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Judgment
P.R. Shivakumar, J.—The plaint averments, in brief, are as follows:
The Plaintiff is a public limited company incorporated under the provisions of the Companies Act, 1956 having its registered office at No. 36-40,
Armenian Street, Chennai 600 001. Its principal office is at ""SPIC CENTRE"", No. 97, Mount Road, Guindy, Chennai-600 032. It is represented
by its Director and Secretary A. Santhanakrishnan. The first Defendant is the sole proprietrix of Sriya Enterprises having its place of business at
No. 937, Poonamallee High Road, Madras - 600 034. The second Defendant is the Chief Executive of M/s. Sriya Enterprises. M/s. Sriya
Enterprises is carrying on the business as manufacturers and exporters of steel products and it also acts as agent in procuring export orders,
organising manufacturing of products and completing export obligations. In connection with the export of stainless steel restaurant-ware products,
the Plaintiff had advanced amounts to the Defendants for the purpose of completing export obligations arising out of the orders obtained from
parties in United States of America. In respect of the said transactions, a sum of Rs. 27,63,694/-was left due and payable by the first Defendant.
When several demands were made through letters and fax messages and personal representations, Sriya Enterprises evaded payment by giving
false assurances and undertakings. By a letter dated 28.03.1997, the Defendants agreed to clear the outstanding by obtaining a Letter of Credit
from the buyer in favour of the Plaintiff on or before 31.07.1997. The Plaintiff, by a letter dated 02.04.1997, called upon the Defendants to pay
the above said outstanding sum of Rs. 27,63,694/-by issuing a cheque in favour of the Plaintiff. Accordingly, by a letter dated 28.07.1997, the
Defendants came forward to offer collateral security in respect of the outstanding amounts. By letters dated 10.10.1997 and 07.02.1998, the
Plaintiff asked the Defendants to forward the documents in respect of the collateral security proposed to be given. On 03.03.1998, the Defendants
issued a cheque for the above said amount and also deposited the title deeds of the immovable property belonging to the second Defendant
bearing Plot No. 1, situated at Nerkundram Village, Saidapet Taluk, Chengalpattu District morefully described in plaint schedule, with an intention
to create an equitable mortgage. The cheque dated 30.04.1998 drawn on the Punjab National Bank for a sum of Rs. 27,63,694/-and issued in
favour of the Plaintiff in respect of the above said outstanding was dishonoured on its presentation for encashment with an endorsement ""insufficient
funds"". Accordingly, the Plaintiff sent a notice dated 01.07.1998 informing the Defendants of the dishonour of the cheque. By a letter dated
31.07.1998, the Defendants requested further time of 60 days to clear the outstanding. As it was not done within the said period, the Plaintiff again
sent a notice dated 15.10.1998 through its counsel calling upon the Defendants to pay a sum of Rs. 27,63,694/-together with a sum of Rs.
21,23,673/-towards interest up to the date of notice and a further interest at the rate of 20% per annum. For the said notice an interim reply dated
18.11.1998 seeking time to send a proper reply through counsel was sent by the second Defendant. As the Defendants have failed to pay the
amount even after they were called upon to do so, the Plaintiff was constrained to approach the court by way of the present suit praying for a
decree directing the Defendants to jointly and severally to pay a sum of Rs. 48,87,367/-towards the total amount of principal and interest up to the
date of plaint, together with a further interest on the principal sum of Rs. 27,63,694/-from the date of plaint till the date of realisation @ 20% per
annum within a time to be fixed by the court and for a decree on mortgage directing the sale of the properties described in the plaint schedule, in
default of payment of the said decreetal amount within the time fixed by the court and also for a personal decree in case of any short fall.
The averments found in the written statement of the Defendants, in brief, are as follows:
The suit, as framed, is vexatious and is not maintainable. It is also bad for non-joinder of necessary parties besides being barred by limitation. The
plaint is bereft of material particulars including those required to be furnished under Order XXXVII Rule 1 of Original Side Rules and hence the
plaint is liable to be rejected. The plaint is also not accompanied by a certificate issued by the Registry regarding the result of the search for
encumbrances over the property, the subject matter of mortgage. M/s. Sriya Enterprises is a proprietory concern of which Mrs. Samyuktha
Alagappan, the first Defendant is the proprietrix. The second Defendant is only an employee of Sriya Enterprises employed as its Chief Executive.
As such no liability can be fastened on him. It is true that M/s. Sriya Enterprises is carrying on the business as manufacturer and exporter of steel
products. The Plaintiff availed the services of Sriya Enterprises, only in order to evade their tax liabilities by showing inflated export earnings, which
are not taxable. The transactions that are the subject matter of the plaint, have been made as a collateral one to the above said illegal act of tax
evasion, which is against public policy. A contract arising in respect of such transactions cannot be enforced in law in view of Section 23 of the
Contract Act. It is false to contend that any outstanding sum is due to the Plaintiff from the Defendants, much less a sum of Rs. 27,63,694/-, as
claimed in the plaint. Though it is true that the Plaintiff sent a few letters to the Defendants, all along the Defendants were requesting the Plaintiff to
give a statement of accounts showing full particulars of actual some due, but the Plaintiff failed to do so. The Plaintiff sought collateral security and
also a cheque as security for the business transaction of the Plaintiff and the Defendants. But contrary to their promise, the Plaintiff stopped placing
orders with Sriya Enterprises and the same caused a heavy financial loss and loss of reputation in the market to the Defendants. The first Defendant
had placed various orders with the manufacturers of steel utensils relying on the promise made by the Plaintiff. But because of the default
committed by the Plaintiff to place orders, the first Defendant was not able to honour the commitment made to the manufacturers. The first
Defendant also incurred considerable expenditure by visiting foreign countries, obtaining orders and towards tooling cost, which were quite heavy.
The Plaintiff all along was trying to make profit without any investment or effort in an unconscionable manner. It is false to state that the Defendants
failed to supply the materials or obtain letters of credit from the buyer in favour of the Plaintiff. The particulars regarding actual transactions other
than vague averments are not furnished in the plaint. It is true that pursuant to the demand made by the Plaintiff, the Defendants had given a cheque
and the documents relating to the property at Nerkundram as collateral security. Such a security cannot be equated to an equitable mortgage,
particularly as the property is not within the city limits of Chennai. In fact a cheque bearing cheque No. 054032 drawn on Punjab National Bank
for a sum of Rs. 25,00,000/-had been given to the Plaintiff as security for their business transaction in 1997 itself. Only on the expiry of the said
cheque and at the request of the Plaintiff, the second Defendant issued another cheque only as security and not in admission of the liability. The
cheque thus given as security was presented for collection after enticing the Defendants and the same was pointed out to the Plaintiff by a letter
dated 31.07.1998. For the notice of the Plaintiff dated 15.10.1998, an interim reply was sent on 18.11.1998, as the then counsel for the
Defendants had been hospitalised. The interest claimed by the Plaintiff is usurious. The date from which the interest is claimed will show that the
claim is barred by limitation. The claim originates from 25.03.1995, whereas the suit has been filed after four years on 01.04.99. There was no
agreement between the Plaintiff and the Defendants to pay interest, much less @ 20% per annum. The Plaintiff is not entitled to enforce the security
as it had gone back from its promise and since in any case the transaction itself was opposed to public policy. Plaintiff has not come to the court
with clean hands and on the other hand has, tried to unjustly enrich itself by frivolous litigation. Hence the suit must be dismissed.
