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T. Radhakrishna Chettiar and anr. Vs. K.V. Muthukrishnan Chettiar and ors. - Court Judgment

LegalCrystal Citation
SubjectContract;Limitation
CourtChennai High Court
Decided On
Case NumberAppeal No. 585 of 1963
Judge
Reported inAIR1970Mad337; (1970)2MLJ566
ActsLimitation Act, 1908 - Schedule - Article 115; Code of Civil Procedure (CPC) , 1908 - Order 2, Rule 2; Indian Contract Act, 1872 - Sections 43
AppellantT. Radhakrishna Chettiar and anr.
RespondentK.V. Muthukrishnan Chettiar and ors.
Appellant AdvocateK.S. Naidu and ;A. Venkatachalam, Advs.
Respondent AdvocateK. Yamunan, Adv.
Disposition Appeal dismissed
Cases ReferredIn Mool Chand v. Alwar Chetty
Excerpt:
.....defendant. there was a usual preliminary decree and a final decree. the appellants got later a personal decree against the first defendant alone to recover the balance of decree amount. thereafter an application was filed against the second defendant for a personal decree. on the question raised as to (i) whether the second defendant could be made personally liable and whether the application is in time; and (ii) whether the prayer in the plaint for a personal decree against the second defendant would make any difference,; held, that (i) the requisites of an equitable mortgage are (i) a debt; (ii) deposit of title deeds; and (iii) an intention that the deed shall be security for the debt. in the case of a simple mortgage, the personal liability to pay may be either express, or..........decree and order of the principal subordinate judge dismissing their i.a. no. 673 of 1960 for a personal decree against the second defendant-respondent. the suit was filed on an equitable mortgage evidenced by a promissory note ex. a-7 dated 7-2-1950 executed by the first defendant e. n. g. muthukrishnan chettiar and renewed by another promissory note ex. a-8 dated 3-2-1953 three years later by the first defendant and deposit of title deeds of properties belonging to the second respondent k. m. muthukrishnan chettiar. there was a usual preliminary decree on 26-2-1957 and a final decree on 11-3-1958. the appellants filed i.a. no. 778 of 1959, on the file of the lower court, for a personal decree against the first defendant alone to recover the balance of rs. 10,339-08 with intermit.....
Judgment:
1. Appeal by the Plaintiffs in O.S. No. 12 of 1956 on the file of the Subordinate Judge's Court, Devakottai, against the decree and order of the Principal Subordinate Judge dismissing their I.A. No. 673 of 1960 for a personal decree against the second defendant-respondent. The suit was filed on an equitable mortgage evidenced by a promissory note Ex. A-7 dated 7-2-1950 executed by the first defendant E. N. G. Muthukrishnan Chettiar and renewed by another promissory note Ex. A-8 dated 3-2-1953 three years later by the first defendant and deposit of title deeds of properties belonging to the second respondent K. M. Muthukrishnan Chettiar. There was a usual preliminary decree on 26-2-1957 and a final decree on 11-3-1958. The appellants filed I.A. No. 778 of 1959, on the file of the lower Court, for a personal decree against the first defendant alone to recover the balance of Rs. 10,339-08 with intermit from 30-3-1959, the date of the sale of the hypotheca. They pleaded that by inadvertence they failed to implead the second defendant-respondent and sought to implead him as respondent in the said application. But it was dismissed as they subsequently filed the present I.A. No. 673 of 1960, on the file of the Sub-Court, Devakottai. The said Court found that the second defendant-respondent, was not personally liable for the debt advanced by the appellants to the first defendant and that the present application was barred by reason of the prior application for personal decree made against the first defendant alone.

