A.G. Mishra, Presiding Officer

1. This suit is filed for recovery of Rs. 68,63,248.50 ps. (Rupees sixty-eight lacs, sixty-three thousand, two hundred forty-eight and fifty paise only), with costs and interest, which is filed on 29.4.1986.

2. In brief, the facts of the case are as follows:

The defendant No. 1 is the Sole Proprietor, carrying on business in the name and style of Messrs Hindustan International. The defendant No. 6 is the wife of the brother of defendant Nos. 2 and 3 and claims to be lessee of the land described as per Exhibit D.

3. The defendant No. 6 has created equitable mortgage of the said land in favour of the applicant Bank as security for the amount due as set out in the Original Application.

4. On or around September/October 1980, and from time-to-time thereafter, the applicant Bank granted in favour of the defendant No. 1 various Banking facilities and advanced large amount to the defendant No. 1. The defendant No. 1 by his letter dated 4.10.1980, declared that he was the Sole Proprietor of the said Hindustan International. The defendant No. 1 by his letter dated 9.10.1980 informed the applicant that the defendant No. 1 has signed and executed Power of Attorney in favour of one Hiten D. Shah, defendant No. 3. The said letter is countersigned by Hiten D. Shah as constituted attorney.

5. Various facilities were sanctioned, that are: Term Loan Account No. 1 (land and building), to the extent of Rs. 2,70,000/-, for construction of factory building thereon. The said loan was disbursed to the defendant No. 1 on execution of the security documents on 4.10.1980.

6. In November 1981, in pursuance of the application made by the defendant No. 1, the applicant sanctioned further term loan of Rs. 76.000/- on account of increase of the cost of the construction. The defendant No. 1, however, failed and neglected to repay the amount as agreed in or about March 1983 and he applied for rephrasing of the instalments.

7. Pursuant to the request, the applicant Bank agreed to continue the said Term Loan facility and to rephrasing of the instalments. The defendant No. 1 executed the following documents in respect of the Term Loan account, i.e. Demand Promissory Note dated 16.8.1983 by the defendant No. 3 for Rs. 3,46,000/-, whereby he agreed to pay interest @ 12% p.a. with quarterly rests, the Letter of Interest dated 16.3.1983, then Agreement dated 16.3.1983, whereby the defendant agreed to repay the amount with instalment of Rs. 14,310/-. The defendant No. 3 hypothecated the movable properties mentioned in the Schedule to the said agreement, including the machinery equipment plant and spare parts, by the Deed of Hypothecation.

8. On 13.6.1983, the defendant No. 6, who claimed to be the lessee of the immovable property, deposited the original receipt of the Sub-Registrar of Assurances showing that the Deed of Lease was lodged for registration by way of equitable mortgage. She has also submitted copy of the Lease Deed dated 14.9.1982. There is balance confirmation on 1.7.1983. There is also balance confirmation on 1.7.1983.

9. For the Term Loan-II, for plant and machinery, on 16.3.1983, the documents were executed i.e. Demand Promissory Note. Letter of Interest, Agreement, Deed of Hypothecation for Rs. 3,00,000/-. There is also balance confirmation on 1.7.1983, admitting the sum of Rs. 2,43,836.30.

10. For the Overdraft facility of Rs. 3.00 lac, various documents of security were executed. There is balance confirmation to the tune of Rs. 2,93,886.06 ps. on 1.7.1983. The defendant No. 3 has signed and executed the Demand Promissory Note, Letter of Continuity, Letter of Hypothecation on 20.9.1983.

11. In the Trust Receipt Account to the tune of Rs. 8,50,000/- for buying the machinery for their said factory, the amount of Rs. 1,26,989.30 ps. was due and payable by the defendant No. 1, wherein the defendant No. 1 agreed to pay interest @ 13.5% p.a. with quarterly rests. The defendant No. 2 guaranteed the repayment.

