Skip to content


E.V. Ganapathi Iyer and anr. Vs. V. Venugopal (Died) and Five ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Reported in(1980)1MLJ411
AppellantE.V. Ganapathi Iyer and anr.
RespondentV. Venugopal (Died) and Five ors.
Cases ReferredPeriamanna Marakayar & Sons v. Banians
Excerpt:
- s. ratnavel pandian, j.1. these two appeals arise out of a common judgment rendered by the iii assistant judge, city civil court, madras, in o.s. nos. 6422 and 6423 of 1968.2. a.s. no. 95 of 1973 : the plaintiff in o.s. no. 6422 of 1968 has directed this appeal against the judgment and decree passed in the said suit by the learned trial judge dismissing his claim against defendants 1 and 2 therein though it was decreed as against the third defendant.3. the plaintiff-appellant filed the suit for recovery of a sum of its. 17,350 with costs against defendants 1 to 3 jointly and severally, on the following allegations: the plaintiff and the first defendant along with others promoted a company under the name and style of general meters and measurements private limited at madras, which was.....
Judgment:

S. Ratnavel Pandian, J.

1. These two appeals arise out of a common judgment rendered by the III Assistant Judge, City Civil Court, Madras, in O.S. Nos. 6422 and 6423 of 1968.

2. A.S. No. 95 of 1973 : The plaintiff in O.S. No. 6422 of 1968 has directed this appeal against the judgment and decree passed in the said suit by the learned trial Judge dismissing his claim against defendants 1 and 2 therein though it was decreed as against the third defendant.

3. The plaintiff-appellant filed the suit for recovery of a sum of Its. 17,350 with costs against defendants 1 to 3 jointly and severally, on the following allegations: The plaintiff and the first defendant along with others promoted a company under the name and style of General Meters and Measurements Private Limited at Madras, which was incorporated, on 12th September, 1961, which was later converted into a public company on 7th October, 1963 by changing its name as General Meters and Measurements Limited, with the plaintiff and the first defendant as Managing Directors of the said Company (hereinafter referred to as the suit company). The suit company has been impleaded as the third defendant in the suit. During the pendency of the suit, the suit company (third defendant) went into liquidation and is therefore represented by the Official Liquidator, High Court, Madras. All necessary arrangements and actions requisite for the commencement of manufacturing and production were successfully concluded by the plaintiff under the directions of the Board of Directors of the Company. It was agreed, between the parties that the first defendant, in addition to the shareholding interest of himself and the members of the families of himself and his brother, would render assistance in procuring enough and sufficient capital for the running of the suit company on behalf of himself and the said family members. Except giving false assurances and hopes in this respect, the first defendant did not at all actively co-operate in the matter of procuring financial resources; but on the other hand, he created financial deadlock for the company. In these circumstances, the plaintiff was necessitated to make arrangements with some other financial corporations such as the Industrial Finance Corporation of India etc., for securing financial assistance to supplement the accepted additional share contributions of the Directors. By these and other banking arrangements, adequate funds for the operations of the suit company had been ensured. But, as the first defendant, as a Managing Director, did not co-operate with the plaintiff, the plaintiff was unable to proceed further in the matter and the running of the company came to a stalemate. This made the plaintiff to request the second defendant to join as a Director of the suit company and the second defendant joined the Board of Directors on 30th November, 1963. Even after his joining it and his undertaking to promote its working, there was no improvement. Thereafter, it was agreed and decided among the parties that instead of two Managing Directors, there should be only one Managing Director and the plaintiff should be permitted to retire as a Managing Director and he should also transfer the entire shareholdings of himself and his family members and sever all his interests in the suit company and the other persons brought as the Directors. In accordance with the decision, an agreement Exhibit A-13 was entered into on 13th November, 1965 in the presence of the plaintiff, defendants 1 and 2 and Messrs. AV. Raghavachar, V. Prasannakumar, K. Narasimhamurthy (P.W. 3 in this suit and the plaintiff in O.S. No. 6423 of 1968), V. Mohan Rao and E. Lobo (a retired District Judge, examined as P.W. 1 in this, suit), in and by which it was agreed that there should be only one Managing Director in the place of two, that the plaintiff be permitted to retire from his duties as a Managing Director with effect from the date of relief immediately on payment of all amounts due to him upto date as per the account of the company and also a compensation of three months' minimum remuneration for his retirement, that the principal distributorship arrangements with Messrs. Ganapathi Transport Associates Pvt., Ltd., Bangalore, be terminated on payment of Rs. 1,700 being the expenses incurred by the firm upto date in respect of its work till the date of the agreement, that the offer of shareholding of Mr. and Mrs. Ganapathi Iyer (Plaintiff herein and his wife and Mr. and Mrs. K. Narasimhamurthy (P.W. 3 and his wife) at 60% face value be accepted and payment made thereof in pursuance of the same by transfer to the incoming directors as expeditiously as possible and be arranged on the responsibility of defendants 1 and 2, that all the dues payable to P.W. 3 including the salary arrears upto the date of his relief and several other amounts on the matter to be represented by him for consideration and sanction shall be paid to him immediately and that he too be permitted to relinquish his appointment as the Administrative Officer, that the implementation of these conditions shall be ensured by defendants 1 and 2 and that on the transfer of the plaintiff's shares immediately to defendants 1 and 2, the plaintiff should be permitted to resign as a Director and defendants 1 and 2 should ensure payment of the consideration from the incoming directors as mentioned above. In accordance with the above terms of the agreement, the plaintiff communicated to the first defendant under Exhibit A-5, letter dated 15th November, 1965 his readiness and willingness to resign his post of Managing Director and Director and sever all his interests in the suit company with immediate effect, and requested the first defendant to pay up the sum of Rs. 23,371.86 being the amount due to him. The plaintiff was willing to have the sum of Rs. 2,500, claimed by the company towards his additional share contribution, set-off and adjusted from and out of the above said some due to him, thus leaving a balance of Rs. 20,871.86 as due to him. The plaintiff has further averred that while he was in charge of the company as Managing Director, he had incurred expenditure in respect of the company from and out of his pocket, which amount has to be reimbursed to him. But, the defendants, instead of making arrangements to pay off the amount due to him, are trying to have the company liquidated in order to cause loss to the plaintiff. (Pending suit, as stated supra, the suit company has been liquidated). Defendants 1 and 2 have thus failed to implement the terms of the agreement despite repeated demands and letters. Though the plaintiff is entitled to a sum of Rs. 20,871.86 as per the statement of accounts, he has restricted his claim to a sum of Rs. 17,350. The plaintiff has claimed this amount from defendants 1 and 2 along with the suit company (third defendant) jointly and severally. Hence the suit.

