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The Vysya Bank Ltd. Vs. Guardian Papers Ltd. and ors. - Court Judgment

LegalCrystal Citation
CourtDRAT Madras
Decided On
Judge
Reported inIII(2003)BC69
AppellantThe Vysya Bank Ltd.
RespondentGuardian Papers Ltd. and ors.
Excerpt:
.....guarantor and she executed the documents exs. a5 and a7 creating equitable mortgage by deposit of title deeds and 3rd defendant also is equally liable for the suit claim. counsel for the appellant bank submitted that d-3 has executed the documents exs. a5 and a7 that fasten the liability of d3 with regard to the payment of this amount, since d3 is the guarantor and has agreed and guaranteed for repayment of the loan by creating equitable mortgage by deposit of title deeds, d3 is also liable for the suit claim and the order passed by the presiding officer, drt, dismissing the oa as against d3 is not sustainable. counsel for the respondent d3 submitted that the documents exs. a5 and a7 were executed in the year 1986 whereas the loan agreement ex.a6 came into existence on 3.4.1987 and the.....
Judgment:
1. The Bank filed original application (OA) before the DRT, Hyderabad, for recovery of Rs. 57,90,000/- together with interest at 17% per annum as against the defendants. The Tribunal allowed the OA declaring that defendants 1 and 2 alone are liable to pay that amount and dismissed the OA as against the 3rd defendant. Aggrieved with the order the appellant Bank has preferred this appeal.

2. The appellant Bank contends that the 3rd defendant is the wife of the 2nd defendant and she is the guarantor and she executed the documents Exs. A5 and A7 creating equitable mortgage by deposit of title deeds and 3rd defendant also is equally liable for the suit claim. Counsel for the appellant Bank submitted that D-3 has executed the documents Exs. A5 and A7 that fasten the liability of D3 with regard to the payment of this amount, since D3 is the guarantor and has agreed and guaranteed for repayment of the loan by creating equitable mortgage by deposit of title deeds, D3 is also liable for the suit claim and the order passed by the Presiding Officer, DRT, dismissing the OA as against D3 is not sustainable. Counsel for the respondent D3 submitted that the documents Exs. A5 and A7 were executed in the year 1986 whereas the loan agreement Ex.A6 came into existence on 3.4.1987 and the documents executed by D3 i.e. Exs. A5 and A7 were executed on 5.7.1986 and since the loan agreement came into existence subsequent to the execution of Exs. A5 and A7, Exs. A5 and A7 cannot fasten the liability of D3 for repayment of this loan.

3. The significant factor is that Bank is in possession of title deeds of the 3rd defendant. The explanation given by the Counsel for the 3rd defendant is that D3 applied for loan for herself in the year 1984 and at that time she handed over her title deeds to the Bank and the documents Exs. A5 and A7 have been created with the documents available with the Bank and D3 never gave the documents to the Bank with intention to create equitable mortgage and so D3 is not responsible for the suit claim. With regard to applying for loan by D3 in the year 1984, there is no proof. There is also no proof that D3 only for availing the loan, handed over the documents to the Bank. The 3rd defendant also did not subsequently send any communication to the Bank for return of her documents. Admittedly, no loan was sanctioned to D3.

So, it is futile on the part of D3 to contend that in the year 1984 she applied for loan and at that time she gave the documents and in consequence of that the other guarantee documents came into existence.

4. In the written statement filed by the 3rd defendant, D3 has stated that she is not a party to the agreement dated 3.4.1987 and as such she has not given any guarantee in pursuance of the agreement dated 3.4.1987. It is further stated that the defendant No. 2 has got some blank forms and papers somewhere in September, 1984 and asked D3 to sign the same and she in good faith signed the blank forms in September, 1984 and not on 5.7.1986 as alleged by the plaintiff and the plaintiff Bank in connivance with the 1st defendant has filled up the blank forms to suit their transaction and for the purpose of filing the present suit and D3 has not given any documents to the plaintiff as collateral security and she is not the owner of the premises. In the Affidavit Ex. D2 filed by D3 before the DRT, the 3rd defendant has stated that she is not aware of the transaction between the Bank and defendants 1 and 2 and others and she never executed any documents agreeing to stand as guarantor for D1 and D2 and she never offered her properties as security and she never created any mortgage by deposit of title deeds and she approached the Bank for certain financial facility in the year 1984 and she agreed to offer her properties as security and the Bank has obtained her signatures on papers but the Bank has not sanctioned the loan stating that the loans of defendant No. 1 were irregular for which D2 is the Managing Director who is her husband, and she is unnecessarily implicated as party and the properties are added in the OA. The 3rd defendant has stated one version in the written statement and a different version in her Affidavit. In her written statement she has stated that her husband obtained her signature in blank papers in 1984 and the plaintiff Bank in connivance with D1 has filled up the blank forms and in her Affidavit she has stated a different version stating that she only applied for loan in the year 1984 and at that time she offered her properties as security and the Bank has obtained her signatures but the Bank did not sanction the loan. As I have already stated, there is no proof with regard to D3 applying for loan to the Bank.