12. In or about February 1981, applicant Bank granted to the defendant No. 1, Revolving Letter of Credit Facility with a limit of Rs. 37.00 lac. The applicant Bank accordingly opened Letter of Credit from time-to-time in favour of the defendant No. 1 for Boiler Quality Plates. The defendant No. 1 failed and neglected to retire the documents and to take the delivery of the said goods on retirement of the said documents and payment of large amounts to the foreign sellers, in July 1981. The Defendant No. 1 represented to the applicant that he would sell the said imported Boiler Quality Plates on behalf of the applicant and agreed and undertook to hand over to the applicant the said imported quality boiler plates of defendant No. 1, on executing in favour of the applicant Bank various documents, that are--Demand Promissory Note, Letter of Continuity, Letter of Trust Receipt and Letter of Hypothecation of goods on 22.7.1981.

13. The defendant No. 1 sold the goods and failed and neglected to pay the applicant the sale proceeds as agreed, so thereby committed the breach of trust. On 23.2.1983, the defendant No. 1 executed the following documents in respect of the trust receipt amount, i.e. Demand Promissory Note, Letter of Interest, Letter of Continuity, Trust Receipt and Guarantee by the defendant No. 2, and lastly on 1.7.2003, the balance was confirmed by the defendants to the extent of Rs. 20,39,553.84 ps. by letter dated 1.7.1983.

14. Under the Funded Term Loan of Rs. 6,46,000/-, the necessary documents were executed by the defendants on 23.9.1983, that are Agreement, Letter of Hypothecation, Letter of Interest, and Guarantee by the defendant Nos. 2 and 3 for the repayment. There is balance confirmation on 1.7.1983 to the extent of Rs. 6,62,629.65 ps.

15. In September 1983, Cash Credit Facility to the extent of Rs. 17,000/- was sanctioned for which on 23.2.1983, for an amount of Rs. 17 lacs, the documents were executed i.e. Demand Promissory Note, Letter of Interest, Letter of Continuity Agreement of Hypothecation of goods, Guarantee Deed by defendant No. 2 and balance confirmation on 1.7.1983 to the tune of Rs. 6,08,168.37. The large amount, was paid to the defendant. So in or about November 1983, the defendant Nos. 2, 4 and 5 furnished the additional security by executing the Deed of Guarantee. They have accepted the liability to the tune of Rs, 76.53 lacs. The Guarantee was revoked as there was failure on the part of the defendants in making payments, as the account was running irregular.

16. On 21.6.1984, the applicant informed the defendants that they were not in favour of considering nursing of defendant No. 1s accounts. So defendants were called upon by issuing letter on 1.9.1984 to liquidate the outstandings. So also the defendant No. 3 was called upon to make the payments being the guarantors, in respect of Funded Loan of Rs. 6,41,000/-, for which defendant No. 3 has executed the Guarantee Deed. On these grounds, it is prayed by the applicant Bank that the suit may be decreed with interest and costs. It may be declared that the applicant Bank having valid and subsisting charge over the hypothecated goods. So also it may be declared that the applicant Bank having valid charge over the property of defendant No. 6, who has created equitable mortgage in favour of the applicant Bank. On these grounds it is prayed that the suit may be decreed with interest and costs.

17. The defendant Nos. 1 to 5 by their joint written statement Ex. 11 took the defence that there was no creation of equitable mortgage of the land in favour of the plaintiff by the defendant No. 6. She has been added as party precedent to the order dated 19.1.1986 in Chamber Summons No. 902 of 1986.

18. The defendant No. 3 was constituted attorney of defendant No. 1 and acted as such and the defendant No. 3 is not personally liable to the plaintiffs. The guarantee referred in the plaint is now inoperative and void.

19. There are no dealing whatsoever between the plaintiffs and any of these defendants prior to September/October, 1980. It is denied that the first defendant was lessee of the property as alleged or deposited title deed with the plaintiff on or about 14.9.1982. It is denied that first defendant was or is bound or liable to create any equitable mortgage as alleged by the plaintiff.

