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Pentala Githavardhana Rao and ors. Vs. the Andhra Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 93 of 1968
Judge
Reported inAIR1973AP245
ActsTransfer of Property Act, 1882 - Sections 58; Registration Act, 1908 - Sections 17; Provincial Insolvency Act, 1920 - Sections 28(2); Hindu Law; Code of Civil Procedure (CPC), 1908 - Sections 34
AppellantPentala Githavardhana Rao and ors.
RespondentThe Andhra Bank Ltd. and ors.
Appellant AdvocateT. Anantha Babu, Adv. for ;A. Venkatarami Reddy, Adv.
Respondent AdvocateC.V. Narasimba Rao, Adv.
Excerpt:
commercial - equitable mortgage - section 58 of transfer of property act, 1882, section 17 of registration act, 1908, section 28 (2) of provincial insolvency act, 1920, section 34 of code of civil procedure, 1908 and hindu law - appellant borrowed money from plaintiff bank in order to discharge existing liability - title deed of property deposited with creditor as security transferred to plaintiff bank as security of loan - whether transfer of title deed creates equitable mortgage in favour of bank - conditions laid down under section 58 have to be fulfilled in order to term it equitable mortgage - facts suggest compliance of conditions - held, transfer of title deed can be regarded as equitable mortgage. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim,.....kondaiah, j.1. this appeal by defendants 3 and 4 in o.s.no. 49 of 1964 on the file of the court of the subordinate judge. guntur is directed against the judgment and decree granted in favour of the andhra bank ltd., guntur the 1st respondent herein, for recovery of rs. 2,57,625.47 paise from the defendants.2. the 2nd defendant the father of the defendants 3 and 4 opened various accounts such as open cash amount credit key cash credit. clean overdraft packing credit and secured overdraft account in the plaintiff-bank early in 1962 and was having credit facilities for carrying on his tobacco trade. he was receiving several amounts under various accounts creating security on goods on hand or on stocks reaching his godowns from day to day. prior to opening the accounts in the plaintiff-bank.....
Judgment:

Kondaiah, J.

1. This appeal by defendants 3 and 4 in O.S.No. 49 of 1964 on the file of the Court of the Subordinate Judge. Guntur is directed against the judgment and decree granted in favour of the Andhra Bank Ltd., Guntur the 1st respondent herein, for recovery of Rs. 2,57,625.47 paise from the defendants.

2. The 2nd defendant the father of the defendants 3 and 4 opened various accounts such as open cash amount credit Key Cash Credit. Clean Overdraft Packing Credit and Secured Overdraft Account in the plaintiff-bank early in 1962 and was having credit facilities for carrying on his tobacco trade. He was receiving several amounts under various accounts creating security on goods on hand or on stocks reaching his godowns from day to day. Prior to opening the accounts in the plaintiff-bank he was having credit facilities from the Indian Bank Guntur wherefrom he had borrowed Rs.75,000/- on an equitable mortgage by deposit of title deeds. According to the plaintiff-bank the 2nd defendant requested for a loan of Rs.75,000/- for paying the same to the Indian Bank and created on equitable mortgage by deposit of title deeds as collateral security for due discharge of the then advanced money as well as the outstanding other dues under various accounts and such future advances as might be made by the plaintiff on such security.

The amount of Rs.75,000/- was paid by the plaintiff to the Indian Bank on 17-7-1962 as evidenced by Ex. A-21 and the voucher Ex. A-22. An equitable mortgage by deposit of title deeds was created in favour of the bank on 18-7-1962. Promissory notes also have been executed by the 2nd defendant in favour of the plaintiff in respect of the amounts borrowed on other accounts. The 2nd defendant was adjudged insolvent on August 28, 1963. The present suit by the 1st respondent was filed on April 10, 1964 for recovery of the amount due on various accounts referred to earlier.

3. The 2nd defendant and defendant 3 and 4 have filed separate written statements. The 1st defendant was set ex parte.

4. The defence set up by the 2nd defendant was that the did not approach the plaintiff-bank, but the latter had requested him to open several accounts for its own benefit that he did not create an equitable mortgage by deposit of title deeds on 18-7-1962 that he being ignorant of English language and due to the confidence reposed by him in the plaintiff-bank's employees had simply signed some documents given to him without knowing the contents thereof and the various types of securities given by him would amply safeguard the amounts due to the plaintiff and the suit must be dismissed as frivolous.

5. In the written statement filed on behalf of the defendants 3 and 4 it was alleged that they have been divided form the 2nd defendant and they are not undivided with their father as alleged in the plaint. The 2nd defendant was leading a reckless life gambling, drinking, and debauching and beating them and their mother cruelly and the debts created by the 2nd defendants in tobacco business and for other purposes are avyavaharika in nature and not binding on them. The 2nd defendant did not deposit the title deeds to create a mortgage as set up by the plaintiff and there was no need to mortgage the immovable properties of the family and hence the suit should be dismissed.

6. The trial Court framed the following issues :

'1. Whether the suit mortgage is true supported by consideration valid and binding on defendants 3 and 4 ?

2. Whether the same is not binding on 2nd defendant for the reasons mentioned by him in his written statement and whether the defendant no. 2 can plead against the suit claim in the absence of such a plea from 1st defendant ?

3. To what relief ?'

7. The plaintiff examined P.Ws 1 and 2 the agents of the plaintiff-bank at Guntur during the relevant period, and filed Exx. A-1 to A-51 in support of its case. None has been examined on behalf of the defendants 2 to 4 nor any document filed in support of their defence.

