Karnataka High Court
State Bank Of Mysore vs M/S. S.M. Essence Distilleries Pvt. ... on 21 April, 1993
Equivalent citations: AIR1993KANT359, ILR1993KAR2016, AIR 1993 KARNATAKA 359, (1993) 2 BANKCAS 389, (1993) ILR (KANT) 2016, (1993) 2 KANT LJ 649, (1994) BANKJ 276, (1994) 2 BANKCLR 128
Author: R.V. Raveendran
Bench: R.V. Raveendran
ORDER Raveendran, J.
1. The appellant and the respondents in this appeal are respectively the plaintiff and the defendants in O. S. No. 33 of 1983 on the file of the Civil Judge, Srirangapatna. For convenience the parties will be referred to by their Ranks in the trial Court. The plaintiff will also be referred to as the 'Bank'.
2: The first Defendant, a Company incorporated under the Companies Act, was a constituted of the plaintiff Bank at its Malai Mahadeswaraswarny Hills Branch, Kollegal Taluk, Mysore District. On the request of the first defendant for certain loan facilities for purposes of their business, the Bank granted the following credit facilities on 16-1-1980:
(a) A cash credit loan facility to a limit of Rs.2,00,000/- against hypothecation of goods/stock in trade repayable with interest at State Bank Advance Rate with a minimum of 16 1/2 per annum with quarterly rests; (hereinafter referred to as the Hypothecation Account);
(b) A cash credit clean loan of Rs. 60,000/ -repayable with interest at the State Bank Advance Rate with minimum of 16 1/2 p.a., with quarterly rests (hereinafter referred to as the clean loan Account)
(c) A term loan of Rs. l,65,00/-againstthe hypothecation of standing crops repayable with interest at the State Bank Advance Rate with minimum of 16 1/2 per annum with quarterly rests; (hereinafter referred to as the Term Loan Account).
3. The repayment of the said loans was guaranteed by defendants Nos. 2, 3 and 4 (who were respectively the Managing Director and Directors of the First Defendant) as the co-obligants/Guarantors for repayment of the amounts due by the first defendant. By way of collateral security for repayment of the said loan, the 4th defendant who was the owner of the plaint schedule lands bearing Sy. No. 34/1 of Hebbadihundi village, Sy. No. 36 of Neelana Koppalu village, Sy. Nos. 12, 13m, 15 and 18 of Allapaltana village and Sy. No. 34 of Nagarakatte Kaval village in Srirangapatna Taluk, Mysore District, created an equitable mortgage over the said properties. The said equitable mortgage was created by the 4th defendant on 17-1 -1980 by depositing the title deeds relating to the Plaint Schedule properties with the Bank at its Shivarampet Branch, Mysore with intent that they shall remain as collateral security for securing the payment of several loans aggregating to Rs. 4,75,000/- with interest and other charges. Subsequently on 26-3-1981, the 4th defendant executed a Memorandum in favour of the Bank confirming the deposit of title deeds already made on 17-1-1980. As the Plaint Schedule properties were situated in Srirangapatna Taluk, the said memorandum was registered in the office of the Sub-Registrar, Srirangapatna on 26-3-1981. The Bank also stated that the defendants had confirmed the balances due in the accounts as on 31-12-1981 and also executed letters of revival on 17-2-1982 and 5-3-1992.
4. As the first defendant did not pay the amounts due in the said accounts, the Bank filed the suit on 17-6-1983 in the Court of the Civil Judge, Srirangapatna for recovery of Rs. 6,73,509-90 with costs and current interest at the rate of 16.5% per annum from the date of suit till date of realisation. The suit claim was the aggregate of the following amounts:
(a) Rs. 3,06,049-76 due in the cash Credit Loan Account;
(b) Rs. 1,02,149-68 due in the cash Credit clean loan account; and
(c) Rs. 2,65,310-46 due in the term Loan Account.
The Bank prayed for a mortgage decree for sale of the mortgaged properties with a direction that if the sale proceeds were insufficient to discharge the decree, the short fall shall be recoverable from the other assets of the First Defendant and personally from defendants Nos. 2 to 4.
5. Defendants I and 2 filed their written statement (adopted by the 3rd and 4th defendants) admitting the grant of aforesaid credit facilities and borrowing of Rs. 2,00,000/-Rs.60,000/- and Rs. 1,65,000/- respectively in the three accounts. They also admitted the execution of several loan documents referred to in the plaint and the fact that the suit schedule properties were offered as security to the Bank. They, however, contended that they were not liable to pay interest at 16 1/2% per annum but their liability was to pay interest at only 9% per annum, as the essence of the transaction was an agricultural loan. They also contended that the acknowledgments of debt were not executed by them on 17-2-1982 and 5-3-1982. They contended that they had been granted 200 acres in Mahadeshwara Hills by the Government of Karnataka for cultivation of medicinal and other plants and that the loans were obtained for the purpose of development activities, that after obtaining the loan, the company cleared the forest area and planted the medicinal plants such as Vinca Rosa and Lernon Grass, but before the plants were ready for reaping/extraction, due to heavy rains and due to unforeseen flood, the entire cultivated area along with the plants was washed away and therefore, they requested the Bank to advance them a further loan; that though the Bank initially assured the first defendant to grant further advance for rebuilding their activities, ultimately, did not advance any further loan and consequently their activities were paralized and as a result of these unforeseen events, they were not liable to pay any interest. They also contended that the 1st defendant had granted an irrevocable power of attorney to the Bank to receive the amounts due to 1st defendant from the State Government in regard to several bills submitted by the 1st defendant and the Bank did not take action for recovery of the said amounts, as power of attorney H older and therefore committed a breach and consequently they were discharged from paying the suit claim.
6. The Bank filed a rejoinder pointing out that the interest charged was in accordance with the documents executed by the respondent. The Bank also contended that the power of attorney merely enabled them to receive any amount that had become due to the 1st Defendant in regard to any bills submitted by them and that if the amounts were not due, the question of bank recovering any amount in pursuance of the said power of attorney did not arise. The bank further contended that there was no privity of contract between the Bank and the Government from whom amounts were allegedly due to first defendant, and in so far as the power of attorney executed by the 1st defendant, the Bank was merely an agent of the 1st defendant and unless any amounts were actually realised by the Bank in pursuance of the power of attorney, the Bank will not be liable to give credit to any amount for which the bills might have been raised by the 1st defendant.
7. On these pleadings, the court below framed the following Issues:
1. Whether the plaintiff proves that the defendants 1 to 4 borrowed Rs.2,00,000/-from the plaintiff on 16-1-80 agreeing to pay interest at 16.5% P. A. after executing an on-demand pronote as contended?
2. Whether the plaintiff further proves that the said debt was secured by the execution of the hypothecation deed executed by defendants 1 to 4 hypothecating the goods and the standing crops mentioned therein as alleged?
3. Whether the plaintiff further proves that the defendant borrowed Rs. 60,000/ - on 16-1-80 after executing an on-demand pronote on the same day agreeing to pay interest at 16.5% p.a. as alleged?
4. Whether the plaintiff further proves that the defendants Ho 4 borrowed Rs. 1,65,000/-from the plaintiff agreeing to pay interest at 16.5% p.a. as alleged?
5. Whether the plaintiff further proves that defendant No. 4 equitably mortgaged the suit schedule lands in favour of the plaintiff by deposit of the title deeds with the plaintiff through the registered memorandum dated 26-3-81 in the office of the Sub-Registrar at Srirangapatna as alleged?
6. Whether there is cause of action for filing this suit?
7. Whether this court has got territorial jurisdiction to try this suit?
8. Whether the suit is in time?
9. Whether the interest charged by the plaintiff is illegal and excessive?
10. Whether the suit is bad for non-joinder of necessary parties as contended in para 14 of written statement by defendants?
11. Whether the plaintiff is entitled to recover Rs. 6,73,509.90 paise from the de/endants as contended?
12. What decree or order.
8. In support of their claim, plaintiff examined six witnesses. P. W. 1 (R. Chandraiah) who was the manager of Malai Mahadeswara Bills Branch of the Bank at the relevant time (up to 1981) gave evidence about the grant of credit facilities and the documents executed by the defendants, the creation of equitable mortgage, the execution of fetter of Revival and confirmations of Balance, the correspondence between the parties the parties and the amounls due as per the Books'of Account. P.W. 2 (R. Rame-gowda) who is an attesting witness to the memorandum relating to Deposit of title deeds spoke about the execution of the said Memorandum by 4th defendant. P.W. 3 (S. Chella Dorai) who was the Rural Development Officer of the Bank's branch at M.M. Hills at the relevant time confirmed that he had filled in the several documents executed by the defendants at the time of availing the loan facilities' and at the time of acknowledging their liability and about the communications sent in regard to increase in interest. P.W. 4 (T. Alagaiah) who was the cashier of the Bank and P.W. 3 also confirmed that they were the witnesses to the Agreements executed by first defendant. P.W. 5 (Keshava Saralaya) who was a cashier of the Bank confirmed having filled in the three confirmations of balances and gave evidence about the signing thereof by defendants 1, 2 and 3. P.W. 6 (T. N. Kumar) who was the Manager of M.M. Hills Branch of the Bank between 1981 and 1985 spoke about the due certification of the Statement of Accounts.
9. The Bank also produced and exhibited Ex. P. 1 to P. 71 of which the relevant documents are:
(a) P. 1 and P. 11 being the promissory notes regarding the hypothecation Account and clean loan Account;
(b) P. 4, P. 19 and P. 20 being the Agreements regarding the Hypothecation Account, clean loan Account and Term loan account;
(c) P. 6 to P. 9, P. 14 to P. 17 and P. 23 to P. 26 being the Revival letters executed by-defendants I to 4 in regard to each of the three Accounts.
(d) P. 10, P. 18 and P. 27 being the confirmations of balances in the three Accounts as on 31-12-1981 signed by defendants 1,2 and 3;
(e) P. 21 being the letter of Guarantee executed by defend ants 2 to 4 and P. 28 being the registered memorandum relating to deposit of title deeds executed by defendant No. 4;
(f) P- 68, P. 69 and P. 70 being the certified Statements of Accounts relating to the three Accounts.
(g) P. 62 and P. 63 being the communications regarding increase in interest rate.
(h) P. 29 to P. 60 being the Documents of title deposited with the Bank.
10. The second defendant who is the Managing Director of the first Defendant and who is one of the Guarantors was examined as D.W. 1. The defendants also exhibited Ex. D1 to D.23.
11. The Trial Court considered the several documents executed by defendants 1 to 4 in favour of plaintiff and answered issued 1 to 4 and in the affirmative and Issue No. 10 in the negative. However, the Court answered Issues Nos. 5 and 7 in the negative and held that the equitable mortgage created was invalid and that it did not have jurisdiction to try the suit. In regard to Issue No. 8, the trial Court held that the suit was barred by limitation. In regard to issue No. 9, it held that the interest charged was excessive, as there was variation between pleadings and proof. Consequently, the trial Court dismissed the suit holding that as the suit was also found to be barred by time, the question of returning the plaint for presentation to proper court did not arise.
12. Feeling aggrieved by the Judgment and decree of the Court below, the Hank filed this appeal. On the contentions urged, the following points arise for consideration in this appeal:
(1) When the equitable mortgage is created in a Notified Town by deposit title deeds, whether a subsequent registration of a Memorandum confirming the deposit of title deeds in a town not notified under Section 58 of the Transfer of Property Act, but where the property is situated, renders the equitable mortgage invalid?
(2) Whether the trial court had territorial jurisdiction to try the suit?