4. The first defendant has filed a written statement raising the following contentions: The plaintiff was one of the directors of the suit company, and all steps for securing the necessary sanctions etc., in connection with the promotion of the company were taken by the company only through its Board of Directors and not by the plaintiff alone as claimed by him. This defendant denies that there was any agreement between the parties, in and by which the first defendant would procure sufficient capital for establishing the said project or that he or the members of his family would participate in the share capital. As the suit company was a public limited company, it was decided that sufficient capital for its promotion should be raised in the usual manner by making a public issue of capital and securing assistance from financial institutions and corporations. In fact, the first defendant and his family members have taken shares of the value of about one lakh of rupees, which amount stands to be lost to them in case of the company being wound up. It is false to say that this defendant promised to render financial assistance or that he created any deadlock in the working of the company. Since all the applications to various institutions seeking financial assistance were processed from time to time only by the company through its Board of Directors, it is false to say that it was the plaintiff who made all arrangements or that this defendant did not co-operate with him in the matter. In fact, the plaintiff got himself appointed as a Managing Director and withdrew substantial amounts towards his remuneration even before the company commenced production and it was only out of such withdrawals he has made his shareholdings, in the suit company. He emphatically denies that the agreement Exhibit A-13 creates any personal liability either on this defendant or on the second defendant to pay any amount claimed as payable by the suit company to the plaintiff or his son-in-law P.W. 3 whom the plaintiff appointed as an Administrative Officer in the suit company on a substantial salary even before the company went into production, or towards any outstandings of the company as claimed by the plaintiff. According to this defendant, Exhibit A-13 was subject to the condition that the endeavour should be to secure a financier to take over the shareholdings of the plaintiff and P.W. 3 so that the suit company might be in a position to meet its obligations. Therefore, the plaintiff has no cause of action against this defendant or the second defendant for the recovery of any amount alleged to be due to him from the suit company. The allegation in the plaint that the plaintiff incurred expenses out of his pocket for and on behalf of the suit company for its benefit is denied. In any event, if there is any such claim, the plaintiff has to work out his remedy against the suit company alone and not against defendants 1 and 2. Since a creditor of the suit company has presented a petition for winding up the suit company before the High Court, this defendant prays that further proceedings in the suit be stayed pending disposal of the said petition. This defendant denies that either he or the second defendant had at any time agreed to reimburse to the plaintiff the amount said to be due to him by the suit company. He reiterates that both defendants 1 and 2 never undertook any personal liability under Exhibit, A-13, which position would be made clear from the correspondence exchanged between the parties. The suit claim is barred by limitation and is liable to be dismissed on that ground also.

5. The second defendant has filed a separate written statement raising the same contentions as those raised by the first defendant, thereby denying the liability of himself and of the first defendant towards the suit claim, and adding that the suit is also barred by limitation.

6. The third defendant, through its director A.V. Raghavachar, has filed a written statement inter alia contending that the plaintiff never incurred any expenditure in promoting the company affairs from and out of his pocket and denying that the company is bound to reimburse to the plaintiff the amount claimed in that behalf. This defendant states that the amount of Rs. 20,871.86 claimed in the plaint is incorrect and that it does not represent the amount due to the plaintiff from the suit company. Because of the filing of the petition under the Companies Act, to wind up the company, by a creditor, the suit has to be stayed and the plaintiff, being an unsecured creditor, has to wait for the result of the said petition and in the event of winding up, the plaintiff has to prove his claim before the Liquidator. This defendant also denies the plaint allegation about the so called arrangement between the plaintiff and the other defendants. This defendant prays that the suit be dismissed with costs.

7. After the suit company (third defendant) went into liquidation, the third defendant, represented by the Official Liquidator, has filed a memo. adopting the written statements filed by the erstwhile third defendant company and defendants 1 and 2.

8. On the above pleadings, the following issues were framed for trial;

(1) Whether the plaintiff is entitled to any reimbursement under the agreement dated 13th November, 1965?

(2) Whether the plaintiff is entitled to any personal remedy against the several defendants?

(3) Whether there was any conditions precedent attached to the agreement and if so, what is the effect?

(4) Whether the plaintiff is entitled to the sum of Rs. 20.871.86 as set out in his accounts?

(5) To what amount is the plaintiff entitled?

(6) To what relief, if any, is the plaintiff entitled?