2. The basis of the claim against the defendants in the plaint is that they were doing business as dealers and brokers in stocks and shares under the name and style of "Central Brokers" at Madras and that they took loan for the said business, though the promissory note was executed by the first defendant alone. But the second defendant retired from the said partnership business on 1-11-1947 and thereafter his son and son-in-law continued as partners of the said firm "Central Brokers" with the first defendant. Though the second defendant has pleaded the above fact in his written statement, the appellants did not dispute the same in their reply statement, but merely pleaded that with some ulterior motives and to suit his purpose, the second defendant-respondent purported to remove his name and introduced his son-in-law as partners, but continued to have control and management as a partner. It should be noted that the suit is not against the partnership firm of Central Brokers and the defendants have not been sued as partners of the firm, "Central Brokers".

3. The promissory note Ex. A-7 dated 7-2-1950 was executed by the first defendant E. N. G. Muthukrishnan Chettiar alone and it was renewed by him alone under Ex. A-8 dated 3-2-1953. It is, however, urged that the second defendant-respondent made himself jointly and severally liable by reason of the letters Exs. A-1 to 3 sent prior to the promissory note Ex. A-7. But a reading of the letters clearly negatives the contention of the appellants. In fact, these letters really form the basis on which the first defendant executed the promissory note Ex. A-7. In the letter Ex. A-l dated 2-2-1950, the second defendant-respondent has stated that a sum of Rs. 10,000 to Rs. 12,000 was urgently required for the firm of Central Brokers and that the first defendant would execute a promissory note for the loan and that he would arrange for a collateral security. Thus it is significant to note that the second defendant-respondent has not undertaken any liability for the loan which he arranged for the first defendant for the business of the firm of Central Brokers. The two subsequent letters, Exs. A-2 and A-31, merely reiterate the request made in Ex. A-1. Thus the second 'defendant-respondent has not undertaken any personal liability for the loan advanced by the appellants to the first defendant who was running the firm of Central Brokers along with the son and son-in-law of the second defendant

4. Mr. K. S. Naidu, the learned Advocate for the appellants, relied on Section 96 of the Transfer of Property Act in sup-port of his contention that the Act recognises such mortgages as equivalent to simple mortgages. Section 96 of the Act is as follows:--

"The provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to a mortgage by deposit of title-deeds."

He referred to Mr. Bahin v. Ma. E Sain, AIR 1936 Rang 400 where it was held that a mortgage by deposit of title deeds has all the incidents of a simple mortgage. He also relied on the decision in Nityananda v. R. C. B. Cinema Ltd., where it was held that by the

combined operation of Section 96 and Section 58(b) of the Transfer of Property Act, an equitable mortgage must be held to be a mortgage where the mortgagor binds himself personally to pay the mort-gage-money. The suit in that case was laid on a promissory note executed by the defendant company and the plea put forward by the defendant company was that as it had deposited the documents of title and created an equitable mortgage, the suit should be stayed under Section 68(2) of the Transfer of Property Act and the plaintiff directed to proceed against the security in the first instance. It has been observed in that decision that even a momentary reflection will show that this submission is pointless because the Court cannot determine the validity of the mortgage in the suit in which the mortgage is not in issue. It has been pointed out in the decision that the plaintiff in the suit was suing only as the payee of the promissory note which created a personal liability, independent of that implied in the equitable mortgage. There can be no difficulty in implying personal liability if a person takes a loan and deposits title deeds to secure the loan as the said facts will satisfy the requisites of a mortgage by deposit of title deeds. It is needless to point out that the requisites of an equitable mortgage are (1) a debt: (2) deposit of title deeds and (3) an intention that the deed shall be security for the debt. It is true the second defendant has given the documents of title of his properties as security. In the case of a simple mortgage, the personal liability to pay may be either express, or implied, for a promise to pay arises out of the acceptance of the loan. In Ram Narayan Singh v. Adhindra Nath, ILR 44 Cal 388 = (AIR 1914 PC 119), Lord Parker gave the following brief, but adequate summary of the law:

"1. The Loan prima facie involves a personal liability;