5. Much reliance is placed upon by the Counsel for 3rd defendant on the document Ex. A6 which is the loan agreement entered into between the appellant Bank and the 1st defendant and he submitted that Ex.A6 came into existence only on 3.4.1987 whereas Exs. A5 and A7 documents executed by D3 came into existence on 5.7.1986 and as the loan agreement into effect on 3.4.1987 the documents executed by D3 prior to that in the year 1986 cannot bind the 3rd defendant and she is not liable for the suit claim as per Exs. A5 and A7. In the Loan agreement Ex. A6 dated 3.4.1987, it is specifically stated that by 29.2.1984 a sum of Rs. 1,01,76,710.29 p was outstanding in the OCC Account and a sum of Rs. 12,90,812.34p was outstanding in UBD Account against the 1st defendant Company and the appellant Bank after some discussions and joint institutional meeting agreed to convert with effect from 1.3.1984 a sum of Rs. 45,10,000/- out of the aforesaid total outstanding into a Medium Term Loan No. I on account of Principal irregularity and to convert a sum of Rs. 57,90,000/- into a Medium Term Loan No. II on account of interest irregularity and to treat the balance amount of Rs. 19,30,076.73 p as OCC against security of stocks and certain terms and conditions have been entered into between the parties under that agreement with regard to MTL No. II. In Ex. A6 with regard to security, it is stated in Para-6 of the agreement that the 1st defendant company offers as security the immovable property worth about Rs. 20 lakhs of Mrs. T.R. Datla the 3rd defendant wife of D2. It emerges from Ex. A6 that there was already loan transaction prior to 1987 between the appellant Bank and the Dl company and only the previous loan transaction amount was converted into Medium Term Loan No. I and Medium Term Loan No. II. The outstanding loan already in existence alone was converted under Ex, A6 on 3.4.1987 into MTL No. I MTL No. II. No fresh loan under Ex. A6 was sanctioned and granted under Ex. A6. Only the loan transaction already in existence was converted into these Medium Term Loan Nos. I and II. Only for the loan transactions which was already in existence prior to Ex. A6 the documents Exs. A5 and A7 came into existence which loan amount alone has been converted into these two loans under Ex. A6. So, the arguments advanced by the Counsel for the 3rd defendant that Exs. A5 and A7 related to earlier period and as the loan agreement came into existence on 3.4.1987 subsequently, these documents cannot be related to this loan agreement and the 3rd defendant cannot be fastened with the liability, does not hold good.

The D1 company already applied for loan and availed the loan prior to Ex. A6. Only for this loan availed Exs. A5 andA7 came into existence which loan transaction alone has been converted into MTL No. I and MTL No. II under Ex. A6.

6. Under Ex. A5 the guarantee document executed by D3, it is specifically stated that the total liability ultimately enforceable against the guarantor under this guarantee shall not exceed a sum of Rs. 45.10 lakhs plus 57.90 lakhs together with interest thereon the rate chargeable by the borrower from time-to-time compounded as stated therein. The same previous outstanding amount of Rs. 45.10 lakhs is termed as MTL No. I and the sum of Rs. 57.90 lakhs termed as MTL No.II. As on 29.2.1984 itself, a sum of more than Rs. 1 crore was outstanding in the OCC Account and more than Rs. 12 lakhs was outstanding in the UBD Account of the 1st defendant which sum alone has been reflected in Ex. A5 the guarantee document. That sum alone is converted into MTL No. I and MTL No. II under Ex. A6. Ex. A7 is the document creating equitable mortgage by the 3rd defendant by deposit of her title deeds. Under Ex. A7, the 3rd defendant has clearly stated that she had deposited with the Bank the title deeds relating to her property described in the Schedule below with intent to create an equitable mortgage on the said property to secure all moneys including interest that may be due and payable to the Bank on account of the transaction between the appellant Bank and the 1st defendant. She has also specifically agreed under Ex. A7 that to secure the repayment of that money already due to the Bank from the I st defendant and herself who is a guarantor to the 1st defendant and the money that may hereafter become due on account of such transactions between the Bank and the 1 st defendant for whom she is a guarantor. Under Exs. A7 also D3 has specifically agreed that for the repayment of the money already due by the D1 company to the Bank and all the money due to the Bank on account of the said transactions, she is also liable as a guarantor.