8. The trial Court on a consideration of the entire material on record, accepted the plaintiff's case and found that the suit mortgage is true, supported by consideration valid and binding on the defendants 2 to 4 and passed a preliminary decree for the amount prayed for with interest at 11 1/2 % per annum from the date of the suit till date of redemption and with future interest at 6% till date of realisation.

9. Pending the trial of the suit, a sum of Rs. 1,18,170.84 was recovered by sale of tobacco belonging to the 2nd defendant and the sale proceeds have been deposited in the court. The Court declared that the plaintiff was entitled to and shall appropriate the amount in Court deposit towards the decretal amount and for the balance with in 4 months time granted for redemption. Hence this appeal by the defendants 3 and 4.

10. Mr. Ananta Banu the learned counsel for the appellants raised the following contentions : (1) There was no valid mortgage by deposit of title deeds on 18-7-1962 created by the 2nd defendant in favour of the plaintiff bank.

(2) Even if there was valid mortgaged the amount borrowed thereunder was only Rs.75,000/- and hence the plaintiff can have a decree only for a sum of Rs.75,000/- and interest at 6% thereon but not for an amount more than that.

(3) The appellants were divided sons of the second defendant on the date of the plaint and hence the 2nd defendant or the 1st defendant - Official Receiver had nor right to sell their interests in the suit properties.

(4) The amount of debt sought to be recovered by the plaintiff herein is an avyavaharika debt incurred by the 2nd defendant and hence it is not binding on the defendants 3 and 4.

11. Sri C.V. Narasimha Rao the learned counsel for the plaintiff-bank resisted the claim of the appellants contending inter alia that a valid equitable mortgage by deposit of title deeds had been created by the 2nd defendant in favour of his client on 18-7-1962 as security for the amount borrowed by him under various accounts till that day and for any future borrowals and the debt due by the 2nd defendant to the plaintiff is not an avyavaharika debt but is incurred for the purpose of carrying on family trade and the same is binding on the defendant s 3 and 4 and there is no merit in this appeal.

12. Upon the respective contentions and the material evidence on record the following questions arise for decision :

1. Whether the transactions in question amount to a valid equitable mortgage by deposit of title deeds on 18-7-1962

2. If answer to question No. 1 is found to be in the affirmative, whether the mortgage was only for Rs.75,000/- borrowed on 18-7-1962 and the interest thereon as contended by the appellants, or for the entire amount due and payable by the 2nd defendant to the plaintiff under the various accounts opened by him on the date of the plaint ?

3. Whether the defendants 3 and 4 were divided or undivided from their father on the date of the plaint and whether the debt due by the 2nd defendant to the plaintiff is avyavaharika in nature or binding on them ?

4. What is the rate of interest that is payable on the amount due and payable by the defendants ?

13. We shall first take up question No. 1. The 2nd defendant who was dealing in tobacco and exporting the same to foreign countries had approached P.W.1 the then agent of the plaintiff-bank at Guntur for borrowal facilities and for further accommodation as evidenced by several documents and in particular Exs. A-1, A-2 and A-3 filed by the plaintiff. He had opened Key Cash Credit Nos. 1 and 2 accounts and Clean Overdraft No.1 accounts and Clean Overdraft No.1 account with he plaintiff-bank. A Secured Overdraft Account as seen from Ex. A-5 was opened after deposit of title deeds. According to P.W.1 after receipt of the letter of sanction Ex.A-3 in respect of secured overdraft, the 2nd defendant was asked to produce title deeds which were the Indian Bank till then. At the request of the 2nd defendant a sum of Rs.75,000/- was sent to the Indian Bank under Ex. A-21 and the receipt Ex. A-22 obtained in favour of the 2nd defendant in full settlement of its account on 18-7-1962 from the Indian Bank. The Indian Bank sent a letter Ex. A -23 showing the particulars of appropriation against the account of the 2nd defendant and returned the original mortgage bond executed by the 2nd defendant in favour of the Indian Bank after making endorsement of payment in full.

All the title deeds along with the mortgage bond have been returned by the Indian Bank as seen from Exs. A-26 to A-29. The title deeds have been deposited with the plaintiff-bank and Ex.A-33 a memorandum of deposit of title deeds was executed and signed by the 2nd defendant in the presence of P.W.1. Except the evidence of P.W.1 and the documents referred to earlier filed by the plaintiff there is no record, we are in entire agreement with the view taken by the trial court that the 2nd defendant has executed Ex. A-33, a memorandum evidencing the deposit of title deeds with the plaintiff-bank specified therein as security for the amount borrowed by the 2nd requested P.W.1 to pay the sum of Rs. 75,000/- towards the debt due by him to the Indian Bank, Pursuant to which the said amount has in fact been paid. The original title deeds belonging to the 2nd defendant have been sent by the Indian Bank to the Plaintiff-bank subsequent to the discharge of their debt.

14. We are unable to agree with the submission of Mr. Ananta Babu that there was no valid equitable mortgage by deposit of title deeds in the instant case. Section 58(f) of the Transfer of Property Act requires for creation of a mortgage by deposit of title deeds the delivery of title deeds in respect of immovable property by a person in any notified town to a creditor or his agent with intent to create a security thereon. The essential ingredients of an equitable mortgage by deposit of title deeds are (I) existence of a debt (ii) deposit of title deeds in respect of immovable property and (iii) intention that the title deeds shall be security for the debt. The delivery or deposit of title deeds may be physical or constructive. The essence of a mortgage by deposit of title deeds is the actual handing over of the documents of title in respect of immovable property by a borrower or his agent to the lender. It is the substance of the entire transaction but not its form that really matters to infer intention of the contracting parties. See Rachpal v. Bhagwandas : [1950]1SCR548 and Union Bank of India Ltd., v. M/s L.Sonaram : AIR1965SC1591