2. Such liability is not displaced by the mere fact that security is given for the repayment of the loan with interest;

3. The nature and terms of the security may negative any personal liability on the part of the borrower."

Mulla has referred to this decision in his "Transfer of Property Act,", Fifth Edition, at page 382, and observed that it is a matter of construction whether the security is a simple mortgage, and that for a simple mortgage there must be a personal covenant either express or implied and in the absence of such a covenant this security is generally but not necessarily a charge. The debt in this case was taken by the first defendant and the deposit of title deeds was made by the defendants. It is clear from Ex. A-1 that the second defendant-respondent did not undertake any liability for the suit loan and in fact, the contents of the letter, Ex. A-l taken along with the promissory notes executed by the first defendant, clearly negative any personal liability on the part of the second defendant-respondent. It is true that in view of the conduct of the second -defendant-respondent in sending the letters Exs. A-1 to 3 and joining in making the deposit of title deeds, he is estopped from questioning the sale of the properties and he cannot dispute the security created by the deposit of title deeds. But there is nothing express or implied either in the terms of the letters Exs. A-1 to 3, or the conduct of the second defendant-respondent, to imply personal liability on his part for the suit loan. The first defendant alone executed the promissory note and even apart from the promissory note, he had taken a loan for his business and the deposit of title deeds would imply a promise on his part to pay the debt. But no such contention can be put forward as regards the second defendant-respondent.

5. We shall, however, proceed to consider the case on the footing that by reason of the second defendant-respondent joining with the first defendant in creating an equitable mortgage, he impliedly undertook liability for the debt. The first defendant renewed his liability under the promissory note Ex. A-7 by excuting another promissory note Ex. A-8 within a period of three years and the suit was filed within three years thereafter. But there is no such acknowledgment of liability by the second defendant-respondent and the suit has been filed more than three years after the execution of the letters Exs. A-l to 3 and the creation of the equitable mortgage by deposit of title deeds. The suit claim is governed by the Limitation Act 9 of 1908. In the Full Bench decision in Ratnasabapathy Chettiar v. Devasigamony Pillai, 56 Mad LJ 10 = (AIR 1929 Mad 53) it has been held that where, upon a sale of the mortgaged property under a mortgage decree obtained in a suit on a registered mortgage deed, "there is a deficiency, the period of limitation to recover the same under a personal covenant in the said deed is six years under Article 116 of the Limitation Act of 1908. It is clear from the decision that all the High Courts have held that Article 116 of the Limitation Act governs suits to recover money on a personal covenant in a registered deed of mortgage. Article 115 of the Limitation Act of 1908 will apply to a similar suit where the instrument evidencing the covenant is not registered. We need not concern ourselves in this appeal with the corresponding Article 55 of the Limitation Act, 36 of 1963, which does not recognise any such distinction between contracts in writing registered and other contracts, and provides a uniform period of limitation in all cases. The equitable mortgage in the present suit is not evidenced by any registered document and an action on the personal covenant will be governed by Article 115 of the Limitation Act of 1908. This is clearly stated in the following passage at p. 1129 of Upendra Nath Mitra's Law of Limitation and Prescription, 'Seventh Edition, Volume II:--

"The question whether the applicant is entitled to a personal decree, the application itself being within time would depend upon among other things whether the claim for the personal remedy was barred at the date of the institution of the suit. If the suit is brought within six years (where the mortgage bond is registered) or within three years where the mortgage of less than one hundred rupees is effected by delivery of the property or otherwise, or where the mortgage is by deposit of title deeds alone, a personal decree may be passed for the balance on the basis of the covenant to pay, if it exists, though the application itself is made more than six years after the due date of payment." Thus even assuming that by the very act of the second defendant-respondent entering into the equitable mortgage along with the first defendant, there is an implied covenant to pay the debt, the claim against the second defendant-respondent is clearly barred as the suit was filed more than three years after the creation of the equitable mortgage and there was no acknowledgement or renewal of liability by the second defendant-respondent, unlike in the case of the first defendant. The learned Principal Subordinate Judge has erred in stating that "there is no question of any bar of limitation so far as the personal remedy is concerned as the suit was filed within six years from the date of the transaction." But his conclusion that the second defendant-respondent is not personally liable to pay the balance of the decree amount is correct.

