Debt Recovery Appellate Tribunal - Madras
U. Krishnan vs Syndicate Bank And Ors. on 31 October, 2005
Equivalent citations: I(2006)BC222, [2006]130COMPCAS51(NULL)
ORDER
K. Gnanaprakasam, J. (Chairperson)
1. This regular appeal is directed as against the order dated November 27, 2003, passed by the DRT, Bangalore, in OA No. 496 of 1995. The second defendant in the O. A. is the appellant herein.
2. The facts of the case are as follows :
The first defendant-company, namely, M/s, Southern Oils and Extractions Ltd. was a public limited company and M. K. Bhanu was the managing director of the said company. The second defendant in the O. A. who is the appellant herein, was one of its directors. The third defendant is an industrialist at Bangalore. During the year 1981-82, the bank sanctioned loans to the extent of Rs. 41.86 lakhs on several heads. As the company was not paying the amount due to the bank regularly, the bank filed a company petition, C. P. No. 19 of 1983, for liquidation and the High Court of Karnataka by its order dated January 8, 1984, ordered the winding up of the company. That in respect of the loan account, the first defendant, as the managing director of the company, had executed a demand promissory note for Rs. 18 lakhs on December 29, 1981. In addition, he had also executed a personal guarantee on December 29, 1981, to the extent of Rs. 75 lakhs. The second defendant had executed a deed of guarantee on December 26,1981, accepting his personal liability to the extent of Rs. 76 lakhs. The: third defendant also executed a deed of guarantee on June 26, 1982 accepting his liability to the extent of Rs. 84.90 lakhs. All the guarantees executed by them are continuing guarantees and the guarantee shall be in addition to or shall not in any way be prejudicial or affect any collateral security now. hereafter to be held by the bank. As the defendants have not paid the amount due, the bank has filed the suit in respect of the SODH account only for recovery of a sum of Rs. 46,24,221.85 together with interest thereon.
3. The appellant who is the second defendant in the O. A., filed a lengthy reply statement stating that M. K. Bhanu was appointed as the managing director for a period of five years from March 24, 1978, and he ceased to be a managing director on March 23, 1983, and A. R. Kejriwal, the third defendant was appointed as a de facto managing director from May 6, 1982, till the order of winding up of the company, which was passed on January 9, 1984. On and from May 6, 1982, the management of the company changed hands as per the decision of the board of the company and the third defendant took over the company as a de facto managing director with the knowledge of the applicant-bank. The bank allowed the third defendant to take the money out of the company indiscreetly for which the second defendant was not liable. The guarantee agreement signed by the second defendant was consequential to the hypothecation agreement dated December 29, 1981, for Rs. 45 lakhs for the packing credit limit and SODH loans signed between the plaintiff and the company and it has nothing to do with the promissory note for Rs. 18 lakhs. The defendants signature was obtained in printed blank personal guarantee form as required by the applicant-bank and the amounts were filled up by the plaintiff at a later stage. The second defendant had sent a letter dated July 19, 1982 to the applicant-bank requesting it to relieve him from the personal guarantee thereby revoked the guarantee, for which he has not received any reply and, therefore, he was discharged from his liabilities. It is also contended that the suit is barred by time. As the management of the company was taken away from the first defendant on May 6, 1982, and it was given to the third defendant, the second defendant is discharged of his liability and if at all there is any liability, the third defendant alone is liable.
4. With the above said pleadings, the parties took up the trial and the DRT after taking into consideration all the aspects and materials placed before it, came to the conclusion that the defendants are liable to pay the amount and directed defendants Nos. 2 and 3 to pay the amount to the applicant-bank jointly and severally. Aggrieved by the same, the second defendant alone has preferred this appeal.
5. I have heard the learned advocate for the appellant and the first respondent perused the order passed by the DRT and also the materials placed before this Tribunal.
6. The learned advocate for the appellant has raised two points for consideration of this Tribunal, which are :
(1) The second defendant is not liable as he had revoked the guarantee as early as on July 19, 1982 and the same was also duly informed to the applicant-bank.
(2) The claim is barred by time.
