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Motilal Ramkumar Vs. Akbarbhai Fakhruddin - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 1258 of 1937
Judge
Reported inAIR1939Bom309; (1939)41BOMLR538
AppellantMotilal Ramkumar
RespondentAkbarbhai Fakhruddin
DispositionSuit dismissed
Excerpt:
.....exceptions, e. it appears from exhibit d as well as from the books of the plaintiffs that this loan was not renewed for a period of one year on the agreement being entered into but was renewed on december 9, 1933, only for a period of three months. 3, 4 and 5 should be dismissed and it is not necessary to consider the rest of the questions raised in this suit however, as i have heard all the evidence in the suit and the lengthy but able and interesting arguments of the learned counsel for the plaintiffs and the learned counsel for defendants nos. for, though his contract is not, like that of an insurer, uberrimae fidei, it is one strictissimi juris. as well as from the books of the plaintiffs that interest was paid on each loan at the expiry of the period of the renewal of the loan..........nos. 1 and 2 at the date of each such new receipt. the rate of interest varies from time to time. bhawanidas & co. made an entry in respect of each such transaction in their books of account for their brokerage. these entries contain the particulars of the rates of interest and the periods of repayment. the plaintiffs also made entries in respect of these loans and the renewals thereof. the entries in their books are double entries at each renewal crediting defendants nos. 1 and 2 the whole amount of the loan and the interest due thereon and debiting them the amount of the loan on the same day. so long as the renewals continued, the plaintiffs did not maintain a separate account of defendants nos. 1 and 2 in their books but made these entries in an account headed 'kherij khata'......
Judgment:

Somjee, J.

1. The plaintiffs filed this suit to recover a sum of Rs. 5,000 and interest thereon being the amount of two loans of Rs. 2,500 each granted by them to defendants Nos. 1 and 2. The plaintiffs sued defendants Nos. 1 and 2 as the principal debtors and defendants Nos. 3 to 5 as the alleged sureties for the repayment of the amount! of the two loans by defendants Nos. 1 and 2.

2. The plaintiffs seek to hold defendants Nos. 3 to 5 liable for the amount as sureties under an agreement dated September 25, 1933, and made between defendants Nos. 1 and 2 as principal debtors, defendants Nos. 3 to 5 as sureties and Bhawanidas & Co., a firm of hundi brokers, described in the agreement as creditors' agents.

3. The plaintiffs say that prior to the agreement of September 25, 1933, defendants Nos. 1 and 2 had borrowed Rs. 2,500 from the plaintiffs and the loan had been renewed from time to time, and the last of such renewals before the agreement was dated September 9, 1933. The plaintiffs say that the loan was further renewed from time to time, and the last of such renewals was on December 4, 1934. The plaintiffs also say that the second loan of Rs. 2,500 was granted by them to defendants Nos. 1 and 2 on May 14, 1934. This loan was also renewed on August 13, 1934, and on November 14, 1934.

4. Every time the plaintiffs granted a loan to defendants Nos. 1 and 2 and every time any loan was renewed the plaintiffs obtained from defendants Nos. 1 and 2 a receipt in respect of such loan. The loan or the renewal was every time for a fixed period. This period was mostly of three, months.

5. Defendants Nos. 1, 2 and 5 have not appeared and defended this action.

6. Defendants Nos. 3 and 4 filed their written statement contesting the plaintiffs' claim on various grounds. Their first contention is that the plaintiffs have no cause of action against them on the agreement of September 25, 1933. They also contend that the loan of Rs. 2,500 of May 14, 1934, was not in pursuance of the agreement.

7. Defendants Nos. 3 and 4 also contend that the transactions as recorded in the receipts dated November 14, 1934, and December 4, 1934, were fresh and independent transactions between the plaintiffs and defendants Nos. 1 and 2 and that they were not concerned with the same.

8. Defendants Nos. 3 and 4 also contend that under their guarantee given by them by the agreement to Bhawanidas & Co. they were not liable for any loans to defendants Nos. 1 and 2 other than the loans for Rs. 7,500 already procured by Bhawanidas & Co. for defendants Nos. 1 and 2 at the date of the agreement and for the repayment of which Bhawanidas & Co. undertook to get an extension for a period of one year from September 25, 1933, and for the further loans of Rs. 7,500 which Bhawanidas & Co. undertook to procure for defendants Nos. 1 and 2 for a period of one year from September 25, 1933.

9. Without prejudice to their various contentions defendants Nos. 3 and 4 contend that they are discharged from all their liability as sureties under the agreement by reason of the failure of Bhawanidas & Co. and the plaintiffs to observe the terms and conditions of the agreement.

