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The Bank of Ind Ia, Ltd. Vs. Rustom Fakirji Cowasjee - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtMumbai High Court
Decided On
Case NumberO.C.J. Suit No. 1395 of 1949
Judge
Reported in(1955)57BOMLR850
AppellantThe Bank of India, Ltd.
RespondentRustom Fakirji Cowasjee
Excerpt:
construction of documents-intention-resolution by directors of company to allow company to borrow amount from bank on security of promissory note signed by defendant in favour of company and endorsed by company in favour of bank-declaration in resolution that fixed and liquid assets of company free from encumbrances and an undertaking that such assets would not be charged, hypothecated or incumbered while company indebted to bank-promissory note made by defendant, endorsed by company in favour of bank and by continuity letter defendant and company agreeing that promissory note to be regarded as continuing security--whether charge created on assets of company under resolution, promissory note and continuity letter-construction of contract or deed-intention of parties how to but.....desai j.1. [his lordship, after stating the facts and the contentions of the parties, proceeded.] a number of issues were raised on behalf of the defendant. although none of them have been given up, it is clear that the case of estoppel pleaded in the original written statement has lost its importance since the defendant has not been examined and there is no evidence on which that plea can be seriously supported. the principal questions that arise for my determination are those relating to jurisdiction, consequences of non-presentment of the promissory note for payment and the question whether the defendant has been discharged from his liability as guarantor by any act or omission or conduct of the plaintiffs bank.2. it was argued that a part of the plaintiffs' cause of action in this.....
Judgment:

Desai J.

1. [His Lordship, after stating the facts and the contentions of the parties, proceeded.] A number of issues were raised on behalf of the defendant. Although none of them have been given up, it is clear that the case of estoppel pleaded in the original written statement has lost its importance since the defendant has not been examined and there is no evidence on which that plea can be seriously supported. The principal questions that arise for my determination are those relating to jurisdiction, consequences of non-presentment of the promissory note for payment and the question whether the defendant has been discharged from his liability as guarantor by any act or omission or conduct of the plaintiffs bank.

2. It was argued that a part of the plaintiffs' cause of action in this suit arose out side the jurisdiction of this Court, and since no leave had been obtained under Clause XII of the Letters Patent for filing this suit, this Court has no jurisdiction to entertain and try this suit. It was stressed that the promissory note and the continuity letter were signed by the defendant, not in Bombay but at Delhi, and that fact constituted a part of the cause of action of the plaintiffs bank. This argument was on the assumption that the suit was founded simply on these two documents and was a suit to hold the defendant liable simply as the maker of the promissory note. Now, as I have already observed, the suit is to enforce a claim against the defendant as a surety. The contract of guarantee-which is always a tripartite agreement-took place when along with the airline company's letter of June 5, 1947, a copy of the resolution, the promissory note, and the continuity letter were handed over to the plaintiffs bank. This was in Bombay. Moreover, all these documents purport to have been executed or made in Bombay. This is not a suit on a promissory note simpliciter. The position, in my opinion, is different in a transaction of guarantee. I a promissory note and a continuity letter are given as security by way of guarantee for repayment of a loan to a third party as part of the tripartite agreement, the contract of guarantee takes place where the guarantor gives his promise to perform the obligation or discharge the liability of the third person in case a default is made. The question that the Court puts to itself in such a case is : Where did the defendant (guarantor) agree with the plaintiff (creditor) to perform the promise or discharge the liability of the third party (principal debtor)? On the evidence before me it is clear that the defendant handed over the promissory note to Vijay singh Govindji at Delhi and constituted him his agent to hand over the promissory note and the continuity letter to the airline company who after endorsing these documents handed over the same to the plaintiffs bank in Bombay. Therefore, in any view of the matter, the defendant's promise of guarantee to the plaintiffs bank to discharge the liability of the airline company was made in Bombay and not at Delhi. It is the place where this promise was made that can be said to be the place where that part of the plaintiffs' cause of action arose. So much for the place where the promise of guarantee was made. Indisputably the place of performance of the entire contract was Bombay. For all these reasons I am unable to accept the contention that a part of the plaintiffs' cause of action in suit had arisen outside the jurisdiction of this Court.

3. Learned counsel for the plaintiffs bank has argued the question of jurisdiction from a different aspect of the case; presumably because he wanted to urge the plaintiffs' case on the footing of the contract of guarantee and also alternatively on the footing that the suit was not against a surety but on a negotiable instrument by an endorsee of the promissory note against the maker of the instrument. The argument was that the defendant had signed the promissory note and the continuity letter knowing that they purported on the face of them to have been executed in Bombay. It was submitted that it was open to the parties to date a promissory note at a place different from that at which it is actually made, if, for any purpose of theirs, they consider it necessary to do so. In support of this argument reliance was placed on a decision of the Madras High Court in Meenakshi Ginning and Pressing Co. v. Myle Sreeramulu Naidu I.L.R (1904) Mad. 19. In that case a promissory note drawn on behalf of the company was signed by the secretaries and treasurers and dated at Bellary, The note was then sent to Tirumanglam where the agents of the company countersigned it and affixed the seal of the company on the promissory note. From that place it was sent by post to the Official Assignee who received it in Madras. In a suit brought to recover the amount of the promissory note in the Court at Bellary the plea was taken on behalf of the defendants that the promissory note had in fact been made not at Bellary but at Tirumanglam and that no part of the cause of action had arisen in Bellary. In rejecting this plea it was observed by Sir Subramaniam Iyer Offg. CJ. (p. 21):.nor are the parties precluded from dating the note at a place different from that at winch it is actually made, if for any purpose of theirs, they consider it necessary to do so. Where, therefore, a negotiable note, as in, the present instance, is dated with reference to a specified place and the justice of the case does not necessitate a different conclusion, the parties should be presumed to have agreed to that place being taken to be the place of the contract.

