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Andhra High Court · body

2011 DIGILAW 161 (AP)

P. Jagdishwar Reddy v. Bank of Maharashtra

2011-02-25

VILAS V.AFZULPURKAR

body2011
Judgment The second defendant in O.S.No.40 of 1996 is the appellant herein, who seeks to question the decree for recovery of amount of Rs.50,501/-passed jointly and severally against defendants 1 and 2 together with future interest at 5% over the then bank rate at 15% per annum with quarterly rests and costs. The said decree was confirmed in appeal being A.S.No.3 of 1997 by the lower appellate Court. 2. The facts, in brief, are as follows: (a) The first defendant obtained a loan from the respondent bank herein for Rs.25,000/-and the defendants 2 and 3 stood guarantee for the said loan. The first respondent bank filed the aforesaid suit on the ground that the borrower did not repay the installments but was going on acknowledging the debt and confirming the balance outstanding. The suit, therefore, came to be filed on 29.12.1994 on the basis of acknowledgements dated 05.12.1994 and 22.12.1994 and the balance outstanding as on 30.12.1994 was Rs.50,510/-. (b) The first defendant/borrower filed a written statement admitting the availing of the loan but denied that he executed any documents. He took a stand that certain blank papers were got signed by him without his knowledge. He also denied any acknowledgment of debt and claimed that nobody informed him of repayment. He, therefore, took a stand that the suit is barred by limitation. (c) The appellant/defendant No.2 also filed a written statement contending that though the first defendant/borrower has availed the loan, the second defendant has never acknowledged the debt at any time and as such, the suit against him is barred by limitation. The third defendant, who is another surety, could not be served with the suit summons and on account of default of the plaintiff-bank the suit against him stood dismissed. 3. On the basis of the above, the trial Court framed the following issues: 1. Whether the plaintiff is entitled to recover Rs.50,510-00 from the defendants jointly and severally? 2. Whether the plaintiff is entitled for future interest @ 15% and costs of the suit, if so against whom? 3. Whether the suit is barred by limitation? 4. Whether there is any cause of action to file the suit? 5. Whether D-1 and D-2 acknowledged the loan amount on 31-12-2001 or at any time? 6. To what relief? 4. 2. Whether the plaintiff is entitled for future interest @ 15% and costs of the suit, if so against whom? 3. Whether the suit is barred by limitation? 4. Whether there is any cause of action to file the suit? 5. Whether D-1 and D-2 acknowledged the loan amount on 31-12-2001 or at any time? 6. To what relief? 4. Considering the evidence of P.W.1 and Exs.A1 to A6 on behalf of the plaintiff and first defendant/borrower as D.W.1 and appellant/surety as D.W.2, the trial Court found issue Nos.1 and 2 in favour o the plaintiff – bank. The trial Court on issue Nos.3 to 5 found that the acknowledgements produced and marked by the plaintiff-bank - Exs.A1 to A4 are dated 30.01.1989 and Ex.A5 shows that the signature of the first defendant was obtained on revenue stamp affixed on it on 31.12.1991. The trial Court also found that the first defendant studied up to matriculation and defendants 2 and 3 – sureties – are both working as Gazetted officers in the State Government. The trial Court disbelieved the case of the first defendant on finding that Ex.A5 contains the date under the signature as 31.12.1991, which establishes that Ex.A5 was not executed on 30.01.1989. The acknowledgement having been proved to have been duly executed by the first defendant including balance confirmation letter shows that there is no impediment in the entertaining the suit. So far as the contention of appellant/defendant No.2 that he is not bound by the acknowledgements by the first defendant is concerned, the said contention was rejected in view of Ex.A4 agreement where both the sureties expressly agreed that any admission, acknowledgement or part payment by the first defendant/borrower shall be binding on the guarantors. Consequently, the trial Court held the issues in favour of the plaintiff and the suit, accordingly, was decreed with costs against the defendants 1 and 2 jointly and severally. 5. On appeal by the second defendant, the finding of the trial Court, so far as Exs.A4 and A5 was concerned, was confirmed by the lower appellate Court on examining the evidence on record. 5. On appeal by the second defendant, the finding of the trial Court, so far as Exs.A4 and A5 was concerned, was confirmed by the lower appellate Court on examining the evidence on record. So far as the contention of the second defendant that he is not bound by the acknowledgement said to have been executed by the first defendant is concerned, the lower appellate Court found that Ex.A4 agreement was voluntarily signed by both the guarantors including the appellant and his liability being co-extensive with principal borrower under Section 128 of the Indian Contract Act, shows that the appellant/surety is equally liable. The appeal was, therefore, dismissed without costs. Hence, this second appeal. 6. This second appeal was admitted on 12.04.1999 on the following substantial questions of law raised in ground No.8 (a) to (c): a) Whether the acknowledgement of debt under Ex.A5 by the Principal Debtor (Def. No.1) alone binds the surety (Def. No.2/Appellant)? b) Whether the acknowledgement of liability by the Principal Debtor (Def. No.1) saves the limitation as against the surely (Def. No.2), entitling the plaintiff to get the decree against the Defendant No.2 also? c) Whether the agreement Ex.A4 is legal and binding on the Def. No.2/Appellant herein being against the law as contained in Sec. 18 of the Limitation Act, 1963.? 