6. The learned Principal Subordinate Judge has also dismissed the application of the appellants on the ground that the petitioners (appellants) cannot file a separate application one against the first defendant for a personal decree in I. A. No. 778 of 1959, and another application against the second defendant-respondent, after an unsuccessful attempt to implead the second defendant-respondent in the earlier application against the first defendant, by restoring it to file. It is true the plaint in the suit contains a prayer for a personal decree. But, as held in Govindaswami Koundan v. Kandaswami Koundan, 53 Mad LJ 489 = (AIR 1927 Mad 779) the Court could not on account of the said circumstance be deemed to have adjudicated upon the question of the personal decree. It is pointed out in the decision that on principle it would ordinarily be impossible for a Court to make any adjudication about personal liability in the preliminary decree and the preliminary judgment on the matter and that It would depend upon whether the mortgagor paid the amount within the time allowed; if he did not, whether when the property was brought to sale, the proceeds were or were not sufficient to discharge the mortgage debt.

In the Full Bench decision in Palaniappa Chettiar v. Narayanan Chettiar, ILR 59. Mad 188 = (AIR 1936 Mad 34) It is pointed out that it is after ascertainment of the deficiemcy arising on the sale of the mortgaged properties, the Court under Order 34, Rule 6, Civil P. C. takes up this portion of the plaint claim, tries the question whether the balance is legally recoverable "otherwise than out of the property sold" and passes a personal decree and that whether it is called a 'supplemental' decree or by any other name, this is the only decree on this part of the claim in the plaint The actual decision in that case is that so long as a decree has not been passed under Order 34, Rule 6, of the Code of Civil Procedure, it is open to the Court under Order 23, Rule 3 of the Code to deal with any arrangement alleged to have been entered into between the parties in respect of the claim of the mortgagee to recover the balance due to him from the defendant otherwise than out of the property sold or to be sold under the decree for sale.

It is clear from a (this) decision that It makes no difference for this purpose whether or not liberty is reserved to the mortgagee in the preliminary or final decree for sale to make an application under Order 34, Rule 6, Civil P. C. It was urged in that case that the application under Order 34, Rule 6, Civil P. C. must be deemed to be one in execution in so far as it is made in pursuance of liberty reserved in the preliminary decree. But it has been pointed out in the decision that this contention rests on a misapprehension as to the effect of the liberty clause in the preliminary decree. In A. K. R. P. L. A. Chettiyar Firm v. Meher Singh, AIR 1930 Rang 257 it has been held that an application for'a personal decree against a mortgagor where the sale proceeds of the mortgaged properties are insufficient to satisfy the decree is not an application in execution proceedings, but is an application for a decree and that where such application is dismissed for default, a fresh application is barred under Order 9, Rule 9, Civil P. C. and that the proper remedy of the decree-holder is to set aside the order dismissing the application for default.

7. Mr. Kesava Iyengar tried to support the finding of the lower Court that the present application against the second defendant-respondent for the passing of a personal decree is barred by reason of the earlier application against the first defendant, both on principles of res judicata, and the provisions contained in Order 2, Rule 2, Civil P. C. Order 2, Rule 2, Civil P. C. is hardly relevant to the present case as it relates to splitting up of the cause of action. In Phani Bhusan v. Rajendra Nandan, AIR 1947 Cal 11, it is pointed out that the object of Order 2, Rule 2, Civil P. C. is to prevent the splitting up of the same cause of action and to prevent the same person or persons being vexed twice and that to make the rule applicable two things are essential; first that the previous and the subsequent suits must arise out of the same cause of action and secondly they must be between the same parties. The decision in that case elucidates principles which are applicable to the present case. The plaintiff's predecessor in that case had brought a suit against the first defendant claiming rent due for one year, although at the date of the suit the rent for the two subsequent years had already become due.