4. Reference was made in the judgment to an earlier decision of the same Court where a similar view had been expressed. Reference was also made in the judgment of the learned Chief Justice to two other decisions as supporting the principle that 'a contract is binding on the promisor in the sense in which he intended, at the time of making it, that it should be received by the promises.' It was argued by Mr. Kolah on behalf of the defendant that the Madras decision only lays down that when a promissory note purports to have been made at a particular place only a presumption arises that it was made at that place, which presumption it was said can be rebutted by evidence showing that it was in fact made at some other place. I do not agree that this is the ratio decidendi of the Madras decision. The decision goes much further than that and lays down the proposition that a contract is binding on the promisor in the sense in which he intended at the time of making it that it should be received by the promises. I am in respectful agreement with this view expressed by Sir Subramaniam Iyer. I do not, however, intend to be understood to say that it is open to the parties to a contract, which is being executed by both of them in one place, to say that the contract shall be deemed to have been made in some other place; for that may well have the effect of an attempt to confer jurisdiction on some other Court which it otherwise would not have. But no such question arises in the present case. So, even if this is to be regarded as a case in which the cause of action was the promissory note, the whole cause of action was in Bombay and the plea of absence of jurisdiction must fail.

5. It was next argued that as the promissory note is expressed to be payable at ' a specified place,' viz. within the Bank of India, Ltd., and as it was admittedly at no time presented by the plaintiffs bank for payment as required by Section 69 of the Negotiable Instruments Act, the defendant was not liable in respect of any claim arising out of it. It was stated that the words ' within the Bank of India Ltd.' in the instrument were sufficiently clear to refer to the head office or to any other branch of the Bank in Bombay. It was further stated that the fact that the plaintiffs bank had a number of branches in Bombay did not affect the question, since the word 'place1 in Section 69 must be construed to include 'places.' I agree that the words 'within the Bank of India Ltd.' are sufficiently clear and specific and must, therefore, be held to indicate a specified place within the meaning of Section 69 of the Negotiable Instruments Act. But the first difficulty in the way of Mr. Kolah is that this is not a suit on a promissory note simpliciter. It is not a suit to charge the defendant as the maker of the instrument but to enforce a contract of guarantee. The promissory note is given as a security and is only evidentiary of that contract. The cause of action is the contract of guarantee and not the promissory note. And there are other difficulties in the way of Mr. Kolah. Section 69 in terms lays down that the instrument must be presented for payment at the specified place. Indubitably this assumes that the party to whom the presentment is to be made will be present at the place specified in the instrument. The specified place in case of the maker of the note would sometimes be where he resides or carries on his business. Where, however, the specified place is other than this, before he can resist liability under the provisions of Section 96 of the Act, it must be shown that the presentment could have been made to him at that place because that is what is obviously contemplated by the section. The defendant resided at Karachi and on the evidence before me I am satisfied that the plaintiffs bank could not have presented this promissory note to him ' within the Bank of India Ltd.' There is nothing to show that the defendant was available for such presentment either at the head office or at any branch office of the bank in Bombay at any material time. Mr. Mody learned Counsel for the plaintiffs drew my attention to two decisions of the Lahore High Court. In Mohd. Hayat Khan v. Khair Din A.I.R [1937]. Lah. 892 a promissory note was payable at Sialkot. The maker of the instrument was a resident of another town Koreki and had no place of business at Sialkot. The promises was all along a resident of Sialkot and was in possession of the promissory note. On a suit by the promises for recovery of the amount of the promissory note it was contended by the maker of the note, relying upon Section 69, that the suit was liable to be dismissed as the promissory note was not duly presented to him. It was held that the provision of the section was sufficiently complied with as the promises had the promissory note in his possession at Sialkot from the date of its execution till the date of the suit and was all along in a position to present it to the maker if he had visited that place. The view taken was that in such a case presentment of the promissory note was not necessary and that the plaintiff was entitled to recover the amount of the promissory note. In Firm Muni Lal v. Kalatn Singh A.I.R. [1943] Lah. 121 the same proposition was reiterated and it was observed (p. 122):.Evidently this provision contemplates that the maker should make himself available at the place specified in the promissory note for presentment otherwise the omission to present will have no effect in the matter. This again is consistent with common sense.

I am in agreement with the ratio decidendi of these decisions relied on by Mr. Modi. Learned counsel for the plaintiffs also relied on the third part of Section 76(a) of the Negotiable Instruments Act which lays down that no presentment for payment is necessary in ease of a promissory note payable at a place other than the place of business of the maker if neither the maker nor any person authorised to pay it attends at such place during usual business hours. In the facts and circumstances of the case before me it is hard to see how the plea of non-presentment of the note for payment is sustainable.

6. Alongside the arguments relating to jurisdiction and non-presentment of the promissory note for payment it was said that whatever way the case was viewed whether as laid on guarantee or otherwise what was sought to be enforced by the plaintiffs bank was the promissory note itself. I have already considered this point. It was said that the defendant was not present at the meeting of the board of directors when the resolution of July 5, 1947, was passed and had no notice of the contents of that resolution. Now, I do not think that any question to be determined by me in this case really turns on the knowledge or absence of knowledge on the part of the defendant of the contents of that resolution. In fact it is the defendant himself who wants to rely on the resolution in support of his case that a floating charge, hypothecation or mortgage on its assets had been created by the airline company in favour of the plaintiffs bank.

7. Then it was said that it was the duty of the plaintiffs bank to get a properly enforceable security from the airline company. There is neither principle nor authority in support of any such proposition. A creditor is not bound to insist upon any particular kind of security from the principal debtor. It is only when he takes some security from the principal debtor that the surety can claim a right to the benefit of that security. Of course if a creditor takes a security from the principal debtor, it is his duty to see that that security remains enforceable against the principal debtor, and if any formalities are required by law in connection with that security, it would be his duty to see that such formalities are observed. But more than this the creditor is under no obligation to do. It will be necessary for me to consider the question of security later on u> my judgment while dealing with another aspect of the case.