In the light of the above said pleadings, the following issues have been framed:
Whether the Plaintiff is entitled for a decree for a sum of Rs. 48,87,367/-together with interest @ 20% p.a. on Rs. 27,63,694/-?
2 Whether, in default of decree amount, the Plaintiff is entitled for the sale of the properties as found in the plaint schedule?
3 Whether the Plaintiff is entitled for any other relief?
The following are the additional issues framed before pronouncement of the judgment on the basis of the pleadings and evidence:
i) Whether the enforceability of the suit claim is barred by Section 23 of the Contract Act?
ii) Whether the suit is barred by limitation?
iii) Whether the second Defendant is not liable to be proceeded against for the amount due from the first Defendant?
iv) Whether the suit as framed is not maintainable?
v) Whether the suit is bad for non-joinder of necessary parties?
And
vi) Whether this Court does not have jurisdiction to try the suit?
One witnesses was examined as P.W.1 and twenty documents were marked as Exs.P1 to P20 on the side of the Plaintiff. On the side of the
Defendants one witness was examined as D.W.1 and six documents were marked as Ex.D1 to D6.
As per the original plaint, M/s. Sriya Enterprises and Sekar Alagappan were shown as the first and second Defendants respectively. It was also
averred in paragraph 2 of the plaint as it stood before amendment, that M/s. Sriya Enterprises was a firm and the details of its constitution were not
known to the Plaintiff. Sekar Alagappan, who figures as the second Defendant was sought to be proceeded against as the Chief Executive of M/s.
Sriya Enterprises. However after receipt of summons, Sekar Alagappan, the second Defendant entered appearance and filed a written statement
on his own behalf and on behalf of M/s. Sriya Enterprises as its power of attorney holder. In Paragraph 4 of the said written statement it was
stated that M/s. Sriya Enterprises was a proprietory concern, of which Samyukta Alagappan was the proprietrix. In view of the revelation of the
nature of composition of the said business concern M/s. Sriya Enterprises, the Plaintiff got the plaint amended by amending the name of the first
Defendant as follows:
Mrs. Samyukta Alagappan, Sole Proprietor of M/s. Sriya Enterprises.
As such Samyukta Alagappan is the first Defendant and Sekar Alagappan is the second Defendant. No contention that the description of parties
even after amendment is incorrect, has been raised by the Defendants.
Admittedly, the first Defendant, namely Samyukta Alagappan is running a Proprietary concern M/s. Sriya Enterprises, of which she is the sole
proprietrix. It is also not in dispute, but on the other hand admitted by the Defendants in their written statement itself, that the second Defendant
Sekar Alagppan is the Chief Executive of the above said business concern. He is sought to be proceeded against not only as the Chief Executive of
the above said proprietary concern, but also on the ground that he has made himself liable for the debt of the first Respondent due to the Plaintiff
by figuring as a surety, submitting a cheque drawn on his personal account and depositing the title deeds of the immovable property described in
the plaint schedule belonging to him with the intention of creating a security for the repayment of the amount due from the first Respondent and thus
creating an equitable mortgage.
It is not in dispute that the first Respondent is the proprietrix of M/s. Sriya Enterprises and the first Defendant, in the name of the said
proprietary concern, is carrying on the business as manufacturer and exporter of steel products and is also acting as agent for procuring export
orders, organizing manufacturing products and completing export obligations. It is the specific case of the Plaintiff that in connection with the export
of stainless steel restaurant-ware, the Plaintiff had advanced amount to M/s. Sriya Enterprises for the purpose of completing its export obligations
arising out of the orders obtained from parties in United States of America and the first Defendant had left an outstanding sum of Rs. 27,63,694/-,
for discharge of which amount, the second Defendant issued his personal cheque and created an equitable mortgage in respect of his personal
property as a surety for the first Defendant.
The Defendants have taken the following defence pleas:
a) The Plaintiff availed the services of the first Defendant with an intention of evading its tax liability by showing inflated export earning and hence
the contract arising out of the said transaction cannot be enforced in law in view of Section 23 of the Contract Act, as it is opposed to public
policy.
b) Contrary to the promise made by the Plaintiff, the Plaintiff company stopped placing orders with the proprietary concern of the first Defendant,
which resulted in a heavy financial loss and loss of reputation to the Defendants.
c) Cheques were issued periodically by the Defendants only as security and not as admission of any liability and the cheque referred to in the plaint
was presented for collection much against the advice of the Defendants.
d) The security of immovable property offered by the second Defendant cannot be equated to an equitable mortgage, more particularly when the
property offered as a security is not situated within the city limits of Chennai to which the original territorial jurisdiction of this Court extends.
e) The interest claimed by the Plaintiff is usurious and the Defendants are not liable to pay interest much less at the rate of 20% per annum, as there
was no agreement between the parties regarding payment of interest.
f) The suit is barred by limitation.
Additional Issue No. V.
Let us now consider the case of the Plaintiff in the light of the above said contentions raised by the Defendants. The first and foremost contention
raised by the Defendants in their written statement before amendment of the plaint was that the suit was bad for non-joinder of necessary parties.
In the written statement, the said contention has not been elaborated as to who the necessary party was. However, from the arrangement of
pleadings made in the written statement, it can be discerned that the filing of the suit describing M/s. Sriya Enterprises as the first Defendant,
without giving its nature of composition as proprietary concern and without showing the name of its proprietor, was sought to be projected as non-
joinder of necessary parties. Order XXX of the CPC permits suits being filed against firms and other persons carrying on business in the names
other than their own, in the name of the firm or in the name of the proprietary concern, as the case may be. Especially, Order XXX Rule 10 deals
with the question of filing suits against persons carrying on business in the name other than their own. It enables the persons dealing with such a
business concern to file a suit against the person carrying on business in a name or style other than his own name, in the name of the business
concern as if it were a firm. For better appreciation, Rule 10 of Order XXX CPC is reproduced here under:
Suit against person carrying on business in name other than his own. -Any person carrying on business in a name or style other than his own
name, or a Hindu undivided family carrying on business under any name, may be sued in such name or style as if it were a firm name, and, in so far
as the nature of such case permits, all rules under this Order shall apply.
In the case on hand, admittedly M/s. Sriya Enterprises is a proprietary concern and the present first Defendant, namely Samyukta Alagappan is
its sole proprietor. Therefore, there was nothing wrong in a suit being filed in the name of the business concern, namely M/s. Sriya Enterprises with
an explanatory note that the composition of such a business concern was not known to the Plaintiff. The filing of the suit showing M/s. Sriya
Enterprises as the first Defendant shall, nonetheless, be a suit filed against its proprietor, namely Samyukta Alagappan, the present first Defendant.