Exs. A5 and A7 clearly fasten the liability of the 3rd defendant for the loan transaction. In Ex. A5 also both the loan transactions are clearly mentioned. Under Ex. A7 the 3rd defendant has deposited her title deeds with the intention to create equitable mortgage and she is guarantor for the D1 company as evidenced by the document Exs. A5 and A7.

7. The 3rd defendant was examined as DW1 and in her cross-examination she has clearly admitted that Exs. A5 and A7 bear her signature. So, it is clear from her evidence that she only has signed the documents Exs.

A5 and A7 and she only created equitable mortgage and she stood as guarantor for the loan transaction. The Bank witness AW1 has also clearly spoken in his evidence that D3 is the guarantor. So, these documents clearly prove that D3 alone executed Exs. A5 and A7 for this loan transaction.

8. Counsel for the 3rd respondent further submitted that Ex. A5 is addressed to the Vysya Bank, Eluru Branch and Ex. A7 is addressed to Ameerpet Branch and these two documents cannot be stated to be related to the loan transaction. Ex. A6 agreement was entered into with the Vysya Bank. AW 1 in his Proof Affidavit has clearly stated that the 1st defendant company approached the Vysya Bank for credit facilities and availed the facilities in Bhimawaram Branch in 1979 and in 1983 at the request of the D1 company, the facilities sanctioned to it at Bhimawaram Branch were transferred to their Eluru Branch and further in May, 1986, at the request of the D1 company the additional OCC facility was transferred to their Ameerpet Branch. So, Ex. A7 which was executed subsequently oh 5.7.1986 was addressed to Ameerpet Branch. Much stress was also made by the Counsel for the appellants with regard to the date of purchase of stamps i.e. 8.9.1984 as stated in Ex. A5. The defendant's loan transactions is with the applicant Bank from the year 1979. In 1983 that loan transaction was transferred to Eluru Branch.

So, in Ex. A5 it was stated as Eluru Branch and only for the loan transactions the stamp under Ex. A5 was affixed. At the time when the stamp was purchased in 1984 for Ex. A5, it was in Eluru Branch. So, it was stated as Eluru Branch and the defendant has executed that document on 5.7.1986. By that lime, it was transferred to Ameerpet Branch which is reflected in Ex. A7. It is admitted by DW 3 in her oral evidence that she only signed the document in Exs. A5 and A7. So, the oral as well as documentary evidence clearly prove that D3 stood as the guarantor for this loan transaction and she alone deposited her title deeds with the Bank with intent to create equitable mortgage for the loan availed by the 1st defendant. For the foregoing discussions, I hold that D3 is also liable for the suit claim.

9. Counsel for the appellants cited the decisions of AIR 1975 Madras 333, N. Ethirajulu Naidu v. K.R. Chinnikrishnan Chettiar and AIR 1971 Supreme Court 1865, Suit Tarajee Khimchand and Ors. v. Yelamarti Satyam and Ors. and AIR 1992 Bombay 434, Rewachand Lodharam Ramchandani v.Naraindas B. Kanuga and Anr.

10. In N. Ethirajulu Naidu v. K.R. Chinnikrishan Chettiar (supra), it has been held that "Admission by defendant that he signed on blank paper is not execution of document and execution of a document implies intelligent and conscious appreciation of the contents and where the defendant admitted only that he put his signature on a blank piece of paper which he alleged had possibly been utilized for fabricating the document the onus of proving due execution must be thrown on the plaintiff."In Sait Tarajee Khimchand and Ors. v. Yelamarti Satyam and Ors.