8. I pass now to consider the real point of controversy in the suit. Mr. Kolah urged with considerable emphasis that the declaration and undertaking given by the airline company in the resolution read in the whole context created a floating charge, hypothecation or mortgage on the fixed and liquid assets of the airline company as security for repayment of the loan made by the plaintiffs bank. Realising the difficulties in the way of showing that any floating charge, hypothecation or mortgage had been created, learned Counsel particularly argued that in any case a ' charge ' had been created on the fixed and liquid assets of the airline company as security for repayment of the loan. It was argued that our law recognises a charge on moveable property as a valid mode of creating a security on the same as distinguished from a floating charge, or hypothecation or mortgage on the same. It was not disputed that hypothecation or mortgage of moveable property were not different legal concepts under the Indian law. Now, as I have already observed, the defendant's case that he had been absolved from all obligations as the guarantor of the loan was pleaded after an amendment of the written statement was allowed by me. The amended written statement does not say in terms that any ' charge ' had been created on the fixed and liquid assets of the company as security for the repayment of the loan. I do not, however, propose to take a strict view of this lacuna in the amended written statement of the defendant. The argument based on the creation of such a charge was that the plaintiffs bank was bound to get that charge registered with the Registrar of Companies but failed to do so, and also failed to take possession of the property to which the charge attached and also abandoned that charge by proving in the liquidation of the airline company as unsecured creditor only, and the defendant was, therefore, absolved and discharged from all liability on the guarantee. Particular reliance was placed on the following words in the resolution which I have already set out in an earlier part of my judgment:-

Security: 1. Demand promissory note for Bs. 5 lacs signed by Mr. Rustom F. Cowasji, in favour of the Company and endorsed by the company in favour of the Bank. 2. Negative lien on all fixed and liquid assets of the Company....

The Company hereby declares that all its fixed and liquid assets are now free and unincum-bered and undertakes that they will not be charged hypothecated or encumberd in any way while the Company is indebted to the Bank without the previous consent of the Bank in writing.

9. It was stated that there was ample authority for the proposition that it is not necessary that a charge should be called a charge in the agreement between the parties and that in numerous cases of agreements containing expressions identical with those to be found in the present case, Courts have held that a charge had been created on the properties mentioned in the agreement. A number of decisions were cited as instances where on construction of the words used by the parties the conclusion had been reached that the parties had intended to create a security by way of mortgage or charge on the property. Before I refer to those decisions and examine how particular words and expressions used by parties in different documents were construed by the Courts, I may observe that the approach to a matter of this nature and the principle substantially governing the same are well established. No precise form is required for creating a charge or a mortgage whether on immoveable property or moveable property and it is sufficient if it clearly appears to have been the intention of the parties to create a charge or mortgage on the property, and in ascertaining the intention, 'the form of expression, the literal sense is not to be so much regarded as the real meaning which the trans-action discloses'-Hunoomanpersaud Panday v. Mussumat Babooee M. Koonweree (1856) 6 M.I.A. 393,. I have always understood that it is a firmly established rule based on sound principle that in construing a contract or deed the Court does not permit itself to be influenced by the mere form of the expression used by the parties but is always concerned with the substance of the writing and for that purpose construes the same according to the real intention of the parties as expressed in the writing and in the light of such other facts and circumstances attending the transaction as may be relevant. The question is not of applying merely 8 formal test; regard is had to the substance of the transaction. The intention of the parties is not to be gathered by looking only at the ostensible nature of the expressions used by them or from the absence of any specific formal expression such as charge, or mortgage, when the case relates to any transaction of such a nature. It has to be legitimately ascertained from that which they have chosen to state in express words or by reasonable and necessary implication of the language used and after paying sufficient regard to the setting in which they are found and the relevant circumstances attending the transaction.

10. To turn to the cases relied on by Mr. Kolah. The first case relied on by learned Counsel was W. Martin v. Pursram (1867) 2 Agra H.C.R. 124. In that case a bond commenced by stating that the defendants were residents and zamindars of a mouzah the position of which was described in the writing. The bond then stated that the defendants had borrowed the amount of the bond and had promised to pay it with interest. Then followed a provision by which they bound themselves not to transfer their rights and interest in the mouzah by means of sale or mortgage until the debt had been repaid. It was held that no formal words were necessary and the intention of the parties to create a mortgage was sufficiently expressed and that the words used in the bond under the circumstances of the case indicated the defendants' intention to create a security on the property. In Bolakee Lal v. Chowdhry Bungsee Singh (1867) 7 W.R. 309 the agreement was that until the amount of the debt covered by the bond shall be paid in full the debtor could not alienate by sale, mortgage or gift the three properties mentioned in the writing. That agreement was held to create a, simple mortgage. In Ryakumar Narayan Ramgopal Singh v. Ram Dutt Chowdhry (1870) 6 Beng. L.R. 264, a full bench decision of the Calcutta High Court, a bond executed by a debtor recited that in order to repay the bond money in the terms of the bond contained the debtor should not until repayment of the money covered by the bond

from the date of the agreement convey the property mentioned therein to anyone by deed of sale, or deed of conditional sale, or mokurrari potta, or deed of mortgage, or zuri peshgi ticoa putta.

It was held that the instrument operated as a mortgage in favour of the creditor. But the main emphasis was laid by the Chief Justice Sir Richard Couch on the words in the bond, 'should he make all these transactions with respect to the said lands, the instrument relating thereto shall be deemed invalid and as executed in favour of nominal parties for evading payment of the money covered by the said land.' It was a decision of the majority of the learned Judges who decided the appeal. Markby J. did not agree with the other learned Judges.

