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The Bank of New India Ltd. Vs. G. Govinda Prabhu - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtKerala High Court
Decided On
Case NumberSecond Appeal Nos. 1157 and 1158 of 1959
Judge
Reported inAIR1964Ker267
ActsLimitaition Act, 1908 - Schedule - Article 83; Contract Act, 1872 - Sections 2 and 124
AppellantThe Bank of New India Ltd.
RespondentG. Govinda Prabhu
Appellant Advocate Joseph Vithayathil and; George Vadakkel, Advs.
Respondent Advocate T.S. Krishnamoorthy Iyer and; G. Rajasekhara Menon, Advs.
DispositionAppeals dismissed
Cases ReferredAscherson v. Tredegar Dry Dock and Wharf Co. Ltd.
Excerpt:
- - f, defendants 2 and 3 may be deemed to have requested the plaintiff to forbear from taking action against them for alleged irregularities, and the plaintiff to have acceded to their request and forborne from taking action, that in itself would be good consideration. 5. learned counsel contended, that the cause of action against the 3rd defendant would accrue only on the failure to realise the amount from the first defendant, and that, though in this sense the suit may even be regarded as premature, the plaintiff is entitled to have a declaration of the right of indemnity against him andan order for payment. the result is, that the second appeals fail and aredismissed, but in view of the contentions advanced, order both parties to bear their costs in this court......have no doubt, as to the true import of ext. f. having been called upon to explain their action, defendants 2 and 3 undertook to see to repayment within one month, and bound themselves also personally to make payment to avert loss to the plaintiff; upon this, the plaintiff forbore taking action against them whether disciplinary or otherwise. i am wholly unable to accept the argument of counsel, that ext. f is evidence of repudiation by the plaintiff of the principal debt itself and that therefore it cannot be regarded as a contract of indemnity. the plaintiff considered that the loans were irregular, not that they were not true or that they were unenforceable. the principal debtors were of course the first defendant in the two cases. in this sense ext. f may be held to be a.....
Judgment:

S. Veku Pillai, J.

1. These second appeals arise out of two suits instituted by the Adoor Bank Ltd., now represented by the second appellant, the State Bank of Travancore, Defendants 2 and 3 in one suit are also defendants 2 and 3 in the other, being the agent and a clerk of the Kayamkulam branch of the Adoor Bank Ltd. but the first defendant in each suit is not the same individual. They had contracted loans from the plaintiff and were indebted to it. The plaintiff later discovered that the loans were irregular, as having been advanced on promissory notes without the sanction of the plaintiff's Head Office. The plaintiff called upon defendants 2 and 3 to explain the irregularity when they executed an agreement Ext. F or Ext. C undertaking to see to re-payment being made within a month and also binding themselves personally. Relying on the original causes of action and on Ext. F, the plaintiff instituted the two suits against the two debtors and defendants 2 and 3. In these second appeals, the contentions of the third defendant who is the sole respondent are alone material. The first court decreed the suit against all the defendants, and on appeal the Sub-ordinate Judge exonerated the third defendant on the twogrounds, that Ext. F had no consideration and is unenforceable, and that the suits were barred by limitation against him.

2 I am unable to accept the finding that Ext. F had no consideration. Ext. F consists in the main of a statement by the second defendant acknowledging receipt of the show cause notice with copy of the report relating to the irregularity appended, admitting that the loans were advanced to the first defendant in the suits on the 'advice' of the third defendant and undertaking that they would be repaid within one month on their personal responsibility and that the plaintiff would not be damnified. This statement which was signed by the second defendant was followed by an endorsement by the 3rd defendant by which he affirmed its truth and correctness and also bound himself personally. The argument of counsel, that no undertaking of personal liability is implicit in this endorsement can hardly stand in the light of the expression '(Original in Malyalam omitted).'

I have no doubt, as to the true Import of Ext. F. Having been called upon to explain their action, defendants 2 and 3 undertook to see to repayment within one month, and bound themselves also personally to make payment to avert loss to the plaintiff; upon this, the plaintiff forbore taking action against them whether disciplinary or otherwise. I am wholly unable to accept the argument of counsel, that Ext. F is evidence of repudiation by the plaintiff of the principal debt itself and that therefore it cannot be regarded as a contract of indemnity. The plaintiff considered that the loans were irregular, not that they were not true or that they were unenforceable. The principal debtors were of course the first defendant in the two cases. In this sense Ext. F may be held to be a contract of indemnity, with a special term by which defendants 2 and 3 rendered themselves personally liable to pay, in case the debts were not discharged within one month. The Subordinate Judge viewed this as a contract of guarantee, but the principal debtor was not in the picture and there is no suggestion that he concurred in Ext. F. The distinction between a contract of guarantee and a contract of indemnity is summarised thus, in Sanjiva Row's Indian Contract Act, 5th edition, Vol. II, page 1157 :

'in order to constitute a contract of guarantee, there must be a third contract by which the principal debtor expressly or impliedly requests the surety to act as surety. Unless that element is present, it is impossible to work out the rights and liabilities of the surety under the Contract Act. The importance of the requirement of law that in all cases of suretyship there must be privity between the creditor, the principal debtor and the surety lies in the result which follows, namely, that the surety having undertaken the obligation at the request of the debtor becomes entitled to recover from him whatever sums he has rightfully paid under the guarantee as is provided in Section 145, whereas in the contract of indemnity, the indemnifier cannot on the performance of the obligation of the debtor in the absence of an assignment from the creditor, sue in his own name, the debtor, as there is no privity of contract between them and there is no subrogation to the creditor's rights.'