(supra), the Apex Court has held that "Mere marking of a document as an exhibit does not dispense with it proof." In Rewachand Ladharam Ramchandani v. Naraindas B. Kanuga and Anr. (supra), it has been held that "Defendant admitting his signature on voucher, burden of proving that the voucher was signed in blank is on defendant." 12. Relying upon these decisions, Counsel for the 3rd defendant submitted that since the 3rd defendant signed only on blank papers it must be proved that she executed those documents. In the cross-examination, DW 3 has clearly admitted that Exs. A5 and A7 bears her signature. She only has given her title deeds to the Bank with intent to create equitable mortgage. All her title deeds which have been given to the Bank for creating equitable mortgage are available with the Bank. If she signed only blank paper as stated by her in her written statement which blank forms were given by her husband, it is not known how the title deeds passed to the Bank. In the affidavit filed by her, she has stated that she applied for loan and at that juncture she gave her title deeds and the Bank obtained her signature on blank paper and the Bank has not sanctioned the loan. As I have already stated, if she did not give the title deeds to the Bank with the intent to create equitable mortgage and signed Exs. A5 and A7 with the intention, she would have written to the Bank to return her title deeds since the loan was not sanctioned to her. She never applied to the Bank for return of her title deeds. The title deeds are still with the Bank. This clearly proves that she only gave the title deeds with the intent to create equitable mortgage and she never signed any blank papers. So, the arguments advanced by the Counsel for the 3rd defendant in this aspect does not hold good.

13. Counsel for the 3rd defendant drew my attention to Section 126 of the Contract Act and submitted that express participation or implied assent among the three parties creditor, principal debtor and the guarantor is necessary which is absent in this case. On this, he relies upon the decision of the Karnataka High Court in AIR 1983 Karnataka 73, H. MohamedKhan and Ors. v. Andhra Bank Ltd. and Ors., wherein it has been held that "Section 126, Contract Act which defines a 'contract of guarantee' makes it clear that it involves three parties viz., the creditor, the surety and the principal debtor who should all be privy.

Their express participation or implied assent to have such a contract should be proved by the person who want to rely upon it." 14. He also relies upon the decision of the Karnataka High Court in AIR 2002 Karnataka 270, Union Bank of India v. Monin Enterprises and Anr,, wherein it has been held that "There is no stipulation indeed that guarantee covers consideration paid in past and that it is not the case of plaintiff Bank that principal borrow had ever undertaken to furnish guarantee at a later date and where in fact Bank permitted borrower to withdraw loan amount in absence of any guarantee, guarantor is not liable for repayment of loan," In the above said decision it was found that Ex. P3 document was not executed by the 2nd defendant considering the past consideration and in the absence of proper pleadings and evidence it has to be held that Ex. P3 has to been executed by the 2nd defendant acknowledging the past consideration passed on the 1st defendant.But the case on hand stands on a different footing. Under Ex.

A7, the 3rd defendant has clearly stated that she is the guarantor and to secure the repayment of the money already due to the Bank from the D1 company and herself who is the guarantor to the D1 company and the money that may hereinafter become due on account of such transaction between the Bank and the D1 company for whom she is the guarantor, she has deposited her title deeds with the intent to create equitable mortgage and on the said property to secure all moneys including interest that may be due and payable to the Bank on account of the said transaction. This clearly implies that there is express participation on her part and she has given her the deeds with the only intent to create deposit of title deeds and there is contract of guarantor between the 3rd defendant and the Bank. Even under Ex. A5 in printed form also which is the guarantee document, she has agreed to pay the total liability of the loans Rs. 45.10 lakhs and Rs. 57.90 lakhs which is reflected in Ex. A6. These documents clearly reveal that there is express participation on the part of the 3rd defendant in standing as a guarantor for these loan transactions.

15. As I have already indicated, even though the 3rd defendant has stated in her written statement that she signed in blank papers, her evidence and the documents filed clearly prove that she only signed the documents and she only gave the title deeds with the intent to create equitable mortgage and there is clear participation of the 3rd defendant as a guarantor, is present in this case. Hence, I hold that all the arguments advanced by the Counsel for the 3rd defendant fall to the ground and the 3rd defendant is also liable for the suit claim as guarantor and as she has also created mortgage by deposit of title deeds by creating Exs. A5 and A7 documents. For the foregoing discussions, I hold that the 3rd defendant is also liable for the suit claim and the OA has to be allowed as against the 3rd defendant also and decree has to be passed as against D3 also. Hence, I find that the order passed by the Presiding Officer, DRT, Hyderabad, dismissing the OA as against the 3rd defendant is liable to be set aside and it is set aside.

16. Appeal allowed. OA is allowed with costs as against the 3rd defendant also and Recovery Certificate is also ordered to be issued as against the 3rd defendant for the suit claim. No costs in the appeal.


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