11. The next case cited by Mr. Kolah was the decision of the Allahabad High Court in Kishan Lal v. Ganga Bam I.L.R (1890).All. 28. In, that case a decree was obtained upon a bond whereby certain immoveable property was made security for a loan, the transaction being described not by the word ' rehan' or mortgage but by the words ' arh' and ' mustaghraq,' The instrument contained no express covenant for sale of the property in default of payment but stated, ' until payment of the aforesaid sum I shall not transfer to anyone else in any way a pucca built shop belonging to me situate in Bazar Kalan' after which followed the boundaries of the property. It was held that the words 'arh' and 'mustaghraq' used in the bond implied a power of sale in default and the writing read as a whole operated as a mortgage with possession. It was pointed out by Mahmood J. in his judgment in this case that although the deed did not contain any express words giving the obligee the power of bringing the property to sale as a means of securing the payment of the moneys advanced, there was sufficient language in the deed to show that such power was implied. In Jawahir Mal v. Indomati I.L.R (1914) All. 201 the deed commenced by reciting that the executant had borrowed a certain sum of money from certain persons and then proceeded to refer to a certain share in a property, and finally there was a clause by which the executant undertook that until repayment of the amount he would not transfer the property by sale, mortgage, gift or in any other way; but there was not in any part of the document any expression such as mortgage, or hypothecation and the deed did not in terms give any right of sale of the property. It was helc1 that the intention of the parties was to make the property mentioned in the writing security for the loan and that the document created a charge on the property. There was a difference of opinion between the learned Chief Justice and the other learned Judge who decided the second appeal but that was on a point which is not material to this case. In Narain Bass v. Murli Dhar A.I.R [1929] Oudh 539 the principle was reiterated that the law does not prescribe any particular form of words which may be necessary to create a charge, and that the determination of the question rests upon the intention to make a particular property the security for repayment of the debt and the intention is to be gathered from the language of the instrument. In that case a suit brought on a promissory note was compromised and a consent decree was taken. The decree provided certain instalments and went on to state ' the Defendant will not dispose of in any way his share in the Premier Aerated Company at Hazrat gang until the satisfaction of the decretal amount.' It was held that the stipulation contained in the decree intended to preserve the property intact so as to be available for payment of money payable under the decree and that therefore a charge had been created on the property men-tioned in the decree.

12. In Ganga Prasad v. Ratancharid [1941] Nag. 356 the same principle was reiterated and it was observed that no particular form of words was necessary for the creation of a charge and that it is sufficient to indicate the property that is set apart as a security for the payment of the debt. It was held that the creditor has, in such a case, a right to look to the property for satisfaction of his debt. In that case the consent decree provided for the payment of the decretal amount in certain instalments and further directed that the defendant should not alienate certain property belonging to him till the satisfaction of the decree. It was held that the decree created a charge on the defendant's property. In Dau Bhairoprasad v. Jugal prasad [1942] Nag. 263 which was a case decided by Sijr Gilbert Stone C.J. and Mr. Justice Vivian Bose, the defendant admitted certain liability and in respect of that liability executed a registered document by which he agreed (a) to execute a charge bond on a specified share and rights in a village inclusive of the cultivating rights in air lands, (b) to obtain the necessary sanction to transfer the cultivating rights in the air lands and (c) not to assign certain other property until the above were carried out. The charge bond was not given nor was the sanction obtained. It was held that the document created a charge on the last mentioned property. In his judgment the learned Chief Justice, after referring to the third undertaking stated above, observed (p. 269):

In our opinion the only possible purpose of the last undertaking was to segregate this property so that it would be answerable in the hands of J [the defendant] should he fail to give the charge bond, and that we think makes this property a security for the payment of money.

13. In Janardhan v. Anant I.L.R (1908) 32 Bom. 386 10 Bom. L.R. 575 certain bonds were passed in favour of the obligee Prior to the bonds the debtor had already mortgaged certain thikans belonging to him to the obligee. In the bonds he stated, 'Our thikans are mortgaged to you. At the time of redemption I shall pay you in full this amount including interest' (mortgage amount of the bond). 'Before I pay you this amount I shall not seek redemption.' There were four such bonds, three of which were registered. Sir Lawrence Jenkins C.J. in taking the view that the documents created a charge observed (p. 390):.having regard to all the ciraumstanoes of the transaction we feel no doubt that the documents are sufficient and do show an intention to make the land security for the payment of the money mentioned therein....

It was pointed out by the learned Chief Justice that the documents in question were executed in the moffusil and came within the statement of the Privy Council that such deeds and contracts ought to be liberally construed and that the form of expression in the literal sense was not so much to be relied on as the real meaning of the purpose which the transaction disclosed. The learned Chief Justice also observed that the fact that the three bonds had been registered and only one was unregistered was not without significance.

