation of equitable mortgage no memorandum as such is necessary. Equitable mortgage is created by the deposit of title deeds alone. The contention of the 6[th] defendant also appears to be that the loan amounts were not disbursed to defendants 1 to 4 and therefore there is no liability under the mortgage. However, as held supra, the loans in question have ## **A.S. No.523 of 1991** -: 12 :- been availed of by and disbursed to defendants 1 to 4. Till the filing of the suit, defendants 1 to 4 never had any grievance that the loan amounts in question were not disbursed to them or under their directions, that they have no liability under the transactions or that they were coerced by defendants 5 and 7 or any one else to avail the loan without their consent. In the circumstances, it is to be held that equitable mortgage created by the 6[th] defendant as per Ext.A26 is valid and binding on the 6[th] defendant. 10. We do not find any reason to differ from the finding of the court below on the issue of liability of the appellants under the guarantee and equitable mortgage created by them. 11. The court below has granted interest at the rate of 18% per annum. Going by the principle laid down by the Apex Court in **Central Bank of India v.** ## **A.S. No.523 of 1991** -: 13 :- **Ravindra** ([2002] 1 SCC 367), we slash down the rate of interest to 9% per annum from the date of suit till realisation. The judgment and decree of the court below will stand modified accordingly. In the result, the Appeal Suit is allowed in part, as above. No costs. Sd/- **V. CHITAMBARESH, JUDGE.** Sd/- **SATHISH NINAN, JUDGE.** vsv /true copy/ P.S. to Judge ## **A.S. No.523 of 1991** -: 14 :- The order dated 20/03/2017 in AS (Indigent) 523/1991 that “the court fee payable on the memorandum of appeal shall not be recoverable from the appellants” is incorporated in the judgment dated 20/03/2017 in AS (Indigent) 523/1991. Sd/Deputy Registrar