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Gollamudi Siva Kumari and ors. Vs. Indian Overseas Bank, Guntur and ors. - Court Judgment

LegalCrystal Citation
SubjectFamily
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 425 of 1974
Judge
Reported inAIR1978AP37
AppellantGollamudi Siva Kumari and ors.
RespondentIndian Overseas Bank, Guntur and ors.
Appellant AdvocateJ.V. Suryanarayana Rao, Adv. for ;T. Seshagiri Rao, Adv.
Respondent AdvocateK.S.S. Tatachari and ;M. Chandrasekahara Rao, Advs.
Excerpt:
family - joint family - x borrowed certain amount from plaintiff-bank under mortgage - x died and plaintiff-bank filed suit for recovery of amount due under mortgage against defendant (son of x) - amounts borrowed by x were utilized for renovation of old building belonging to joint family - renovation of existing old building which was already let out cannot be said to be starting new business - mortgage binding on defendant as amount borrowed for benefit of joint family. - - it is also stated in the written statement that madana mohana rao had neither authority, nor power to commence any speculative business like the hotel business and bind the joint family with the debts said to have been incurred for the hotel business. ..their lordships think that the lender is bound to inquire..........hindu family consisting of madana mohana rao and himself, that the 2nd defendant's share in the joint family properties cannot be mortgaged and that the debt incurred by madana mohana rao was not binding on him. the plaintiff bank, therefore, filed the suit for recovery of the money due, against all the defendants.3. defendants 1 and 2 filed a common written statement stating that the 2nd defendant and madan mohan rao constituted joint hindu family owning valuable large properties. madana mohana rao was young and inexperienced and contacted several vices. his family was an agricultural family all along and it had nothing to do with the hotel business. the 4th defendant with ulterior motive contracted the loan from the plaintiff bank and after the sudden death of madana mohana rao the.....
Judgment:

Jayachandra Reddy, J.

1. Defendants 1, 2 and 6 in O. S. No. 150/1970 on the file of the Subordinate Judge's Court, Guntur, are the appellants in this appeal. The plaintiff-1st respondent, Indian Overseas Bank, laid the suit for recovery of Rs. 70,046-70 ps. due under a mortgage.

2. The case of the plaintiff is as follows: The 1st defendant is the wife of one late Gollamudi Madana Mohana Rao, and 2nd defendant is the son, the 6th defendant is the daughter, the 3rd defendant is the mother and the 4th defendant is his brother. Madana Mohana Rao approached the plaintiff-Bank for a cash credit facility of Rs. 65,000/- for making additions and improvements to his hotel building 'Durga Bhavan' situated in the 3rd line, Brodipet, Guntur-2. The loan was sanctioned on 8-10-1969 and the same was repayable in monthly instalments of Rs. 1,500/-, commencing from the month of March, 1970. Defendants 4 and 5 stood as sureties. Madana Mohana Rao executed promissory notes on 8-10-1969 for a sum of Rs. 65,000/- with interest thereon at the rate of 91/2% and defendants 4 and 5 signed the guarantee on the same day jointly and severally guaranteeing the payment of debt. On the same day Madana Mohana Rao and his brother the 4th defendant deposited the title deeds creating a security for the money advances made or to be made to the debtor, thereby constituting an equitable mortgage, Madana Mohana Rao opened an acount and withdrew the money from time to time. Unfortunately he died in an accident in the month of February, 1970 leaving behind defendants 1 to 3 and 6. As nobody paid the monthly instalments after his death, the plaintiff Bank issued registered notice to the defendants. Defendants 1 and 2 replied on 20-8-1970 stating that the 2nd defendant was a co-parcener of the joint Hindu family consisting of Madana Mohana Rao and himself, that the 2nd defendant's share in the joint family properties cannot be mortgaged and that the debt incurred by Madana Mohana Rao was not binding on him. The plaintiff Bank, therefore, filed the suit for recovery of the money due, against all the defendants.