20. Defendant No. 6, was the lessee of the land, and the shed was constructed by the first defendant. It is denied that on 13.6.1983, the defendant No. 6 deposited with the plaintiff the receipt of the Sub-Registrar and thereby created equitable mortgage as alleged. The plaintiff has wrongfully taken from the 6th defendant the affidavit dated 13.7.1983, which was deposited in terms of the draft given by the plaintiff to the second defendant Narendra Dhirajlal Shah. The affidavit was taken by the plaintiff for their own purpose. There is no averments of any alleged equitable mortgage to the plaintiff, as security for the repayment. The statements made in paras 4 to 12, 14, 15, 17 and 23 of the plaint are substantially correct. The true facts in respect of the guarantees are as follows:

21. The second defendant had negotiations with the plaintiff for giving a security. In response to the said move, the plaintiffs by their letter to the second defendant dated 21.9.1983, informed him that there was no clear and marketable title to the concerned property including that described in Exhibit B-4 and that no valid and equitable mortgage could be created. In response to the said intimation, the said second defendant by his letter dated 12.10.1983, sent to the plaintiffs, zerox copy of the agreement for lease, relating to the said property and also of the properties referred to in other two respective suits Nos. 1177 and 1179 of 1986. To the said letter, the plaintiffs replied on 10.11.1983 to the 2nd defendant. The plaintiffs also took guarantee from defendant No. 2. The guarantee was also taken from defendant Nos. 2, 4 and 5 dated 16.11.1983, in respect of which it was simultaneously and as part of the Agreement for guarantee. The said guarantee was to continue till the equitable mortgage as negotiated above was created and the said guarantee of defendant Nos. 2, 4 and 5 should stand automatically lapsed and should ceased to be operative on such equitable mortgage being created. The guarantee of second defendant dated 10.11.1983, became merged in the said guarantee dated 16.12.1983, and the plaintiffs have no claim against the second defendant in respect of the said guarantee. Thereafter, the plaintiffs did not take equitable mortgage in view of their opinion expressed in the said letter.

22. In or about 1988, there were negotiations without prejudice between the plaintiffs and the said defendants, whereby it was agreed with the consent of the 6th defendant that the said immovable property comprised in the agreement for lease, should be sold and the net sale proceeds thereof, be applied towards the payment of the amount due to the plaintiffs by the first defendant, and accordingly machinery was sold on 26.12.1988, releasing a sum of Rs. 51.000/- and the lease hold flat was sold by the plaintiffs on 24.1.1999, releasing a sum of Rs. 2,83,666/-. These amounts have been appropriated by the plaintiffs towards the liability of the first defendant. These defendants and more particularly the defendant Nos. 2, 4 and 5 submitted that the guarantee was limited to the extent of the value of the said property, and in view of the sale of the immovable property, and the appropriation of the amount, the liability of these defendants stand absolved. The plaintiffs have no right under the said guarantee deed dated 16.1.1983 against the defendant Nos. 2, 4 and 5. The guarantee was given, but denied that it was an additional security. In view of the above circumstances, the guarantee has to revoke and became void and inoperative. The plaintiffs have not mentioned anything in the letter of their Advocate about the security of equitable mortgage. The alleged story of the equitable mortgage is false. These defendants denied the several prayers made by the plaintiffs in para 12 of the plaint under various heads. The plaintiffs are only entitled to simple interest @ 6% p.a., or as such other rates as the Honble Court may decide, on the amounts found due on taking of accounts, after giving the credit to the various amounts paid or received by the plaintiffs. If the deposited amount is considered, then there are no dues against the defendant Nos. 2, 4 and 5, or any persons. The plaintiffs are not entitled for any relief. The plaintiffs were and are only entitled to the repayment from the first defendant of the principal sum advanced on giving credit to the first defendant. There is no liability of defendant Nos. 2 to 6. On these grounds, it is prayed that the suit may be dismissed with costs.

23. Defendant No. 6 by his written statement Ex.13 took the identical defence which was taken by the defendant Nos. 1 to 5 in respect of creation of charge by equitable mortgage in favour of the applicant Bank. She too admitted that with her consent, the property was sold on 24.1.1990 releasing the sum of Rs. 2,83,666/-, which has been appropriated by the plaintiffs towards the payment of their claim against the first defendant. The suit against her is false and not maintainable, and thus may be dismissed with costs.