15. The submission of Mr. Ananta Babu that the deposit of title deeds in order to constitute a valid equitable mortgage within the meaning of Section 58(f) of the Transfer of Property Act should be made physically by the borrower himself cannot be acceded to. True as contended by the learned counsel there is no physical handing over of the documents of title in the present case by the 2nd defendant to P.W.1 the agent of the plaintiff but the documents of title till then deposited with the Indian Bank have been on the authorisation given by the 2nd defendant, sent by the Indian Bank to the plaintiff-bank after discharging their debt. The documents of title have been brought to the custody of the plaintiff-bank from the Indian Bank must be construed to he the agent of the 2nd defendant in handing over the title deeds to the plaintiff-bank. That apart the 2nd defendant himself has executed Ex. A-33 specifically mentioning that the documents of title have been deposited with the plaintiff-bank towards the amounts borrowed by him. On these facts we have no hesitation to hold that there was a valid deposit of title deeds by the 2nd defendant to the plaintiff bank so as to create an equitable mortgage.

16. We shall now turn to the question what was the amount of consideration for the equitable mortgage by deposit of title deeds created by the 2nd defendant in favour of the plaintiff on 18-7-1962. We are not impressed with the submission of the learned counsel for the plaintiff that the 2nd defendant having failed to examine himself has not discharged the initial burden of proving that the security was only limited To Rs.75,000/- Though no evidence has been let in on behalf of the defendants the evidence adduced by the plaintiffs can certainly be looked into in order to decide this point. Reference in this regard may be made to Exs. A-3, A-21 and A-30 which are relevant and material and to Exs. B-3, and B-4 which are sought to be admitted as additional evidence.

17. Ex. A-3 dated June 8, 1962 is a letter of the Assistant General Manager of the Andhra Bank Ltd., at Central Office, Masulipatnam sanctioning the facility of secured overdraft upto a limit of Rs.75,000/- to the 2nd defendant on the proposal for credit facilities made by the plaintiff on 19-4-1962 in respect of the account of the 2nd defendant. Therein it was specifically mentioned as follows :-

'Nature of facility : Secured Overdraft. Limit sanctioned :- Rs.75,000/- (Rupees Seventy five thousand) Duration and Interest : 1 year at 10% p.a. Name of Co-obligant/Guarantor : Security and margin : Mortgage by deposit of title deeds relating to his land and godowns at Uppalapadu and Guntur worth about Rs. 1,50,000/- '

The next document that is material is Ex. A-21 a letter dated 17.7.1962 written by the 2nd defendant in favour of P.W. 1 which reads thus :

'I have created a mortgage for Rs, 75,000/- in your favour by offering the following properties shown below as security for the advances to be made in future. These properties were under mortgage to the Indian Bank Ltd., Guntur for a loan taken against them. So I request you to remit Rs. 75,000/- to the Indian Bank Ltd., Guntur and clear the balance due to them and take the document under mortgage with you for you'

The amount of Rs. 75,000/- referred to in Ex. A-21 had in fact been paid by the plaintiff to the Indian Bank Ex. A-30 is a promissory note executed by the 2nd defendant on July 19, 1962 for the sum of Rs. 75,000/- in favour of the plaintiff-bank. The recitals in Exs. A-3 and A-21 would amply support the plea of the appellants in this regard. That apart P.W.1 has admitted in his cross-examination as follows :

'The secured overdraft against deposit of title deeds is for Rs. 75,000/- Ex. A-3 is the letter of sanction for this loan ' (p. 11 of the appellants ' printed papers lines 12 to 15)

xx xx xxx

'We sent a cheque for Rs. 75,000/- to the Indian Bank on 17-7-1962 asking an endorsement as realised on 18-7-1962. We paid Rs. 75,000/- earlier that Ex. A-33. On 17-7-1962 there was no mortgage. But there is only a promise ..... Ex. A-33 is only for Rs. 75,000/- loan. The amount due by April 9, 1964 was Rs. 88,811.37 paise'

The aforesaid admission of P.W.1 that the secured overdraft against deposit of tittle deeds is only for Rs. 75,000/- as evidenced by Ex. A-3 that the title deeds were deposited on 18-7-1962 and that Ex. A-33 was executed on 19-7-1962 would clearly establish that the amount secured under the equitable mortgage by deposit of title deeds was only Rupees 75,000/- The document on which much reliance has been placed by the plaintiff's learned counsel is Ex. A-33 an unstamped and unregistered memorandum the material portion of which is as follows :-

'I/We write to put on record that as already agreed upon I/We on 18-7-1962 deposited with you at Guntur the following documents of title to immovable property with intent to secure the repayment to the Bank of moneys that ore now due or shall from time to time or at any time be due from Pentala Kotaiah or me/us either solely or jointly with any other person or persons to the Bank whether on balance of account or by discount or otherwise in respect of Bills of Exchange. Promissory Notes, Cheques and other negotiable instruments or in any manner whatsoever and including interest commission and other banking charges and any law costs incurred in connection thereto.

List of documents

xx xxx xxx

True as contended by the plaintiff it was stated therein that the documents of title specified therein have been deposited to secure repayment to the bank of moneys then due or shall from time to time or at any time be due from the 2nd defendant either solely or jointly with any other person on any account or on a negotiable instrument. This was only a printed form that was being used the plaintiff-bank. Ex. A-33 must be construed in the light of the contents of Ex. A 3 the very sanction letter. The contract relating to the deposit of title deeds amounting to creation of mortgage within the meaning of Section 58(f) of the Transfer of Property Act was complete by 18-7-1962 itself. Ex. A-33 reads as memorandum. 'Memorandum' as per Oxford Dictionary means 'note to help the memory' record of events etc for future use documents recording terms of contract etc' (The Concise Oxford Dictionary. P. 744).