7. Mr. Damodar Rao, learned counsel for the appellant, has very fairly confined his submissions to the said substantial questions of law and contended that in view of Section 18 read with Section 20(2) of the Limitation Act, 1963 (for short ‘the Act’), the acknowledgement of debt by the first defendant/borrower does not extend the limitation against the second defendant/surety. To appreciate the said contention, Sections 18 (1) and 20(2) are extracted hereunder: “18. Effect of acknowledgment in writing: -(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.” “20. Effect of acknowledgment or payment by another person: - (1)… (2) Nothing in the said sections renders one of several joint contractors, partners, executors or mortgages chargeable by reason only of a written acknowledgment signed by, or of a payment made by, or by the agent, of, any other or others of them.” 8. Learned counsel, therefore, submits that under Section 20(2) of the Act when the acknowledgement by one does not bind the other joint contractor, the limitation under Section 18 of the Act cannot get extended on account of the acknowledgement by borrower/first defendant. He has placed reliance upon a decision of this Court in SUDERSHAN TRADING CO. v. M. GUJRATI (1977 ALT 504) as well as another decision of this Court in MUSUNURI ANJANEYULU v. KOONA LAKSHMI ( AIR 1998 AP 214 ) . 9. The decision in SUDERSHAN TRADING CO.’S case (1 supra) relates to a situation where one of the sureties is said to have made a part payment and keeping in view the date of such part payment, the debt was kept alive and suit was attempted to be sustained against all the defendants. The question that arose for consideration before this Court was whether the payment made by one of the sureties can keep alive the debt against other defendants. Interpreting Section 18 of the Act read with Section 20(2) of the Act, as above, this Court held that payment by surety cannot keep alive the debt against the principal debtor unless it appears otherwise from the sureties conduct. In other words, a part payment by a debtor was held not to extend the limitation against another debtor. The decision in MUSUNURI ANJANEYULU’s case (2 supra) was a case where the acknowledgement of debt by the debtor was held not to enable the creditor to extend the period of limitation against the surety. 10. The aforesaid two decisions, no doubt, support the contention raised by the learned counsel for the appellant, but an additional factual aspect needs to be kept in mind while dealing with the contention of the learned counsel. The plaintiff-bank in the present case has produced and marked Ex.A4, which is a deed of guarantee, admittedly, executed by both the sureties including the appellant. The plaintiff-bank in the present case has produced and marked Ex.A4, which is a deed of guarantee, admittedly, executed by both the sureties including the appellant. Clause 3 of the deed of guarantee, which is relevant, was extracted by the trial Court and for the sake of convenience, the same is extracted hereunder: “It is also agreed that any admission or acknowledgement in writing given or part payment made by the Borrowers in respect of/towards repayment of the amounts and their indebtedness or otherwise in relation to the credit facilities and/or the subject matter of this guarantee shall be binding on the Guarantors and shall be treated as given on behalf of the Guarantors also. The Guarantor shall accept the correctness of any statement of account which is duly certified by the Manager or Officer of the Bank, and the same shall be binding and conclusive against the Guarantors also.” 11. It is, thus, evident from the above that both the sureties, who are found to be Gazetted Officers working in the State Government, have executed the deed of guarantee – Ex.A4 specifically undertaking and agreeing that any admission, acknowledgement or part payment by the borrower with respect to indebtedness arising out of the loan transaction shall be binding on the guarantors and shall be treated as given on behalf of the guarantors also (emphasis supplied). By the aforesaid deed of guarantee, the guarantors expressly agreed to be bound by such admission, acknowledgement or part payment by the borrower. The aforesaid decisions on which the learned counsel for the appellant places reliance, therefore, did not consider such a deed of guarantee and that distinguishing factor did not arise on the facts of those decisions. It cannot be denied that the rights of the parties under the Indian Contract Act and particularly under Section 128 of the Act, which deal with surety’s liability, are subject to the contract between the parties. The appellant as well as the other surety having, admittedly, executed Ex.A4 deed of guarantee and having expressly agreed to clause 3 thereof, as above, I am unable to see how the said guarantors can disown the acknowledgement of the borrower – Ex.A5 and claim that it cannot be treated as their acknowledgement for the purpose of extending the period of limitation from that date. It is evident that both the guarantors, who contracted out of their statutory liability, cannot turn round now and claim, not to treat the acknowledgment by the borrower as binding on them. 12. The facts of the present case are closer to the decision of the Karnataka High Court in SMT.R. LILAVATI v. BANK OF BARODA (AIR 1987 KARNATAKA 2(1) wherein also there was similar deed of guarantee, which was in the nature of a continuing guarantee. Paras 7 and 9 of the said decision would be relevant