24. The following points arise for my determination:

1. Is there any legal impediment in allowing the claim

2. Are applicant Banks entitled for the reliefs sought

3. What order

25. My findings on the above points for the reasons that follow are as under :

1. No.

2. As per final order.

3. As per final order.

Reasons

26. If we read the written statements of the defendant Nos. 1 to 5 at Ex. 11 and of defendant No. 6 at Ex. 13, it is crystal clear that they are disputing the liability on the ground that there was no creation of equitable mortgage by the defendant No. 6 in respect of the leasehold flat and there was a condition that as soon as there is creation of mortgage, the liability of defendant Nos. 2 to 5 stand absolved, i.e. they may be absolved from the liability as guarantor. In the light of the admissions in the written statement, now, we are required to consider how far the plaintiff is in a position to prove that the amount claimed is due against the defendants, and defendants are jointly and severally liable for the said amount.

27. It is an admitted fact that initially defendant No. 6 was not party, who created charge by deposit of Title Deed with the applicant Bank. She was brought on record subsequently with the consent of the parties and particularly defendant No. 6, the lease hold flat was sold, over which there was creation of charge by equitable mortgage. The amount so realized from the said flat, has been appropriated towards the outstandings of the defendant No. 1. In the light of these admitted facts, it is to be considered whether there was equitable mortgage of the particular flat, in favour of the applicant Bank by defendant No. 6 by depositing the Title Deed or not is required to be assessed from available evidence, and thereafter we have to consider about the liability of defendant Nos. 2, 4 and 5, who claims that their guarantee stand merged, or they are absolved on account of creation of mortgage in favour of the applicant Bank. But before that I am required to decide whether the claim is in time as much has been made about the limitation. Admittedly, and as laid down by the Apex Court, it is quite clear that limitation against principle debtor and guarantor is the same, and it has also observed by His Lordship in Union Bank of India v. Suresh Bhailal Mehta and Anr., , wherein it is found from the admitted facts of the case that plaintiff Bank had specifically referred in the plaint those specific balance confirmation letters with a view to set out the principle that each of them amounted to an acknowledgement and would therefore extend the period of limitation, in succession, from the date of the last of such acknowledgement. The limitation starts running or commences from the available date. In the instant case, there is balance confirmation on 1.7.1963 in respect of Term Loan-II, Overdraft facility, Trust Receipt, Cash Credit Facility i.e. proved from the balance confirmation letters which are at Exs. 27, 33, 34, 43, 55, and other defendants have confirmed the balance. Initially, the documents were executed on 16.3.1983. The suit is filed on 29.4.1986. From the last acknowledgement of debt by the defendants, certainly the suit is well within limitation. Moreover, there was equitable mortgage of the property. So the period of limitation extends for 12 years, as the suit is not based only upon the balance confirmation. When there is balance conformation within the prescribed limitation, then I do not think that limitation would come in the way of the applicant Bank to disentitle them from claiming the amount. There is a cursory reference in the written statement or the defence that there were various blanks in the documents, it is a general defence. But when there are number of documents on record including the balance confirmation, I do not think that the defence which has been taken by the defendants would sustain.

28. It is also observed in case of Asheesh Pratap Singh and Ors. v. M. Sachdeva and Ors., 2003 AIR SCW 140. That the question of acknowledgement of liability does arise, and it has been observed by Their Lordships that in case of acknowledgement of the liability by the defendants, it is not open to them now to deny to make payment of the amount due to the Bank on the ground that higher rate of interest could not be charged. There is also reference of the other case of Hiralai and Ors. v. Badkulal and Ors., 1953(4) SCR 768, that an unqualified acknowledgement of liability as in the present case by a party not only saves the period of limitation, but also gives a cause of action to the plaintiff to base its case. In view of the law laid down by the Apex Courts, I have no hesitation to arrive at the conclusion that there is unqualified acknowledgement of dues by the defendants. So the suit which is filed in 1986 is perfectly within limitation.