Even then, in view of a stand taken by the Defendants in their written statement that M/s. Sriya Enterprises is a proprietary concern and Samyukta
Alagappan is its proprietrix, the Plaintiff thought it fit to amend the cause title after filing necessary application and getting the leave of the court.
Thus the suit cause title stands amended as it stands now. The name of the first Defendant has been corrected to Samyukta Alagappan, Sole
Proprietor of M/s. Sriya Enterprises. After such amendment, there cannot be any valid defence that Samyukta Alagappan, being necessary party,
has not been named in the array of parties. Even otherwise there shall be nothing wrong in proceeding against Samyukta Alagappan in the name of
M/s. Sriya Enterprises, the name and style with which she is carrying on business. There is no other specific plea made by the Defendants that any
other person, who is a necessary party, has been left out from the array of parties. Therefore, we have to arrive at a conclusion that the plea of
non-joinder of necessary parties was made only on a misconception and that even such a plea, no longer survives after the amendment of the cause
title showing Samyukta Alagappan, Proprietor of M/s. Sriya Enterprises, as the first Defendant. For the above said reasons, this Court comes to
the conclusion that the plea of non-joinder of necessary parties must fail and accordingly, the said plea deserves rejection as untenable.
Additional Issue No. iv
The next contention raised by the Defendants is that the framing of the suit itself is not proper; that the Plaintiff, despite the demand made by
the Defendants for the furnishing of accounts, failed to do so and that hence the suit for recovery of a specified amount without filing the suit on
accounts is not maintainable. In this regard, this Court wants to point out the fact that the Plaintiff has made a clear and concrete averment that it
had made financial assistance to the first Defendant for the purpose of completing her export obligations arising out of orders obtained from the
parties in the United States of America; that in respect of such transactions, the first Defendant had left due and payable to the Plaintiff a sum of Rs.
27,63,694/-as the outstanding amount towards principal; that when demand for payment of the same was made, the Defendants agreed to clear
the outstandings by obtaining a Letter of Credit from the buyer in the United States of America in favour of the Plaintiff and also admitted that such
an amount was due to the Plaintiff as outstanding principal; that in view of the said acceptance and acknowledgment of liability, there is no
necessity to file the suit as one on accounts and that the suit for recovery of a specified sum with subsequent interest based on the admission and
acknowledgment of the liability is perfectly in order. In this regard, in paragraph 5 of the plaint, the Plaintiff has made an averment to the effect that,
by a letter dated 28.03.1997, the Defendants agreed to clear the outstandings by obtaining a Letter of Credit in favour of the Plaintiff from the
buyer on or before 31.07.1997, but subsequently failed to do so. In paragraph 6 of the plaint also, the Plaintiff has made a specific averment that a
demand was made by the Plaintiff to the Defendants by issuing a letter dated 02.04.1997 calling upon them to pay the outstanding sum of Rs.
27,63,694/-and in response to the said letter, the Defendants issued a cheque dated 30.04.1998 for the above said amount and also deposited the
title deeds relating to the property described in plaint schedule belonging to the second Defendant with the intention of creating an equitable
mortgage to secure the above said outstanding amount due from the first Defendant.
P.W.1, in his evidence has clearly stated that the Plaintiff advanced Rs. 64,82,946/-to the first Defendant, who was a manufacturer and
exporter of steel products and also was acting as an agent for completing export obligations arising out of orders obtained from parties in United
States of America; that towards the said amount advanced by the Plaintiff, the Defendants had supplied materials to the tune of Rs. 37,19,252/-
and that a sum of Rs. 27,63,694/-was left as outstanding debt due and payable to the Plaintiff. The second Defendant, who appeared as D.W.1
(sole witness on the side of the Defendants) also admitted the fact that a demand was made by the Plaintiff for the settlement of the outstanding
amount due, by sending a fax message to the second Defendant under Ex.P2, describing him to be the Chief Executive of M/s. Sriya Enterprises,
calling upon him to send a cheque in favour of the Plaintiff for the outstanding amount of Rs. 27,63,694/-as assured by him. The said fax message
is dated 02.04.1997. For the said demand made by the Plaintiff, the second Defendant, in his capacity as Chief Executive of M/s. Sriya
Enterprises has issued a letter in the letter head of M/s. Sriya Enterprises on 28.07.1997. The same has been marked as Ex.P3. In the said letter
given as reply to the fax message evidenced by Ex.P2, the outstanding amount quoted in Ex.P2 was not disputed. On the other hand, the second
Defendant, as the Chief Executive of M/s. Sriya Enterprises, came forward to give a farm house situate at 17.5 acres of farm land fully fenced with
chain link fencing together with three wells, pump-sets, pump houses, godown, Manager''s quarters and coconut trees, etc. valued at Rs. 1.5
crores, as collateral security. The said letter was responded by the Plaintiff by a letter dated 10.10.1997, a copy of which has been marked as
Ex.P4. In the said letter, the second Defendant was asked to produce a number of documents and certificates for taking a decision regarding
creation of collateral security towards the outstanding amount due from M/s. Sriya Enterprises. Thereafter, Ex.P6, letter came to be sent by the
second Defendant as Chief Executive of Sriya Enterprises. In Ex.P6, it had been stated that the Defendants were in the process of obtaining their
own export packing credit limit from their bankers to the tune of Rs. 1.5 Crores and the same was expected only after the year end i.e. after
31.03.1998 and that on receipt of the funds during the first week of April 1998 from the bank, the Defendants would be in a position to settle the
outstanding amount due to the Plaintiff. It was also mentioned therein that they would propose to create collateral security for further funding and
continuance of the business. In response to the said letter, the Plaintiff seems to have sent a reply on 07.02.1998 calling upon the Defendants to
submit 15 number of documents towards the creation of collateral security for the amount owed by the first Defendant. Copy of the said letter has
been marked as Ex.P5. Subsequently, on 03.03.1998, the second Defendant submitted a letter marked as Ex.P7 signed by him as Chief Executive
of M/s. Sriya Enterprises admitting the outstanding amount to be Rs. 27,63,694/-and assuring that they would commence repayment of the above
said amount before the 30th of April 1998 and that it would be fully paid in three installments before the 30th of June 1998. In the said letter also
the amounts to be paid in each installment had also been indicated as follows:
I installment: Rs. 10 Lakhs II installment: Rs. 10 Lakhs III installment: Rs. 7,63,694/
It was also stated in Ex.P7 that since an earlier cheque issued for a sum of Rs. 25,00,000/-did not cover the entire outstanding as the
outstanding amount was Rs. 27,63,694/-and the same was going to lapse, they were enclosing a fresh cheque for a sum of Rs. 27,63,694/-and
also lodged 1.67 grounds house site at Nerkundram (near Koyambedu Wholesale Complex) valued at Rs. 30,00,000/-as collateral security. The
said cheque sent along with Ex.P7 when presented for collection, was returned unpaid on 25.06.1998 with a banker''s memo dated 25.06.1998.
The dishonoured cheque, banker''s memo and the intimation from the collecting bank have been produced as Exs.P8, P9 and P10 respectively.
The presentation of the cheque for collection and its dishonour have not been disputed, but the same have been admitted by the Defendants.
Pursuant to the dishonour of the cheque, a statutory notice u/s 138 of the Negotiable Instruments Act, 1881 came to be issued under Ex.P11,
which was received by the Defendants as evidenced by the acknowledgement card marked as Ex.P12. Only after the receipt of such a statutory
notice, the second Defendant, for the first time issued a letter in his own letter head stating that a cheque pertaining to his personal account had
been issued at the request of the Plaintiff with a specific request that the same should not be presented for collection and contrary to his request,
the cheque was presented for clearance, which ultimately resulted in its dishonour. However, in the very same letter, the second Defendant had
made an earnest request to grant a further time of 60 days to M/s. Sriya Enterprises to repay the outstanding amount in full. The same has been
marked as Ex.P13. Exs.P14 to Ex.P16 are the title deed and encumbrance certificates relating to the immovable property described in the plaint
schedule. Ex.P17 is the copy of pre-suit notice issued to 1) M/s. Sriya Enterprises and 2) the second Defendant Sekar Alagappan. The
acknowledgments for the service of the said notice on the Defendants are Ex.P18 and P19. A letter dated 08.05.1998 acknowledging the
outstanding amount due to the Plaintiff to be Rs. 27,63,694/-and requesting time till the end of May 1998 for clearing the said outstanding issued in
the letter head of second Defendant is Ex.P20.
All the above said documents, coupled with the oral testimony of P.W.1, will show that there was a transaction between the Plaintiff and the
first Defendant, in which the first Defendant was provided with periodical financial assistance and out of the said transaction a sum of Rs.
27,63,694/-remained outstanding as on the date of Ex.P7 due from the first Defendant and that when repayment of the said amount was
demanded by the Plaintiff, the second Defendant, as the Chief Executive of M/s. Sriya Enterprises admitted and acknowledged the above said
liability and prayed time for clearing the said outstanding.
It is the clear evidence of P.W.1, the Deputy Manager (Legal) of the Plaintiff company that the Plaintiff gave financial assistance to the tune of
Rs. 64,82,946/-to the first Defendant and the Defendants supplied materials to meet the export obligations of the Plaintiff to the tune of Rs.
37,62,250/-alone and the balance amount of Rs. 27,63,694/-was left as outstanding amount due to the Plaintiff; that the second Defendant on
behalf of the first Defendant and in his capacity as the Chief Executive of M/s. Sriya Enterprises, admitted the above said quantum of amount due
to the Plaintiff and that last of such admissions and acknowledgements was made by him on 03.03.1998 under Ex.P7. It is also obvious from
Ex.P13, the letter of the second Defendant in his own letter head dated 31.07.1998, that the Defendants did not dispute the quantum of the
amount outstanding payable to the Plaintiff and on the other hand he chose to seek a further time of 60 days to the first Defendant to repay the
above said outstanding amount in full. Only based on such admission and acknowledgment of liability the Plaintiff has filed the suit.
The fact that the letters containing the admission and acknowledgement were sent by the second Defendant on behalf of the first Defendant and
sent to the Plaintiff is not disputed by the Defendants in their written statement. It is also an admission made in the written statement that a cheque
for the principal sum claimed in the plaint was given by the second Defendant to the Plaintiff and that he also entrusted the title deeds and other
documents pertaining to his immovable property which is described in the plaint schedule with the agreed purpose of constituting a security for the
payment of the above said amount. Nowhere in the written statement, the Defendants have stated that there was no contractual relationship
between the Plaintiff and the Defendants that they had contracts only with M/s. ACT India Limited, a subsidiary of the Plaintiff company and that if
at all any amount is due from the first Defendant, it was due to ACT India Limited and not to the Plaintiff company. Much against the pleadings, the
Defendants made an attempt to show that there was an understanding between the Defendants and ACT India Limited by which the first
Defendant undertook to complete the export obligations of the ACT India Limited with the sole intention of evading its tax liability; that ACT India
Limited and even the Plaintiff undertook to extend continuous support and funding up to five crores per annum for five years from 1996; that the
documents now relied on by the Plaintiff were obtained playing a fraud on the Defendants by falsely making such assurance that the security given
in the form of cheque and deposit of title deeds of immovable property would not be enforced; that much against the undertaking the Plaintiff
presented the cheque for collection, which eventually was dishonoured and that by the Plaintiff''s failure to place continuous orders in accordance
with their promise, the first Defendant suffered a heavy loss for which the Plaintiff was responsible to compensate the first Defendant.
At the outset, it can be stated that the above said evidence was led without there being any specific plea to that effect. As pointed out supra,
there is no specific plea in the written statement that there was no direct contract between the Plaintiff company and the Defendants and that the
dealing was only between ACT India Limited and the first Defendant. No evidence shall be allowed to be adduced without there being any plea
and any amount of evidence adduced without there being any plea, cannot be looked into. The Defendants have also taken a plea that there was a
breach of undertaking by the Plaintiff, giving raise to a possible claim by the Defendants against the Plaintiff for such breach. The Defendants ought
to have pleaded either set off or counter claim. But no such set-off or counter claim has been pleaded by the Defendants in their written statement.
When such is the case, the Defendants cannot now take such a new plea. Even otherwise, there is no reliable or sufficient evidence to show that
there was a breach of undertaking on the part of the Plaintiff and the same resulted in a heavy loss to the first Defendant, which shall be equal or
more than the suit claim so as to defeat the claim of the Plaintiff made in the plaint. It is the further evidence adduced on the side of the Defendants
through DW1 that there was no direct transaction between the Plaintiff and the first Defendant; that the dealing was between the first Defendant
and one ACT India Limited, which according to the Defendants is a subsidiary company of the Plaintiff and that the amount sought to be recovered
by the Plaintiff in this suit was, in fact, the amount due to the said ACT India Limited. There is nothing in the written statement of the Defendants
that the suit amount was not the amount due from the first Defendant on account of its direct dealing with the Plaintiff and that an amount allegedly
due to one ACT India Limited, a subsidiary company of the Plaintiff company, was transferred to the Plaintiff and only on that basis the Plaintiff
had sought to make the claim against the Defendants.
As pointed out earlier, the written statement is bereft of any such particular. It simply contains three defence pleas:
1) no outstanding sum is due to the Plaintiff in respect of the dealings it had with the first Defendant; 2) the suit is barred by limitation, and 3) the
suit claim is not maintainable as the same is in respect of a contract between the Plaintiff and the first Defendant for the purpose of evading the tax
liability of the Plaintiff, which is opposed to public policy and hence, unenforceable. Nowhere in the written statement it has been stated by the
Defendants that the dealing was only between the first Defendant and ACT India Limited; that the said ACT India Limited was a subsidiary
company of the Plaintiff; that the amount allegedly due to the said ACT India Limited was transferred to the Plaintiff company and that only on the
basis of the same, the suit claim is made. When such is the nature of plea made by the first Defendant, it is a wonder that the Defendants have
taken a new plea in evidence. An attempt was made by leading evidence through DW1 to the effect that the first Defendant was doing business
with ACT India Limited and ACT India Limited expressed its desire to transfer the loan amount in respect of the first Defendant to the Plaintiff
company. In order to prove such a contention, the Defendants have produced Ex.D1 letter dated 05.01.1995. In the letter issued to the
Defendants signed by one S. Venkataramanan, as Deputy General Manager of the said ACT India Limited, it had been stated that in the event of
M/s. ACT India Limited running short of funds, they would be transferring the business to their group company M/s. Spic Ltd. As no plea was
raised in the written statement in this regard, there was no occasion and necessity for the Plaintiff to deny the same. Ex.D1 was introduced for the
first time, when the second Defendant as DW1 was in the box. Of course, the only witness examined on the side of the Plaintiff PW1, did not deny
that ACT India Limited was a subsidiary company of the Plaintiff company. On the other hand, the answer given by PW1 cannot be taken as an
admission to show that ACT India Limited, was a subsidiary company of the Plaintiff company. What PW1 has pleaded in his cross examination is
ignorance and absence of knowledge regarding the same. The answer is to the following effect ""I do not know the company ACT India Limited. I
do not know ACT India Limited is a subsidiary company of the Plaintiff"". Not stopping with the same, PW1 proceeded further to state that the suit
claim had been made in respect of the business dealings between the Plaintiff and the first Defendant. It is pertinent to note that the other
documents relied on by the Defendants, namely Exs.D3 and D4, though found in the letterhead of the Plaintiff, are signed by the above said
Venkataramanan. He is designated as the authorised signatory of the Plaintiff company. A similar letter dated 25.03.1998, signed by one Kesavan,
as an authorized signatory of the Plaintiff, is produced as Ex.D5. Of course, it is true that no meticulous cross examination was done regarding the
said documents. But, mere production of a document, unless it is admitted or proved shall not be accepted as proof or reliable evidence. Further
more, it is the contention of the learned senior counsel appearing for the Plaintiff that the above said letters are not genuine and they should have
been created either by printing similar letterheads or making use of the letterheads already available with the Defendants to show that there was an
undertaking made by the Plaintiff that the cheque would not be presented for collection and the security created by deposit of title deeds relating to
immovable property would not be enforced and that much against the undertaking, the Plaintiff had chosen to present the cheque for encashment
and filed the suit for the enforcement of the security, after the cheque was dishonoured. Exs.D1 and D3 to D6 were not put to PW1, while he was
in the witness box and no suggestion regarding the same was put to him. PW1 was recalled after DW1 was examined. Even after such recall, he
was not specifically cross examined on the basis of Exs.D1 and D3 to D6. Under such circumstances, this Court has to accept the contention of
the learned senior counsel for the Plaintiff that the said documents have not been proved and hence they have to be excluded from the purview of
consideration.
It is the further contention of the learned senior counsel for the Plaintiff, which is more effective and appealing, that even assuming that those
documents would be true, they would not be enough to defeat the claim of the Plaintiff as there has been a cogent and clear admission in the
written statement and also in the evidence of DW1 that out of the dealings the first Defendant had with the Plaintiff, a sum of Rs. 27, 63, 694/-was
due. It shall be pertinent to note that in Ex.D5 itself the cheque issued by the second Defendant in favour of the Plaintiff has been referred to and
the cheque amount is also found mentioned therein as Rs. 27,63,694/-. The latest letter written by the second Defendant as Chief Executive of
Sriya Enterprises, a copy of which is marked as Ex.D6, is to the effect that he was cancelling the earlier letter dated 03.03.1998, as if the same
was written to the dictates of the Plaintiff. The said letter referred to in Ex.D6 has been produced by the Plaintiff as Ex.P7. In the said letter, it has
been clearly mentioned that a cheque for Rs. 27,63,694/-to cover the outstanding amount was enclosed with the said letter as their previous
cheque for Rs. 25,00,000/-would lapse on 31.03.1998 and the amount covered by the previous cheque was also short of the outstanding by Rs.
2,63,694/-. The cheque referred in the said letter for Rs. 25,00,000/-was given in 1997 has been admitted by the Defendants in paragraph 8 of
their written statement. No proof of service of Ex.B6 prior to the date of presentation of the cheque for collection and return of the same, has been
produced by the Defendants. It should also be noticed that in all the other admitted documents, namely Ex. P6 dated 03.02.1998, Ex.P7 dated
03.03.1998, Ex.P13 dated 31.07.1998, Ex.P20 dated 08.05.1998 and Ex.P23 dated 17.02.1996, the Defendants, especially the second
Defendant, has not denied or disputed the transaction between the Plaintiff and the first Defendant and the fact that a sum of Rs. 27,63,694/-was
outstanding. The amount was specifically admitted in Exs.P7, P13, P20 and P23. There is clear and unambiguous admission in the said letters that
the cheque issued by DW1, the second Defendant towards the amount outstanding from the first Defendant to the Plaintiff, was not a blank cheque
and was for a sum of Rs. 27,63,694/-. In spite of such specific admission, DW2 seems to have made an attempt to show that the cheque was
issued as a blank cheque on the assurance that the same would not be presented for collection. The very fact that such an attempt was made while
the cheque was issued with specific date and for specific amount, will go to show that the Defendants, in order to defeat the claim of the Plaintiff
alone, have chosen to make such an attempt while the 2nd Defendant deposing as DW1.
In the proof affidavit of DW1 which has been accepted as his chief examination, he has stated as follows:
No amount is outstanding and due from the Defendants to the Plaintiff much less the suit sum or the suit cheque sum of Rs. 27,63,694/-. Plaintiff
has either filed the suit under a mistake in its accounts or has instituted the suit to arm twist the Defendants on the basis of cheque and property title
deeds given by the 1sst Defendant as security for future payments to be made by Plaintiff to the Defendant.
Though such a stand was taken by the DW1 in his chief examination, during cross examination he has clearly admitted that he issued the
cheque for a sum of Rs. 27,63,694/-, but would add that the same was issued at the request of the Plaintiff. The fact that the cheque was returned
for insufficiency of funds is also sought to be denied by him. But, when Ex.P9 was shown to him, he would change his version and state that he was
not aware of the fact that Ex.P9 shows insufficiency of funds as the reason for dishonour. The cheque, admittedly issued by DW2, which was
dishonoured when presented for collection is Ex.P8. Pursuant to the dishonour of the cheque, statutory notice u/s 138 of the Negotiable
Instruments Act was issued by the Plaintiff, calling upon the Defendants, to make payment of the cheque amount within 15 days from the date of
receipt thereof. Copy of the notice is Ex.P11 and the acknowledgement card is Ex.P12. It is admitted by the DW2 that for the said notice, he
issued a reply. But he has not chosen to produce a copy of the reply. On the other hand, the reply sent by DW2 in his own name, has been
produced as Ex.P13. In the said reply also, PW2 has clearly admitted that his personal cheque bearing Cheque No. 059002 dated 30.04.1998
drawn on Punjab National Bank for Rs. 27,63,694/-had been given to the Plaintiff. Though he chose to state that he had given the said cheque
with a request not to present the same, he would also state that he sent a letter dated 08.05.1998 requesting not to present the cheque and that he
was having the acknowledgment in proof of service of the same on the Plaintiff. But no such acknowledgement was produced. Ironically, in the last
paragraph of the said reply letter, PW2 has also stated that in addition to the letter dated 08.05.1998, he also telephonically instructed the Plaintiff
not to present the above mentioned personal cheque of DW1 for clearance. However, he would make a request on behalf of the first Defendant,
at the end of the reply letter, praying for the grant of further 60 days time to repay the said amount to the Plaintiff in full. The last sentence reads as
follows:
I request you to be gracious enough to grant a further 60 days to the firm M/s. Sriya Enterprises to repay the above said amount in full and oblige.
The said letter referred to in the above said reply notice dated 08.05.1998 sent by DW1 has been produced as Ex.P20. In the said letter itself,
he has informed the Plaintiff that he would be clearing the outstanding amount by the end of that month (meaning May 1998) and that hence, he
would request the Plaintiff to bear with him till then. He also requested the Plaintiff not to deposit the cheque for the above said amount. What he
had stated in the said letter was that he would be in a position to clear the dues by the end of May 1998 and hence the Plaintiff should bear with
him till the end of the said month. The last sentence of the letter requesting not to deposit the cheque for payment has to be read in conjunction with
the earlier sentence, which incorporates a request to bear with him till the end of May 1998. Here again, it should be noted that the cheque amount
has been clearly mentioned, the liability has been clearly admitted and an undertaking was given to clear the outstanding amount by the end of May
1998 with a request to the Plaintiff not to present the cheque for collection before the end of May 1998. It is pertinent to note that the cheque was
presented only after the end of May 1998. It was presented for collection on 18.06.1998 and was returned unpaid on 19.06.1998 for the printed
Reason No. 7, which reads as ""insufficient funds"". Pursuant to the dishonour of the cheque, a statutory notice was issued under Ex.P11, which was
replied by DW1 alone, under Ex.P13 praying a further 60 days time for clearing the outstanding amount. After waiting for another 60 days, the
Plaintiff seems to have sent a lawyer''s notice dated 15.10.1998, a copy of which has been produced as Ex.P17. The acknowledgement cards
evidencing service of the notice on the Defendants have been produced as Exs.P18 and P19. After the receipt of the said notice, DW1 on his own
behalf and on behalf of the first Defendant issued a short reply on 18.11.1998 stating that the counsel was unwell and he would be sending a
detailed reply within 15 days thereafter. No such detailed reply was sent. The same has also been admitted by DW1.
When all the above said aspects are taken into consideration, the Court cannot arrive at any other conclusion than the one that there is clear
admission on the part of the Defendants that out of the business dealing the first Defendant had with the Plaintiff, a sum of Rs. 27,63,694/-was
outstanding, in discharge of which Ex.P8 cheque was issued; that the cheque was presented only after the time prayed for by the Defendants had
expired; that the said cheque was dishonoured for the reason ""insufficient funds""; that for the statutory notice issued u/s 138 of the Negotiable
Instruments Act calling upon the Defendants to pay the cheque amount, the second Defendant issued a reply on his own behalf and on behalf of the
first Defendant praying 60 days time for settling the amount and that since the amount was not settled within that time also, the Plaintiff issued the
pre-suit notice and thereafter, filed the present suit. Therefore, the contention of the Defendants that the liability of the first Defendant to the tune of
Rs. 27,63,694/-towards principal has not been proved, has got to be discountenanced. On the other hand, there are more than enough materials
to show that the Plaintiff has, by the oral evidence of PW1 and the documentary evidence, proved that a sum of Rs. 27,63,694/-was due from the
first Defendant. Therefore the contention of the Defendants that the suit as framed is not maintainable deserves discountenance.
Additional Issue No. ii
Admittedly, the transactions between the Plaintiff and the first Defendant started in the year 1995. What was the exact date on which the
transaction started has not been divulged by either the Plaintiff or the Defendants. Both the parties produced documents to show transactions only
from 1995. The Defendants in their written statement have stated that the claim originates from 25.05.1995, while the suit was filed after four years
i.e., 01.04.1999 and therefore, the suit is barred by limitation. As per the plaint allegations, the cause of action for the suit arose when moneys
were advanced to the Defendants for the purpose of completing the export obligations arising out of the orders obtained from parties in United
States of America on several dates, on 02.04.1997, 10.10.1997 and 07.02.1998 when Plaintiff made demands and also on 28.03.1997,
28.07.1997 and 03.03.1998 when the Defendants gave replies acknowledging the liability, on 03.03.1998 when the Defendants deposited the title
deeds relating to the immovable property described in the plaint schedule with the intention of creating a security, on 30.04.1998 when Ex.P8
Cheque was issued and on subsequent dates on which the cheque was dishonoured and notices and reply were sent. The Defendants would state
in their written statement and contend that the suit ought to have been filed on the original cause of action and if it had been done so, the suit would
be out of the period of limitation. This Court is not in a position to understand what the Defendants state to be the original cause of action. Plaintiff
has made clear averments and led clear evidence that for completing the first Defendant''s export obligations arising out of the orders obtained from
parties in United States of America, the Plaintiff had been advancing amounts to the first Defendant; that in this regard the Defendants had left an
outstanding sum of Rs. 27,63,694/-payable to the Plaintiff as on 28.03.1997; that when Defendants were called upon to pay the above said
outstanding amount, they admitted the liability and promised to clear the outstanding and that therefore, the suit even as a bare money suit would be
well within the time, as the suit had been filed on 01.04.1999, within three years from the said date. Apart from that it is also contended that the
last of such acknowledgement is found in Ex.P13 dated 31.07.1998 and that therefore, the limitation will start afresh from the said date of
acknowledgement. As pointed out supra, the said letter was written by DW1 in his personal letterhead. However, in the last paragraph, he had
pleaded that the Plaintiff be gracious enough to grant further 60 days time to the firm M/s. Sriya Enterprises to repay the outstanding amount in full.
A meek attempt was made to show that such an acknowledgement by DW1 (second Defendant) made in his personal letterhead, shall not be
binding upon the principal debtor, namely the first Defendant. Such a contention is far from being tenable. Admittedly, DW1 was the Chief
Executive and Power of Attorney holder of the first Defendant, who was carrying on business in the name and style of M/s. Sriya Enterprises. All
other correspondence were made on behalf of M/s. Sriya Enterprises only by DW2. Though the letterhead used for Ex.P13 was the personal
letterhead of DW1, in the said letter itself he had prayed time on behalf of the first Defendant to clear the outstanding. Therefore, the same will
amount to a good and valid acknowledgement, not only by the second Defendant (DW1), but also by the first Defendant.
It should also be noted that even if Ex.P13 is ignored as not an acknowledgement by the principal debtor, namely the first Defendant, there are
other documents evidencing acknowledgement of liability by the first Defendant also. Ex.P3 letter dated 28.07.1997 contains an acknowledgment
that the Defendants were offering collateral security to cover the outstanding amount and also for the future financing to renew the business. Of
course, it is true that no specific amount was admitted to be due in Ex.P3. Similar is the tenor of the letter dated 03.02.1998 in which it has been
stated that the Defendants were expecting their own export credit limit to the tune of Rs. 1.5 crores from their bankers and the same was expected
by the end of March 1998 and that on receipt of the funds, they would be in a position to settle the outstanding amount during the first week of
April 1998. Though the said letter also contains such an acknowledgment, specific amount has not been mentioned. However Ex.P7 dated
03.03.1998 contains a clear acknowledgment of liability that the outstanding amount was Rs. 27,63,694. It had also been mentioned therein that
the earlier cheque given for Rs. 25,00,000/-was short of the outstanding amount by Rs. 2,63,694/-. An undertaking was also given to pay the said
amount of Rs. 27,63,694 in three monthly installments of Rs. 10,00,000/-, Rs. 10,00,000/-and Rs. 7,63,694 respectively. In addition to that a
cheque for the above said outstanding amount was also given and they had also deposited the title deeds of the property described in suit schedule,
namely 1.67 grounds of house site in Nerkundram, near Koyambedu whole sale market complex as collateral security. Ex.P7 contains a clear
acknowledgement. Therefore, the suit having been filed within three years from the said date is within the period of limitation and the contention of
the Defendants that suit is barred by limitation has got to be rejected.
Additional Issue vi
It is also evident from the above said documents and also Ex.P14, the title deed relating to the immovable property described in the plaint
schedule that an equitable mortgage has been created by the second Defendant, the owner of the said property by depositing the said title deed
with intend to create a security for the suit amount. In paragraph 8 of the written statement of the Defendants, they have made clear admission that
the Defendants had given a cheque and documents relating to the property at Nerkundram as collateral security with intention to create an
equitable mortgage. But the learned Counsel for the Defendants would contend that since the property described in the plaint schedule, title deeds
relating to which has been deposited as security for the amount outstanding from the first Defendant, situates outside the territory over which this
Court exercises original jurisdiction, the suit on mortgage filed in this Court is not maintainable and that this Court does not have the territorial
jurisdiction to try the suit, so far as it tries to enforce the liability on the equitable mortgage regarding the property described in the suit. It has also
been contended that this Court does not have jurisdiction to entertain the suit as it comprises a prayer for enforcement of the right of the mortgage
under the alleged mortgage in respect of the property described in the plaint schedule, as the said property is situated outside the original
jurisdiction of this Court. The said contention cannot be countenanced. A Division Bench of this Court in Bank of Madurai Ltd. Vs. Balaramadass
and Brothers and Others, has ruled that the Madras High Court has full jurisdiction to hear a suit on equitable mortgage for recovery of money by
the sale of the mortgage property irrespective of the location of the mortgage property as such a suit shall not be a suit for land and therefore it can
be filed in any Court, if the other jurisdictional facts are available, namely where the cause of action arose or where the Defendant resides or
carries on business. Therefore, the said contention on the question of jurisdiction raised by the Defendants also deserves to be rejected.
Additional Issue No. iii
It was also contended on behalf of the Defendants that since the second Defendant merely acted as a Chief Executive of M/s. Sriya
Enterprises, a proprietary concern and the entire transaction with the Plaintiff was made by him only on behalf of the said proprietary concern, no
personal liability can be attached to the second Defendant and hence no decree can be passed against the second Defendant, even though Ex.P14
title deed was deposited by him with the Plaintiff with an intention to create a security for the outstanding amount due from the first Defendant. The
said contention is also not a tenable one. When the second Defendant chose to give his personal cheque for the discharge of the liability of M/s.
Sriya Enterprises, of which he was the Chief Executive and deposit the title deeds of his personal property intending to create a security for such
amount outstanding from the first Defendant towards the Plaintiff, the same will amount to an act of entering into a contract of guarantee placing
himself as a surety for the first Defendant. Even otherwise, since the issue of his personal cheque and deposit of title deeds of his personal property
were made with an intention to create a security for the repayment of the amount due from the first Defendant to the Plaintiff, the same will amount
to an offer to indemnify the Plaintiff and hence, the creation of equitable mortgage by the deposit of title deeds by the second Defendant is
supported by consideration and cannot be said to be without consideration. It should also be noted that since the entire transaction on behalf of the
first Defendant was made by the second Defendant and all communications on behalf of the first Defendant were made by the second Defendant
alone, the consideration for the equitable mortgage should be construed to have passed on at the request of the second Defendant. For the above
said reasons, it is hereby held that the attempt made by the second Defendant to shirk off his liability as a co-obligor and an equitable mortgagor
for the amount outstanding from the first Defendant to the Plaintiff, proved to be a failure. When such is the case, the contention of the Defendants
that the suit is barred by limitation shall have no basis at all, since the for recovery of money secured by a mortgage of immovable property, the
limitation as per Article 62 shall be 12 years. For all the reasons stated above, this Court comes to the conclusion that the defence plea taken by
the Defendants that no liability can be attached to the second Defendant has got to be discountenanced.
Additional Issue No. i
The further contention of the Defendants is that as the first Defendant M/s. Sriya Enterprises is carrying on business as manufacturer and
exporter of the steel products and the Plaintiff availed the services of the first Defendant in order to evade their tax liability by showing inflated
export earnings, which are not taxable; that now the Defendants have come to understand that their services had been used by the Plaintiff for
evading tax liability under the provisions of the Income Tax Act by abusing the tax concessions given by the Government for export earnings and
that as such the transaction being collateral to an illegal contract, the object of which is opposed to public policy, the enforceability of the obligation
under the collateral contract is barred u/s 23 of the Contract Act. Though such a contention has been raised by the Defendants in their written
statement, they have not substantiated their contention that the contract was made with an intention of evading tax. In support of the said contention
raised in the written statement, DW1 in his chief examination, has stated the very same thing in paragraph 4 of the proof affidavit, without
elaborating how the evasion of the tax was made. During cross examination P.W.1 has stated that financial assistance was made on the
understanding that the first Defendant would procure orders from United States of America, manufacture the goods for export and supply them to
the customers in USA and that the Defendants would repay the amount lent by the Plaintiff through Demand Drafts or cheques and that on few
occasions after manufacturing the goods and exporting the same, letters of credit were obtained from the customer in favour of the Plaintiff and the
Plaintiff negotiated with bank and encashed the same. It has also been stated by PW1 during cross examination that the Defendants received totally
Rs. 64,00,000/-from the Plaintiff and they supplied materials for a sum of Rs. 37,00,000/-alone. Pointing out the same, it was argued on behalf of
the Defendants that though the manufacture and export was done by the first Defendant, the Plaintiff paid advance only to show that the export
was made on its behalf and thereby evaded its tax liability under the Income Tax Act. But, except such a bald allegation that the services of the first
Defendant were used by the Plaintiff for evasion of tax by showing inflated export earnings, there is no clear and cogent evidence to show that any
such evasion of tax was made and the money was lent for the purpose of evasion of tax liability.