It would therefore seem more proper to regard Ext. F as a contract of indemnity than a contract of guarantee, The distinction does not seem very material for the present purpose.

3. On the definition of Section 2(d) of the Indian Contract Act, where at the desire of the promisor, the promise or any other person has abstained from doing something, such abstinence or forbearance is itself consideration. If, as is apparent from Ext. F, defendants 2 and 3 may be deemed to have requested the plaintiff to forbear from taking action against them for alleged irregularities, and the plaintiff to have acceded to their request and forborne from taking action, that in itself would be good consideration. It is not a necessary legal requirement, that the nature of the action which was proposed to be taken must have been specified, or that such action must have stood the test of scrutiny in a court of law. It is also not necessary that positive evidence of postponement of action should be adduced, be-cause forbearance may be inferred from surrounding circumstances. This has been so held in Ranjit Singh v. Fateh Din, 134 Ind Cas 1105 (Lah) and Amin Chand v. Gunj, 119 Ind Cas 766 : (AIR 1929 Lah 466), therefore come to the conclusion that Ext. F is supported by consideration.

4. On the true construction of Ext. F that the 3rd defendant would see to repayment within one month and would himself pay, the reasonable view is, that the cause of action against him arose upon non-payment within in month. But it was urged, that as a contract of indemnity, a different result would follow. The rules at common law and in equity are stated thus in 16 Halsbury's Laws of England, 3rd Edition, paragraphs 982 and 983 :

Paragraph 982 : 'At law an action on the contract of indemnity normally does not lie until the promise has been actually damnified by paying the third party's claim -----.......... The right to indemnity, however, may arise under a special contract, on the true construction of which the right may be enforced, even at law, before actual loss has been , sustained..................'

Paragraph 983 : 'In equity, the rules of which now prevail in all courts, even in the absence of a special agreement, the person entitled to the indemnity may, obtain relief as soon as his liability to the third party has arisen, and before he has actually suffered loss. He may, therefore, in an appropriate case obtain an order compelling the promisor to set aside a fund out of which the liability may be met, or to pay the amount due directly to the third party, or even, when the promisor is under no liability to the third party, as is the case in contracts of mere indemnity, to the promise himself...........

On the common law rule itself, the contract in Ext. F is enforceable against the 3rd defendant at the expiry of the period of one month. In the present case the plaintiff was under no liability to a third party, the contract being for payment to the plaintiff itself. On the above rule in equity, the plaintiff could 'obtain an order compelling the promisor' (the 3rd defendant) 'to pay the amount due .................. to the promise (theplaintiff) himself.' So both in law and equity, the right to enforce payment arose on the expiry of one month from the date of Ext. F.

5. Learned counsel contended, that the cause of action against the 3rd defendant would accrue only on the failure to realise the amount from the first defendant, and that, though in this sense the suit may even be regarded as premature, the plaintiff is entitled to have a declaration of the right of Indemnity against him andan order for payment. For one thing, as I have held, the true construction of Ext. F is different and the above rule at law applies, and for another, the frame of the suit is different. Counsel took me through a number of decided cases, in all of which the indemnity was against an obligation to a third party and the indemnifier as plaintiff was held entitled by way of anticipatory action against the principal debtor, to compel him to provide funds for meeting his obligation. Such an action is on the face of it a quia timet action and is in accord with the rule in equity quoted above. But this form of action has no place where no such third party is involved, and it would be far-fetched to extend it to such a case. It is therefore unnecessary to consider the cases cited before me. But as held in Watt v. Mortlock, (1963) 2 WLR 628, even in such a case, while granting the relief which was asked, that the surety be exonerated from liability by the defendant paying the bank (the third party) the balance due, and that the defendant do make payment.

'the right course is to do as was done in Ascherson v. Tredegar Dry Dock and Wharf Co. Ltd., (1909) 2 Ch 401, which is to add to the relief claimed, a direction that in the event of the defendant failing to make the payment which is ordered, the plaintiff would be at liberty to apply.'

These considerations are foreign not only to the scope of the suit as laid, but also to the nature of the suit which is to enforce the contract in Ext. F. For the above reasons, though not for the reasons set out by the Subordinate Judge in his judgment, I hold that the suit is barred by limitation against the third defendant, inder Article 83 of the Indian Limitation Act.

The result is, that the second appeals fail and aredismissed, but in view of the contentions advanced, order both parties to bear their costs in this court.


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