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State Bank of India Vs. Premco Saw Mill, Ahmedabad and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtGujarat High Court
Decided On
Case NumberFirst Appeal No. 791 of 1981
Judge
Reported inAIR1984Guj93; (1983)2GLR1322
ActsIndian Contract Act, 1872 - Sections 127; Evidence Act, 1872 - Sections 91 and 92
AppellantState Bank of India
RespondentPremco Saw Mill, Ahmedabad and ors.
Appellant Advocate A.H. Mehta, Adv.
Respondent Advocate J.A. Shelat and; M.C. Bhatt, Advs.
Cases ReferredMohammad Taki Khan v. Jang Singh
Excerpt:
.....proceed against the properties pledged including the factory premises and machinery and that for the residuary amount, if any legal action would be taken. nothing having been done in that regard, the suit in question bad come to be filed on 8-10-1976. 3. the suit was resisted by all the defendants more particularly by the defendant no. 3 therefore, was clearly liable to the plaintiff for the repayments of those dues along with the principal borrowers. subclause (e) reproduced by the learned judge in para 11 of his judgment, clearly mentions before amendment of s. 3 bad failed to show that his signatures were obtained by the bank arthority on blank forms. ' 9. the learned judge, therefore, held that though forbearance from taking legal action can well be, a consideration for a..........nos. 1 and 2 and that too only with 6% interest from the date of the suit till realisation. the learned judge had however dismissed the suit as far as the original defendant no. 3 war, concerned. being aggrieved by not granting of the commercial rate of interest and also exonerating the original defendant no. 3, the original plaintiff-state bank of india has preferred the present appeal.2. in order to understand the controversy, a few facts require to be stated. , the defendant no. i is the business firm run by the defendant no. 2 smt. manjulaben r. patel. said manjulaben as the sole proprietor of the said defendant no. i business concern, had three kinds of accounts with the plaintiff-bank. the first was the demand cash credit (factory type pledge) up to the limit of rs. 1,25,000/-.....
Judgment:

Bhatt, J.

1. This is an appeal by the State Batik of India, the original plaintiff of the Civil Suit No. 3121/76 decreed by the learned Judge of the City Civil Court only against the original defendants Nos. 1 and 2 and that too only with 6% interest from the date of the suit till realisation. The learned Judge had however dismissed the suit as far as the original defendant No. 3 war, concerned. Being aggrieved by not granting of the commercial rate of interest and also exonerating the original defendant No. 3, the original plaintiff-State Bank of India has preferred the present appeal.

2. In order to understand the controversy, a few facts require to be stated. , The defendant No. I is the business firm run by the defendant No. 2 Smt. Manjulaben R. Patel. Said Manjulaben as the sole proprietor of the said defendant No. I business concern, had three kinds of accounts with the plaintiff-Bank. The first was the demand cash credit (factory type pledge) up to the limit of Rs. 1,25,000/- against the security of pledge of raw materials. The second was the demand cash credit (machinery) with the limit of Rs. 25,000/-. The third was the demand cash credit (bookdebts) accounts for the limit of Rs. 50,0001against the hypothecation of book-debts not exceeding., 90 days from the date of respective bills. Various amounts were due to the plaintiff-bank about the month of October 1975. So the plaintiff-bank laid given 'the notice Ext. 76 dated 28-10-1975 to the defendants Nos. I and 2 calling upon them to make the payment and it was specifically stated in para 6 of the said notice that if the debtors failed to pay up the dues immediately, the bank would proceed against the properties pledged including the factory premises and machinery and that for the residuary amount, if any legal action would be taken. The evidence on record bears out that thereafter the defendant No. 1 had seen the Manager of the Bank and some negotiations had gone on and he had executed fresh documents Exts. 86, 87, 88, 89, 90 and 91 on 23-6-1976. Exhibit 86 is. the guarantee bond signed by the guarantor defendant No. 3. Exhibit 91 is another guarantee bond. The former guaranteed credit of Rs. 25,000/- and the latter guaranteed sum of Rs. 1,25,000/- cash credit factory type, loans. The two promisory notes Exts. 89 and 87 respectively for Rs. 1,25,000/- and Rs. 25,000/- were also executed by the defendant No. 3 along with defendant No. 2. Thereafter, the plaintiff-bank issued the notice Ext. 78 dated 3-7-1976 to both the defendants Nos. 2 and 3, who are the wife and the husband, calling upon them to make the payments. Nothing having been done in that regard, the suit in question bad come to be filed on 8-10-1976.