14. In Nathan Lal v. Durga Das I.L.R (1930) All. 985 in a registered instrument, a lease of zemindari property granted for five years, it was stipulated that the lessee would appropriate a specified portion of the annual rent towards the discharge of a particular debt due by the lessor to the lessee. It was held that the stipulation constituted a charge on the property leased. It was observed in this case that where the intention of the parties was to indicate in unambiguous language that a definite fund should be employed for discharge of 'a particular debt or claim and there is no ambiguity either as to the amount of the debt or the amount of the fund out of which the debt has to be satisfied, the transaction amounts to a charge. Learned counsel for the plaintiffs cited a number of decisions where it was held that the documents in question did not create a charge. In Rangampudi v. Venka-teswarlu : AIR1934Mad713 the defendant's father addressed a letter to a bank undertaking not to alienate certain properties till a loan advanced to his son was repaid. It was held that what was stated in the letter did not amount to a charge. In Manohar Lal v. Ratan Lal A.I.R [1928]. Lah. 440 in an award made by the arbitrators in disputes relating to partition of a property it was stated, 'S. shall not be competent to sell, mortgage, hypothecate, or gift or make wakf in respect of the immoveable property allotted to him till the said amount is not paid oil by him to the first party.' It was held that these words did not create either a mortgage or a charge on the property. In Najibulla Mulla v. Nusir Mistry I.L.R (1881) cal. 196 in consideration of a loan A. gave a bond by which he covenanted 'not to alienate the property of himself and his daughter or the rest of his own property until the loan secured by the bond was paid.' The bond was recorded under the Registration Act in Book No. IV. It was held that the general words used in the bond were not sufficient to create an incumbrance upon any specified property and that the fact that the bond was recorded in Book No. IV showed that it was not the intention of the parties that the immoveable property of the debtor should be charged. In Mohini Debt v. Puma Sashi : AIR1932Cal451 after stating that he would pay a particular amount every month as maintenance to the obligee and that the obligee had relinquished in his favour certain immoveable properties which were owned by the obligee the executant stated:

If I do not pay the maintenance money amicably you will be entitled to realize the same by a regular suit by putting in auction of these properties and, in case the entire amount in arrears is not realized there from, by sale of my other properties moveable or immoveable.

It was held on a consideration of all the facts of the case that it was not in the contemplation of the parties that the property which the lady relinquished in favour of the executant would remain liable for maintenance and that no charge had been created.

15. There was a good deal of argument founded on the decisions relied on by Mr. Kolah. They were all decided on the construction of the expressions and language used by the parties and the circumstances attaching the transactions. No useful purpose would be served by a more detailed examination of those authorities. Cases, indeed, abound, but they may all be said to show no more than application of the principle that as far as possible such a meaning shall be given to a written instrument as may carry out and effectuate the intention of the parties. The main question to be determined in cases of this nature is whether the parties have clearly expressed their intention to create a charge or any other in cunlbrance on the property in question or have merely used some expressions which are in the nature of personal assurances or undertakings which although of binding effect give no right to the promises to proceed against the property itself by bringing it to sale. The cases considered above are illustrative of the two results. It may be, and sometimes is, a matter of some difficulty to say on which side of the line thus indicated the facts of a particular case fall. The inquiry must, in the first instance, consist of a careful and searching examination of the writing itself, with particular reference to the extent of the rights which the obligee has reserved for himself, and the restrictions it puts on the rights of the obligor in respect of the property in question. The question becomes easier of solution if it is borne in mind that the first thing to be ascertained is Have the parties stated that a right of the nature of an incumbrance is being created with the intention of enabling one party to enforce the same by proceeding against the property, that is, by bringing it to sale. The writing need not contain any express words giving the obligee the power of bringing the property to sale as the means of securing payment of the moneys advanced but there must be sufficient language in the writing itself from which such power may reasonably be implied.

16. Now, it is abundantly clear from the evidence before me that the security insisted upon by the plaintiffs bank was a guarantee by the defendant and a negative lien on the fixed and liquid assets of the airline company. A declaration is given that the fixed and liquid assets of the company are free and unincum-bered: and an undertaking is given that those assets will not be charged, hypothecated, or encumbered in any way while the airline company remains indebted to the bank. I put to myself the question: Do these words 'negative lien' and this declaration and undertaking indicate an intention to create a right in favour of the bank to look to those assets as a security to be availed of by bringing them to sale in case of default? Mr. Kolah has laid considerable emphasis on this declaration and this assurance and has argued that they must be interpreted as an unmistakable expression of such intention. The greatest stress was laid on what were said to be almost identical expressions in the various decisions cited by learned Counsel, and it was said that those expressions were interpreted as creating charge on property. As to those expressions, it was argued by Mr. Modi, that in all those decisions the borrower had stated that he would not be entitled in any way to transfer or alienate the property either by sale, mortgage, charge or otherwise. There is to my mind ample scope for noting the difference in the expressions used in almost all of these cases which included the promise that the property would not be sold and the, language in which the assurance in the case before me is given. Here the assurance does not extend to any restriction on the' sale of the assets. It has also to be noted that this assurance does not reach to the right to sell any assets of the borrower even though the business of the borrower did not consist of buying and selling goods. The airline company, it was argued by Mr. Modi, could have at any time sold any of its assets without committing any breach of the assurance. An attempt was made by Mr. Kolah to show that the expressions gift and exchange were not mentioned inmost of the cases relied upon by him, and it was said that in Janardhan v. Anant I.L.R.(1908) 32 Bom. 386, 10 Bom. L.R. 575 the restriction was only against redemption of the property already mortgaged under a previous transaction and there was nothing to prevent a sale of that equity of redemption. But as I have already observed that decision turned on its peculiar facts. It did not turn on the extent or amplitude of the words of restriction. Now one thing does emerge from all the cases cited before me that in substance the borrower in all those cases stated that he would not in any way transfer or alienate the property mentioned in the writing, and the dominant intention appeared to be that the property was to remain intact or segregated or preserved so as to be available for payment of the debt in case of default. This obviously would not be assured if the debtor is to remain altogether free to sell the property. I do not, however, intend to particularize the words, 'transfer, alienate, sale, mortgage, charge or hypothecate' and any other words importing total or partial restriction on the disposal of or dealing with the property by the borrower. Nevertheless the distinction sought to be drawn is one which is real and cannot be ignored.