3. Defendants 1 and 2 filed a common written statement stating that the 2nd defendant and Madan Mohan Rao constituted joint Hindu family owning valuable large properties. Madana Mohana Rao was young and inexperienced and contacted several vices. His family was an agricultural family all along and it had nothing to do with the hotel business. The 4th defendant with ulterior motive contracted the loan from the plaintiff Bank and after the sudden death of Madana Mohana Rao the 4th defendant, to the detriment of the other defendants, took away all the account books etc. The joint family of Madana Mohana Rao did not derive any benefit from the transaction of the plaintiff Bank and, therefore, the suit debt is not binding on them. It is also stated in the written statement that Madana Mohana Rao had neither authority, nor power to commence any speculative business like the hotel business and bind the joint family with the debts said to have been incurred for the hotel business.

4. The 3rd defendant remained exparte. The 4th defendant filed a written statement stating that he is not a necessary party to the suit and that he stood as a surety in view of his relationship. The 5th defendant adopted the written statement filed by the 4th defendant, 6th defendant is the after born daughter of late Madana Mohana Rao and the written statement filed by defendants 1 and 2 was adopted by her.

5. Some of the important issues framed by the lower Court are -

'(1) Whether the suit mortgage bond is true and valid?

(2) Whether the suit mortgage is not binding on the 2nd defendant?

(5) Whether the defendants 4 and 5 are not necessary parties to the suit?

(6) Whether the liability of defendants 4 and 5 is not co-extensive with that of principal debtor?'.

6. On the 1st issue the lower Court held that the mortgage bond is true and valid. On the 2nd issue the lower Court held that the amount advanced by the plaintiff went for the renovation of and addition to Durga Bhavan, that it was for the benefit of the estate owned by Madana Mohana Rao and the 2nd defendant and that therefore, the suit mortgage is binding on the 2nd defendant also. On Issues 5 and 6 the lower Court held that defendants 4 and 5 are necessary parties and that their liability is co-extensive with the principal debtor. In the result the lower Court passed a preliminary decree with costs granting six months time for redemption.

7. Other defendants did not prefer any appeal, but they are impleaded as respondents in this appeal. The learned counsel for the appellants contended (1) that late Madana Mohana Rao had no power or authority to start a new business, viz., hotel business, and to alienate the joint family property for the purpose of the said business; (2) that major portion of the loan amount went for the improvement of the 4th defendant's property since both are mortgagors and therefore the plaintiff-Bank has to proceed against the 4th defendant and against the share of late Madana Mohana Rao in the property; and (3) that the mortgage was neither for legal necessity, nor for paying an antecedent debt and therefore the mortgage is not binding on the 2nd defendant.

8. The excxeution of the suit mortgage bond is not in dispute. The sum and substance of the contention of the appellants is that the burdening of the estate by mortgage was neither for legal necessaity, nor for the benefit of the estate, or for discharging an antecedent debt and therefore it is not binding on the joint family, that the money borrowed was for starting a new business which was not a family business and that therefore the mortgage is not binding on the 2nd defendant. Admittedly the loan was not raised for discharging and antecedent debt. Similarly it was also not for any legal necessity. The question however is whether the mortgage was for the benefit of the estate, or whether late Madana Mohana Rao as the manager of the family imposed upon the minor member the risk and liability of a new business started by himself by mortgage of the joint family property. Before we advert to the evidence relevant to these questions, it is necessary to refer to certain authorities on this aspect.

9. In Hunooman Rersaud v. Mussumat Babooee, (1854) 6 Moo Ind App 393 (PC) the Privy Council held thus:

'The power of the manager for an infant heir to charge an estate not his own is under the Hindu Law, a limited and qualified power. It can only be exercised rightly in a case of need, or for the benefit of the estate. But where, in the particular instance, the charge is one that a prudent owner would make, in order to benefit the estate, the bona fide lender is not affected by the precedent mismanagement of the estate. The actual pressure on the estate, the danger to be averted, or the benefit to be conferred upon it, in the particular instance, is the thing to be regarded.......................Their Lordships think that the lender is bound to inquire into the necessities for the loan, and to satisfy himself as well as he can, with reference to the parties with whom he is dealing, that the manager is acting in the particular instance for the benefit of the estate. But they think that if he does so inquire, and acts honestly, the real existence of an alleged sufficient and reasonably credited necessity is not a condition precedent to the validity of his charge, and they do not think that, under the circumstances, he is bound to see to the application of the money................The purpose for which a loan is wanted are often future, as respects the actual application, and a lender can rarely have, unless he enters on the management , the means of controlling and rightly directing the actual application. Their Lordships do not think that a bona fide creditor should suffer when he has acted honestly and with due caution, but is himself deceived.'