10. On these contentions contained in the pleadings the learned Counsel for defendants Nos. 3 and 4 raised eleven issues.

11. The plaintiffs led the evidence of Parashram Chimandas, the munim of Bhawanidas & Co. He produced the account of defendants Nos. 1 and 2 in the ledgers of Bhawanidas & Co. for S.Y. 1989-90 (1932-33), S.Y. 1990-91 (1933-34) and S.Y. 1991-92 (1934-35). These accounts are exhibits B, D and F. From these accounts it appears that there were three different loans granted by the plaintiffs to defendants Nos. 1 and 2 and renewed from time to time. The said first loan was, as appears from exhibit B, renewed on November 1, 1932. As already stated, this1 first loan was last renewed on December 4, 1934. The dates of the intermediate renewals of this loan, as they appear in exhibits! B, D and F, are January 3, 1933, March 4, 1933, May 3, 1933, July 5, 1933, September 9, 1933, December 9, 1933, March 9, 1934, June 7, 1934, and September 5, 1934. The second loan was granted on May 14, 1934, by the plaintiffs to defendants Nos. 1 and 2 and was renewed on the two dates mentioned above. From exhibit D it appears that there was a third loan of Rs. 2,500 granted by the plaintiffs to defendants Nos. 1 and 2 on November 16, 1933, and was renewed on January 30, 1934, and repaid on April 30, 1934. The munim of the Bhawanidas & Co. and Kishanlal Sheokaran, the cashier and accountant of the plaintiffs, in their evidence stated that on each due date of the two loans the plaintiffs returned to defendants Nos. 1 and 2 the outstanding receipt for the loan duly discharged by them on payment by defendants Nos. 1 and 2 to the plaintiffs of the interest due on such loan and obtained from defendants Nos. 1 and 2 a new receipt for the loan stating the rate of interest agreed upon by the plaintiffs and defendants Nos. 1 and 2 at the date of each such new receipt. The rate of interest varies from time to time. Bhawanidas & Co. made an entry in respect of each such transaction in their books of account for their brokerage. These entries contain the particulars of the rates of interest and the periods of repayment. The plaintiffs also made entries in respect of these loans and the renewals thereof. The entries in their books are double entries at each renewal crediting defendants Nos. 1 and 2 the whole amount of the loan and the interest due thereon and debiting them the amount of the loan on the same day. So long as the renewals continued, the plaintiffs did not maintain a separate account of defendants Nos. 1 and 2 in their books but made these entries in an account headed 'Kherij Khata'. The entries in respect of the first loan in the plaintiffs' ledger and cash book are exhibits 1 to U, and the entries in respect of the second loan are exhibits V to A4. When these loans were not renewed and remained unpaid, the plaintiffs started an account of defendants Nos. 1 and 2 in their books, in which the amounts of the two loans of Rs. 2,500 are debited to defendants Nos. 1 and 2. The account is exhibit A5. Exhibit A6 consists of two cash book entries corresponding with the entries in the account exhibit A5.

12. The first question for consideration is whether the plaintiffs are entitled to sue defendants Nos. 3, 4 and 5 as sureties under the agreement of September 25, 1933, (exhibit C), and whether defendants Nos. 3, 4 and 5 guaranteed to the plaintiffs the repayment of the two loans by defendants Nos. 1 and 2. The plaintiffs are not parties to the agreement of September 25, 1933. The learned Counsel for defendants Nos. 3 and 4 contended that the plaintiffs not being parties to the agreement are not entitled to sue on the agreement.

13. In National Petroleum Company, Ltd. v. Popatlal : AIR1936Bom344 the learned Chief Justice and Mr. Justice Rangnekar laid it down that a person who is not a party to a contract is not entitled to maintain an action upon that contract and that this rule is subject to well-recognised exceptions, e.g. a person who is not a party to a contract can sue on it if he is claiming through a party to the contract, or if he is in! the position of a cestui que trust or of a principal suing through an agent, or if he claims under a family settlement. The learned Judges disagreed with the decision of the learned Judges of the Calcutta High Court in Kshirodebihari Datta v. Mangobinda Panda I.L.R. (1934) Cal. 841 that under the Indian law any person who took a benefit under a contract to which he was not a party could sue directly upon that contract and that it was not necessary to invoke the doctrine of trust or agency. The decision of the learned Judges of the Calcutta High Court has gone beyond the limits recognised under the Indian law for an action by a stranger to a contract, and in that, with due respect to the learned Judges, I think is erroneous. Apart from the fact that the decision of the learned Chief Justice and Mr. Justice Rangnekar is binding upon me, I think the learned Judges have laid down the correct position in Indian law.