A memorandum containing record of particulars of deeds deposited as security, does not require registration. See Sundarachariar v. Narayan Ayyar, AIR 1931 PC 36. The submission of Sri Narasimha Rao that a memorandum creates liability relating to future transactions without the requisite particulars such as the quantum of amount, rate of interest, conditions of repayment etc. Cannot be acceded to. Where a document has been executed, the intention of the parties must be gathered from the very recitals and terms thereof. See Chunghum Jha v. Ebadat Ali, : [1955]1SCR174 . Memorandum is only evidentiary but not operative of the transaction and binding on the parties. Ex. A-33 only specifies the title deeds and it is only a memorandum under which the terms of the mortgage cannot be spelt out.

On a proper construction of the recitals in Ex. A-33 and from the surrounding circumstances, we are unable to infer that the parties intended to create an equitable mortgage on the terms specified therein ( Ex. A-33 ). It is only admissible for collateral purposes and does not require registration. If it has to be relied upon to enlarge the ambit of the liability beyond registration. Suffice it to refer to a recent decision of the Supreme Court in Veeramachineni Gangadhara Rao v. The Andhra Bank Ltd., : AIR1971SC1613 wherein the same form of Ex. A-33 was construed to be only a mere memorandum evidencing the deposit of title deeds in pursuance of an earlier contract. It was held therein that it did not require registration and it could not be considered as a contract entered into between the parties. It was further ruled :

' If the parties intended that it should embody the contract between them it would have necessary to register the same under Section 17 of the Registration Act, 1908. '

After referring to the decision of the Supreme Court in : [1950]1SCR548 , it was observed by the learned Judge, Hegde, J., who spoke for the Court, thus :

'............ The crucial question is : Did the parties intend to reduce their bargain regarding the deposit of title deeds to the form of a document If so, the document requires registration. If on the other hand its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then there being no express bargain, the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document being merely evidential does not require registration. '

In this view, the execution of Ex. A-33 by the 2nd defendant does not advance the plea of the plaintiff that the equitable mortgage was not for Rs. 75,000 /- only but for securing the repayment of all the debts taken by then and to be received in future by the 2nd defendant. Nor are we impressed with the submission of Sri Narasimha Rao that the very intendment and object of the 2nd defendant in changing the deposit of title deeds from the Indian Bank to the Andhra Bank was to accommodate further amounts. In other words, it was argued that there was already a loan of Rs. 75,000 /- from the Indian Bank by deposit of title deeds and there was no necessity for the 2nd defendant to change the same to the Andhra Bank if the intention was not to have accommodation for further amounts. True, as stated by the learned counsel, the 2nd defendant was by 18-7-1962 a customer of the plaintiff-bank and he was having transactions and had limits on various accounts by then.

Still we cannot infer something which is not there in Ex. A-3 the very sanction letter, Sri Narasimha Rao relied upon the words ' security for the advances already made and for the advances to be made in future ' used in Ex. A-21 in support of the plea that the security was for all the amounts due and payable by the 2nd defendant. In other judgment, Ex. A-21 must be read with Exts. A-3 and A-33 and the evidence of P. W. 1. When so read, the only inference we can safely draw is that the scope and extent of the security is only for Rs. 75,000 /- but not more.

18. It was next contended by Mr. Narasimha Rao that the plaintiff is, in any event, entitled to have a decree for the balance of amount due and payable by the 2nd defendant, against the defendants 3 and 4 who claim to be divided from their father. We may recapitulate the material facts to appreciate the scope of this contention. The 2nd defendant was adjudged insolvent on 28-8-1963. The defendants 3 and 4 filed O. P. No. 26/64 on the file of the Sub-Court, Bapatla in forma pauperis for partition and separate possession of their two thirds share on December 20, 1963. The O. P. was numbered as O. S. No. 69/64 on 14-9-1964 and the suit was decreed on November 28, 1964. The present suit was filed on April 10, 1964. The defendants 3 and 4 by their categorical declaration in the O. P. and the plaint filed on 20-12-1963 became divided in status as the decree passed in O. S. No. 69/64 on 28-11-1964 would take effect from the date of the plaint, I. E., 20-12-1963. Hence, it must be held that the defendants 3 and 4 are divided sons of the 2nd defendant on the date of the plaint in the present suit.

19. The contention of the appellants that the debt due by their father to the plaintiff is an avyavaharika one and not binding on them, cannot be acceded to. Firstly, there was no evidence on record in support of such a plea. Secondly, the 2nd defendant was admittedly doing tobacco business for several years prior to the transactions with the plaintiff bank in the year 1962. Hence, the burden is on the appellants to establish their plea that the debt in question is an avyavaharika debt. As there is not even an iota of evidence in support of their plea, this cannot be given effect to. Hence we must hold that the debt due and payable by the 2nd defendant to the plaintiff is not an avyavaharika debt. The debt was admittedly a pre-partition one and is binding on the defendants 3 and 4.

That apart, the truth and genuineness of the debt due and payable by the 2nd defendant to the plaintiff are not challenged before us. The debt was incurred by the 2nd defendant in his capacity as father and manager of the joint family consisting of himself and his sons, the appellants herein. The specific case set up by the plaintiff, as disclosed by the several allegations in the plaint, is that the suit debt was contracted by the 2nd defendant, the manager of the joint family, for carrying on family business and to discharge antecedent debts. Admittedly the 2nd defendant was having extensive trade in tobacco and he was exporting tobacco to foreign countries. He had dealings with the Indian Bank, Guntur under various accounts for several years prior to 1962 when he opened the accounts with the plaintiff.