In Brij Narain v. Mangla Prasad, 51 Ind App 129 : AIR 1924 PC 50, the Privy Council laid down the following five propositions :-

(1) The managing member of a joint undivided estate cannot alienate or burden the estate qua manager except for purposes of necessity; but

(2) If he is the father and the other members are the sons he may, by incurring debt, so long as it is not for an immoral purpose, lay the estate open to be taken in execution proceeding upon a decree for payment of that debt.

(3) If he purports to burden the estate by mortgage, then unless that mortgage is to discharge an antecedent debt, it would not bind the estate.

(4) Antecedent debt means antecedent in fact, as well as in time, that is to say, that the debt must be truly independent and not part of the transaction impeached.

(5) There is no rule that this result is affected by the question whether the father, who contracted the debt or burdened the estate, is alive or dead.

These principles laid down by Brij Narain's case have been approved and adopted by the Supreme Court in Pannalal v. Mst. Naraini, : [1952]1SCR544 and in Luhar Amrit Lal v. Doshi Jayantilal : [1960]3SCR842 . In Faqir Chand v. Harnam Kaur, AIR 1967 SC 727 their Lordships while referring to the 1st and 3rd propositions in Brij Narain's case held thus (At p. 731 of AIR 1967 SC) :-

'Reading the first and third propositions together, it will appear that father who is also the manager of the family has no power to mortgage the estate except for legal necessity or for payment of an antecedent debt.'

At one stage relying on this observation, the learned Counsel for the appellants contended that the mortgage in this case is not binding on the minor as it was not transacted either for legal necessity or for the discharge of an antecedent debt. But what we have to see in the instant case is whether the transaction was for the benefit of the estate. In Virdhachalam Pillai v. Chaldean Syrian Bank Ltd., : [1964]5SCR647 their Lordships of the Supreme Court, adopting the propositions laid down in Brij Narain's case, held thus:

'Where a father purports to burden the estate by a mortgage for purposes not necessary and beneficial to the family the mortgage qua mortgage would not be binding on the sons unless the same was for the discharge of an antecedent debt.' In Sita Ram v. Radha Bai, : [1968]1SCR805 .

'A Hindu son governed by the Miltkshara Law is liable to pay the debts of his father even if they are not incurred for purposes of legal necessity or for benefit to the estate, provided the debts are not avyavaharika or illegal.'

In D. J. Prasad v. D. V. Subbaiah : AIR1973AP214 a Division Bench of this Court consisting of Obul Reddi, J. as he then was, and Madhava Rao, J., after referring to Hunoomanpersaud v. Mst. Babooee held that, (at p. 216 of AIR).

'A manager should act as a prudent person while exercising his rights as manager in the matter of alienation of coparcenary property. As has been stated by the Privy Council in the same case, the benefit that he seeks to bestow on the family should be something real and not speculative or imaginary.'

9-A. These authorities firmly lay down that the manager can burden the estate by mortgage in case of need or for the benefit to the estate. The words 'for the benefit of the estate' which occur in the judgment of the Judicial Committee in hunooman Persuad's case led to a conflict of opinion. One view is that unless the transaction is of a defensive character, it cannot be said to be for the benefit of the estate. The other view is that for a transaction to be for the benefit of the estate, it is enough if the Kartha of a joint family has acted with care and caution and prudently. It is ultimately the latter view that is accepted by the Courts. A Full Bench of the Allahabad High Court in Jagat Narain v. Mathura Das, AIR 1928 All 454 (FB) held that (at p. 456) :-

'In order to sustain an alienation of joint family property made by the managing member of the family the transaction must be one which is for the benefit of the estate and such as a prudent owner would have carried out with the knowledge available to him at the time. Transactions justifiable on the principle of 'benefit to the estate' are not limited to those transactions which are of a defensive nature'.'