29. The only question remains what are the outstandings, and how far the Bank has established the outstandings in view of the facts and circumstances, which are required to be scanned in the light of the affidavits and documents on record. The documents are proved by the applicant Bank by filing affidavit of Bank Manager at Ex. 18, so also there is affidavit of one Narendra Shah at Ex. 69, on behalf of the defendants.

30. It is proved from Exs. 22 to 27 that for the Term Loan-I, that is for land and building for Rs. 3.46 lacs, necessary documents were executed by the defendants on 16.3.1982. For Term Loan-II for plant and machinery of Rs. 3.00 lacs, the necessary documents were executed on 16.3.1983. The balance confirmation for both the facilities is of dated 1.7.1983, and for the second Term Loan, the documents are at Exs. 22 to 32, and the balance confirmations are at Exs. 33 and 36 respectively. For the overdraft facility of Rs. 3.00 lacs, there is balance confirmation on 1.7.1983, and there are documents of dated 23.2.1983, that are Demand Promissory Note Letter of Continuity and Letter of Hypothecation. For Trust Receipt amount of Rs. 20.02 lacs, the documents were executed on 23.2.1983, including the Guarantee Deed. There is balance confirmation on 1.7.1983. Those documents are at Exs. 38 to 43. For Funded Term Loan, the documents were executed on 23.2.1983 for Rs. 06.41 lacs, i.e. proved from Exs. 44 to 47 and balance confirmation is proved from Ex 48. For Cash Credit Facility for Rs. 17.00 lacs, the documents were executed on 23.2.1983, i.e. proved from Exs. 49 to 53, including the Guarantee Deed, and there is balance confirmation on 1.7.1983, i.e. proved from Ex. 53. There is overall guarantee of Rs. 76.53 lacs on 16.11.1983, i.e. proved from Ex. 56.

31. The defendants were called upon to regularize the account by notice dated 21.6.1984, still no purpose served. So the recall notice was issued to the defendants on 11th September, 1984. From these documents and reference in paras 3 and 4 of the written Statement, which is at Ex. 11 of defendant Nos. 1 to 5, it is quite clear that the defendants have admitted the execution of the documents and contents therein it is their defence that plaintiff took Guarantee Deed from defendant Nos. 2, 4 and 5 on 16.11.1983 in respect of which it was simultaneously and as part of the Agreement for guarantee, specifically and distinctly agreed between the plaintiff and defendant Nos. 2, 4 and 5 that said guarantee was to continue till the equitable mortgage as negotiated above was created and that the said guarantee should stand automatically lapsed and ceased to be operative on such equitable mortgage being created. In or about 1988 there were negotiations without prejudice, between the plaintiffs and the defendants, whereby it was agreed with the consent of the 6th defendant that the said immovable property comprised in the agreement for lease, should be sold and the net sale proceeds thereof, be appropriated towards payment of the amount due to the plaintiff. Accordingly, the machinery was sold on or about 26th December, 1988, realizing the sum of Rs. 51,000/- and the said immovable property, of which lease hold rights were sold by the plaintiffs on 24.1.1990, realizing the sum of Rs. 2,83,666/-, that amounts have been appropriated by the plaintiffs, towards the liability of the first defendant

32. It is submitted on behalf of the defendant Nos. 2, 4 and 5 that guarantee was limited to the extent of the value of the said property and in view thereof, and as a result of the above, the sale of the above said immovable property and appropriation of the sale realization thereof, was made. The guarantee dated 16.12.1983 was lapsed, which guarantee would not continue which is inoperative. The liability of defendants are required to be considered as guarantors.

33. No suit purpose will be served against the defendant No. 6 as property was sold by the applicants in 1990, i.e. also proved from the claim affidavit paras 43 and 44.