7. In support of the points raised, the learned advocate for the appellant has argued that the third defendant took over the entire management of the company and had also furnished personal guarantee in consideration of the second defendant having been relieved and, therefore, the appellant is not personally liable. The appellant also drew my attention to the letter dated July 19,1982, wherein the appellant had stated that he had resigned from the board of the company and requested the bank to relieve from the personal guarantee signed by him on behalf of the company. As the appellant had revoked his guarantee, he was no more liable to the bank.
8. On the contrary the learned advocate for the first respondent-bank would contend that the guarantee executed by the appellant is a continuing guarantee and the revocation of the said guarantee was unilateral and the same was not accepted by the respondent-bank. Even otherwise, the revocation of the continuing guarantee would discharge the appellant only in respect of the future transactions and that will not take away the liability of the appellant in respect of past transaction.
9. Admittedly, the amount of SODH was given on December 29, 1981, on which date the appellant, was the director of the first defendant-company and, therefore, he cannot disown his liability and the finding of the DRT that the revocation of the appellant would not absolve him from his liability is to be upheld, as the guarantee given by this defendant is a continuing guarantee and the revocation, if any, of such guarantee would hold good only in respect of future transaction as stated in Section 130 of the Contract Act, and therefore, this point is answered against the appellant.
10. The other point which has got to be answered is whether the claim is ' barred by time. A perusal of the plaint, originally filed before the civil court in O. S. No. 153 of 1988, wherein it was made clear that the borrowings were made during the year 1981-82 and as per the books of account, the balance in SODH account was Rs. 46,24,221.85 inclusive of interest up to January 6, 1988, and as the defendants have executed deeds of guarantee, which are continuing guarantee, the claim made by the bank was in time. Of course, a plea of limitation was raised by the appellant and others when the suit was pending before the civil court itself and the same was negatived by the civil court. As against the same, the appellant has not preferred any appeal. It is the contention of the learned advocate for the appellant that the order passed by the civil court was in a preliminary stage and it would not operate as res judicata and the appellant is entitled to raise the said issue and in fact had raised that issue before the DRT and the DRT rejected the contention of the appellant, on the ground that the plea of limitation has already been turned down against the appellant, which has become final. The appellant, in support of his submission, relied upon the case of Smt. Sukhmni v. Hari Shanker , wherein it was held that (headnote) : "it is true that a decision given at an earlier stage of a suit will bind the parties at later stages of the same suit. But it is equally well-settled that because a matter has been decided at an earlier stage by an interlocutory order and no appeal has been taken therefrom or no appeal did lie, a higher court is not precluded from considering the matter again at a later stage of the same litigation". The learned advocate for the appellant submits that the order passed by the civil court on a preliminary stage has not reached the finality and, therefore, he is entitled to raise the issue of limitation and the same was not properly considered by the DRT.
11. In response to the above said argument, the learned advocate for the respondent-bank would submit that even if the order has been passed in the preliminary stage, the same cannot be raised in a subsequent suit or claim. To support his contention, the respondent relied upon the case of Satyadhyan Ghosal v. Smt. Deorajin Debi , wherein it was held (paras. 7 and 8), "The principle of res judicata is based on the need of giving a finality to judicial decisions. What it says is that once a res is judicata, it shall not be adjudged again.... The principle of res is judicata applies also as between two stages in the same litigation to this extent, that a court, whether the trial court or a higher court having at an earlier stage decided a matter in one way will not allow the parties to reagitate the matter again at a subsequent stage of the same proceedings" and further held (para,16): "It is clear therefore that an interlocutory order which had not been appealed from either because no appeal lay or even though an appeal lay an appeal was not taken could be challenged in an appeal from the final decree or order. A special provision was made as regards orders of remand and that was to the effect that if an appeal lay and still the appeal was not taken the correctness of the order of remand could not later be challenged in an appeal from the final decision. If however an appeal did not lie from the order of remand the correctness thereof could be challenged by an appeal from the final decision as in the cases of other interlocutory orders. The second sub-section did not apply to the Privy