Subsequently, he filed another suit for the recovery of rent for the two subsequent years not only against the first defendant, but also against the second defendant, who was also jointly liable for that payment of the rent It was held in the decision that so far as the first defendant was concerned, Order 2, Rule 2, Civil P. C. operated as a complete bar to the subsequent suit, but so far as the second defendant was concerned, Order 2, Rule 2 was not directly applicable. It was held that, assuming that the liability of the two defendants was a joint and not a joint and several liability, the principle in King v. Hoare, (1844) 13 M & W 494 could not be invoked having regard to the provisions of Section 43 of the Contract Act. The conflicting decisions of the several High Courts have been discussed in this decision.

A reference Is made to the leading decision in Muhammad Askar v. Radhe Ram Singh, (1900) ILR 22 All 307 where Strachey, C. J., has held that the effect of Section 43 of the Indian Contract Act, being to exclude the right of a joint contractor to he sued along with his co-con-tractors, the rule laid down in (1844) 13 M & W 494 is no longer applicable to cases arising in India. Pollock and Mulla in their commentary on the Indian Contract Act, Eighth Edition, at page 310, have referred to the conflicting views and observed that they think it the better opinion "that the enactment (Section 43 of the Conract Act) should be carried out to its natural consequences, and that, notwithstanding the English authorities founded on a different substantive rule, such a judgment, remaining unsatisfied, ought not, in India, to be held a bar to a subsequent action against the other promisor or promisors." It has been observed in the decision in Phani Bhusan v. Rajendra Nandan, AIR 1947 Cal 11 at p. 13 that in view of the conflict of decisions the matter can be solved so far as the Calcutta High Court is concerned only by the pronouncement of a larger Bench.

Even in Pollock and Mulla Indian Contract, Eighth Edition, at page 311, it is stated that the reasoning of Strachey C. J., seems to be conclusive; but until it has been adopted generally by the other High Courts, or confirmed by the Supreme Court, the point must be regarded as open. But it is pointed out in the same context that the Madras High Court, in later cases, seems inclined to adopt the opinion expressed in the first paragraph of the commentary of the section, namely, that notwithstanding the English authorities, founded on a different substantive rule, the judgment obtained against some or one of the joint promisors remaining unsatisfied, ought not, in India, to be held a bar to a subsequent action against the other, promisor or promisors.

8. It is sufficient to refer to some of the latter decisions of our own High Court, as to whether the rule laid down in (1844) 13 M & W 494 could be invoked in India having regard to the provisions of Section 43 of the Contract Act. In Ramanjulu Naidu v. Aravamudhu Aiyangar, (1910) ILR 33 Mad 317, it has been held that the omission in a previous suit against one of several joint promisors of a part of the cause of action is no bar under Section 43 of the Indian Contract Act [Civil Procedure Code Ed. ?] to a subsequent suit against another joint promisor for the portion so omitted, and that the sub-, sequent suit will not be barred by the rule laid down in (1844) 13 M & W 494, as that rule is based on the merger of the cause of action in the judgment and there can be no such merger when the cause of action has not been sued upon. The earlier decisions of this Court relied on by the learned Advocate for the respondent have all been referred to and considered in this decision. In Mool Chand v. Alwar Chetty, ILR 39 Mad 548 = (AIR 1915 Mad 934) it has been held that the rule of English law should not be applied in India, as it is based on the substantive rule applicable to contractual joint-debtors, which is different under Section 44 of the Indian Contract Act, and is not in consonance with justice, equity and good conscience. Section 43 of the Indian Contract Act makes the liability on all contracts joint and several, and enables the promisee to sue one or more of the several-joint promisors as he chooses, and excludes the right of any of them to be sued along with his co-promisors.

A decree obtained against some only of the joint promisors and remaining unsatisfied, is no bar to a second suit on the contract against the other joint contractors, It follows that the present application I. A. No. 673 of 1960 for a personal decree against the second defendant-respondent cannot be said to be barred by reason of the prior application, I. A. No. 778 of 1959, against the first defendant for the passing of personal decree, so long as the liability of the defendants remains undischarged,

9. For the foregoing reasons, we confirm the decree and order of the lower Court, though on different grounds, and having regard to the fact that both the parties failed in some of their contentions we direct the parties to bear their respective costs.


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