9. A.S. No. 507 of 1974: This appeal has been filed by the plaintiff in O.S. No. 6423 of 1968 viz., Sri Narasimhamurthy, P.W. 3 in O.S. No. 6422 of 1968, against the decree and judgment in the said suit O.S. No. 6423 of 1968 dismissing his claim as against defendants 1 and 2, though it was decreed as against the third defendant.

10. The plaintiff in this suit has been examined as P.W. 3 in O.S. No. 6422 of 1968. Defendants 1 to 3 in this suit are the same as defendants 1 to 3 in O.S. No. 6422 of 1968. As already stated while narrating the facts in the other suit, the plaintiff herein was appointed as the Administrative Officer of the suit company from its institution. His claim is that a sum of Rs. 9,883.22 as disclosed in the balance-sheet as on 31st March, 1967 is now due to him from the suit company for the services rendered by him, though in fact he is entitled to a larger sum. This plaintiff now relies upon the agreement Exhibit A-13 dated 13th November, 1965 to show that the defendants agreed to pay all dues payable to him inclusive of the arrears of his salary upto the date of his relief and such other amount on the matter to be represented by him for consideration and sanction. Relying on the terms of the agreement, he pleads that he should have been paid immediately all the amounts due to him and he must be permitted to relinquish his appointment as Administrative Officer and that it was agreed under Exhibit A-13 that defendants 1 and 2 should ensure that the amount agreed to be paid as per the agreement should be paid without any delay. In accordance with the said agreement, the plaintiff submitted his resignation as the Administrative Officer of the suit company and called upon the defendants to pay off the amount due to him. But, nothing has been paid despite several reminders. The plaintiff further states that defendants 1 and 2 are personally liable to pay the amount as they have agreed to implement the undertaking given under Exhibit A-13. Hence the suit for the recovery of the said amount.

11. The first defendant has filed a written statement denying the correctness of the amount alleged by the plaintiff to be due from the suit company (third defendant) and denying the other plaint allegation that this defendant agreed or accepted his personal liability to pay any amount to the plaintiff or any other person pursuant to the agreement. According to him, defendants 1 and 2 never undertook any personal liability for clearing the debts of the company under Exhibit A-13. He states that the said arrangement itself was subject to the condition precedent that endeavours should be made to secure a financier to take over the shareholdings of the plaintiff and his father-in-law (plaintiff in O.S. No. 6422 of 1968) so that the company might be in a position to meet its obligations. This defendant has promptly repudiated the claim of the plaintiff through notices and the plaintiff has instituted the suit only to harass defendants 1 and 2 and to coerce them to concede his untenable demand. In view of the winding up petition filed against the suit company by a creditor before the High Court, the suit should be stayed. There is no cause of action for the plaintiff against defendants 1 and 2 and the suit is also barred by limitation and as such liable to be dismissed.

12. The second defendant has filed a separate written statement raising the same contentions as those of the first defendant, and praying that the suit be dismissed with costs.

13. The third defendant (suit company), represented by its Director A.V. Raghavachar, resisted the suit claim in its separate written statement, denying the correctness of the amount of Rs. 9,883.22 alleged to be due to the plaintiff from the suit company in respect of services said to have been rendered by him and also denying that a larger sum is due to him. According to this defendant also, the suit has to be stayed consequent on the filing of the petition filed by a creditor of the suit company to wind up the company. The arrangement between the plaintiff and defendants 1 and 2, pleaded in the plaint, is also denied by this defendant. The suit claim is barred by limitation. Therefore the suit should be dismissed with costs.

14. The following issues were set for trial by the trial Court:

(1) Whether the plaintiff is entitled to the amount claimed in the suit?

(2) Whether the defendant agreed on 13th November, 1965 to pay the amount to the plaintiff?

(3) Whether defendants 1 and 2 are personally liable to pay the amount to the plaintiff?

(4) Whether the plaintiff is entitled to enforce the agreement against defendants 1 and 2?

(5) Whether the enforceability of the agreement depends upon the condition precedent mentioned in the written statement?

(6) Whether the suit is barred by limitation?

(7) To what relief is the plaintiff entitled?

Defendants 1 to 3 in both the suits are the same and the claims of the plaintiffs in both the suits are based on the same agreement Exhibit A-13 entered into among the plaintiffs and defendants 1 and 2. In other words, the cause of action for both the suits is common. Therefore, the trial Court has tried both the suits together and the evidence in respect of both the suits was recorded in O.S. No. 6422 of 1968 by consent of parties and a common judgment was rendered. On the side of the plaintiffs, three witnesses were examined, of whom P.Ws. 2 and 3 are the plaintiffs in both the suits and Exhibits A-l to A-16 were marked. On the side of the defendants, the first defendant examined himself as D.W. 1. and Exhibits B-1 to B-4 were marked.

15. The trial Court, on a consideration of the entire documentary and oral evidence, found that the plaintiffs in both the suits were entitled to the amounts, claimed in their respective suits only as against the third defendant, but that defendants 1 and 2 are not personally liable to pay the amounts due to the plaintiffs in both the suits by the suit company under Exhibit A-13, since they did not agree to do so. It also found in both the suits that defendants 1 and 2 were not personally liable and that the plaintiffs were not entitled to enforce the agreement against defendants 1 and 2 and the enforceability of the agreement depended upon the condition precedent that new directors should come into the company with fresh advances. The Court found that the plaintiff in O.S. No. 6422 of 1968 was entitled to the sum of Rs. 20,871.86 as shown in the statement of accounts; but since he has restricted his claim to Rs. 17,350 he is entitled to that sum. Under issue-6 in O.S. No. 6423 of 1968, it was held that the suit is not barred by limitation. Accordingly both the suits were decreed only as against the third defendant for the amounts claimed in the respective suits, with costs, but the suits as against defendants 1 and 2 were dismissed with costs.