34. The only question which remains is, whether there was any such term that on furnishing the equitable mortgage in favour of the applicant Bank, the liability of guarantor will stand absolved. Admittedly, there was creation of equitable mortgage by defendant No. 6, and subsequently the property was sold. No doubt there is letter by defendants at Ex. 75, under which they have informed the applicant Bank that their liability stands discharged in the light of furnishing equitable mortgage by defendant No. 6. That letter was addressed to the Bank, which is dated 16.11.1983. Further Ex. 76 i.e. letter from the Bank dated 17.3.1983, confirmed that they have received the Title Clear Certificate, but they want a certificate from the reputed firm certifying the title of the factory land as clear, marketable and free from all doubts and encumbrances. Ex. 77 is the letter dated 5th July, 1984, under which it was informed to the plaintiff that since the Title Certificate has been provided, their guarantee stands ceased, or withdrawn. No doubt there is a submission or correspondence by the defendants to the applicant Bank about their discharge from the liability. But absolutely there is no proof that defendant will be discharged, or the guarantor will be discharged on executing the mortgage by the defendant No. 6. Once there is a Guarantee Deed, it continued unless it is revoked. First Guarantee Deed stood invoked or revoked by issuing recall notice on 11.9.1984 i.e. proved from Ex. 59. It is certain that there can be no liability of defendant No. 6 as she was not guarantor. There is only equitable mortgage of the property, which was sold by her subsequently. So no suit will lie against defendant No. 6. There is only liability of defendant Nos. 2 to 5 along with defendant No. 1, to whom the loan was sanctioned and disbursed. Further it is clear from the Guarantee Deed which is at Ex. 56 dated 16.11.1983 that defendant Nos. 2, 4 and 5 have accepted the liability by executing the guarantee deed for Rs. 76.53 lacs.

35. Further it is clear that there was earlier Guarantee Deed on 23.2.1983 in respect of Trust Receipt Account at Ex. 42, then Guarantee Deed for Term Loan at Ex. 47, for Credit Facility at Ex. 54, dated 23.2.1983. These documents led to conclude that the defendants have accepted the liability for repayment. Defendant No. 3 was Power of Attorney holder for defendant No. 1, who has countersigned and executed the letter and acted on behalf of the defendant No. 1. So there is joint and several liability of the defendants. Absolutely there is no proof that after furnishing equitable mortgage by defendant No. 6, the guarantor will be absolved from the liability i.e. defendant Nos. 2, 4 and 5. There are no as such documents on record so as to be considered by me otherwise.

36. I have noticed that no penal interest has been charged for the amount claimed by the applicant Bank of Rs. 68,63,248.50 ps. So the applicant Bank is not entitled to claim that much amount. Further it is clear that during the pendency of the suit, the property which was equitably mortgaged, was sold by the applicant Bank. So credit is required to be given to the amount which has been realized by selling the property of defendant No. 6 by the applicant Bank. So the applicant Bank is entitled to claim the amount under the suit.

37. The question of future interest does arise. I am of the view that Future Interest @ 15% p.a. simple interest, would serve the purpose. The submissions of the defendants fall short to absolve defendant Nos. 2, 4 and 5 from the liability as guarantors, as their guarantee continued as there is no evidence to consider otherwise. The liability of defendant No. 3 is as Power of Attorney holder for defendant No. 1, who has dealt with the transaction. So there is joint and several liability of the defendant Nos. 1 to 5, but there is no liability of defendant No. 6. If any property is available, either movable or immovable, the applicant Bank having valid and subsisting charge over the said property. Hence, I pass the following order.

ORDER

The Original Application is allowed with costs and interest.

The applicant Bank do recover from the defendant Nos. 1 to 5, who are jointly and severally liable to pay, an amount of Rs. 68,63,248.50 ps. (Rupees sixty-eight lacs, sixty-three thousand, two hundred forty-eight and fifty paise only), with future simple interest @ 15% p.a. from the date of the suit, till realization of the amount. The amount realized from the sale of property be adjusted towards the outstandings.

The suit stands dismissed against the defendant No. 6.

If any movable or immovable property is available, then the applicant Bank having valid and subsisting charge over the same, till realization of the amount.

Issue Recovery Certificate. Copies be served upon the parties.