17. It is always unsafe to construe a document with reference to similar words in another document. In the Bombay case decided by Sir Lawrence Jenkins C.J. and Batchelor J. the Court of Appeal was examining documents of persons ignorant of legal phrases and legal concepts. And in most of the other decisions pointed out to me the parties were laymen and not well versed in matters of formal documents. For all these reasons I would prefer to construe the documents before me without unduly particularising the expressions used in them and to examine them in the light of the rule of liberal interpretation which is based on a fundamental principle. It cannot be ignored that the parties to the transaction before me were a bank acting through its general manager and accountant and an airline company acting through its board of directors. These were not persons ignorant of legal phrases proper to express their intention or of legal steps necessary to carry them into effect. This is an important surrounding circumstance which I have to bear in mind. Therefore, although the absence of any formal expression in a document cannot be permitted to prevent the true intent of the parties being effectuated, the Court has to give some consideration to relevant surrounding circumstances such as the position of the parties and their probable knowledge or ignorance of words in which to express their intention.

18. No particular formality is required by our law for the creation of a charge on moveable property. But since formality is not insisted upon, it becomes incumbent upon the Court before it can hold that a charge was created to satisfy itself that the intention to make any specified property security for the payment of the money charged thereon, appears in a manner which leaves no doubt that the parties had agreed that in case of default there would be a right of payment out of the property. While the Court does not insist upon, any particular form of words and does not allow defects of expression in this matter to prevent the carrying out of the common intention of the parties, that intention has to be ascertained by the proper construction of the words used by the parties themselves. The Court refuses to read words in a document, which are not there when the document, as it stands, is such that a rational meaning can be given to it, read as a whole, for to hold differently would be tantamount to making out a different agreement for the parties. The question is not what the parties may have intended but of ascertainment of the meaning of what they have said they intended.

19. In the course of his arguments learned Counsel for the defendant laid stress on the words 'security' and 'negative lien' used in the resolution. I need scarcely observe that these words must be given full effect in ascertaining the intention of the parties, and the resolution must be read as a whole. The writing itself says that the negative lien was to constitute a security for the payment of the loan. Lien, strictly, is neither a jus in rem nor a jus ad rem, but is simply a right to possess and retain property until some claim attaching to it is satisfied or discharged. (Story on Equity Jurisprudence p. 508.) There are some kinds of lien which are to be found in enactments such as the Companies Act, but most of the different kinds of lien, both particular and general, recognised by our law are to be found stated in the Indian Contract Act. It is true that the provisions of the Contract Act relating to lien are not exhaustive and Section 1 of that Act in terms saves all usages and customs of trade which may be found inconsistent with the provisions of the Contract Act. Then there are some exceptional liens, such as the common law lien of a solicitor. Such exceptional liens apart, the general rule may be stated to be that a lien whether an offspring of statute or arising by any usage or custom is essentially a right of retention. Under our law there is not, in case of a lien, any right of bringing the property to sale unless it is expressly conferred by statute. There are some kinds of lien where such right of sale is expressly recognised, e.g. the lien of an unpaid seller or of a pawnee of goods. But in case of many liens expressly recognised by statute there is no such right of bringing the property to sale and the right remains simply one of retention. It may be that in case of any lien which may be established by any usage or custom of trade there may be this additional right to bring the property to sale. But such usage or custom would have to be pleaded and strictly proved. Such is not the case before me. Here I am concerned with a lien in favour of a bank, and it is indisputable that the general lien of a banker expressly recognised by Section 171 of the Contract Act (which is a possessory lien) does not confer on the banker any right to bring the property to sale. There is no pleading, and no issue, before me relating to any negative lien of a banker which by usage or custom may be said to confer any such right of bringing the property to sale. It is difficult for me to see that when the positive general lien of a banker does not confer on him any power of bringing the property to sale, how such power can reasonably be implied in case of a negative lien, when the parties have not chosen to state that it was their intention that there was to be such, right and there are no other words from which such intention could be inferred. The words 'negative lien' in the resolution, in my judgment, does not in any way add to the effect of the assurance whereby the airline company became bound to keep its assets unincumbered. But as I have already observed the negative lien is given in the form of a declaration and an assurance contained in the resolution itself and, if anything, the expression 'negative lien' seems rather incompatible with any implied right to bring the property to sale.

20. Mr. Kolah also sought to say that the resolution of the airline company giving the negative lien must be construed in the light of the letter dated October 25, 1947, addressed by the company to the bank along with which a statement of a list of the assets of the company was sent saying that the list was of the assets hypothecated to the bank. In this connection learned Counsel also relied on the balance sheet of the company for the year 1947-48 in which it was shown that the loan by the bank was secured by the hypothecation of the company's assets. Then it was said that in a return made by the airline company to the Registrar of Companies under Section 32 of the Companies Act it was mentioned that the amount of the loan by the bank was due on a mortgage of the company's assets. Now, these facts were relied on by the defendant in his original written statement really in support of his plea of estoppel and not referred to in the averments and submissions in support of the case based on construction of the document of resolution and the other allied documents executed before the loan was made. But I do not propose to dispose of a purely legal contention of this nature on any such technical difficulty in the way of the defendant and particularly when the facts were set out in the original written statement. I shall refer again to the airline company's letter of October 25, 1947, in considering another argument urged by Mr. Kolah, but here I am dealing with the question of construction of the documents executed in June 1947. It is true that the letter of October 25, 1947, the balance sheet and the return, do state that there was a mortgage or hypothecation (both words are used in the same sense) on the assets of the company in favour of the bank. But all this is conduct of one party subsequent to the contract. The construction of a document cannot be controlled by. any subsequent declaration or conduct of the parties; a fortiori it cannot be controlled by any such declaration or conduct of one of the parties. It is a firmly established rule that the construction of a contract cannot be affected by the declarations of parties made subsequent to its date though when the words are ambiguous they may be explained by the previous or contemporaneous conduct of the parties. (Houlder Brothers & Co. Limited v. Public Works Commissioner: Public Works Commsissioner v. Houlder Brothers & Co., Limited [1908] A.C. 276 I can understand a case where it is said that the ordinary primary meaning of the words used in an instrument should give way to a secondary meaning because that expresses the real intention of the parties, as for instance, where, any expression has acquired by usage a secondary meaning as its customary meaning quod hoc. But it is hard to see how any subsequent declaration or conduct of one of the parties to a written agreement can be allowed to control its meaning and effect.

