United Commercial Bank vs Mani Ram and Another

V.P. Bhatnagar, J.—This is a civil suit filed by the plaintiff-Bank for the recovery of Rs. 2,07,182.38 P. under the provisions of Order 37 of the Civil Procedure.

Briefly stated, the Plaintiff�s case is that a loan of Rs. 1,45,000/- was advanced to Shri Mani Ram, Defendant No. 1, on September 9, 1981, for the purchase of a truck. Shri Jeet Ram Sharma, Defendant No. 2, had agreed to stand surety for the due repayment of loan amount. The principal-debtor (defendant No. 1) executed the memorandum of agreement, agreement of term loan and agreement of hypothecation of the truck, and the surety (defendant No. 2) executed a continuing guarantee deed in favour of the plaintiff-Bank. After some time, the Defendants started making defaults in the payment of the instalment(s). The last instalment of such amount was paid in April, 1983. The Defendant No. 1 had confirmed the balance due from him on various dates and the last such confirmation was made on March 16, 1984. After the Defendants committed defaults, serveral registered notices were served upon them but they failed to regularise the account resulting into the filing of the present suit against them.

In pursuance of an agreement arrived at between the parties, at the time of the hearing arguments on applications seeking leave to defend the suit, a decree for the recovery of the principal loan amount of Rs. 1,45,000/- with interest at the rate of 12�% per annum from the date of the decree till its realisation, was passed against Defendant No. 1 who was simultaneously allowed monthly instalments of Rs. 6,000/-. He was, however, permitted leave to defend the suit on the point of interest payable by him on the loan amount. The surety was granted leave to defend the suit without imposing any condition.

In the written statement filed by Defendant No. 1, the main objection raised by him is that the plaintiff-Bank had not charged interest at the agreed rate, viz., simple interest of 9�% per annum. Besides, the Defendant No. 1 has also pleaded bar of limitation and that S/Shri Arun Kumar Sood and N.J. Kalra are not competent to file the suit. In the end, he has prayed for easy instalments.

Defendant No. 2, in his written statement, has averred that the suit is barred by time qua him as the acknowledgements made by Defendant No. 1 will not extend the period of limitation as far as he is concerned. It has also been alleged by him that the entries pertaining to the rate of interest have been interpolated with the result that the guarantee of Defendant No. 2 stood discharged. Moreover, liability cannot be fastened on the surety without recovering the suit amount from the hypothecated property and other assets belonging to the principal debtor. As regards the amount of interest, the objection raised by Defendant No. 1 has been reiterated.

The parties were taken to trial on the following issues framed on November 14, 1985:

Whether the suit is within limitation ? OPP.

Whether Mr. Arun Kumar Sood and Mr J.N. Kalra, are competent to file this suit ? OPP.

Whether the entries pertaining to the rate of interest have been interpolated? If so, its effect? O.P. Defendant No.2.

Whether no liability can be fastened on Defendant No. 2 without recovering the suit amount from the hypothecated property and other assets be longing to Defendant No. 1 ? O.P. Defendant No. 2.

To what rate and amount of interest is the plaintiff- Bank entitled to recover? OPP.

Whether the Plaintiff is entitled to recover Rs. 2.07, 182.38 P. ? If so, from whom? OPP.

Relief.

Jssue No. 1.

The loan amounting to Rs. 1,45,000/- was paid to Defendant No. 1 on September 9, 1981. It was to be returned in: thirty equal monthly instalments. The first instalment of, Rs. 4900/- was payable on or before October, 1981. A default was committed in the payment of the first instalment itself inasmuch as no such amount was paid on or before the stipula ted date�. Ex. P. 30 is the Statement of Accounts and its perusal shows that a sum of Rs. 5,000/- was paid by the principal debtor (defendant No. 1) on April 12, 1983. It is also not dis puted that the.balance amounting to Rs. 1,89,699/- was con firmed by the principal debtor on March 16, 1984, vide letter.

Ex. P. 22. The Plaintiff�s case is that a fresh period of limitation has to be computed from the aforesaid dates of acknowled-ment/payment and that the suit, which was instituted on December 19, 1984, is, therefore, within limitation.

As stated above, the facts that the principal debtor confirmed the loan amount on March 16, 1984 and further that he paid a sum of Rs. 5,000/- towards the part discharge ofhis debt on April 12,1983, are not in dispute. The acknowledgement in writing and the payment on account of the debt were made before the expiration of the period of limitation. A fresh period of limitation, therefore, has to be computed from the aforesaid dates within the ambit of Sections 18 and 19 of the Limitation Act, as far as the principal debtor is concerned. The only question which requires determination is whether the aforesaid acknowledgement and part payment would bind the surety also and extend the period of limitation qua him as well.

An acknowledgement or part payment made within the period; of limitation by the principal debtor is a unilateral act. It is made at the back of the surety whose rights and liabilities emanate from the terms and conditions of the deed of guarantee executed by him. A plain reading of the language of Sections 18 and 19 of the Limitation Act shows that theacknow-ledgement or payment adverted to therein would bind only the maker thereof and his successors-in-interest.

Sub-section (2) of Section 20, ibid governs the effect of acknowledgement or payment by Anr. person. It reads:

20(2) Nothing in the said sections renders one of several joint contractors, partners, executors or mortgagees chargeable by reason only of a written acknowledgement signed by, or of a payment made by, or by the agent of any other or Ors. of them.

Manifestly, the cases in which the act of one member of a class is liable to be taken as the act of other members belonging to that very class has been referred to in sub-section (2) of Section 20, ibid. Here also, it has been stipulated that the act of one should not by itself bind the other for the purposes of extending the limitation within the four corners of Sections 18 and 19 of the Limitation Act. It is, therefore, difficult to say how the judgment debtor and the surety who are two distinct persons and whose rights and liabilities are separate could be possibly bound by the act of the other.

Shri Kapil Dev Sood, learned Counsel for the Plaintiff has referred to the provisions of Section 128 of the Indian Contract Act. It lays down the surety�s liability and provides that his liability is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. I do not think that the meaning of the word �co-extensive� can be extended to cover the liability of the surety regarding the period of limitation. The aforesaid liability appears to be restricted only with respect to the quantum of payment. The only illustration given u/s 128, ibid is also indicative of this very interpretation. In any case, the provisions of Sections 18, 19 and 20 of the Indian Limitation Act are not capable of being enlarged by virtue of the aforesaid provisions of Section 128 of the Indian Contract Act, so as to fasten liability on a surety arising out of the acknowledgement or payment made by the principal jdebtor under Sections 18 and 19 of the Limitation Act.

The question as to whether acknowledgement/payment made by the principal debtor will save limitation only as against him or cover the surety as well, has been dealt with by various High Courts. There appears to be a marked cleavage of opinion in them so much so that the same High Court has also taken different views at different times.

In Brojendro Kissore Ror Chowdhury v. Hindusthan Co-operative Insurance Society Ltd. AIR 1981 Cal 707 , it has been held that the surety would not be liable for an acknowledgement/payment made by the principal debtor for the purposes of extending of limitation. A different view, however, was expressed by the learned single Judge of the same High. Court in Ranjit Kumar Roy and Another Vs. Kabiraj Kisori Mohan Gupta and Another, .

The proposition of law that the surety will also be bound by the acknowledgement/payment made by the principal debtor laid down in Ram Chand v. Mewa Ram and Ors. AIR 1918 Lah 310 and in Harbans Lal v. Nathu and Anr. AIR 1919 Lah 374 (2), was over-ruled in Federal Bank of India (Punjab) Ltd. Vs. Som Dev Grover and Others, and in Hazara Singh Gujjar Singh Vs. Bakhshish Singh Mula Singh and Another, This very point was considered at length in V. Somanath Raju and Another Vs. Konchada Ramamurty Subudhi and Others, but with all respect, it has not been possible for me to say with certainity as to what finding on the question of law adverted to above was returned except that liability was fastened on the surety due to the terms of that particular contract.

In Gopal Daji Sathe v. Gopal Bin Sonu Bait ILR 1904 (28) Bom 248 , it was held that the limitation is not to start qua the surety merely because the principal debtor has acknowledged his liability or made a part payment towards the debt. However, the Kerala High Court in The Wandoor Jupiter Chits (P.) Ltd. (in Liquidation) Vs. K. P. Mathew and Another, has held to the contrary.

Thus the views expressed by the various High Courts are not only diametrically opposite with regard to the main question of law adverted to above but there is also difference in the process of reasoning leading to the respective conclusions. For instance, some High Courts are of the view that the principal debtor and surety are joint contractors within the meaning of sub-section (2) of Section 20 of the Indian Limitation Act, whereas other High Courts have concluded that they are not. In my opinion, with all respect, either of the above interpretations cannot lead to the conclusion that the period of limitation would stand enlarged qua the surety on the basis of the acknowledgement/payment made by the principal debtor. In case both of them are deemed to be covered by the term �joint contractors�, the provisions of sub-section (2) of Section 20 of the Limitation Act would expressly bar the surety being chargeable by the aforesaid acknowledgement/payment, but in case they are not to be taken as �joint contractors�, it would not follow �as a necessary corollary that the surety would be so chargeable. In that case, the other provisions of law will have to be looked into. I have already given reasons, based on those other provisions of law, why, in my opinion, the acknowledgement/payment by the principal debtor will not per se save the limitation against the surety.

Nevertheless, it has to be borne in mind that the acknowledgement or part payment can be made through the agent duly authorised in this behalf. In other words, the surety can appoint the principal debtor as his agent for the aforesaid purpose. Evidently, in such an eventuality, the principal debtor while making the acknowledgement or part payment, would not be binding himself alone but also the surety because the acknowledgement or payment then would be deemed to have been made on behalf of surety as well. The principal debtor would then be acting as the agent of the surety in addition to acting for himself.

Here, Shri D.D. Sood, learned Counsel for the Defendants, has vehemently contended that the act of authorising the principal debtor to acknowledge or make payment on behalf of the surety would be void and unenforcible u/s 23 of the Indian Contract Act because it is prohibited by the express provisions of sub-section (2) of Section 20 of the Limitation Act. I am unable to agree with this contention. Sub-section (2) of Section 20 of the Limitation Act merely bars the inference regarding the liability being fastened on certain members of a class merely because one member out of them has made the acknowledgement or part payment. It would be Anr. matter if the other members expressly or even impliedly agree to be bound by the act of one of them. In fact, it would be too much to hold that one partner cannot authorise Anr. partner to make an acknowledgement or part payment and bind both of them for the purposes of extension of limitation as stipulated under Sections 18 and 19 of the Limitation Act.

Ex. P. 18 is the deed of guarantee executed by Shri Jeet Ram Sharma, Defendant No. 2 (surety). Clause 10 thereof reads as follows:

(10) Any admission or acknowledgement in writing by the Customer of the amount of indebtedness of the Customer to the Bank shall be binding and conclusive on and against me/us my/our heirs, executors, administrators and legal representatives in all Courts of law or otherwise and the customer shall be my/our agent for giving such acknowledgements from time to time on behalf of myself/ ourselves and my/our heirs, executors, administrators and legal representatives.

It is not disputed that the principal, debtor Defendant No. 1 confirmed the balance recoverable by the plaintiff-bank on March 16, 1984 vide document Ex. P. 22. A fresh period of limitation has, therefore, to be computed from the said date not only against Defendant No. 1 but also against Defendant No. 2 whose agent the former was when he confirmed the said balance. Clause 10 reproduced above leaves no scope for doubt in the matter. Putting it in other words, the acknowledgement of liability done by Defendant No. 1 on March 16, 1984, was for himself aswellas for Defendant No. 2 as his surety.

Shri D.D. Sood, learned Counsel for the Defendants, has frankly conceded that the suit is within limitation qua Defendant No. 1. In view of the above findings qua Defendant No. 2, it is held that the suit is within limitation against both the Defendants. Issue No. l is, therefore, decided in favour of the plaintiff.

Issue No. 2.

When Shri Arun Kumar Sood (PW-2) was in the witness box, learned Counsel for the Plaintiff wanted to put certain questions to him in order to prove that the suit had been filed by duly authorised person. The learned Counsel for the opposite side, however, conceded this point and accordingly, the Plaintiff was directed not to iead any evidence on this point. This issue has also been conceded by the learned Counsel for the Defendants at the time of addressing arguments and is, therefore, decided in favour of the plaintiff.

Issues No. 3 and 5.

Both these issues are intern-connected and may, therefore, conveniently be dealt with together.

The rate of interest chargeable on the loan transac tion stands evidenced by a number of documents placed on the record. Curiously-enough, the aforesaid rate vastly differs in different documents. The Defendants are stated to have given the application form Ex. P. 17 for obtaining the loan. It was stipulated therein that the loan amount will be repaid together with the interest at the rate of 1.2-�% per annum. The deed of guarantee Ex. P. 19 records the interest to be payable �at the rate of 12.5% per annum or at such rate or rates of interest which may be notified from time to time by the Bank. Ex. P. 19 is the Memorandum of agreement executed by both the Defendants. In Clause-1 thereof, the rate of interest is simple interest of 9$% per annum. (The learned Counsel for both the parties agreed during the course of recording the statement of Shri Arun Kumar Sood (PW-2) that the rate of interest printed in clause-1 on Ex. P. 19 be taken as 9�% per annum though from the printed figure it appears that the rate stipulated is 91/3% per annum). This very document viz. P. 19 in its Clause-2 gives the rate of interest to be 12�% per annum. Clause-6 of the agreement Ex. P. 20 relating to the term loan reads as follows and has a totally different rate mentioned therein:

The Borrower shall in the meantime pay interest at the rate of 3.5% over the Reserve Bank rate subject to the minimum of 12.5% per annum or at such other rates as may be notified to the Borrower by the Bank from time to time as on 30th June and 31st December.

The hypothecation deed Ex. P. 21 once again gives the rate of interest to be 12.5% per annum.

The first point urged on behalf of Defendant No. 2 is that the rate of interest recorded in various documents has been interpolated by the plaintiff-Bank thus totally discharging the said Defendant from his liability. As noticed above, it is manifest that varying rates have been mentioned in different documents but on the evidence adduced in this case, it is difficult to hold that interpolations have been made with respect to the aforesaid entries or that the blank spaces meant for recording the rate of interest in various printed forms were filled in after obtaining the signatures of the Defendants. No doubt, Shri Mani Ram, Defendant No. 1, has deposed in his statement that the blank spaces in the documents Ex. P. 17 to P. 21 had not been filled in when his signatures were obtained thereon. Similarly, Shri Jeet Ram, Defendant No. 2, has also made that very statement pertaining to documents Exs. P. 17, P. 18 and P. 19. On the other hand, it has been elucidated in the cross examination of Shri Arun Kumar Sood, (PW-2) that the blank spaces in question were filled in by Shri D, D. Bhatia, who was the Bank Manager of Darlaghat Branch on the date when the documents Exs. P. 17 to P. 21 were executed. This witness, in the first instance, stated that he could not say in whose handwriting the said blank spaces had been filled in and that he was not acquainted with the handwriting of Shri Bhatia. But immediately, after making this statement, he deposed that he was acquainted with Shri Bhatia�s handwriting as he had been perusing many documents admittedly written in his hand and further that from that knowledge he could say that the blank spaces had been filled in by Shri Bhatia in his hand. He, however, emphatically denied a suggestion to the effect that the blank spaces in question had been filled in just prior to the institution of this suit. There appears to be no reason to disbelieve the testimony of Shri Arun Kumar Sood (PW-2) on this point. The very fact that totally different rates of interest stand recorded in various documents as mentioned above, indicates carelessness with which the blank spaces were so filled in. It is also indicative of lack of any plan or pre-thought in which case such variations ought to have been obviated. In fact, the Defendants themselves have maintained that they agreed to pay simple interest at the rate of 91% per annum which rate also stands incorporated at one place in the Memorandum of agreement Ex. P. 19. The mere fact that the blank spaces in the deed of agreement Ex. P. 18 have been filled in by a type-writer whereas the blank spaces in other documents are filled in by a ball-pen does not establish that any one of these documents was interpolated with. It is also not clear to me as to how the interpolations of the nature which are alleged to have been made could possibly help the Plaintiff in any manner. All the same, the different rates of interest do stand recorded in various documents admittedly executed by the Defendants and its benefit, in the totality of the circumstances, must go to the Defendants. The rate of interest amounting to 91�% per annum is the minimum. As stated above; both the Defendants have also conceded in their statements that they agreed to pay this rate of interest on the loan amount. I, therefore, hold that the plaintiff-bank is entitled to recover simple interest at the rate of 91�% per annum from the Defendants on this transaction and decide issue No. 5 accordingly.

As regards issue No. 3, I have already held that there have been no interpolations. Therefore, the question of the alleged interpolations discharging the surety, in toto would not arise. Nevertheless, in all fairness, I may notice here one authority cited by Shri D.D. Sood, learned Counsel for the Defendants. It is S. Perumal Reddiar v. Bank of Baroda and Ors. AIR 1981 Mad 180, wherein the surety was held to have been discharged on account of some material alterations having been made at his back and without his consent. Every case is an authority on its own facts and the facts of that case are totally distinguishable with the facts in hand. In S. Perumal Reddia�s case (supra), there was incontrovertible evidence to show that the loan amount and the rate of interest both had been inserted in the deed of guarantee much after obtaining the signatures of the surety and that the latter had no knowledge whatsoever about the material alterations thus made. Hence, the very execution of the deed of guarantee could not be proved. The facts in this case are totally different and I am afraid that no benefit can be derived by the Defendants on the basis of the ratio in S. Perumal Reddiar�s case (supra).

In the above view of the matter, issue No. 3 is decided against Defendant No. 2.

Issue No. 4.

Shri D.D. Sood, learned Counsel for Defendant No. 2, has not pressed this issue. In any case, the point involved stands fully answered by the law laid down in The Bank of Bihar Ltd. Vs. Dr. Damodar Prasad and Another, Issue No. 4 is, therefore, decided against Defendant No. 2.

Issue No. 6.

Shri Arun Kumar Sood, (PW-2) has stated in his cross- examination that the total amount recoverable would work out as Rs. 1,55,958.32 P. including the interest at the rate of 9$% per annum upto November 5, 1984. Out of the said amount, a decree for the recovery of the principal loan amount of Rs. 1,45,000/- has already been passed against Defendant No. 1 on October 1, 1985. In the circumstances, the Plaintiff is entitled to recover a sum of Rs. 10,958.32 P. from Defendant No. 1. The Plaintiff is also entitled to a decree for the total amount of Rs. 1,55,958.32 P. against Defendant No. 2. This issue is decided accordingly.

Issue No. 7.

As a result, a further decree for the recovery of Rs. 10,958.32 P. is hereby passed in favour of the Plaintiff and against Defendant No. 1. The rate of future interest and the mode of payment will continue to be the same as given in the decree dated October 4,1985. A decree for the recoevry of Rs. 1,55,958.32 P. is also passed against Defendant No. 2 with the same future interest as well as the mode of paymerit.