There is nothing wrong in a person placing orders with a manufacturer to produce goods to supply to such person for being exported. Here is
a case in which there is no evidence that the goods manufactured by the first Defendant were supplied to the Plaintiff and the Plaintiff exported it.
On the other hand, there is clear evidence on the part of the Plaintiff that financial assistance was made to the first Defendant for completing its
export obligations on the assurance that repayment will be secured by obtaining letters of credit from the customers abroad to whom the goods are
exported by the first Defendant. The same cannot be said to be an illegal contract opposed to public policy. It has also not been proved that the
arrangement with the Plaintiff was made with the object of evasion of tax by the Plaintiff. Avoidance of tax should be distinguished from evasion of
tax. Avoidance of tax is legal whereas evasion of tax alone is against law. There is no tangible evidence to show that the arrangement made by the
Plaintiff with the Defendants was with the intention of evading tax. How evasion of tax was sought to be made has not been elaborated. Direct
nexus between the arrangement between Plaintiff and the first Defendant and the alleged attempt of evasion of tax by the Plaintiff has not been
proved. Unless one does possess an export licence, he cannot show export earnings. In case such a person possess export license and funds the
manufacturer for manufacturing certain products to be exported in the name of that person, the same cannot be said to be with the intention of
evading tax liability showing inflated export earnings. On the other hand, if a person without investing any money wants another person exporting
certain commodities to do it in his name with the sole of purpose of showing the same as his export earnings, the same can be construed to be a
device to show inflated export earnings with a view to evade tax. Here, it is the admitted case of the Defendants that the Plaintiff funded the first
Defendant for manufacturing goods for the purpose of export and on export of those goods, letters of credit obtained from the buyers abroad were
to be given to the Plaintiff, whereupon the Plaintiff would negotiate the letters of credit with the bank and encash the same. The same has not been
proved to be a contract opposed to public policy, to make the collateral contract, namely the lending and borrowal between the Plaintiff and the
first Defendant also unenforceable. Therefore, the above said contention of the Defendants that the contract is unenforceable as it is collateral to a
contract which is opposed to public policy also deserves to be rejected as untenable.
Issue Nos. 1 to 3
From the above said discussions, it is quite obvious that the outstanding amount due from the Defendants as on the date of issuance of Ex.P8,
namely 30.04.1998 was Rs. 27,63,694. The equitable mortgage was also created under Ex.P7 dated 03.03.1998. Till such date, the Plaintiff had
not claimed any interest. Even after the dishonour of the cheque, the Plaintiff had not claimed interest in the notices that followed. Only in Ex.P17
notice dated 15.10.1998, the Plaintiff made a demand for the payment of the above said amount and a further sum of Rs. 24,10,298/-towards
interest up to the end of September 1998 and future interest. As no interest was claimed prior to the date of issuance of the said notice, which
preceded the filing of the suit, this Court is the view that the Plaintiff shall not be entitled to recover any interest prior to the date of demand made in
such notice. The said notice was issued on 15.10.1998 and the same was received by the Defendants on 27.10.1998. Therefore, this Court is of
the view that the Plaintiff shall be entitled to recover interest only after the service of the said notice on the Defendants, under which alone a
demand for payment of interest was made.
Admittedly, there was no written contract between the Plaintiff and the Defendants for payment of interest. There is no clear evidence as to
what was the contractual interest, if at all there was any contract. On the other hand, there is an admission on the part of PW1 that there is no
document to show that there was a specific agreement for payment of interest at a specified rate. Under such circumstances, on a particular date, a
claim was made by the Plaintiff by issuing a notice calling upon the Defendants to clear the outstandings on running account as on the date of such
notice, which was quantified to be Rs. 27,63,694/-. The said demand notice did not contain a demand for payment of interest. The
acknowledgments made by the Defendants in various letters, especially the latest acknowledgment, namely Ex.P7 dated 03.03.1998 and Ex.P11
dated 01.07.1998 and even Ex.P13 dated 31.07.1998 do not refer to any interest. Various demand notices, except the last one preceding the
filling of the suit, did not make any demand for payment of interest. Therefore, this Court has to make a necessary inference that no specific
contract for payment of interest at a specified rate has been proved by the Plaintiff. In the absence of such a specific contract, it shall be justifiable
to allow interest only from the date of demand for payment of the principal with interest
In this case, the notice demanding payment of interest was served on the Defendants only on 27.10.1998. Only from the said date the Plaintiff
shall be entitled to recover interest. But what is the rate at which the interest has to be awarded has to be decided in accordance with Interest Act.
It is the case of the Plaintiff that the Plaintiff advanced money to the first Defendant to complete the export obligations arising out of orders
obtained from parties in United States of America and out of such amount advanced the amount claimed as principal in the plaint had fallen due.
The effect of the above said pleadings is that the relationship between the Plaintiff and the first Defendant is that of a creditor and debtor, in other
words, a lender and borrower. As per the notification under the Money Lenders Act, which is also incorporated under the Tamil Nadu Prohibition
of Charging Exorbitant Interest Act, 2003 for a secured loan, the interest leviable is only 9% simple interest p.a. The suit amount being secured by
the immovable property of the second Defendant which is described in the plaint schedule, the reasonable interest to be awarded shall be only
simple interest at the rate of 9% p.a. upto the date of plaint. Though the liability according to the Plaintiff is said to have arisen out of a commercial
transaction and as per Section 34 CPC, the interest pendenlite and post decree interest can exceed 6%, the present suit having been filed as a suit
on mortgage also, the provision found in Order XXXIV Rule 11 alone shall be applicable for the award of subsequent interest from the date of
plaint till the date of preliminary decree and from the date of preliminary decree till realization or actual payment of the principal amount. It shall be
reasonable to hold that the Plaintiff shall be entitled to an interest at the same rate, namely 9% p.a. Since there is no claim that the Plaintiff has
incurred any cost, charges or expenses in respect of the mortgage security upto this date, no interest under Rule 11(a) (3) is to be awarded.
In the result, the suit is decreed in part and a preliminary decree on mortgage for the sale of the suit property is granted in favour of the Plaintiff
directing the Defendants 1 and 2 jointly and severally to pay a sum of Rs. 27,63,694/-along with an interest on the said amount calculated at the
rate of 9% per annum from 27.10.1998 with proportionate cost. The said amount shall be paid within six months from the date of preliminary
decree. Otherwise the Plaintiff shall be entitled to apply for final decree for the sale of the suit property for the recovery of the above said amount
together with future interest on the principal sum of Rs. 27,63,694/-@ 9% per annum up to the date of recovery or actual payment. In case the
sale proceeds shall be insufficient to satisfy the suit claim, the Plaintiff shall be entitled to a personal decree against the Defendants for the balance
amount due under the decree.