This allegation was not even denied either by the 2nd defendant or the defendants 3 and 4 in their written statements. Nor is there any evidence adduced by the defendants that the business carried on by the 2nd defendant was not family business and on that ground the debt, even if found to be true, is not binding on them. The learned trial Judge has arrived at a conclusion that the mortgaged property belongs to the joint family of the defendants 2 to 4 and the mortgage was created by the 2nd defendant who is no other than the father of defendants 3 and 4 and manager of the family, for the benefit of the family. For these reasons, it must be held that the debt due to the plaintiff is binding on the defendants 2 to 4.

20. This brings us to consider the question whether the suit against the defendants 2 to 4 without the leave of the insolvency Court for obtaining a decree for the amounts due to the plaintiff and not covered by the mortgage, is or is not maintainable. Admittedly, the suit, in so far as it relates to the recovery of the secured debt is concerned, is maintainable notwithstanding the adjudication of the 2nd defendant as insolvent. The amount of debt under the mortgage by deposit of title deeds due and payable by the defendants 2 to 4 on the date of the suit was Rs. 88,811-37 p. Pending the suit a sum of Rs. 1,18,170-89 p. Recovered by sale of tobacco belonging to the defendants was in court deposit. The trial Court has declared the right of the plaintiff to appropriate the amount in deposit to the credit of the suit towards the amount due under the preliminary decree and seek a final decree only for the balance.

The appellants have not challenged this portion of the judgment and decree of the trial Court relating to the appropriation of the amount in court deposit by the plaintiff, not any ground has been taken in the memorandum of grounds of this appeal. Hence the appeal itself is confined only to Rs. 2,12,826-23 which has been arrived at after deducting Rs. 1,18,170-84 p. From the decretal amount of Rs. 3,30,997-07 p ( Rs. 2,57,625-47 principal plus Rupees 73,371-60 interest from the date of suit till the date of preliminary decree ). In view of our finding that the quantum of consideration for the mortgage by deposit of title deeds was only Rs. 75,000 /- the amount due in that account by the date of the plaint came to only Rs. 88,811-37 p. Therefore the question relating to the maintainability of the suit without obtaining the permission of the Insolvency Court is relevant only in respect of the amount not covered by the sum due and payable on the foot of the suit mortgage ; viz., Rs. 50,643-26 p.

21. The contention of Mr. Ananta Babu that the present suit to recover any amount other than the sum covered by the suit mortgage is not maintainable for failure to obtain the leave if the Insolvency Court, as required by Section 28(2) of the Provincial Insolvency Act, 1920 ( hereinafter referred to as the Insolvency Act ) is sought to be supported by the decision of the Division Bench of the Madras High Court in Tatavarthi Nagpotharao v. Pulipati Subbarao, ( 1942 ) 1 Mad LJ 177 = ( AIR 1942 Mad 360 ).

22. Sri Narasimha Rao, the learned counsel for the respondent-bank maintained that the suit is competent to recover also the amount not covered by the suit mortgage and placed reliance upon the decisions of the Madras High Court in Chinna Veeraiah v. Gurivi Reddy, AIR 1934 Mad 223 = ( 66 Mad LJ 277 ). Arunachalam Chettiar v. Subaratnam Chettiar, AIR 1939 Mad 572 and Thadi Murali Mohan Reddy v. Chinta Brahmayya ( 1942 ) 1 Mad LJ 173 = ( AIR 1942 Mad 327 ) in support of his plea.

23. Before examining the cases cited at the bar, it is useful to refer to Section 28(2) of the Insolvency Act, which reads as follows :

' 28. Effect of an order of adjudication.

(1) xx xx xx xx xx xx xx

(2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose. '

The intendment and purpose of Section 28(2) is broadly two-fold (i) to make the entire estate of the insolvent vest I the Court or in a receiver the moment an order of adjudication is made and to make it available for distribution among the body of creditors, and (ii) to prohibit any creditor of the insolvent from proceeding against his property in respect of his debt or commence any suit or other legal proceeding without the leave of the Insolvency Court during the pendency of the insolvency proceedings. The vesting of the estate of the insolvent in the receiver or Court which is contemplated under Section 28(2) of the Insolvency Act is automatic. From that moment it is the Insolvency Court or the receiver, but not the insolvent, that is competent to represent the latter's estate.

The use of the words ' no creditor..............shall................have any remedy against the property of the insolvent in respect of the debt ' in S. 28(2) makes it abundantly clear that the prohibition or bar contemplated thereunder is only in respect of the property of the insolvent but not the property of persons other than the insolvent. In other words, the proceedings to recover the debt of any one other than the insolvent are not barred. Hence, a creditor is competent to proceed against the insolvent's sons' share in the family property for the recovery of the debt due and payable by him ( son ) without the leave of the insolvency Court. See Gopalakrishnayya v. Gopalan, ILR 51 Mad 342 = ( AIR 1928 Mad 479 (1) ) and Manickam Pillai v. Vallayya Naicken, A. A. O. No. 253 of 1936 Madras High Court.

It is well settled that on the adjudication of a Hindu father, the share of the insolvent's son will not vest in the official receiver. The share of the insolvent's son in the property cannot be termed to be the property of the insolvent within the meaning of Section 28(2) of the Insolvency Act. Equally settled is the law that the power of the Hindu father to sell his son's interest for discharging his lawful debts vests in the official receiver after the adjudication of the Hindu father as insolvent. That power, no doubt, does not extend to the discharge of avyavaharika debts. The liability is also only to the extent of the son's share in the family property. There can be no personal liability fastened to the son. This power can be exercised by the official receiver before it comes to an end.