21. I am anxious and indeed bound to give full effect to the intention of the parties at the time of the 'transaction of loan and recorded in the documents of the resolution of June 5, 1947, and the promissory note and the continuity letter. I have to ascertain that intention from the documents and the relevant circumstances surrounding the transaction. I have considered this question in the light of the principles governing a case of this nature and given the matter my best attention. The cumulative effect of all that I have said before is, in my judgment, decisive and leads to the conclusion that no charge on any assets of the airline company was created to secure the loan by the bank and the only right that the bank acquired in that transaction quod the airline company as security for the loan was an undertaking by the company whereby it bound itself to keep all its assets unincumbered till the loan was discharged. This was purely a personal covenant. Therefore, the question whether a charge was created on those assets must be answered in favour of the plaintiffs bank. No strict answer has been, or perhaps ever will be, given to the question as to what words in a writing would be sufficient-when no formal expressions are used--to create a charge or hypothecation on any moveable property, since the question must remain one of construction aided by the relevant circumstances attending the particular transaction. But I am convinced that in the present case no such incumbrance was created.

22. An attempt was made on behalf of the defendant to show that the transaction recorded in the resolution of June 6, 1947, created a floating charge on the assets of the airline company. I fail to see how the words used in that resolution can, even by giving them the largest import, be regarded as creating what is called a floating charge or a floating mortgage. If anything the words of the resolution giving an assurance have the effect of negativing any such equitable security. I shall only make one citation from the speech of Lord Macnaghten in the leading case of Governments Stock and Other Securities Investment Co. v. Manila Railway Co. [1897] A.C. 81. His Lordship says (p. 86):

A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes, His right to intervene may of course be suspended by agreement. But if there is no agreement for suspension, he may exercise his right whenever he pleases after default.

No right 'to intervene' was created in favour of the bank, and in the facts of the present ease it cannot be said that the equitable floating security was crystallized into a fixed security.

23. It was but faintly urged before me by Mr. Kolah that the documents of June 1947 created a hypothecation of the assets of the airline company. I have already held that no charge was created on the assets of the company. Cadit quaeslio no interest in any assets of the company was transferred to the bank and there was no hypothecation.

24. It was next argued that even if initially and originally there was no hypothecation created on the assets of the airline company as security for the loan, the letter dated October 28, 1947, (forwarding a statement of the list of the company's assets) which referred to the assets of the company as hypothecated with the bank had the effect of creating a proper hypothecation of those assets in favour of the bank. It was said that the plaintiffs bank did not send any reply to this letter and must, therefore, be deemed to have agreed to the creation of such hypothecation. The substance of the oral evidence relating to this letter is that on inquiry being made by the defendant, Vijaysingh Gowindji, who was a, director of the airline company, informed the defendant in October 1947 that no list of the assets of the company had been sent to the bank and that thereupon the letter along with a statement of the list of assets was sent by the company to the bank. The letter was received by the bank and remained with the bank in a cover which contained important documents relating to the loan. Kedari in his evidence stated that he knew nothing about the letter till disputes started between the bank and the defendant. He admitted that no action appeared to have been taken by the bank in respect of that letter. There is no doubt that the letter was sent by the airline company under the belief, at the time entertained, that its assets were hypothecated with the bank and the bank must be held to have knowledge of the fact that such was the belief of the airline company. But it is not as if this letter was sent by the company in reply to any letter making a demand for such a statment by the bank. Nor is it addressed to the bank in the course of any correspondence on the subject of the loan and security for the loan. It is an unilateral action which at best case how that the airline company in October 1947 came to think that a hypothecation existed. Therefore, if there was in fact no such hypothecation made in June 1947 any erroneous belief on the part of the airline company or what the airline company thought about it cannot affect the position of the bank. It was said that even if there was an incomplete transaction creating a charge on the assets of the company, this letter must be read as completing that transaction. But for this there must be some connection shown between what happened in June 1947 and the sending of the letter and it must be such as would affect the position of the bank. Now, as I have already observed the bank had said or done nothing in the matter after June 1947. The present argument assumed that there was an incomplete agreement to create a hypothecation. I do not think this assumption was justified. There is no basis for the case that the common intention of the parties was to create a charge and that all that remained to be done after June 1947 was to give effect to the common intention and agreement of the parties by reducing it to writing as was sought to be alleged in para. 10 of the written statement. The case that an incomplete transaction was by that letter being completed by reducing an agreement to writing would have to rest on much surer and stronger ground than a mere averment. The only question, therefore, that arises here for my determination is: Did any agreement creating a charge on the assets of the company in favour of the bank arise in October 1947 by the company addressing this letter to the bank and by the bank not sending any reply to the same denying that it held a charge or hypothecation on those assets? The point that arises for solution is whether when a debtor who has under the contract of loan given a negative lien to the creditor on his assets which were at the time not specifically stated writes to the creditor after over four months without any preliminary discussion between the parties and states that those assets were hypothecated and sends a statement of his assets along with the letter and the debtor sends no reply, it can be said that in not Bending any reply he acted at his own peril and must be held to have tacitly agreed to the existence or creation of such a hypothecation. If originally it was not the common intention and agreement of the parties to create an incumbrance, this can at the highest be said to be a new offer which may terminate in an agreement, although I am more inclined to take the view that this was in the facts and circumstances of the transaction before me no more than an unilateral expression by a party of what it thought was the nature of the transaction. The general rule relating to offer and acceptance has always been understood to be that there can be an acceptance of an offer by the communication of the assent of the person to whom the offer is made or by his doing some act which he is requested by the terms of the offer to do or by his accepting performance itself of the act constituting the offer. In the language of the Contract Act a proposal is accepted when the person to whom the proposal is made signifies his assent to the same. Now, there is nothing to show in the evidence led before me that there was any acceptance of the proposal contained in the airline company's letter assuming that the letter contained any proposal. All that is relied upon in this connection is that the bank remained silent and did not send any communication denying the existence of any hypothecation. The bank did not owe any duty to the company to send any reply to that letter. Moreover, a person who makes an offer cannot prescribe the conditions under which it may be refused. I am unable to accept the contention that when the airline company stated in the letter of October 25, 1947, that its assets were hypothecated with the bank against the cash-credit account of Rs. 5,00,000 and went on to state that it trusted that the statement would be found in order, an obligation was cast on the bank to reply to the letter. Mere silence cannot amount to any assent. It does not even amount to any representation on which any plea of estoppel may be founded. It is well established that mere silence cannot amount to a representation unless there is a duty to make some statement or to do some act. It is only when there is a duty to disclose some fact or do some act that deliberate silence may become significant and amount to a representation. Cases where it is said that sometimes performance may be given for a promise and there suit may be an agreement, stand on a totally different footing. This is not one of those cases where only some act is required to be done by the person to whom the offer is made and the doing of such act is by itself sufficient to amount to communication of the acceptance, and the person making the offer becomes bound by such tacit acceptance. Here the bank was not asked to do any act or acts by the letter of October 25, 1947, and admittedly it did nothing after the receipt of the letter. There was, in my judgment, no signification of any acceptance of any offer-if indeed there was any offer by the bank, and therefore no agreement as alleged can be said to have resulted. The present contention must, therefore, be negatived.