3. The suit was resisted by all the defendants more particularly by the defendant No. 3. The plaint as it stood originally simply mentioned that the, defendant No. 1 was a guarantor in respect of the advance facilities granted by the plaintiff to the defendants Nos. 1 and 2 para 6 of the plaint said that defendant No. 3 therefore, was clearly liable to the plaintiff for the repayments of those dues along with the principal borrowers. The defendant in his initial written statement denied his having executed the Alleged documents and his case was that his, signatures were taken on blank forms. It was also alleged by him that the alleged documents of guarantee were without consideration. The plaintiff then sought amendment of the plaint and para 5-A came to be inserted. It was alleged that the defendants Nos. 1 and 2 had requested them not to take any action for the recovery of the dues of the plaintiff and had offered guarantee of the defendant No. 3 which the plaintiffs most reluctantly had agreed on all the defendants executing the requisite -documents for the purpose in favour of the plaintiffs.

4. The learned Judge raised various issues, which are found in para 9 of his judgment. Issue No. 4 pertains to the defendant No. 3 and reads as follows:

'Whether defendant No. 3 is guarantor for the loan advanced to defendants Nos. 1 and 2, if yes, whether the contract of guarantee is without consideration.'

5. The learned Judge decreed the plaintiffs suit for Rs. 2,37,982.10 ps. which amount was conceded on behalf of the plaintiff. The learned Judge however granted 6% running interest from the date of the suit on the principal amount, and that is one of the two contentions raised by the appellant before us. We propose to deal with the same firstly.

6. Before Section 34 of the Civil P. C. came to be amended by Section 13 of the Amending Act, 1976,, the maximum rate of interest for the period subsequent to the filing of the suit was 6% per annum. Subclause (e) reproduced by the learned Judge in para 11 of his judgment, clearly mentions before amendment of S. 34 which came into effect on 1-7-1977, (the present suit was filed on 8-10-1978), earlier 6% maximum rate of interest the unamended Section 34 governs the present case. When this position was brought to the notice of Mr. A. H. Mehta, the learned advocate for the plaintiff-bank, he did not pursue the matter any further.

7. This brings us to the main and central theme of the controversy in this First Appeal regarding liability of the defendant No. 3. The learned Judge was persuaded to hold that the defendant No. 3 bad failed to show that his signatures were obtained by The bank arthority on blank forms. In pam 16, the learned Judge categorically holds as follows:

>'In fact, it may so happen that the husband may be helping her in carrying on the business, and therefore, he must have come to depose te) get out from the clutches of the plaintiff, bank, to whom he has given the guarantee, it cannot be said that be signed the papers without reading.'

L -The learned Judge again, in para 19 has observed as follows:

'In the present case, the, consideration, as I have already stated above was to postpone taking - of legal action, but there Is nothing to show that such an option wan postponed except the oral evidence, of the witness, which cannot be believed, because such reports were necessary from the General Manager for postponing to take any legal action.'

9. The learned Judge, therefore, held that though forbearance from taking legal action can well be, a consideration for a guarantor, as it is stated in Illus. (c) appended to Section 127 of the Contract Act, there was no proof of any such forbearance. This view of the learned Judge, in our view, is absolutely untenable in the facts and circumstances of the case.

10. The background is to be seen in the light of the evidence of two witnesses Exhibits 72 and 85, in the light of the attendant circumstances. The defendant No. 2, proprietary of the defendant No. 1 concern, had run into default admittedly. The bank had, therefore, to give a notice Ext. 76 on 28-10-1975 threatening legal action and also proceeding against properties hypothecated. The evidence led on behalf of the plaintiff and the defendants shows that thereafter the husband was called at the office of the bank and some negotiations had also gone on. All this resulted into the defendant No. 3 executing bonds in question Exs. 86 and 91 along with promissory notes. It is because of this, the learned Judge had to hold that those two bonds and promissory notes were executed by the defendant No. 3. He also found that the threat given in the notice Ext. 76, dated 28-10-1975 bad not been translated into reality; even after the fresh agreement, no action was taken against the property and also against the defendants Nos. 1 and 2 for about three months. A notice came to be issued for the first time and even thereafter the plaintiff-bank waited for about three months. But finding that the defendants had no desire to respect their commitments, the bank seems to have been constrained to file the suit. It is very evident from the circumstances that on the husband's agreeing to shoulder the liability as a guarantor, the bank authorities did refrain from their threatened action. The plaintiff threatened as back as in October 1975 and kept back till the suit came to he filed in the month of October 1976.

11. The evidence of witness Mr. S. J. Shah, Ext. 72 makes it once for all clear that the matter of taking the decision regarding legal action rested with the Divisional Manager in respect of the limit of the transaction. He has categorically stated that the Divisional Manager, who is a party to this contract of guarantee was authorised to take decision about the legal proceedings. There was no lesson for the learned Judge to doubt this testimony. But certain statements in para 5 of his deposition, were misunderstood by the learned Judge. The witness stated that in order to take legal action, the Manager of the respective branch has to report to the controlling authority, which decides whether legal action should be taken or not. He has enumerated who the controlling authorities are, says that the Chief Manager, the General Manager and Chief General Manager were the controlling authorities. He then clarifies by saying that the Divisional Manager is also competent to take such decision if the amount is within his monetary authority. He has categorically stated that the amount involved in this suit was within the competence of the Divisional Manager. So the-learned Judge was not right in saying that some reports must have been there seeking the directions of Itlic higher authorities and hence, the said reports were not produced on record, the story about taking action and forbearing to take action was incredible. The evidence of Mr. Pathak, Ext. 85 also makes t1he position quite clear. He however stated -as follows:

'that the decision of withdrawing the action or postponing action in these matters are also to be taken by the General Manager. '

Relying upon the solitary sentence cut off from the context, the learned Judge thought that there may not be any withholding of the action against this defendant No. 2 without there being any record showing that the General Manager had acceded to forbearance. If the action is taken and it is to be dropped or postponed or if there is any withdrawal of any pending suit is to be effected, the decision is required to be taken by the General Manager. As stated by witness Ext. 72, the, General Manager was the- authority and it was he, who is contracting party with the defendant No. 3. So, the learned Judge was not right in saying that there Was no proper evidence on record to show that there was withdrawing of the intended threat communicated by the notice Ext. 76. dated 28-10-1975.

12. Another argument however, was advanced before us and we are required to deal -with it. Mr. Bhatt, for the defendant No. 3. submitted that consideration set out in the two documents. Exs- 86 and 91 was a term of the contract to pay the money to the defendants Nos. I and 2 as far as the promise of the defendant No. 3 was concerned and no oral evidence could be led about what that other -consideration was. Even a bus look at Exhs. 86 and 91 shows that the Consideration set out in those two documents is the bank's (future) readiness to advance some loans to the defendants Nos. I and 2. , However, it is a common ground that the loans were already advanced, and they were not to be advanced afresh at the time or subsequent to the agreements of guarantee. So ex facie, the consideration mentioned in these two documents. Exh 86 and 91 wall incorrect to the knowledge of all the parties. The question is what is then the consideration It is the settled legal position that if the document is stating some wrong consideration, oral evidence can be given to show that real consideration was other than. what has been stated in the document. Mr. Bhatt however tries to distinguish this position of one kind of consideration pleaded and permitting other to be proved, on the ground that where the reciprocal , promises art there as a consideration for each other, they are a part and parcel of the whole contract and therefore they are terms of the contract and therefore, no oral evidence could be led contrary to the one that is set out in the agreement itself. The argument of Mr. Bhatt would therefore come to this that if the documents Exs. 86 and 91 show that the bank will give loans to the defendant 2 and if that was the explicitly stated consideration for the defendant No. 3 to enter into contract of indemnity or guarantee, no Mal evidence could be led to show that for the defendant No. 3 there was any other consideration, other than the tutor promise on the part of the bank to advance loans to 60 defendants Nos. 1 and 2. We find it difficult to accept this submission of Mr. Bhatt for two reasons. It is riot the say even of the defendant No. 3 that there was any occasion for the bank for a promise to advance loan in future. Secondly, the real consideration to the knowledge of all the three parties, viz. the bank, the defendant No. 2 W the defendant No. 3 was the forbearing of taking action in terms of the threat communicated in the. notice Ex. 76 dated 28-10-1975. Section 91 read, with Section 92 of the Evidence Act has pressed into service We have to bear in mind that Section 91 qua a contract restricts oral evidence in respect of the terms of the contract. Can a consideration of a contract be said to be a term of the contract? Out categorical answer is 'no'. A contract is nothing but. a promise to do or forbear to do something. Anything which is enlarging or limiting or conditioning that promise, to do something is a term of the contract. As per example l payment with or without interest is a term of the contract. Paying the amount in any certain installments is a term of contract. Paying at a particular place, or time or after sometime, is a team of the contract. Paying on certain contingency is also a term of the contract. In other words, anything enlarging, abridging or conditioning the act of the promise is a term of the contract. Consideration cannot be said to be a term of the contract, though, it is intervoven with it. Without consideration there would never be a contract coming into existence. But we are not prepared to say that a consideration is a term of the contract. If any authority for the proposition is needed, we can advert to the case of Mahalakshmi Amma v. Krishna Holla, reported in AIR 1938 Mad 320, and the case of Daryaosinob Bbagwansingh Chhatrl v. Krishnarao Vishnupant Kukde, reported in AIR 1939 Nag 91. There, it has been specifically laid down That in cast of consideration mentioned in a written document, it is open to the party contesting it to show that there was no consideration or that the consideration was different from the one' that is described in the contract, and this although will not be hit by Section 91 of the Evidence Act.

13. Mr. Bhatt, however, tried to distinguish this proposition of law by contending that where the consideration is in the form of an executory promise, such executory promise would be at part and parcel of the promise because according to him, as defined in Clause (e) of Section 2 of the Contract Act, every promise and other such promise forming the consideration for each are an agreement conjointly. It is to be noted with pertinence that every promise is a contract. Where there are reciprocal promises, these two promises put together also can be said to be an agreement because both the parties, I. e. promisor and promisee, in one sense are the promisee and. the promisor in another sense, and therefore, as a matter of fact, there are two promises involved in such a set of reciprocal promises. However, this would not show that one promise which is the consideration for the other promise. is a term of the latter contract, We do not see any distinction between the two. Once we accept t6 principle that even if one kind of consideration is set out in a document another kind of consideration can be proved by oral evidence, the alleged distinction disappears. Mr. Bhatt however in this -connection invited our attention to the two judgments. One is a Full Bench judgment of the Allahabad High Court in the case of Mohammad Taki Khan v. Jang Singh, reported in : AIR1935All529 , which is a case, not of a contract ' but of an executed contract in the form of a sale. It is to be noted with pertinence that sale is a transfer of property for a consideration. So the act of transfer and consideration together, constitute sale. Unless, both are there, there cannot be a sale. So consideration is a part and parcel of the sale transaction, and if a document mentions a particular consideration, any oral evidence proving the consideration being less or more or distinct, obviously will be tantamount to permitting the transaction Jo be presented different from the one which it really is. It is to be noted with pertinence that Section 91 deals with three types of situations. Firstly. it deals with a contract; secondly, it deals with a transfer required by law to be in writing and thirdly, it deals with a matter which is required to be in the form of a document as per some law. The judgment cited by Mr. Bhatt deals with this second type of category of Section 91 of the Evidence Act.. Similar in AIR 1939 Nag 20, also there is a case of sale and what Is observed therein, will not refer the facts of the present case.

14. In above view of the matter, we are of the opinion that the learned Judge was clearly in error in holding that there was no forbearance. We therefore, hold that the bank had furnished consideration to the defendant No. 2 in the form of forbearance from the legal action which Was contempted as per notice Ex. 76 dated 18-10-1975 and we find that this forbearance was made good by not taking any action at the time the promise was given by the defendant No. 3 in the form of Exa. 86 and 91,

15. The result is that the appeal is partly allowed by making the defendant No. 3 jointly and severally liable for the decretal amount. The defendant No. 3 shall bear the costs of this appeal and will be liable for trial Court's costs also jointly with defendants Nos. 1 and 2. As far as defendants Nos.1 and 2 are concerned. They shall bear their own costs of this appeal and shall not be liable for the plaintiff's costs of this appeal.

16. Mr. Bhatt the learned advocate for the respondent No. 3, at this stage, orally prayed for leave to appeal to the Supreme Court under Article 133. We do not see that any substantial question of law and that too of public importance is required to be decided by the Supreme Court. The oral prayer for leave is, therefore, rejected.

17. Appeal partly allowed.


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