16. Though the defendants have pleaded in O.S. No. 6422 of 1968 also that the suit is barred by limitation, no issue was framed in the said suit on that point and naturally no finding has been rendered by the trial Court on the question of limitation in that suit. But, since no argument has been advanced before me on the question of limitation in these appeals, I am not called upon to decide that point in this judgment.

17. Mr. M. Ramachandran, learned Counsel for the appellants in both the appeals, advanced a common argument that the trial Judge having found that Exhibit A-13 is valid and binding on defendants 1 and 2 has erred in not giving a personal decree against them on the ground that there is no pleading that they were guarantors. According to the learned Counsel, the above error has been committed by the learned trial Judge by overlooking the averments made in paragraph 5 of the plaint in O.S. No. 6422 of 1968 and in paragraphs 2 and 4 in the plaint in O.S. No. 6423 of 1968 and also the oral and documentary evidence let in on the side of the plaintiffs. He would further state that defendants 1 and 2 who were solvent and were key figures in the immediate implementation of the conditions stipulated in the agreement, had given personal guarantee in respect of the payment of the dues. He would mainly rely upon Clause 6 of Exhibit A-13 which shows that the immediate implementation of the conditions stipulated in the said document should be ensured by defendants 1 and 2. Harping upon the word 'ensured', he would say that both defendants 1 and 2 have expressly stood as guarantors or sureties and they are therefore jointly and severally liable to pay the amounts due to the plaintiffs as claimed by them in their respective suits. According to the learned Counsel, defendants 1 and 2 are even primarily liable for the payment of the amounts since they have ensured 'implementation' of the conditions in the agreement, viz., the payment of the amounts to the plaintiffs, etc. He would state that the finding of the Court below is erroneous and unjustified in giving a decree only as against the third defendant which has gone into liquidation and dismissing the claim of the plaintiffs in both the suits as against the guarantors viz., defendants 1 and 2.

18. The pivotal question over which the other issues revolve relates to the interpretation of the stipulations and conditions enumerated in Exhibit A-13 and the meaning to be assigned to the word 'ensured' used in this vital document. The preamble portion of this document reads that it came into existence as a result of a discussion among the plaintiffs, defendants 1 and 2 and Messrs. A.V. Raghavachar, V. Prasannakumar, V. Mohan Rao and Lobo (retired District Judge of Bangalore) on the question of revised management arrangements. Clause 2 of the agreement reads that after consideration of all circumstances, it was unanimously agreed and accepted that the proposed revised management arrangement be made for the conduct of the affairs of the company by having a single Managing Director in the place of the then prevailing and existing arrangement of having two Managing Directors and that the plaintiff in O.S. No. 6422 of 1968 be permitted to retire from his duties as Managing Director with effect from the date of relief immediately on payment of all amounts due to him on remuneration account and other items payable to him upto date as per the accounts of the company and a compensation of three months' minimum remuneration for his retirement. As per Clause 3, the principal distributorship arrangement with Messrs. Ganapathi Transport Associates Private Limited, Bangalore, be terminated on payment of Rs. 1,700 being the expenses incurred by the firm upto date in respect of its work. It was further agreed under Clause 4 that the offer of shareholdings of both the plaintiffs in the suits and their wives be accepted at 60 per cent face value and payment made therefor in pursuance of the same by transfer to the incoming Directors as expeditiously as possible to be arranged on the responsibility of defendants 1 and 2, and that this agreement shall be accepted as an arrangement for promoting and fostering goodwill and satisfaction.

19. As the conclusions in both the suits centre round the interpretation of the remaining clauses of the agreement, I would like to extract the same in extenso in order to have a proper appreciation of the contention of both parties.

5. In this connection, it was also agreed that all the dues payable to Mr. K. Narasimhamurthi including salary arrears upto date of relief and such other amount on the matter to be presented by him for consideration and sanction shall be paid immediately and he may he permitted to relinquish his appointment as Administrative Officer.

6. It was agreed that the immediate implementation of these conditions shall be ensured by Sri Venugopal and Sri M.D. Narayan.

7. On the transfer of his shares immediately to Sri Venugopal and Sri M.D. Narayan, Mr. Ganapathi Iyer will be permitted to resign as a Director and Sri Venugopal and Sri M.D. Narayan will ensure payment of the consideration from the incoming Directors as cited in paragraph 4 above.

The execution of the above document is not in dispute. The plaintiff in O.S. No. 6422 of 1968 would state that in accordance with the above arrangement he communicated to the first defendant on 15th November, 1965 under Exhibit A-1S, his readiness and willingness to resign his post of Managing Director and Director and to sever his interest in the company with immediate effect and required the first defendant to pay off the sum of Rs. 23,371.86 being the total amount due to him as per the agreement. He further states that he was willing to have the additional share contribution of Rs. 2,500 called upon by the company, set-off and adjusted from and out of the amount due to him. He claims reimbursement of the amount due to him which he had incurred in connection with the affairs of the company. He would charge the defendants with having failed to implement the conditions enumerated in Exhibit A-13 and thereby failed to discharge their primary liability to pay the amounts due to the plaintiffs. The plaintiff in O.S. No. 6423 of 1968 alleges that inspite of the fact that he submitted his resignation as Administrative Officer of the company in accordance with the terms of the agreement the defendants failed to implement the conditions as agreed upon and to pay the amount due to him despite several reminders. As against the claims of the plaintiffs, both the defendants would submit that the said arrangement was subject to a condition precedent viz., that the endeavour should be to secure a financier to take over the shareholdings of the plaintiffs and their family members, so that the company might be in a position to meet the obligations, and that they are not primarily liable or even liable jointly and severally in the capacity of guarantors or sureties along with the third defendant, to pay the outstandings of the company as claimed by the plaintiffs. Learned counsel for the appellants submits, resisting the defence of the defendants, that but for the guarantee given by defendants 1 and 2, the plaintiffs would have straightaway sued the company for recovery of the amounts due to them and there would not have been any necessity for the parties concerned to hold the meeting and bring about the agreement. Learned counsel very strenuously attacks the following finding of the Court below in paragraph 22 of its judgment:

In the plaint in both the cases there is no pleading that Exhibits D-l and D-2 were guarantors and if they were sureties such a plea ought to have been raised. Only if it is done, there cannot be any liability. (Sic; apparently the words 'there cannot be have been used in the place of the words 'there can be'). The evidence only introduces the alleged guarantee given by Exhibits P-l and D-2,

It is submitted that the above finding is totally and absolutely incorrect as the plaintiff Ganapathi Iyer has specifically averred in paragraph 5 of his plaint that both the defendants were jointly and severally liable to reimburse to the plaintiff the amount due to him. Similarly, our attention was drawn to paragraph 4 of the plaint filed by Mr. Narasimhamurthi, wherein his averment reads:

The plaintiff further states that defendants 1 and 2 are personally liable to pay the amounts as they have agreed to implement the undertaking given on 13th November, 1965.

Exhibit A-13 does not speak of any reimbursement in respect of specific items of expenditure, if any incurred by Ganapathi Iyer; but in general terms it states that Ganapathi Iyer be permitted to retire 'on payment of all amounts due to him on a remuneration account and other items payable to him upto date as per the accounts of the company and compensation of three months' minimum remuneration for his retirement'. There cannot be any dispute that Ganapathi Iyer in his plaint has not pleaded in express terms that defendants 1 and 2 undertook to be guarantors or sureties for the payment of the amounts to him. The allegation in the plaint is that defendants 1 and 2 agreed 'to reimburse' to the plaintiff the amount due to him. The contention of Mr. Ramachandran is that the fact that defendants 1 and 2 agreed to reimburse the amount payable to Ganapathi Iyer would be sufficient to go to show that defendants 1 and 2 have guaranteed the said payment. Mr. Raghavan submits that the words 'to reimburse' are not at all employed in the agreement Exhibit A-13 and therefore the request of the plaintiff to spell out from these words a guarantee by defendants 1 and 2 is baseless and extraneous to the specific stipulations contained in the agreement and that even the words 'to reimburse' used in the plaint do not at all create a guarantee. Similarly, according to him, Mr. Narasimhamurthy has also not pleaded in his plaint in clear and express terms that defendants 1 and 2 agreed to stand as guarantors for the payment of the money due to him though he has pleaded that both the defendants are personally liable to pay the amount, and hence, according to the counsel for the respondents, the finding of the Court below that in both the cases the plaintiffs have not pleaded that defendants 1 and 2 were guarantors cannot be assailed:

20. Apparently, the word 'reimbursement' is not at all used in Exhibit A-13 and the present contention of the learned Counsel for the appellants that the pleadings in both the cases are sufficient in spell out that defendants 1 and 2 have stood as guaranteors for the payment of the amounts due to the plaintiffs despite the fact that the word 'guarantee' or 'surety' is not used in the agreement, in my view, is not sustainable and no legitimate attack can be made against the above observation of the Court below that there is no express and specific pleading. Leaving apart the above observation, we have to examine and scrutinize Exhibit A-l3 and see whether defendants 1 and 2 really agreed to be guarantors for the payments due to both the plaintiffs by the suit company, though in the said document there is a clause that the immediate implementation of the conditions in the agreement shall be ensured by defendants 1 and 2.

21. The first correspondence which refers to Exhibit A-13 is a letter under the original of Exhibit B-3, dated 27th November, 1965 from Ganapathi Iyer (P.W. 2) to the Chairman and Board of Directors of the suit (third defendant) company, with copies to defendants 1 and 2, Narasimhamurthy and Ors. In this letter Ganapathi Iyer has neither referred to the agreement as a deed of guarantee by defendants 1 and 2, nor characterized them as guarantors or sureties. On the other hand, the last sentence in this letter reads:

even as regards these (referred to the dues payable to Narasimhamurthy on items other than his salary), their consideration and sanction were delegated to two directors Mr. V. Venugopal and Mr. M.D. Narayan (defendants 1 and 2) to be dealt with as expeditiously as possible.

This clearly makes out that the parties intended by the impugned agreement only to delegate the consideration and sanction of the terms thereof to defendants 1 and 2, so that they, as directors of the suit company, could take immediate steps for their implementation, but nothing more. It seems that the first defendant, by his letter Exhibit A-l, dated 7th January, 1976 to the Chairman (Ganapathi Iyer) and the Board of Directors of the suit company, requested for an early discussion about the payment of the dues payable to Narasimhamurthy as the latter was in urgent need of money. This shows that the first defendant as a director was taking genuine and honest efforts to implement the terms of the agreement.