(3) What is the rate of interest to which the plaintiff is entitled?
(4) Whether the suit is barred by limitation?
(5) Whether the defendants are discharged from their liability on the ground that the plaintiff did not take steps to recover the amounts due from the Government in pursuance of the power of attorney granted by the defendants?
(6) What decree or order?
Point No. I :
13. The trial Court held that under S. 58(f) of the Transfer of Property Act (hereinafter referred to as the 'Act') a mortgage by deposit of title deeds (for convenience referred 1.0 as 'equitable mortgage1) can be created only in the towns notified under the said Section; that though Mysore, where the.title deeds were depsoited was a notified town, as the memorandum relating to the deposit of title deeds was registered at Srirangapatna which was not a notified town, the equitable mortgage was illegal and unenforceable.
14. The learned counsel for plaintiff contended that as the deposit of title deeds at Mysore on I7-1-1980 was admitted, the subsequent registration of the Memorandum in a non-notified town will not invalidte the mortgage. On the other hand, the learned counsel for the defendants contended that when a memorandum is executed and registered subsequent to the date of deposit, such memorandum should be treated as the repository of the agreed terms, creating the equitable mortgage, and if such a memorandum is executed and registered in a non-notified town, the same shall be treated as invalid.
15. The defendants did not plead in their written statement that the equitable mortgage created by them was not valid. However, taking advantage of the inaccurate manner in which Issue No. 5 was framed (which assumed that plaintiff had contended that the equitable mortgage was created under the memorandum dated 26-3-1981 and placed the burden on the plaintiff to prove that the equitable mortgage was so created), the defendants contended that the registration of the Memorandum at Srirangapatna did not create a valid equitable mortgage. The trial Court accepted the contention and dismissed the suit. Thus it becomes necessary to examine three aspects of S. 58 of the Act. to determine whether the equitable mortgage averred by the plaintiff is valid : (a) Whether a valid mortgage can be created by depositing in a notified town, the title deeds relating to a properly situated outside the notified towns; (b) where a deposit of title deeds is made on a particular day with intent to create securily thereon, whether a subsequent execution and registration of a memorandum supersedes it; and (c) If a memorandum confirming the deposit in a notified town, is registered in a non-notified town, does it invalidate the equitable mortgage already created.
16. Section 58(f) of the Act reads thus:
"Mortgage by Deposit of Title Deeds :
Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may. by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds."
Section 59 of the Act provides:
"Where the principal money secured is one hundred rupees or upwards, a mortgage other than a mortgage by deposit of title deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses...."
To create a valid mortgage by deposit of title deeds, there must be a delivery of the title deeds relating to an immoveable property by the debtor, to a creditor or his agent, in a notified town with the intention to create a security thereon. In this case, the fact that the title deeds (Exs. P-29 to P-60) relating to the plaint schedule properties were delivered by the 4th defendant to the Bank on 17-1-1980 at Mysore which is a notified town and the fact that the delivery of such title deeds was with an intention to create a security on such title deeds for the amount advanced/agreed to be advanced on 16-1-1980, are not disputed. An equitable mortgage of a property which lies outside the territories of notified town, can be validly created by delivering the documents of title to the creditor or his agent in a notified town. (See the decisions in Papiah v. Naga-natha reported in AIR 1931 PC 239, Madho Das B. Ramkishen reported in ILR 1892 (14) Allahabad page 238 and Srinath Roy v. Godadhur Das reported in ILR 1897 (24) Calcutta page 348. Thus a valid equitable mortgage as defined in Section 58(f) was created by the fourth defendant in favour of the Bank on 17-1-1980.
17. It is now well settled that no Memorandum or writing is necessary to create an equitable mortgage by deposit of title deeds. The equitable mortgage was complete by delivery of the documents with an intention to create security thereon. However, execution of a Memorandum or document in regard to deposit of title deeds is not prohibited. If however the equitable mortgage is created by execution of the Memorandum or if the Memorandum embodies the bargain between the parties, then it will be liable for Stamp duty under Article 6 of the Schedule to the Karnataka Stamp Act and will also require registration. But if the memorandum or document is executed subsequent to the creation of the equitable mortgage, merely in confirmation of or as a record of the transaction, it neither attracts Stamp duty under Art. 6 nor requires registration. The terms of the document itself and the surrounding circumstances will have to be looked into to find out whether the document is to be taken as embodying the express bargain between the parties or merely evidential in nature. The Supreme Court in Rachpal Mahraj v. Bhag-wandas Daruk a . stated the law thus at pages 273 and 274:
"The crucial question is : Did the parties intend to reduce the bargain regarding the deposit of title deeds to the form of a document? If so, the document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to so, then, there being no express bargain, the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document itself being merely evidential does not require registration."
The following observations of the Supreme Court in the case of United Bank of India v. Lakharam Sonaram (reported in) are also of Hevance at page 1593 :
"A mortgage by deposit of title deeds is a form of mortgage recognised by S. 58(1) of the Transfer of Property Act which provides that it may be effected in certain towns where a person "delivers to a creditor or his agent documents of title to immoveable property with intent to create a security thereon". In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security the law implies a contract between the parties to create a mortgage and no registered instrument is required under S. 59 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immoveable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding seenrity requires registration under S. 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immoveable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either."
Whether a letter written in connection with an equitable mortgage was required to be stamped under Article 6 of the Karnataka Stamp Act arose for consideration of this Court in the case of Murugarajendra Co. v. Chief Controlling Revenue Authority reported in 1974 (I) Kar LJ 177 : (AIR 1974 Kant 60). After referring to United Bank of India case and the decision of the Privy Council in Obla Sundarachariar v. Narayan Ayyar reported in AIR 1931 Privy Council 36, and the decision of this Court in Rajamma v. Mahant P. Krishnanandagiri Goswamy reported in 1973 (2) Mys LJ 73: (AIR 1973 Mys 310) this court held that a document under which a debtor confirmed the deposit of title deeds in favour of the creditor was not intended to be the sole repository of the terms of the equitable mortgage, but was only a letter containing an acknowledgment of an already concluded equitable mortgage and therefore, not an instrument by which any right or liability was created in regard to immoveable property.
18. The memorandum executed by the defendant will have to be examined in the context of the above principles. Apparently, to assure an indisputable equitable mortgage, the 4th defendant who is the owner of the plaint schedule properties, executed a Memorandum in favour of the Bank on 26-3-1981, fourteen months after the creation of the mortgage. The relevant portion of the Memorandum executed on 26-3-1981 (Ex. p. 28) reads as follows:
"I hereby confirm that the title deeds mentioned in the first schedule hereto relating to the properties as more fully described in the schedule hereto have in pursuance of oral agreement previously made with the Bank been delivered and depsoitcd by me to and with the Bank at Shivarampet. Mysore on 17-1-1980 by way of equitable mortgage...."
This discloses that the Memorandum executed by the fourth defendant was merely a record of a transaction of equitable mortgage which validly came into effect at Mysore on 17-1-1980. The Memorandum did not create the equitable mortgage. Nor did it embody the bargain between the Mortgagor and the Mortgagee. Nor did it extinguish the equitable mortgage created on 17-1-1980 and create a fresh equitable mortgage on 26-3-1981. Hence Ex. P.-28 neither required to be stamped under Art. 6 of the Stamp Act nor required registration. The memorandum did not have the effect of rendering the equitable mortgage created on 17-1-1980. invalid. The mere fact that the memorandum was registered does not alter the position.
19. Let us now examine whether the registration of the Memorandum, even assuming that it embodied the terms of the equitable mortgage, at Srirangapatna, which is not a notified town rendered the equitable mortgage invalid. As earlier observed, territorial restriction referred to in S. 58(1) had reference only to the delivery of the documents of title and not to the situation of the property mortgaged. Thus in regard to the plaint schedule properties situated in Srirangapatna Taluk, an equitable mortgage can be created at Mysore which is a notified town. Once the. mortgage is created in a notified town, the registration of the Memorandum can be either at the town where the equitable mortgage is created or in the office of Sub-Registrar within whose jurisdiction, the mortgaged properties are situated. As long as the memorandum merely confirms an equitable mortgage already created in a notified town, the registration of the Memorandum even outside the notified towns, will be valid.
Point No. 2:
20. As the mortgaged properties were situated in Srirangapatna Taiuk and as the suit was for enforcing the mortgage, the suit was filed in the Court of the Civil Judge, Srirangapatna. Consequent upon its finding that the mortgage was not valid, the trial Court held that it had no territorial jurisdiction to try the suit on the ground that the loans were granted and the documents were executed in M. M. Hills in Kollegal Taluk. In view of our finding that the mortgage is valid and enforceable, the Court at Srirangapatna had territorial jurisdiction to try the suit far enforcement of the mortgage. Point No. 3 :
21. In the plaint, the plaintiff has averred that defendants had agreed to pay interest at 16.5% per annum with quarterly rests. In the written statement, defendants contended that they were liable to pay interest only at 9% per annum and not at the rate of 16.5% per annum, on the grounds that the loan was granted in connection with an agro based project and they had sustained severe losses on account of floods. The trial Court held that there was variation between pleadings and proof in regard to the rate of interest, as PW 1 stated that interest had been charged at 15% per annum.
22. The On-Demand promissory notes in regard to the hypothecation account and clean loan account (Ex. P-l and P-4) and the agreements executed in regard to the three Accounts (Ex. P-4, P-19 and P-20) provide for payment of interest at the rate of 1.5% below the Stale Bank of India advance rate rising and falling therewith, with a minimum of 15% per annum with quarterly rests. The said promissory notes have been executed by 1st defendant in favour of second, third and fourth defendants who have endorsed and assigned the said pronotes in favour of the plaintiff Bank.
23. As the State Bank of India rate was 16.5% and 1.5% below the State Bank of India rate would be 15%, P.W. 1 stated in his evidence that interest had been charged at 15% P.A. with quarterly rests in regard to the three loans. Nothing is suggested to or elicited from P.\V- 1 or the other witnesses of plaintiff, to show that the rate of interest charged was different from the agreed rate. D.W. 1 also does not say anything about the interest charged in his examination-in-chief. The absence of any challenge to the rate of interest, either in the cross-examination of the plaintiff's witnesses or in the defendants' evidence, leads to the inference that the interest is charged as per the agreement between the parties and there is no basis for reducing the interest to 9% per annum as claimed by defendants or for the Trial Court to come to the conclusion that there is some discrepancy in regard to the rate of interest.
24. Ex. P-63 is a letter from the Bank informing the 1st defendant that the rate of interest which was 15% per annum stood increased to 16.15% per annum from 1-7-1980. Ex.P-64 is another letter from the Bank informing the 1st defendant that the rale of interest which was 16.15%; per annum was increased to 16.5% per annum from 2-3-1981. The said letters disclose that they were despatched in duplicate and the 1st defendant was required to return one copy duly signed in token of their acceptance. Ex. P-63 and P-64 contain the signature and seal of 1st defendant and are therefore evidence of acceptance of the revised rates of interest as stated in the said letters. Having regard to the terms of the pronoles Ex. P-l and P-ll and letters of guarantee (Ex. p-21) executed by defendants 2 to 4, they are bound by the interest rates agreed to by the 1st defendant.
25. The loans sanctioned to 1st defendant are not agricultural loans but are Smail Scale Industry advances as can be seen from the Bank's sanction letter (Ex. P-71) dated 31-12-1979). The borrower is a Company incorporated under the Companies Act is not an agriculturist. The loan is not for agricultural purposes but for commercial purposes. Hence there is no bar for compounding interest with quarterly rests in terms of the contract between the parties. The hardship alleged by defendants on account of loses said to have been sustained by them cannot be a reason for reducing the contractual rate of interest. The plaintiff is therefore, entitled to interest charged by them, i.e. at the rate of 15% per annum from 16-1-1980 to 30-6-1980, at the rate of 16.15% P. A. from 1-7-1980 at 1-3-1981 and at the rate of 16.5% per annum from 2-3-1981 to date of suit, compounded quarterly.
Point No. 4:
26. The trial Court referred to the execution of the loan documents on 16-1-1980 and held that though the revival letters show that the defendants had executed them on 17-12-1982, and 5-3-1982, there was some discrepancy in the evidence of P.W. 3 and P.W. 6 as to the date of execution of the said revival letters and therefore the revival Setters cannot be relied upon and if the revival letters were not taken into account, the suit was batted by limitation as having been filed beyond three years from 16-1-1980.
27. In regard to all the three advances, loan documents were executed on 16-1-1980. The Hypothecation Account loan facility was utilised between 19-2-1980 to December 1980. The clean loan facility was utilised between January 1980 and April 1980. The term loan was utilised between February 1980 and July 1980. In regard to all the three loan accounts, defendants 1, 2 and 3 have executed confirmations of balance as on 31-12-1981 (as per Exs. P-10, P-18 and P-27). Apart from the said confirmations of balances, all the defendants have individually given revival letters under which they acknowledged their liability for purposes of Section 18 of the Limitation Act, 1963, confirming that they are liable to the Bank for payment of amounts due to the Bank with interest. The revival letters executed by the defendants 1,2 and 3 are Exs. P-6 to P-8 in the case of hypothecation account, E.P-14 to 16 in the case of clean loan account and Ex.P-23 to P-25 in the case of term loan account. All these were executed on 17-2-1982. The revival letters executed by the 4th defendant are Ex.P-9 dated 5-3-1982 in regard to the Hypothecation account, Ex.P-17 dated 5-3-1982 in regard to the clean loan account as per Ex. P-26 dated 17-2-1982 in regard to the term loan account. The suit has been filed on 17-6-1983. Thus the suit is clearly within time. Further, in so far as the suit is for enforcement of mortgage by sale, the period of limitation will be 12 years from 17-1-1980 which is the date of equitable mortgage.
28. At this juncture, the variation in the evidence of PW 6 and PW 3 in regard to the execution of the revival letters, referred to by the trial Court, can be dealt with, though we have found that even without the revival letters, the suit is in time. P.W. 6 stated in his evidence that defendants 1 to 3 signed the revival letters at 2nd defendant's house at Bangalore in his presence; that as 4th defendant was not available, he gave the revival letters (Exs. P-9, P-17 and P-26) to be signed by 4th defendant to 2nd defendant and 2nd defendant obtained the signature of defendant No. 4 to the Setters of revival on 5-3-1982. The trial Court has observed that Ex. P-26 beafs the date as 17-2-1982, while P.W, 6 admitted that defendant No. 4 executed it on 5-3-1982 and therefore, it was apparent that the revival letters did not come into existence on the dates mentioned therein. We found that the reasoning of the trial Court is not sound. It is apparent that the Bank prepared the revival letters for being signed on 17-2-1982. Onlydefendants 1 to 3 signed the revival letters on 17-2-1982 and as the 4th defendant was not available, they were delivered to the hands of 2nd defendant for getting the signature of 4th defendant. The fact that defendant No. 4 signed the revival letter on 5-3-1982 but did not correct the date mentioned in Ex. P-26 while signing the revival letter does not invalidate the revival letters. The trial Court has also pointed out that there is some variance in regard to the place of execution of the revival letters. While PW 6 stated that defendants 1 to 3 executed the revival letters at the 2nd defendant's house at Bangalore, P.W. 3 stated that they were executed at the plaintiffs branch at M.M. Hills. When the 2nd defendant has admitted the execution of the revival letters by defendants 1 to 4, some lapse of memory on the part of PW 3 in regard to place of execution of the revival letters will not affect the binding nature of these letters of acknowledgment.