25. Having stated these conclusions it is, of course, the end of my decision. But I have to refer briefly to a point or two on which some arguments were advanced by learned Counsel for the parties. An argument was advanced on the footing that there was in fact a charge or hypothecation created in favour of the bank. The bank failed to register the same with the result that it lost the security. Therefore, so it was said, the defendant was discharged from his liability as a guarantor. It is common ground that there was no registration with the Registrar of Companies of any charge or hypothecation in favour of the bank in respect of the loan advanced to the airline company. It is indisputable that if as a matter of fact and law there was such an incumbrance, it should have been registered under the Companies Act. Section 109 of the Companies Act renders certain mortgages and charges on moveable property of a company void against the liquidator unless particulars relating to the same are filed with the Registrar of Companies as prescribed under the Act. This can be done both by the company and the person holding the charge or mortgage. It is also common ground that the bank has done nothing in the matter of registration. The argument proceeded that the security in favour of the bank was lost by result of the negligence on the part of the bank in not getting the security registered and the defendant became discharged of his liability to the extent of the value of that security. Section 141 of the Contract Act expressly recognises this right of a surety. Section 139 of the Contract Act lays down the rule relating to the discharge of a surety as a consequence of any act or omission of the creditor impairing the surety's eventual remedy. I accept this part of Mr. Kolah's contention that if there was a charge or hypothecation created in favour of the bank, the subsequent conduct of the bank would have discharged the surety. The point, however, is not of much importance, since the view I have taken is that there was no charge or hypothecation created at any time in favour of the bank.

26. I have to refer to an argument urged before me by learned Counsel for the bank. The case of the bank, it was said, was twofold : firstly, the suit was based only on the promissory note and continuity letter, and alternatively based on a contract of guarantee. Presumably the first line of argument was adopted as a summary answer to the defences based on guarantee and discharge of liability of the defendant as a surety. I do not think the plaintiffs can say that their case is founded on the promissory note and the continuity letter simpliciter. The cause of action as I read the plaint, is based on a contract of guarantee. I have already made some observations on the nature of the suit and it is unnecessary to reiterate the same. In any case the issues based on the relationship of creditor and guarantor did arise on the pleadings and had to be determined in the suit.

27. That disposes of the whole of the points in the case. At the end of the hearing a further issue relating to interest was raised on behalf of the defendant. It was said that the plaintiffs are in any event not entitled to claim any interest on the amount of the claim after the date of the order of the Court for winding up of the airline company. The argument was that since the liability of a surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract and since the ordinary rule to be observed in liquidation proceedings is that there is to be no proof for interest subsequent to the order of winding up, the defendant is in any event not liable to pay interest for any period subsequent to the date of that order. It was argued on behalf of the plaintiffs bank that the rule that interest would not run in such a case does not operate against the surety where the principal debtor is discharged from liability to pay interest by operation of law. Reliance was placed on Subramanian v. Batcha Rowlher A.I.R [1942] Mad. 145 where it was held that a discharge of the principal debtor by operation of law does not discharge the surety and the remedy of the creditor against the guarantor should not be restricted to the amount that the debtor may by operation of law be compellable to pay. The rule applicable to cases of this nature was very clearly enunciated in Fitz George, In re: Robson, Ex parte [1905] 1 K.B. 462 where Bigham J. says (p. 464):

I think in this case that the creditor is entitled to prove for the value of the guarantee that the debtor has given. It is said that, because the principal debt is gone, therefore, the liability under the guarantor to pay the interest on the debenture is also gone. I do not agree with that view. The principal debt is gone no doubt, but not by any act of the creditor. It is gone by operation of law. The principal debt will never be repaid, but in ray opinion, the obligation of the debtor to pay interest under his guarantee remains.

28. In the result there will be a decree for the plaintiff's bank for Rs. 5,22,275-2-3 with interest on Rs. 5,17,210-6-0 from October 10, 1949, till judgment at 3 1/2 per cent., costs of the suit and interest on judgment at 4 per cent.


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