22. The next correspondence is Exhibit B-2, which is a letter written by Ganapathy Iyer (P.W. 2) to the first defendant Venugopal, with copies to all the directors, Mohan Rao and Narasimhamurthy, with reference to Narasimhamurthy's salary, in reply to Exhibit A-l. The relevant portion of this letter reads thus:

Having executed the agreement and undertaken the liability solemnly to pay the salary arrears due to Mr. Narasimhamurthy on behalf of the company before the end of November, 1965 neither the directors nor the company nor the parties concerned can permit you to avoid your liability under the agreement. Though you have delayed so long, it is your responsibility to implement its terms forthwith and advise the directors of the same for their needful action. The question needs therefore to be considered first and immediately.

Even in this letter Ganapathi Iyer only states that the first defendant had undertaken the liability to pay the salary arrears due to Narasimhamurthy on behalf of the company and stood responsible for the implementation of the terms of the agreement. If the parties had understood that the first defendant had undertaken his liability as a guarantor to pay the salary arrears to Narasimhamurthy, then Ganapathi Iyer would not have requested him to advise the other directors of the suit company for the needful action for the implementation of the terms of the agreement forthwith, and stopped with that. If really the first defendant had stood as guarantors, Ganapathi Iyer would have mentioned that fact in this letter Exhibit B-2, by stating in unambiguous terms that on the suit company's failure to pay the dues to the plaintiffs, defendants 1 and 2 have to be looked upon as guarantors. The first defendant wrote a letter Exhibit B-l, in reply to Exhibit B-3 and Exhibit A-l, repudiating the claim of Ganapathi Iyer holding the first defendant personally liable under Exhibit A-13 for the implementation of the terms and conditions thereof. According to the first defendant, as mentioned in this letter, the whole arrangement has to depend upon defendants 1 and 2 being able to find persons willing to join the Board and take over the plaintiffs' shareholdings that is to say, that the implementation of the conditions of Exhibit A-13 was subject to the condition precedent, viz., third parties joining the Board as directors and taking over the shareholdings of the plaintiffs and their family members so that the company may be in a position to meet its obligations. The first defendant would further state that the said agreement was only by way of a tentative arrangement to which the company was not a party, that he is no more a director of the company as he has resigned therefrom, that Ganapathi Iyer still continued to be a Managing Director and that therefore, in view of the changed circumstances, Exhibit A-13 has to be reviewed at the meeting of the parties to the agreement and not at a meeting of the Board of Directors of the third defendant company.

23. The next correspondence is Exhibit A-14 dated 28th January, 1966, wherein Ganapathi Iyer has requested both defendants 1 and 2 to pay off the amount due to him as per the agreement before the next meeting of the Board to be held at Bangalore, as defendants 1 and 2 had ensured the implementation of the terms of Exhibit A-13. The first defendant, under Exhibit A-3, dated 12th April, 1966, wrote to Narasimhamurthy (P.W. 3) intimating that he has to take up with the company for receiving his payments as it is concerned only with the company and not individually himself. To his letter P.W. 3 replied as per Exhibit A-4, dated 21st April, 1966 stating that defendants 1 and 2 undertook their responsibility for the immediate payment of his dues by ensuring such immediate payment.

24. Thus, a plain reading of the agreement and the subsequent correspondence exchanged between the parties would make it clear that it was agreed that the third defendant company should pay the amounts due to both the plaintiffs and that defendants 1 and 2 should ensure the due implementation and fulfilment of the conditions stipulated in the agreement and for the payment of the amounts to both the plaintiffs. Therefore, as I have indicated above, the whole discussion has to revolve only on in the interpretation of the words 'ensure'.

25. This term 'ensure' appears in this document both in Clauses 6 and 7. According to the learned Counsel for the appellants, the word 'ensure' should be given its legal meaning viz., 'guarantee' and construed as such and it should be held that both defendants 1 and 2 undertook their liabilities under the agreement as guarantors for the proper implementation of the condition stipulated under Exhibit A-13. Resisting the above argument, Mr. Raghavan would vehemently urge that the Court should attribute to the word a meaning which is given to it in the ordinary parlance as the parties should have intended at the time of their executing the document and it is not permissible for the Court to import any legal implication to the word, which is not warranted by the language used by the parties in the document. In this case, the counsel would say that the parties should have, at the time of Exhibit A-13, intended defendants 1 and 2 only to make sure that the conditions are fulfilled and nothing more. We have therefore, to see the etymological meaning given to the word 'ensure'. In the Shorter Oxford English Dictionary, III Edition, at page 615, its meaning is given as follows:

Ensure 1. To convince; 2. to pledge one's credit to; 3. to warrant, to guarantee; 4. to betroth; 5. to secure, to make safe; 6. to insure; 7. to make certain.

The Supreme Court, in Ram Gopal v. Nand Lal and Ors. : [1950]1SCR766 , has stated the position of law with regard to construction of documents, thus:

In construing a document, whether in English or in vernacular, the fundamental rule is to ascertain the intention from the words used; the surrounding circumstances are to be considered, but that is only for the purpose of finding out the intended meaning of the words which have actually been employed.

See also Abdulla Ahmed v. Animendra Kissen Mitter : [1950]1SCR30 and Chinnathayi alias Veeralakshmi v. Kulasekara Pandia Naicker and Anr. : [1952]1SCR241 Reference can also be made to the observations of the Supreme Court made in Pandit Chunchunjha v. Sheikh Ebadat Ali and Anr. : [1955]1SCR174 , while interpreting the construction to be given to the terms of a document. Their Lordships have pointed out therein that the intention of the parties is the determining factor but the intention must be gathered from the document itself which has to be construed to find out the legal effect of the word used by the parties. If the words are express and clear, effect must be given to them and any extraneous enquiry into what was thought or intended is ruled out. If, however, there is ambiguity in the language employed, then it is permissible to look into the surrounding circumstances to determine what was intended and each case has to be decided on its own facts and each document has to be construed on its own terms.