and extracted hereunder: 7.The learned counsel Shri Raghvan then submitted that there was nothing in S. 141 of the Contract Act to indicate that the parties could contract out of the liability envisaged by S. 141. But S. 128 of the Contract Act reads as:- "The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract." The Contract Act has created rights and liabilities. But the parties have got a right to contract out of the rights and liabilities mentioned in the contract. That is envisaged by S. 128 of the Contract Act. Therefore, merely because we do not find words notwithstanding anything contained to the contrary etc., in S. 141, it does not follow that the parties cannot contract out of the rights and liabilities laid down in S. 141 of the Contract Act. In this case defendant 4 has agreed that she will not claim the benefit given to her under S. 141 of the Contract Act. She herself is a party, to that surety bond. Therefore it is not open to her now to contend that the said clause is either bad at law or is not enforceable. 9. So far as the question of limitation is concerned, the learned counsel Shri Raghavan argued that the acknowledgment given by the judgment-debtors defendants 1 to 3 would not save limitation so far as she was concerned. Normally it is so. 9. So far as the question of limitation is concerned, the learned counsel Shri Raghavan argued that the acknowledgment given by the judgment-debtors defendants 1 to 3 would not save limitation so far as she was concerned. Normally it is so. But para 4 of the surety bond executed by her reads as: - "And for all the purposes of this claim the Principal is empowered to give consent on my/our behalf and any consent given by the Principal shall be deemed to have been given by me/us and shall bind me/us in all respects as if the same had been expressly given by me/us in writing." By this she has constituted defendants 1 to 3 as her agents. Therefore when she has specifically empowered defendants 1 to 3 to give consent, any consent given by defendants 1 to 3 would be binding on her. This is also the principle laid down in Dorothy Valentine Burnard v. William Douglas Lysnar AIR 1929 PC 273. Therefore though she might not have been personally a party to the acknowledgement she on account of con-situating defendants 1 to 3 as her agents, will be bound in law by the acknowledgment given by defendants 1 to 3. In view of the above, therefore, the primary contention of the learned counsel for the appellant is liable to be rejected.13. Learned counsel for the appellant in the alternative raises an innovative argument attacking Ex.A4 deed of guarantee on the ground that it should be ignored on the ground that such a contract would offend Section 23 of the Contract Act. Learned counsel has developed his argument on the basis of a provision of Section 23 of the Contract Act, which stipulates that consideration and object of an agreement is lawful unless it is forbidden by law or opposed to public policy. Learned counsel has developed his argument on the basis of a provision of Section 23 of the Contract Act, which stipulates that consideration and object of an agreement is lawful unless it is forbidden by law or opposed to public policy. In order to demonstrate that Ex.A4 contract suffers from the vice of offending Section 23 of Contact Act, learned counsel relies upon Section 20 (2) of the Act and contends that a conjoint reading of Sections 18 and 20 (2) of the Act would show that when one of the joint promisor’s actions in writing, acknowledgment or making part payment does not bind the other joint contractor, Ex.A4 deed of guarantee, which provides contrary to the mandate of Section 20 (2) of the Act, has to be held to be unlawful, as it is forbidden by law and such contract has to be held to be opposed to public policy.14. The aforesaid argument, though attractive on the first blush, does not take into consideration two important features viz., (1) that Section 23 of the Contract Act would be attracted only if the consideration or object of the agreement is forbidden by law. I am unable to see any prohibition under Section 20 (2) of the Act from the parties entering into any such agreement. Section 20 of the Act merely deals with effect of acknowledgment or part payment by another party. The statutory effect cannot be read to mean that there is prohibition from parties entering into any such agreement. I am, therefore, unable to see as to how Ex.A4 deed of guarantee can be said to be forbidden by law. (2) It also cannot be said that the said deed is opposed to public policy. On a plain meaning when the plaintiff bank has advanced loan and when it obtained deed of guarantee from the sureties to ensure repayment of loan, I am unable to see as to how it offends public policy. Lawful business of commercial bank being to lend monies and provide other banking services, recovery of monies lent in the course of lawful business of such commercial bank cannot be said to be opposed to public policy. I am therefore, unable to see any merit in the said contention of the learned counsel for the appellant. Lawful business of commercial bank being to lend monies and provide other banking services, recovery of monies lent in the course of lawful business of such commercial bank cannot be said to be opposed to public policy. I am therefore, unable to see any merit in the said contention of the learned counsel for the appellant. In view of the above, therefore, the substantial questions of law are answered against the appellant and consequently, the second appeal is dismissed. As there is no appearance on behalf of the respondent in spite of service in this appeal, there shall be no order as to costs.