10. The transaction must be judged not by its actual results, but by what might have been expected to be its results, at the time it was entered into.

In In re A. T. Vasudevan AIR 1949 Mad 260 it is observed thus (at p. 263):-

'The manager of a joint Hindu family is competent to alienate joint family property if it is clearly beneficial to the estate even though there is no legal necessity justifying the transaction.'

In Medikenduri v. Venkatayya, : AIR1953Mad210 it is observed as follows (at pp. 212 & 213:-

'In order to validate a sale of ancestral land by the father, the benefit need not be purely of a defensive or protective character. To hold so should be to miss the significance of the expressin' benefit to the estate'. If the transaction is not a speculative or risky one but is beneficial or advantageous from the financial point of view and is calculated to confer a benefit on the estate the sale must be held to be a valid one binding on the members of the estate.'

In Subba Rao v. Narasimha Rao, (1962) 1 Andh LT 329 the learned Judge after referring to Hunoomanpersaud's case and other cases, observed thus :

'the expression' 'benefit to the estate' comprehends also a transaction by the manager which is neither risky, nor speculative, but is calculated to confer a positive advantage on the family.'

In Balmukund v. Kamla Wati, : [1964]6SCR321 their Lordships of the Supreme Court considered the decision in Hunoomanpersaud's case and other decisions and held thus:-

'We have no doubt that for a transaction to be regarded as one which is of benefit to the family it need not necessarily be only of a defensive character. But what transaction would be for the benefit of the family must necessarily depend upon the fact of such case................For a transaction to be regarded as of benefit to the family it need not be of defensive character so as to be binding on the family. In each case the Court must be satisfied from the material before it that it was in fact such as conferred or was reasonably expected to confer benefit on the family at the time it was entered into.' These decided cases clearly lay down that the Karta of a joint family can burden the estate by mortgaging the property for the benefit of the estate. However, in doing so, he must act as a prudent owner with the knowledge available to him at the time of transaction. A transaction by the manager which is neither risky nor speculative but calculated to confer a positive advantage on the family, can be said to benefit the estate. But what transaction would be for the benefit of the family must necessarily depend upon the facts of each case. Bearing the above principles in mind, we shall proceed to consider the evidence on record.