14. In this case there is no question of the plaintiffs suing through Bhawanidas & Co. or there being any trust in favour of the plaintiffs created by the agreement. The learned Counsel for the plaintiffs as the last argument submitted that the plaintiffs were in the position of cestui que trust under the agreement. On being asked as to what was the subject-matter of the alleged trust he found himself in difficulties, as indeed the liability of a surety could not form the subject-matter of a; trust. The only possible way in which the plaintiffs could claim to maintain this action on the agreement of September 25, 1933, is by claiming that the agreement was entered into by Bhawanidas & Co. on behalf of the plaintiffs acting as the plaintiffs' agents. This is not the plaintiffs' case in the plaint.

15. The plaintiffs have led no evidence at all to show that they were, until they filed the suit, ever aware of this agreement between Bhawanidas & Co. and the defendants or that they ever accepted and acted upon the same. The munim of Bhawanidas & Co. stated that Bhawanidas & Co. procured loans for defendants Nos. 1 and 2 from various parties. He admitted that in these transactions Bhawanidas & Co. acted as the brokers of defendants Nos. I and 2 who paid them the brokerage. In his cross-examination he stated that about fifteen days or a month after the agreement (exhibit C) was entered into, he told the plaintiffs that Bhawanidas & Co. had agreed with defendants Nos. 1 and 2 to procure loans for them to the extent of Rs. 15,000 and that the plaintiffs might advance monies to defendants Nos. 1 and 2 if they thought proper. He added that he could not say whether the plaintiffs knew that this agreement had been entered into before he talked to them about it. This is the only evidence in the case with regard to any knowledge on the part of the plaintiffs of the agreement. The only information which the munim of Bhawanidas & Co. gave them was that Bhawanidas & Co. had entered into an agreement with defendants Nos. 1 and 2 only to procure loans for them to the extent of Rs. 15,000. The plaintiffs were never informed, and they have not sought to prove, that they were aware of an agreement of suretyship for the repayment of any loans which they might have advanced or that they advanced any loans to defendants Nos. 1 and 2 accepting, and acting upon, such an agreement.

16. The plaintiffs have not stated nor have they tried to prove that Bhawanidas & Co. were the agents of the plaintiffs or acted as such in entering into the agreement. Indeed the evidence is that Bhawanidas & Co. were, so far as the plaintiffs were concerned, acting as the paid agents or brokers of defendants Nos. 1 and 2. There was no contractual relationship of principal and agent between the plaintiffs and Bhawanidas & Co. at the date of the agreement or at any time thereafter. There is no evidence at all that Bhawanidas & Co. were acting as the agents of the plaintiffs in entering into the agreement.

17. The learned Counsel for the plaintiffs argued that at the date of the agreement the plaintiffs were in fact creditors of defendants Nos. 1 and 2 to the extent of Rs. 2,500 and that therefore Bhawanidas & Co. should be held to be the agents of the plaintiffs in entering into the agreement in respect of the guarantee for the repayment of the existing debt of Rs. 2,500. As I have stated above, the plaintiffs were not aware of the agreement at any time before they filed this suit. In fact the plaintiffs have not acted in accordance with any of the terms of the agreement. Under the agreement the period for the repayment of the loans which had been granted to defendants Nos. 1 and 2 prior to the date of the agreement was to be extended up to September 25, 1934. It appears from exhibit B that a loan of Rs. 2,500 by the plaintiffs to defendants Nos. 1 and 2 was last renewed before the date of the agreement on September 9, 1933, and was repayable three months thereafter. It appears from exhibit D as well as from the books of the plaintiffs that this loan was not renewed for a period of one year on the agreement being entered into but was renewed on December 9, 1933, only for a period of three months. On these documents and on the evidence before me there is no doubt in my mind that the said agreement was not entered into by the plaintiffs through Bhawanidas & Co. as their agents.

18. The learned Counsel for the plaintiffs argued that by the mere fact that the plaintiffs advanced the second loan of Rs. 2,500 to defendants Nos. 1 and 2 on May 14, 1934, they became the principals of Bhawanidas & Co. for the purpose of the agreement, and as a consequence thereof defendants Nos. 3, 4 and 5 became sureties to them in respect of this loan. This argument means that anybody who advanced any monies to defendants Nos.1 and 2 during one year from the date of the agreement, viz., September 25, 1933, would automatically become the principal of Bhawanidas & Co. and would be entitled to sue defendants Nos. 3, 4 and 5 as sureties for such loan to defendants Nos. 1 and 2 in terms of the agreement. The learned Counsel for the plaintiffs admitted that in this way 15000 different parties advancing a rupee each to defendants Nos. 1 and 2 during that year would be the principals of Bhawanidas & Co. and become entitled to sue defendants Nos. 3, 4 and 5 as sureties under the agreement.