The moment the son divides from his father or files a suit for partition expressing his intention to divide this power of the father or that of the official receiver consequent on the father's adjudication ceases as there was severance of interest between the father and the son. The official receiver, in whom the power of the insolvent father or manager to dispose of the shares of the sons or other members of the family of the insolvent in the family property to satisfy his legal and binding debts is vested, may or may not exercise that power for the benefit of the general body of the creditors. However, he cannot seek to exercise such power when any creditor of the insolvent's sons or other members of the family proceeds or attaches their shares for the debts due and payable by them.

24. We shall now turn to the cases cited across the bar.

25 .In Chinna Veeraiah v. Gurivi Reddy, AIR 1934 Mad 223 at p. 224, a creditor's suit on the foot of a promissory note executed by the manager of a joint family who was adjudged insolvent, was decreed against his sons and other members of his family. The suit was, however, dismissed against the insolvent and official receiver as unsuatainable on the ground that the debt against them was one provable in insolvency for which no suit could be maintained. That decree of the trial Court was affirmed in appeal. In second appeal, the contention of the sons and the brother of the insolvent that the suit was not maintainable against them on the ground that the managing member of the family on his adjudication, has lost the power to sell the whole of the family property in order to discharge the family debts, was negatived. The learned Judge, Pandalai, J. Observed thus :

'................the plaintiff is not resorting to any property which is vested in the Official Receiver to give him relief in this suit...........unless the plaintiff can be prevented from pursuing his legal rights by some legal prohibition. I cannot see how the fact that an official ( receiver ) has the power to dispose of certain property is to affect or restrict the right of others who have a right to resort to that property. '

26. The view expressed by Pandalai, J. In Chinna Veeraiah's case AIR 1934 Mad 223 was approved by a Division Bench in AIR 1939 Mad 572 at p. 573. Therein, the material facts are as follows : One Ramaswami Chettiar was adjudged insolvent in 1926 by the Sub-Court, Tinnevelley. A creditor by name Arunachalam Chettiar obtained in September, 1931 a decree for a sum of Rs. 19,383-10-1 with interest against the insolvent and his five sons. The official receiver had brought the properties of the family to sale on 9th April, 1932. On the application of the decree-holder, Arunachalam Chettiar, the official receiver was directed to sell the properties and deposit into Court 5/6th of the sale price to the payment of which the right of the decree-holder was declared. On appeal by the official receiver, the District Court reversed the finding of the Sub-Court, holding that the official receiver had the right to sell the properties vested in him.

Finally the High Court on further appeal by the decree-holder, relying upon the decisions in ILR 51 Mad 342 = ( AIR 1928 Mad 479 (1) ) Manickam Pillai v. Vallayya Naicken, A. A. O. No. 253 of 1936 Madras High Court and AIR 1934 Mad 223, restored the order of the Sub-Court setting aside the decision of the District Court. This decision is an authority for the proposition that the son's shares in the family property do not vest in the official receiver or official assignee upon the adjudication of their Hindu father as insolvent and the same can be attached and proceeded against without the leave of the Insolvency Court and the attachment of son's shares puts an end to or extinguishes the right or power vested in the official receiver or official assignee to sell the sons' shares to discharge his insolvent father's lawful debts. We may usefully notice the following passage wherein the learned Judge, Leach, C. J. who spoke for the Court, referred to the scope and content of Sec. 28 (2) of the Insolvency Act :

'This section refers only to the property of the insolvent and the prohibition against the institution of legal proceedings without the leave of the court refers to proceedings with regard to the insolvent's property. Although the right of the insolvent Hindu father to sell his son's share in the family property to discharge his own lawful debts vests in the Official Assignee or the Official Receiver as the case may be it does not follow that proceedings cannot be taken in respect of the son's interest in the family property without the leave of the Insolvency Court. The right to sell the son's interest only exists so long as the son's interest in the family property exists. If the interest has been sold or if there has been a lawful attachment which has the same effect there exists no property over which the power can be exercised. '

27. The same view has been reiterated by a later Division Bench of the Madras High Court consisting of Venkataramana Rao and Abdur Rahman, JJ. In ( 1942 ) 1 Mad LJ 173 = ( AIR 1942 Mad 327 ). Therein, one Bulli Gangireddy borrowed certain sums of money from one Chinta Brahmayya for the purpose of carrying on family business and executed two promissory notes dated November 12, 1930 and December 5, 1930 in favour of the creditor. Gangireddy was adjudged insolvent on November 13, 1931. The insolvent's son Murali Mohan Reddi, minor represented by his guardian, filed a suit for partition on November 16, 1931 and obtained a preliminary decree. A final decree was also passed on April 6, 1935. The creditor, Chinta Brahmayya, who was unable to get any payment from the official receiver before whom his debt was proved brought a suit against the insolvent's son without obtaining the leave of the Insolvency Court.

The Official Receiver was not made a party to the suit. The trial Court decreed the suit against the insolvent's son. On appeal by the son, the question that fell for decision before the learned Judges was the maintainability or otherwise of the suit by the creditor for not making the official receiver as a party defendant. The learned Judge, Venkataramana Rao, J., who spoke for the Court, rejecting the contention advanced on behalf of the insolvent's son that the leave or permission of the Insolvency Court was necessary to maintain the suit, observed thus ( at page 175 ) :

'We dont think it was the intention of the legislature to prohibit all suits in respect of the debt even as against persons over whom or whose assets the Insolvency Court would have no control. '

The plea of the appellant therein that the official receiver must be a party to the suit as legal representative of the father and without him no decree could be passed against the insolvent's son, was also negatived. We may add that this decision is an authority for the proposition that where a debt has been incurred by a father as manager of a Hindu joint family for the purpose of joint family business, such debt will be a joint family debt binding on the sons and other members of the joint family in the same way as it is binding on the father, and for recovery of such debts, the creditor can proceed against the shares of the sons or other members of the joint family in the family property, as they continue to be liable to pay such debts from and out of the family property in their hands even after their division from the family. With regard to this aspect the learned Judge proceeded to observe ( at page 175 ) thus :

'The debt here was contracted by the father as the managing member of the joint family in the course of the joint family business. The debt was therefore a joint family debt and as much a debt of the son as that of the father. '

It was further observed by the learned Judge thus ( at pp. 175 and 176 ) :

'The father is dead and further the father and son became divided before the suit was instituted.....................The only question is whether in the circumstances of this case the creditor is not entitled to maintain the suit against the defendant. As the defendant is liable to pay the debt which was contracted on his behalf by the father who was also the manager from and out of the share of the joint family property in his possession, a suit against him by the creditor would be competent..................' In that case, the father and son, as referred to earlier became divided before the institution of the suit by the creditor. It was held that the failure of the official receiver to secure the son's share for payment of the debts due to his father's creditors by requesting for a provision being made by setting apart some property for their discharge in the partition suit, would not deprive the creditor of his right to proceed against the son's share and realise the amount due to him.

28. The aforesaid decisions would amply support the contention of the respondent-bank relating to the maintainability of the suit against the defendants 3 and 4, the divided sons of the insolvent 2nd defendant who are as much liable as their father, to discharge the lawful debts contracted by their father, the manager of the joint family, in the course of joint family tobacco business. The division in status of the defendants 3 and 4 would not absolve their liability to discharge the pre-partition debts incurred by the manager. No leave of the Insolvency Court under Section 28(2) of the Insolvency Act is required to proceed against the shares or interests of the defendants 3 and 4 in the family properties.

29. We shall now examine the decision of a Division Bench of the Madras High Court in ( 1942 ) 1 Mad LJ 177 = ( AIR 1942 Mad 360 ) on which strong reliance has been placed by the learned counsel for the appellants. Therein, one Mallayya was adjudged insolvent. Subsequent to his adjudication, a creditor, without obtaining the leave of the Insolvency Court, filed a suit against the insolvent and his sons and obtained a decree for a certain sum of money. The debt was incurred by the father as the manager of the family consisting of himself and his undivided sons. The sons sought for a declaration under Section 4 of the Insolvency Act that the decree obtained by the creditor was a nullity and not binding on the official receiver. On these facts the question that fell for decision was whether it was open to the Insolvency Court to declare under Section 4 of the Insolvency Act that the decree obtained by the creditor was a nullity in its entirety.

It was held that the Insolvency Court is competent only to declare the decree as not binding on the official receiver, the representative of the insolvent, on the ground that no leave contemplated under Section 28(2) of the Insolvency Act was obtained. But however, in so far as the decree obtained against the sons was concerned, the Court took the contrary view. It was of the opinion that the debt incurred by the insolvent was not a personal debt but it was incurred by him as the manager and for the benefit of the family consisting of himself and his undivided sons. In that premise, the learned Judge, Venkataramana Rao J. Speaking for the Bench, ruled thus ( at page 179 ) :

'The debt was therefore as much a debt of the sons as that of the father. It is also undoubted law that by the reasons of the insolvency of the father the shares of the sons do not vest in the Official Receiver but what vests in him is the right of the father to sell the son's share for the discharge of such debts as would be binding against the sons. Recently the question arose in ( 1942 ) 1 Mad LJ 173 = ( AIR 1942 Mad 327 ) whether leave of the insolvency Court is necessary to file a suit against the undivided sons of a father who was adjudicated insolvent in respect of a debt incurred by the father for the benefit of the joint family and it was there held that it was not necessary to do so. After hearing learned counsel in this case, we see no reason to take a different view............ The insolvency of the father does not prevent the sons alienating their shares and we have observed that it does not prevent a creditor from filing a suit as against them. '

30. The learned counsel for the appellants relied upon the following passage ( at page 179 ) in support of his plea :

'It was open to the sons to say that the suit would not be competent because leave of the Insolvency Court had not been obtained against the father, and if the suit could not be proceeded against the father, it could not be proceeded against them as well. '

The aforesaid observation of the learned Judges would not amount to the acceptance of the contention of the appellants. It only means that the sons could have raised in the suit the contention that without the leave of the Insolvency Court, no suit against the insolvent father and on that account, against them was maintainable. Whether such a plea was sustainable or not, was not decided in that case. Such a plea, though permissible to be raised in the suit filed by the creditor , is not available in an application under Section 4 of the Insolvency Act to declare the decree which has become final as a nullity on the ground that it was obtained without the leave of the Insolvency Court. Such plea was held to be not available even to the official receiver. This can be seen from the following observation of the learned Judges :

'But if no such objection was taken by the sons on that ground and they submit to a decree being passed, we do not see how it is open to the Official Receiver to take any exception in regard thereto. ' ( Page 179 ).

In those circumstances we are unable to agree with Mr. Ananta Babu that the decisions cited on behalf of the respondent-bank are distinguishable on the ground that the question arose in those cases after decrees had been obtained against the insolvent father and his sons, I. E., at the stage of the execution of such decrees. The decisions of the Madras High Court in AIR 1939 Mad 572 and ( 1942 ) 1 Mad LJ 173 = ( AIR 1942 Mad 327 ) are of Division Benches decided prior to the formation of the Andhra State and hence, they are binding on us. That apart we are in entire agreement with the view expressed by the Madras High Court in those cases. The decision in Tatavarthi Nagaportharow's case ( 1942 ) 1 Mad LJ 177 = ( AIR 1942 Mad 360 ) relied upon by the appellants is distinguishable as pointed out earlier.

31. On the application of the principles enunciated by the Madras High Court in the cases referred to above, to the facts of the present case, we must reject the contention of the appellants but agree with the plea of the respondent-bank that the suit for the recovery of the amounts other than the amount covered by the suit mortgage, in so far as against the defendants 3 and 4 are concerned is maintainable. The father was adjudged insolvent after the defendants 3 and 4 became divided from him. The debt in question was a pre-partition debt contracted by the father ass manager of the joint family in the course of the joint family business. It was not an avyavaharika debt. The debt of the father-manager, therefore, in as much as the debt of the defendants 3 and 4 and binding on them and hence, the creditor can proceed against the shares of the sons in the family properties for the recovery of such debt. The father did not prefer an appeal. He had already suffered a decree in the lower Court.

In fact, there is no dispute about the truth of the debt to the plaintiff-bank in the instant case. The official receiver did not exercise the power of the insolvent father to proceed against the shares of the defendants 3 and 4 in the family properties, which were vested in him upon the adjudication of the 2nd defendant as insolvent. In any event, such right was put an end to when there was severance of status between the sons and the father on account of the filing of the partition suit. In any event, it came to an end when the creditor sought to proceed against the shares of the sons in the family properties subsequent to the adjudication of the father and before the official receiver exercised the power vested in him to sell the son's shares for the benefit of the general body of creditors. That apart, this objection relating to the maintainability of the suit for the recovery of the amount not covered by the suit mortgage, without the leave of the Insolvency Court was not raised by the appellants herein or their father in their written statements. Nor was any issue framed on this point.

This point was not even urged in the course of the arguments before the trial Court. The official receiver representing the estate of the insolvent who was added as defendant No. 1 became ex parte and he did not raise any objection. If this objection was raised in the written statements, the plaintiff could have obtained the leave of the Insolvency Court and rectified the defect, if any. We may add that it was not even alleged in the written statements filed on behalf of the defendants 2 to 4 that the quantum of consideration for the suit mortgage was only Rs. 75,00 /- For all the reasons stated we are satisfied that the suit is maintainable as against the appellants in respect of the amounts not covered by the suit mortgage.

32. The only other question that survives for our decision relates to the rate of interest that is payable on the amount due and payable to the plaintiff-bank by the contesting defendants. The interest payable on the principal as per the contract was 10% for a certain period and thereafter 11 1/2 % on the amount in question. The Court below has awarded interest as per the agreed rate till the date of redemption i.e. 4 months from the date of the passing of the preliminary decree and thereafter 6% till realization. The contention of the appellants' counsel is that the Court is not invariably bound to award interest as per the contract rate from the date of the suit and in the circumstances of the case it is reasonable and proper to fix 6% interest from the date of the suit.

This claim has been resisted by the counsel for the plaintiff-bank contending inter alia that the rate of interest payable to the Bank is controlled by the Reserve Bank which publishes the rates from time to time and the interest grated by the Court below in its discretion is just and proper and not liable to be interfered with in appeal. Reliance has been placed by the respondent decree-holder on the decisions of the Madras High Court in China Papinaidu v. Imperial Bank of India. : AIR1954Mad273 and Rajagopalaswamy v. Karaikudi Bank, : AIR1965Mad537 and that of Andhra High Court in Bank of Bapatla Ltd., v. Manyam Bibi (1954) 2 Mad LJ (Andh) 215. True as stated by the respondent's counsel interest at 12% was awarded by the Court in the cases decided by the Madras High Court and at 9% in the case decided by the Andhra High Court. However we may add that those decisions arose under the Madras Agriculturists' Relief Act and were rendered on the interpretation of the provisions of Sections 4(e) and 10(2)(iii) of that Act. The facts of those cases are distinguishable from those of the present case.

In a recent decision of the Supreme Court in Soli Pestonji Majoo v. Ganga Dhar Kemka, : [1969]3SCR33 it was held relying upon the decision of the Federal Court in Jaigobind Singh v. Lachmi Narain Ram. AIR 1940 FC 20 that it is not absolutely obligatory on the Courts to decree interest at the contractual rates after the dates of redemption in all circumstances even if it is not penal excessive or substantially unfair and the courts have got discretion so far as interest payable subsequent to the date of the sit is concerned. In those circumstances the contract rate of interest was granted till the date of suit and thereafter simple interest at 6% per annum on the principle sum adjudged was granted till the date of realisation.

On a careful consideration of the facts and circumstances of the present case we are of the view that the rate of interest agreed upon by the parties is not penal, excessive or unfair within the meaning of the Usurious Loans Act, 1918 but we are satisfied that it is just and proper to award interest at the contract rate till the date of suit and from the date of suit till the date of preliminary decree and thereafter simple interest at 6% per annum till the date of realization. We, therefore fix the interest accordingly.

33. With the above modification relating to the rate of interest the appeal fails and is dismissed with costs. The costs in the suit as well as in this appeal payable to the respondent and the court-fee payable to the Government have to be recovered from the estate of the family. We grant 4 (Four) months' time from today for redemption

34. Appeal dismissed.


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