26. A Division Bench of this Court, to which I was a party, in Khivaraj Chordia and Ors. v. Esso Standard Eastern Inco : AIR1975Mad374 , while examining the principle to be followed in interpreting documents, has held that notwithstanding the restrictions and qualifications imposed by operation of technical rules, a liberal construction of written documents is to be made, because of the simplicity of the laity, and with a view to carry out the intention of the parties, and uphold the document and that the words used in written instruments ought to be made subservient, not contrary to the intention of the parties.

27. In Halsbury's Laws of England, IV Edition, Volume 12, page 592, paragraph 1459, under the heading 'Interpretation of Deeds', it is said thus:

Object of all interpretations of a written instrument is to discover the real intention of the author, the written declaration of whose mind it is always considered to be. Consequently, the construction must be as near to the minds and apparent intention of the parties as is possible, and as the law will permit.

Paragraph 1463 runs as follows:

The words of a written instrument must in general be taken in their ordinary sense notwithstanding the fact that such a construction may appear not to carry out the purpose which it might otherwise be supposed the parties intended to carry out....

In paragraph 1471 at page 604 it is stated thus:

If the intention of the parties can be ascertained from the written instrument, the Court will give effect to that intention notwithstanding ambiguities in the words used or defects in the operation of the instrument. This is expressed by the maxim that instruments should be construed (or, verba ita sunt intelligenda), ut res magis valeat quam pereat, or by the wholly English paraphrase: 'A deed shall never be void where the words may be applied to any intent to make it good'... In order to give effect to a contract according to what appears to have been the intention of the parties, the Court will in certain cases imply a term or condition or a qualification of a clause which is not inconsistent with the general tenor of the document, but where the intention of the parties is not sufficiently clear the Court will not make a contract for them in order to prevent the whole agreement from being void on the ground of uncertainty or otherwise.

The Supreme Court in Central Bank of India v. Hartford Fire Insurance Co. : AIR1965SC1288 , has pointed out that the Court must give effect to the plain meaning of the word, however it may dislike the result, and that the plain and categorical language used in any document cannot be radically changed by relying upon the surrounding circumstances.

28. Thus, it is clear that the intention of the parties has to be gathered and ascertained only from the language used in the instrument, as understood in its plain, ordinary and popular sense, and if the words are express, clear and unambiguous, effect should be given to them without subjecting them to any extraneous enquiry. As per the definition given in Corpus Juris Secundum, Volume XLVI, the word 'intention', in legal contemplation, means the purpose or design with which a wilful act is done, characterizing the act. With reference to a written instrument, it signifies the meaning of the words used; the legal intention deducible from the language of the contract and acts of parties.

29. In Ex parte Chick, In re Meredith (1879) 11 Ch. D 731, Brett, L.J., following the rule of construction laid down in earlier cases, has pointed out that in construing instruments one must have regard, not to the presumed intention of the parties, but to the meaning of the words which they have used.

30. Now, let us examine the present document Exhibit A-13 in the light of the above principles and see whether the language used in the document Exhibit A-13 in any way shows that defendants 1 and 2 stood as guarantors for the payment of the amounts to the plaintiffs. We have to keep in mind that the parties to this action were drafting not any statute but only a commercial document. If really the parties wanted defendants 1 and 2 to guarantee the payments, nothing prevented them from straightaway using the commonly used legal word 'guarantee' instead of using this common word 'ensure'. The person who has drafted the original of this document and who was also one of the participants in the discussion, is one Sri E. Lobo, who is a retired District, Judge. Needless to say that a retired District Judge is ordinarily expected to know the implication of the words 'ensure' and 'guarantee'. Therefore, when the author of the document has carefully used the word 'ensure' in two places of the document, we have to presume that the parties did not intend defendants 1 and 2 to be the guarantors of the payments. Fortunately, Mr. Lobo has been examined on commission on the side of the plaintiffs. He has deposed that he is a barrister-at-law, a retired District Judge of composite Madras State, and that he knows the second defendant (in both suits). On seeing the copy of the agreement viz., Exhibit A-13, he testifies that the original of this document was executed at Victoria Hotel, Egmore, by the parties mentioned therein inclusive of himself and that he presumes that except himself, Narasimhamurthy and Mohan Rao, the rest of the persons who attended the discussion were the then Directors of the suit company, that he was taken for the discussion by the second defendant requesting him to assist him, that there was a fairly lengthy discussion which fruitioned in the agreement Exhibit A-13 unanimously arrived at to the full satisfaction of all the parties and that later on the same was reduced to writing and it was attested by him. He states that he does not remember the details of the discussion. When he was asked to see Clause 6 of the agreement and given answers, he has given the following answers:

8. I see Clause 6 of the agreement, the conditions which should be ensured by Mr. Venugopal and Mr. Narayan are recited in the document.

9. I cannot say what is the significance of mentioning only two directors viz., Mr. Venugopal and Mr. Narain in Clause 6 of the agreement, omitting the two other directors, viz., Mr. Raghavachar and Mr. Prasannakumar who were present there.