19. Not a single loan was advanced to defendants Nos. 1 and 2 on or after September 25, 1933, for a period of one year. Thus if the argument of the learned Counsel for the plaintiffs be correct, there would be a fluctuating number of persons who would at one stage be entitled to the benefits of the agreement as the principals of Bhawanidas & Co. and be displaced entirely on their loans being repaid, by new numbers of persons who might from time to time become the creditors of defendants Nos. 1 and 2.

20. I hold that the agreement was not entered into by Bhawanidas & Co. acting as the agents of the plaintiffs or for the benefit of the plaintiffs and there was no agreement of suretyship between the plaintiffs and defendants Nos. 3, 4 and 5. On this finding the plaintiffs' suit against defendants Nos. 3, 4 and 5 should be dismissed and it is not necessary to consider the rest of the questions raised in this suit However, as I have heard all the evidence in the suit and the lengthy but able and interesting arguments of the learned Counsel for the plaintiffs and the learned Counsel for defendants Nos. 3 and 4, I proceed to deal with those questions.

21. The plaintiffs' claim against defendants Nos. 3, 4 and 5 is on the contract of suretyship assuming that under the agreement defendants Nos. 3, 4 and 5 undertook an obligation as sureties by the plaintiffs. The position of a surety with regard to his contract is laid down in Halsbury's Laws of England, 2nd edn., Vol. XVI, Article 52, p. 59, in these terms :

The surety is regarded as a favoured debtor. He is entitled, as such, to insist upon a rigid adherence to the terms of his (the surety's) obligation by the creditor, and cannot be made liable for more than he has undertaken; for, though his contract is not, like that of an insurer, uberrim fidei, it is one strictissimi juris.

22. Under the terms of the agreement the existing debt of defendants Nos. 1 and 2 was to be renewed for a period of one year from the date of the agreement and made repayable on September 24, 1934. The further advances to be made under the agreement were also to be repayable! on September 24, 1934. The total liability of defendants Nos. 1 and 2 under the agreement was to be Rs. 15,000 during the period of the agreement. None of these terms have been observed by the plaintiffs or by Bhawanidas & Co. It appears from exhibits B, D and F that different loans repayable after short periods were advanced by divers persons to defendants Nos. 1 and 2 during the year. It appears from exhibit D that after July, 1934, the total amount of the loans procured by Bhawanidas & Co. for defendants Nos. 1 and 2 exceeded the limit of Rs. 15,000 on two occasions before the end of the period of one year. The terms contained in Clauses 2, 3 and 6 of the agreement have not been! observed at all. Defendants Nos. 1 and 2 never paid interest to the plaintiffs every month. It appears from the books of Bhawanidas & Co. as well as from the books of the plaintiffs that interest was paid on each loan at the expiry of the period of the renewal of the loan and at the time of the further renewal. The two loans for which the plaintiffs brought this action were renewed even after the expiry of the year under the agreement, i.e. after September 24, 1934.

23. Any material variation in the terms of the contract between the creditor and the principal debtor will discharge the surety. In this suit defendants Nos. 3 and 4 are entitled to say that they have been discharged from their obligation as sureties (the obligation being assumed) by the plaintiffs by reason of their failure to observe any of the terms and by reason of the plaintiffs dealing with defendants Nos. 1 and 2 in respect of the loans on terms different from those contained in the agreement. There is not even a suggestion on behalf of the plaintiffs that defendants Nos. 3, 4 and 5 ever consented to the plaintiffs so dealing with defendants Nos. 1 and 2.

24. The renewals of the two loans from time to time by the plaintiffs were by obtaining fresh receipts from defendants Nos. 1 and 2 and returning the old receipts to them duly discharged. From time to time as the loans were renewed the plaintiffs credited the amount of the outstanding loan with the interest thereon and debited the amount of the renewed loan. The plaintiffs' cause of action is on the renewed loans under the receipts exhibits E and G, dated December 4, 1934, and November 14, 1934, respectively. In the particulars of the plaintiffs' claim which are exhibit D to the plaint, the plaintiffs claim the amount of Rs. 2,500 due under the renewed receipt dated November 14, 1934, and Rs. 2,500 being the amount due under the renewed receipt dated December 4, 1934. There is no guarantee by defendants Nos. 3, 4 and 5 in respect of the amounts due to the plaintiffs under the said receipts dated November 14, 1934, and December 4, 1934.

25. I dismiss the plaintiffs' suit against defendants Nos. 3 and 4 with costs.

26. I also dismiss the plaintiffs' suit against defendant No. 5.

27. I pass a decree against defendants Nos. 1 and 2 as prayed.


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