11. P. W. 1 the Agent of the plaintiff Bank, deposed that Madana Mohana Rao was then running a hotel on profitable lines and that he and his brother the 4th defendant approached the Bank for a loan for the construction of a hotel building. P. W. 1 deposed that he was satisfied that the loan was for a genuine purpose. In cross-examination he stated that he was told that the value of the proposed construction included alterations to the existing building. Improvements were also proposed to the existing building. He obtained engineer's estimate on the value of the alterations, additions, etc. P. W. 1 further stated that he was told that the amount would be spent for the renovation of the entire existing building. P. W. 2 who was working as agent during the trial of the suit, deposed that the new constructions were made on the western side of the building hypothecatedand that renovation was made in the portion of the building owned by Madana Mohana Rao for nine rooms. In cross-examination he denied the suggestion that the improvements were made to the entire building. P. W. 3 a tenant of late Madana Mohana Rao in the said building, deposed that the portion of Madana Mohana Rao consists of nine rooms and that the newly constructed building is the portion of Madana Mohana Rao. In cross-examination he stated that to his knowledge hotel business is the only business of Madana Mohana Rao and that the entire building was used for lodging purposes. D. W. 1 who attended to the construction of the building at the instance of late Madana Mohana Rao deposed that the rooms in the portion belonging to Madana Mohana Rao were re-modelled and he gave further details about the improvements made. D. W. 2 is a carpenter and he deposed that Durga Bhavan is a lodging house and he prepared doorways, carts, windows, etc. D. W. 4 is a mason and he deposed that the old plastering was removed and that mosaic flooring also was laid. The evidence of these witnesses would show that the moneys borrowed under the mortgage by late Madana Mohana Rao were spent for renovation of the building belonging to the joint family. D. W. 8 (the 1st defendant) the wife of late Madana Mohana Rao, however deposed that theirs is an agriculturist family and not a trading family and that there was no necessity to convert Durga Bhavan into a big lodge by investing huge amounts. D. W. 5 deposed that he was a lessee under Madana Mohana Rao in respect of his portion for two years i.e., 1968 and 1969 that he was running a meals hotel and that he vacated the premises in December, 1969. His evidence shows that the building in question was let out even poorer to the mortgage. The other evidence already referred to establishes that the rooms in Durga Bhavan were renovated, that new doors and widows were fixed, that the walls were plastered and the flooring was changed to mosaic and that bathrooms and septic lavatories were attached to all rooms. With these modern amenities in a big developing town like Guntur, there can be no doubt that the rentals to be realised from the renovated building would be much more than what it was fetching earlier and would be beneficial to the family. So, the plea of defendants 1 and 2 that there was no necessity to convert Durga Bhavan into a big lodge and that after renovation Durga Bhavan would not be capable of fetching more rents, cannot be accepted. If in 1969 late Madana Mohana Rao had mortgaged the property and invested the loan amount for the renovation of Durga Bhavan, it must be said that he acted as a prudent owner with the knowledge available to him at that time.

12. Though in the lower Court it was sought to be contended that the debt contracted was utilised for alleged immoral acts of late Madana Mohana Rao, no evidence was let in to show that he utilised the amount borrowed from the plaintiff-Bank for any illegal or immoral purpose. Such a contention was not raised before us. It is however contended that the eastern portion of Durga Bhavan belonging to the 4th defendant (brother of late Madana Mohana Rao) was also renovated with the money borrowed by late Madana Mohana Rao from the plaintiff-Bank and that therefore the investment was not for the benefit of the estate. P. Was. 2 and 3 deposed that there are nine rooms in the western portion of Durga Bhavan and that there are four rooms in the eastern portion of Durga Bhavan. Ex. A-6 the registered partition deed executed between Madana Mohana Rao and others would show that Madana Mohana Rao and the 4th defendant got divided as early as in the year 1965. Though d. Was. 1 to 4, 6 &7 say that the renovation was done for the eastern portion of Durga Bhavan also they could not say whether Madana Mohana Rao spent his moneys or the moneys of the 4th defendant for the renovation of the eastern portion. The evidence of D. W. 8 clearly shows that she was not aware whether the amounts spent on the renovation of the eastern portion of Durga Bhavan were from the funds of Madana Mohana Rao or from the funds of the 4th defendant. The lower Court has, therefore, rightly held that it cannot be said that the renovation of the eastern portion was done with the funds borrowed from the plaintiff-Bank. In the result, we have no hesitation in holding that the amounts borrowed by late Madana Mohana Rao from the plaintiff-Bank were utilised for the renovation and additions of the western portion of Durga Bhavan belonging to the joint family. In D. J. Prasad v. D. V. Subbaiah, : AIR1973AP214 , the Division Bench held that :

'Where the manager sells properties in order to migrate to another place and purchases lands there which are more productive the sales are the benefit of the family.'

In Subba Rao v. Narasimha Rao, (1963) 1 Andh LT 329 the learned Judge held thus :

'Where a Karta of a Hindu Joint family sells the ancestral property and applies the proceeds of the sale for the purchase of better land, it cannot be said that the family has not been benefited: In such a situation, the sale would certainly be binding upon the other members of the family, adult or minor.'

In Ratnam v. Govindarajulu (1878) ILR 2 Mad 339 it is held that a mortgage for making additions to and improvements in the family house is for the benefit of the estate. But as held by the Supreme Court in Balamukand v. Kamla Wati : [1964]6SCR321 whether the transaction would be for the benefit of the family must depend on the facts of each case. The facts in the present case referred to supra undoubtedly establish that the transaction was for the benefit of the joint family estate.

13. In this connection it is also contended that the plaintiff-Bank has not proved that it made bona fide enquiries about the mortgage of the property and that the loan amount had been entirely utilised for renovation of Durga Bhavan. P. W. 1 the Bank Agent deposed that Madana Mohana Rao was running the hotel on profitable lines and that he was satisfied that the loan was for a genuine purpose. He also stated that he released the amount in instalments after looking into the progress of the work. He further stated that he was also visiting the construction and found that the amounts were spent for the additions to the building. He also mentioned about the various improvement sin the building. His evidence is corroborated by the evidence of P. W. 2 and 3. Further, the evidence of D. Was. 1 to 4 and 7 shows that the improvements were made in all the rooms in the western portion belonging to late Madana Mohana Rao. Therefore, it cannot be said that the plaintiff-Bank did not make bona fide enquiries and that the moneys borrowed by late Madana Mohana Rao were notfully utilised for the renovation of his portion in Durga Bhavan.

14. We shall now consider the question whether the renovation of Durga Bhavan amounted to starting a new business and whether the transaction was a risky and speculative one. In Sanyasi Charan Mandal v. Krishnadhan Banerji 49 Ind App 108 : (AIR 1922 PC 237) it is held that the manager of a joint family cannot impose upon a minor member of the family the risk and liability of a new business started by himself and the other adult members. In Kumbakonam Bank v. Shanmugam AIR 1956 Mad 306 it is held thus (At p. 307) :

'In view a distinction has to be drawn between families which thrive and depend solely and purely upon agricultural or the learned professions and those whose members are totally devoted to the calling of trade or commerce. In the latter case it cannot be said that if one of the members starts a business, his sons cannot be made liable for the debts incurred by their father. It may be that a member of a money lending family may embark upon a different kind of commercial transaction, for example, the starting of a spinning and weaving mill or some kind of other industrial concern. Can it be said that if he starts such a business with family funds his sons will not be liable for the debts incurred by him. I am of the opinion that it is not right to extend the principles laid down in the ILR 54 Allo 564 : (AIR 1932 PC 182), which dealt with a non-trading family to trading families.'

15. This view of Govinda Menon, J, was approved by a Division Bench of the Madras High court consisting of Rajamannar, C. J. and Panchapakesa Ayyar, J, in Canara Banking Corporation v. South Indian Bank, AIR 1958 Mad 132 and the learned Judges held thus (at p. 135) :

'We are also inclined to take the same view; but in this case it is sufficient to rest our decision on the ground that a business started by the sole surviving and parcener with joint family funds and subjecting the joint family property to the risks and liabilities of such business should be considered to be joint family business in the profits of which a subsequent born son would be entitled to a right by birth and to the liabilities incurred in which he would be subject. The second defendant cannot therefore question the alienation in favour of the plaintiff-bank.'

16. Relying on these two decisions the learned Counsel for the appellants contended that late Madana Mohana Rao's family was not a trading family, that starting a hotel business was a new business which was risky and speculative and that therefore the transaction entered into by late Madana Mohana Rao is not binding on the 2nd defendant. It is not in dispute that Durga Bhavan is situated in Guntur Town and it was let out by late Madana Mohana Rao even prior to the borrowing of the money from the plaintiff-bank. The money was borrowed only to renovate the building. There is nothing to show that any portion of the amount borrowed was spent for any other cause except the renovation of the old building belonging to the joint family. The renovation of the building with a view to enhance its rental value cannot amount to starting a new business. What the kartha has done was genuinely intended to be beneficial to the family. In the instant case late Madana Mohana Rao acted prudently and the renovation of the old building in Guntur which is a fast developing town, cannot be said to be risky and a speculative one. However, by no stretch of imagination it can be said that renovation of an existing old building which was already let out can be said to be starting a new business.

17. For all the above reasons the appeal is dismissed with costs. The court-fee due on the Memorandum of Appeal shall be paid by the appellants.

18. Appeal dismissed.


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