Barring the above answer, he would not say anything more. The plaintiffs, who examined this witness on their side, also did not go further and put any straight question as to whether defendants 1 and 2 specifically agreed to stand as sureties for the due payment of the amounts to the plaintiffs. De hors the evidence of P.Ws. 2 and 3, who are the plaintiffs in these suits P. Ws. 2 and 3 are very emphatic (hat defendants 1 and 2 gave personal guarantee as they wanted them to be such guarantors and the document was drafted in unambiguous terms only with such clear understanding. In my view, no weight could be attached to the self-serving testimony of these witnesses, which is highly tainted with interestedness, on the face of the language used in the document as a whole and the subsequent conduct of the parties in continuing to use the term 'ensure' in their correspondence referred to above till a dispute arose as to the liability of defendants 2 and 3, and also on the face of the evidence given by P.W. 1, a barrister who prepared the draft of the document. Contrary to the evidence of the plaintiffs, Venugopal as D.W. 1 would state that it was not agreed either by him or by the second defendant to pay the dues or give a guarantee on behalf of the company and that they drafted the document Exhibit A-13 only under a clear understanding that the incoming directors should finance the company and that both defendants 1 and 2 should implement the terms of the agreement with the help of the new directors. Even eschewing the evidence of P.Ws. 2 and 3 and D.W. 1, the evidence of P.W. 1, who is a disinterested party with high qualification and wide and rich experience in the legal field as a District Judge, himself does not speak of any discussion by and under which defendants 1 and 2 agreed to stand as guarantors for the fulfilment of the conditions and for the payment of the amounts due to both the plaintiffs as claimed in these two actions. As I have indicated earlier, the plaintiffs also have not pursued the matter any further and have not put any straight question to P.W. 1 as to whether there was any discussion among the parties, culminating in a decision that defendants 1 and 2 should stand as guarantors. At the risk of repetition, I may state here that the cardinal rule of construction of a word used in a document is to give it its ordinary, plain and natural meaning, with a view to carry out the intention of the parties. When the language is very clear and unambiguous, the word or term must be interpreted only in its ordinary and popular sense, unless there is a clear restriction in their intendment by the parties having shown their intention expressly or by necessary implication to give it such a restrictive meaning. In the present case, I do not see any indication that the parties, either expressly or by implication, intended to construe the word 'ensure' as a guarantee. On the other hand, a reading of the entire document Exhibit A-13, the subsequent conduct of the parties and all surrounding circumstances would go to show that the parties to the document used the said term only in a popular, common and colloquial sense, with the intention that the document should be so interpreted.

31. This view is supported by the construction given to the word 'ensured' in Reliance Permanent Building Society v. HarvooeStamper (1914) 1 Ch. 362. Therein, the case involved the consideration of Section 10 of the Building Societies Act, 1939 (of England) which provided that the building society shall 'take reasonable care to ensure that the price is the best price which can reasonably be obtained'. (The Italics is by this Court). Vaisey, J., while interpreting the word 'ensure' has held as follows:

The word 'ensure' has puzzled me a good deal. I think it is used in the common and colloquial sense in which 'making sure' is used, that is, as equivalent to ascertaining or satisfying one-self, and does not mean anything in the nature of warranty or guarantee.

Thus, it can be seen that even in statutes passed by Parliament, the word 'ensure' has been held to have been used only in its ordinary, common and colloquial sense. In this connection, it is significant to note that both the counsel are unable to point out that the word 'ensure' has anywhere been used in the sense of 'guarantee' in any standard text-book on the law of Contracts. From the above discussion, 1 unreservedly and unhesitatingly hold that the word 'ensure' has been used in Exhibit A-13 only in its ordinary, common, popular and colloquial sense, that is, in the sense that defendants 1 and 2 should make sure that the arrangement envisaged in the agreement Exhibit A-13, including the payment of the amounts due to both the plaintiffs after the induction of new directors into the Board, etc., be implemented by making all efforts on their part.

32. Merely because the word 'implement' is used it cannot also lead to the conclusion that defendants 1 and 2 undertook to be primarily liable to discharge the liabilities of the third defendant company to the plaintiffs.

33. Mr. Raghavan at this stage advanced an agreement that Exhibit A-13 cannot be said to be a contract of guarantee within the legal connotation as defined in Section 126 of the Indian Contract Act since the said section stipulates the existence of three parties to the contract viz., the creditor, the principal debtor and the guarantor or surety. As pointed out in Periamanna Marakayar & Sons v. Banians & Co. : AIR1926Mad544 , a contract of guarantee, unlike one of indemnity, requires the concurrence of three parties viz., the principal debtor, the creditor and the surety, and the surety should undertake the obligation at the request, express or implied, of the principal debtor. In the present case, it cannot be said that the agreement is a tripartite agreement. The plaintiff Ganapathi Iyer and defendants 1 and 2 are parties to the agreement, along with other directors. Thus, it can be taken that all the parties, on behalf of the suit company, have brought about this document fixing the liability of the suit company (third defendant) to the plaintiffs and in the very same defendants 1 and 2 have, as already mentioned, agreed to make it sure that the terms thereof are implemented. Defendants 1 and 2 have not stood as guarantors in the agreement undertaking their personal liability in case of default by the suit company.

34. The liability of the suit company (third defendant) under Exhibit A-13 is not questioned in this appeal. The third defendant company has not preferred any appeal against the judgment of the Court below holding the third defendant liable for payment of the amounts claimed by the plaintiffs.

35. For the above stated reasons, I am in full agreement with the conclusions arrived at by the Court below in both the suits and T accordingly confirm the common judgment and decrees passed by the trial Court and dismiss both the appeals. In the circumstances, T direct the parties to bear their respective costs in this appeal.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //