Kerala High Court
Godan Namboothiripad vs Kerala Financial Corporation, ... on 22 August, 1997
Equivalent citations: AIR1998KER31, AIR 1998 KERALA 31, (1998) BANKJ 833 (1999) 2 BANKCLR 259, (1999) 2 BANKCLR 259
Author: B.N. Patnaik
Bench: B.N. Patnaik
JUDGMENT Patnaik, J.
1. The sixth respondent in O.P. No. 7098/94 is the appellant herein. By the impugned judgment, the learned single Judge upheld the contention of the first respondent herein, the Kerala Financial Corporation and directed the continuance of revenue recovery proceed against the appellant herein to recover the loan amount together with interest advanced by the first respondent to purchase and ply a transport vehicle.
2. The first respondent Corporation sanctioned a loan of Rs. 1,26,900/- to one Gopinatha Menon on 21st September, 1974 for purchase of a transport vehicle. The loan was to be repaid by instalments. But the said Gopinatha Menon defaulted to pay the amount. In consequence of default in payment, the vehicle was seized by the Corporation on 11th November, 1980. The appellant thereafter executed an equitable mortgage in respect of 62 cents of land on 2nd December, 1980. On that day he confirmed the deposit of title deeds with the Corporation. In pursuance of the agreement, the vehicle in question was released and handed over to the sixth respondent. Subsequently, the appellant also committed default in payment of the loan. The vehicle was thereafter seized and proceedings were initiated under Kerala Revenue Recovery Act, 1968 for recovery of the amount due. The appellant preferred an appeal before the Collector under Section 72(i) of the Kerala Revenue Recovery Act. By Ext. P1 order dated 7-7-1992 the appeal was dismissed. He preferred a revision before the Board of Revenue. By Ext. P2 order dated 27-11-1992 the revision was allowed on the ground that the case is barred by limitation as has been held by a decision of this Court in A.K. Nanu v. State of Kcrala, (1987) 2 Ker LT 921. It was also observed that Gopinatha Menon as the principal debtor being discharged, the surety namely the appellant also stands discharged. The land was sold at a very low price. The Corporation preferred a revision against it under Section 83(2) of the Kerala Revenue Recovery Act before the State Government. The State Government by the order dated 16-2-1994 (Ext. P4) confirmed the findings of the Board of Revenue. The Corporation therefore filed the original petition to quash Exts. P2 and P4 order. It was contended that the finding in Exts. P2 and P4 on the question of limitation is illegal and the Limitation Act is not applicable to the proceedings under the K.R.R. Act. The appellant herein along with the seventh respondent had undertaken the liability of Gopipatha Menon under the new loan transaction. Though the original agreement executed by the appellant and the seventh respondent is not available, yet the subsequent events after entering into the agreement on 1-12-1980 prove beyond reasonable doubt that the appellant and the seventh respondent accepted the liability of Gopinatha Menon in toto and the said Gopinatha Menon no longer became the principal debtor. It is also contended that the appellant having deposited the title deeds with the Corporation and having remitted a considerable amount towards the loan, he discharged his liability in part as a debtor and not as a surety.
The appellant herein and the seventh respondent resisted the O.P. on the ground that there was no novation of contract at any time replacing the original contract between Gopinatha Menon and the Corporation The appellant and the seventh respondent stoud as sureties for Gopinatha Menon under the original contract. The Corporation failed to produce the alleged agreement between the appellant and the Corporation to show that Gopinatha Menon was discharged from his liability. Further it was contended that the proceedings under the K.R.R. Act having been initiated more than three years after the loan transaction between the Corporation and Gopinatha Menon, the same is barred by limitation.
3. Learned single Judge on a consideration of the facts and circumstances of the case agreed with the findings given by the Collector in Ext. P1 order and quashed Exts. P2 and P4 orders. He held that there was a fresh agreement between the Corporation and the appellant on December 1, 1980 and in pursuance thereof, the equitable mortgage was created by deposit of title deeds in respect of 62 cents of land by the appellant. The question of limitation does not arise for consideration in view of the fact that Limitation Act does not apply to the proceedings under the K.R.R. Act. In view of the fact that the appellant and the seventh respondent undertook the liability to pay the loan sanctioned in favour of Gopinatha Menon, it cannot be said that the Corporation is not entitled to recover the loan from them. The appellant challenges these findings by contending that there was no novation of contract by way of substituting the old contract at any time. The appellant and the seventh respondent therefore are not liable to pay the loan incurred by Gopinatha Menon under any alleged later agreement.
4. The Board of Revenue in its Ext. P2 order relied on the decision of this Court in Nanu's case (1987) 2 Ker LT 92 land came to the finding that the proceedings under K.R.R. Act is barred by limitation. But a Full Bench of this Court in Kerala Fisheries Corporation Ltd. v. P.S. John, (1996) 1 Ker LJ 540, overruled the decision in Nanu v. State, 1987 2 Ker LT 921 and held that the provisions of Limitation Act, 1963 cannot be made applicable to the proceedings for recovery of dues under the K.R.R. Act. Even if it is assumed that the Limitation Act is applicable, the amount due to the institution notified under Section 71 of the K.R.R. Act is treated on a par with the amounts due to the Government in terms of Section 68 and as such Article 112 of the Limitation Act shall govern the case. It provides a period of 30 years as the period of limitation for filing suits to recover the amount due to Government. In view of this Full Bench decision, the finding of the Board of Revenue and the State Government on this issue in Exts. P2 and P4 therefore, cannot be sustained.
5. The next question that arises for consideration is whether the appellant and the seventh respondent entered into afresh agreement with the Corporation in December, 1980 to discharge the liability on behalf of Gopinatha Menon. If it is found that there was in fact a novation of contract, the appellant is clearly liable to pay the amount.
6. Section 62 of the Indian Contract Act, 1872 deals with novation of contract. In the book on Indian Contract and Specific Relief Acts by Pullock & Mulla, 10th edition at page 496, it is stated as follows :
"The meaning of "novation", the term used in the marginal note to the section, and now the accepted catchword for its subject-matter, has been thus defined in the House of Lords : "that, there being a contract in existence, some new contract is substituted for it either between the same parties (for that might be) or between different parties, the consideration mutually being the discharge of the old contract. Novation of a contract comprises two elements : the discharge of one debt or debtor and the substitution of a new debt or debtor, the discharge is governed by the proper law of the contract. A substituted contract should rescind or extinguish the previous contract. The terms of the two contracts should be so inconsistent that they cannot stand together. Novation under Section 62 is brought about by (a) introduction of new parties; or (b) by alteration between the same parties by introduction of new terms. It is not consistent with the original debtors remaining liable on the old contract. Substitution of a new contract is the core of novation. Its essential feature is that a right under the original contract is relinquished or replaced by a new contract. Where these essentials are missing there is no novation."
Learned counsel for the appellant has contended by relying on a Division Bench decision of this Court in K. Appukuttan Panicker v. S.K.R.A.K.R. Athappa Chettiar, AIR 1966 Kerala 303, that it is essential for the principle of novation to apply that there must be the mutual consent of all the parties concerned. The Corporation having failed to prove the existence of a separate agreement between the Corporation and the appellant and consent of Gopinatha Menon to such an agreement, there can be no inference with regard to novation of contract.
It is true that the separate agreement between the Corporation and the appellant said to have been entered into in December, 1980 has not been produced by either party. But as has been held by the learned single Judge the subsequent events and Ext. P5 letter dated 17-11-1980 and the admission of the appellant in O.P. No. 5349/ 90-J would go to show that there was novation of contract substituting the old one. Ext. P5 is a letter from the appellant to the Managing Director of the Corporation dated 17-11-1980. It says that the bus No. K.L.F. 9529 was purchased by Shri Gopinatha Menon by availing the loan and there exists an outstanding loan amount of Rs. 1,14,891.66. By an agreement with Shri Gopinatha Menon by himself (the appellant) and Smt. Saradamma (seventh respondent), they have agreed to pay the dues and take over the bus. They are prepared to pay the above balance amount on behalf of Shri Gopinatha Menon. Immediately they are prepared to pay Rs. 8,000/-. They are prepared to provide sufficient security for the payment of the balance amount. They have therefore, requested the Corporation to release the vehicle and accept their security as guarantee for future payment. There is no dispute that the vehicle was released in favour of the appellant after executing an equitable mortgage by deposit of title deeds. In O.P. No. 7098/94 filed by the appellant herein he has clearly admitted that he has paid more than Rs. 50,000/- to the Corporation towards the instalments charged on the bus. The additional security was only for the purpose of releasing the bus when the corporation took possession of the same. There is nothing in the evidence on record to show that after 17-11-1980 either Gopinatha Menon paid any instalment dues towards the loan or took over possession of the bus. There isalsonodispute that the appellant and the seventh respondent committed default in payment of the balance dues while the vehicle was in their possession. On a reading of Ext. P5 it becomes crystal clear that they have undertaken to repay the liability of Gopinatha Menon and in order toenable them to do so they took possession of the vehicle which was purchased by Gopinatha Menon and seized by the Corporation and they agreed to provide sufficient security for the loan. Ext. P5 therefore leaves no room for doubt that on and from 18-11-1980, the liability of Gopinatha Menon ceased and in his place the appellant and the seventh respondent became the debtors of the Corporation. This conclusion is re-inforced by the fact that an equitable mortgage was created not as a collateral security but as evidence of a fresh loan transaction. It is also apparent from Ext. P5 that Gopinatha Menon had entered into an agreement with the appellant and the seventh respondent to this effect. Thus the Corporation as well as Gopinatha Menon who were parties to the old contract agreed for a new contract with the appellant and the seventh respondent in respect of the loan amount and accordingly the Corporation agreed to release the vehicle in favour of the appellant. We, therefore find no legal infirmity in the findings of the learned single Judge that there was novation of contract whereby the original debtor Gopinatha Menon ceased to be a debtor and the appellant undertook the liability as the principal debtor to pay the outstanding dues.
For the reasons stated above, we find no merit in this appeal. It is dismissed. No costs.