Council and can have no application to appeals to the Supreme Court, one reason being that no appeal lay to the Privy Council or lies to the Supreme Court against an order of remand." In Hindustan Petroleum Corporation Ltd. v. K. M. Yakub [1996] 2 LW 817, wherein it was held, "In view of the findings in the civil revision petition, it cannot be doubted that the first defendant herein is not in possession. If possession is a sine qua non to claim the benefit of the Act, and if it is found that the first defendant is not in possession, then, he cannot be said to be a tenant under the Act. The finding in C. R. P. No. 2100 of 1985 concludes the matter, even though that was an interlocutory stage. . . I hold that the finding in C. R. P. No. 2100 of 1985 even though it is in the same suit, will be conclusive so far as the first appellant in the second appeal is concerned". The same was the view taken in the case of Simon v. Thankammal [1999] 2 CTC 706, wherein it was held (paras. 7 and 19), "It is not disputed nor can it be disputed that the purpose of the earlier petition which culminated in dismissal by the appellate court and confirmed in revision by this court on the one hand and the object for which I. A. No. 133 of 1997 has been filed on the other are one and the same. What cannot be done directly cannot be done indirectly. . . In the teeth of the order in the civil revision petition as at present, the hands of the court are tied and there cannot be a decision contrary to the earlier decision in the civil revision petition. Decisions abound for the position, that an order passed in the course of the suit will operate as res judicata in the subsequent stages of the same proceedings. Thus, it is not open to the respondents at the stage of the suit itself to contend that the order in the earlier civil revision petition can be ignored on the principle of doing justice."
12. There appear to be two parallel views with regard to the application of the principles of res judicata in respect of a matter decided in an interlocutory stage, would bar a party from raising it before the appellate court and even at the stage of second appeal. But however, the view taken by the Madras High Court in Pichu Ayyangar v. Ramanuja, AIR 1940 Mad 756 : [1940] ILR Mad 901, that any interlocutory order by which a party had been denied the right to raise the question of res judicata cannot give a finality and as such the question of res judicata can be agitated even in the appellate stage. This was followed in the case of V. S. Subba Reddiar v. Seetharaman wherein it was held (para. 14), ". . .Any order passed on an interlocutory application cannot take away the substantive right which is legally available and which can be agitated even at the second appellate stage." After taking into consideration of both the parallel views expressed by the Supreme Court in Satyadhyan Ghosal v. Smt. Deorajin Debi and Smt. Sukhrani (dead) by LR's v. Hari Shanker , the view in Harishankar appears to be sound for the reasons that Section 11 of the Civil Procedure Code specifically stipulates that, "No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them, claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court." In an interlocutory stage, the point for determination alone would be considered and issue as required to be considered in Order 14 of the Civil Procedure Code, where issues arise when a material proposition of fact or law is affirmed by one party and denied by the other. Sub-clause (2) of Order 14 of the Civil Procedure Code states "Material propositions are those propositions of law or fact which a plaintiff must allege in order to show a right to sue or a defendant must allege in order to constitute his defence." Such an amount of opportunities were not available to the parties at the time of hearing the interlocutory applications and, therefore, the order passed in the interlocutory applications may not fall within the principles of res judicata. Hence, the appellant is not precluded from raising the plea of limitation.
13. Now, coming to the defence taken by the appellant that the claim is barred by time, even assuming without admitting that the argument of the appellant is correct, the fact that the appellant had executed a continuing guarantee and that the account is a live account in the sense, that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, the period of limitation would only run from the date of breach under Article 115 of the Schedule to the Limitation Act, 1908 (Mrs. Margaret Lalitha Samuel v. Indo-Commercial Bank Ltd. ). That apart, the revocation said to have been made by the appellant would enure only in respect of the future transactions. Hence, the claim of the respondent-bank in the instant case is in time and, therefore, the appellant cannot extricate himself from the liability. In fact, when the appellant admits that the first defendant is liable to pay the amount and that the guarantee executed by the appellant is a continuing guarantee and that the liability of the guarantor is co-extensive with that of the principal debtor under Section 128 of the Contract Act, 1872, the liability of the appellant is not barred by time. On that ground also, the plea of the appellant is liable to be rejected.
14. In the result, the appeal is dismissed. No costs.