Point No. 5:
29. The learned counsel for the defendants contended that amounts were due to the 1st defendant from the State Government, that the 1st defendant had executed an irrevocable power of Attorney in favour of the Bank authorising them to recover the amounts due to the 1st defendant, that the Bank did not take any steps to recover the amounts due from the State Forest Department and thereby first defendant lost amounts due to them and therefore, the plaintiff should be non-suited. The learned counsel for the Bank pointed out that the said contention was not the subject-matter of any issue. However, this point can be taken to have arise under Issue No. 11 and accordingly we proceed to consider it.
30. Though defendants raised a vague plea about such loss in the written statement, they did not specify the amount said to have been lost by them by the alleged inaction of the plaintiff, On the other hand, plaintiff Bank contended that no amount was due to first defendant which could be collected by using the power of attorney. Ex. P-66 dt. 30-5-1981 shows that 1st defendant executed a power of attorney in favour of the Bank authorising them to apply for and receive all amounts that may become due to 1st defendant from the Forest Dept. Govt. of Karna-taka, in regard to the bills submitted by them. The Bank has produced a letter dated 20-7-1981 (Ex. P. 67) from the Deputy Conservator of Forests, Koltegal, addressed to the Bank, to show that nothing was due from the State Government to the first defendant, in regard to any supplies. That letter informed the Bank that Rs. 31,824/- was due to the first defendant in regard to bills submitted by first defendant, but the first defendant was itself due in a sum of Rs.40,000/- towards lease amount and that the Chief Conservator of Forests has recommended cancellation of the lease granted to the 1 st defendant. The Forest Department refused to make any payment and returned the power of attorney to the Bank. Significantly defendants have neither pleaded nor produced any proof to show: (a) that any specific amounts were due to 1st defendant from third parties in regard to supplies made by them; (b) that they had notified the Bank about such amounts and requested them to receive the said amounts; and (c) that the Bank had agreed to recover the said bill amounts and give credit to the said amounts irrespective of realisation thereof from such parties. The mere execution of a power of attorney by the debtor in favour of the Bank, enabling the Bank to realise and appropriate the bill amounts, does not discharge the debtor from his liability. Hence defendants cannot avoid liability for the amounts due by them.
Point No. 6:
31. The Bank has produced three extracts from the Books of Accounts, duly certified under the Bankers' Book Evidence Act, 1891, relating to the three accounts. They are Ex. p.68, P. 69 and P. 70 and they disclose outstanding balances of Rs. 3,06,049-76, Rs. 1,02,149-68 and Rs. 2,65,310-46 respectively. P. W. 1 and P. W. 6 have given evidence that the entries in the said statement correspond with the original Books of Account and the interest has been changed as agreed to by the defendants. There is no cross-examination in regard to the correctness of these statements of Account. Hence, plaintiff Bank is entitled to a decree for Rs. 6,73,509-90 as prayed for. As the liability in regard to the sum adjudged arises out of a commercial transaction and there is a contract regarding . the rate of interest, the Bank will be entitled to the interest at the contract rate from the date of suit to date of realisation. There is no reason for reducing the rate of interest either during the period covered by sub-rule (a) or (b)ofO.34, R. 11,C.P.C.
32. For the foregoing reasons, this appeal is allowed and the judgment and decree of the trial Court are set aside. The suit is decreed for Rs. 6,73,509-90 with interest at 16.5% per annum from the date of suit to date of realisation and costs throughout. Six months time is fixed for payment of amount declared due. There shall be a preliminary decree for sale, under 0.34, R. 4 of C.P.C. The liability of defendants 1 to 3 shall be joint and several, with defendant No. 4. In case defendants fail to pay the amount declared due within the time specified, plaintiff is entitled to initiate proceedings for final decree for sale of the suit schedule properties and personally from defendants 1 to 4.
33. Appeal allowed.