Debt Recovery Appellate Tribunal - Madras
M. Sathya Narayana Reddy And Anr. vs Indian Bank on 16 December, 2005
Equivalent citations: II(2006)BC128
JUDGMENT
K. Gnanaprakasham, J. (Chairperson)
1. The defendants 3 and 5 in the OA are the appellants in this appeal. The respondent Bank filed the suit OS 2919/1992 before the City Civil Judge at Bangalore and it came on transfer to the DRT. Bangalore and taken on file as OA-663/1995. OA was filed for recovery of a sum of Rs. 20,91,615/- together with interest at 23.5% p.a. to be compounded quarterly and for costs and other reliefs.
2. The case of the applicant Bank is that the 1st defendant is a proprietary concern owned by the 2nd defendant and they sought for a loan and the same was sanctioned as Cash Credit facility for Rs. 50,000/- on 3.1.1991 and 2nd defendant executed the promissory note dated 3.1.1991, agreement of hypothecation in respect of movable properties and also agreement of hypothecation of plant and machinery and availed the facility in full. During the course of the business, the 2nd defendant also deposited several cheques issued by third parties to the plaintiff Bank and those cheques were also realised. It is stated that the defendant 3, 4, 5 and 6 agreed to give necessary sureties in favour of the plaintiff for the amount due by the defendants 1 and 2 and they have also executed the guarantee agreement and other documents in favour of the plaintiff. As the defendants have not paid the amount, the respondent Bank laid the suit.
3. The third defendant filed reply statement during his liability and stated, his documents of title deeds were made use of the defendants 1 and 2 and the respondent Bank took the signatures of the third defendant on several blank forms and those forms were misused and he was made liable. He also came to know that there was some foul play by the Bank manager and Mr. Balagangadhar Sharma, and 2nd defendant in the OA and they have misused the documents of title deed of this defendant. It is also stated that the manager of the Bank was also suspended and criminal case was filed against him in CC 2884/1992, and he is absconding.
4. The 5th defendant filed a separate reply statement denying his liability. This defendant stated that when he approached the respondent bank through the 2nd defendant for grant of loan of Rs. 2 lakhs, he was asked to handover all the original documents of title in respect of his property and accordingly he had handed over those documents, and instead of granting loan to this defendant, the respondent Bank colluded with the 2nd defendant and played a fraud, made this defendant to walk to the Bank several times, but no amount was paid to him. The defendant also issued Notice to the Bank calling upon them to return all the original title deeds. This defendant has not executed any document in favour of the respondent Bank.
5. The DRT, Bangalore accepted the Case of the respondent Bank and decreed the OA by its order dated 25.3.2005. Aggrieved by the same, this appeal has been filed.
I have heard the learned Advocate for the appellants and the respondent Bank and also perused the appeal papers.
6. The learned Advocate for the 1st appellant namely, Satyanarayana Reddy, the 3rd defendant in the OA, contended that though he had approached the Bank for grant of loan and his documents of title deeds were also handed over, his signatures were taken in blank papers, they were misused by the 2nd defendant in connivance with the manager of the respondent Bank and no amount was given as a loan to this defendant, nor he stood as a surety for the loan of the 2nd defendant, and thus denied his liability.
7. On the contrary, the learned Advocate for the respondent Bank would submit that the 3rd defendant had agreed to stand as a surety for the loan availed by the defendants 1 and 2 in respect of cash credit account, as evidence in Ex. A-9 dated 25.4.1991, wherein the 3rd defendant has signed after having gone through the contents of the document in confirmation thereof and acknowledged the same and also declared that the guarantee agreement was signed by him, was in full force and effect. Third defendant had also executed the agreement of guarantee, which is Ex. A-10 guaranteeing open cash credit of Rs. 16,43,412.20p. The signatures in Exs. A9 and A10 are not dispute. The defendant also signed in the letter of acknowledgement of depositing of title deeds, with an intention to create a valid equitable mortgage, which is Ex. A-12 Exs. A16 to A26 are the documents produced and deposited by the 3rd defendant with the respondent Bank. The 3rd defendant also has given an affidavit Ex. A27 stating that he voluntarily stand as a surety/guarantor for the defendants 1 and 2 for a sum of Rs. 16,43,412.20p. The signature of the defendant in all these documents are admitted.
8. I have carefully considered the case of 3rd defendant. The documents Exs. A9, A10 and A12, executed by this defendant is not in dispute. That only in the said circumstances, the DRT also came to the conclusion that the surety/guarantee offered by D3 for D1 and D2 is validly proved. The other defence taken by the 3rd defendant that the Bank itself has given complaint against D1 and D2, and action was also taken in the matter inclusive of the criminal case filed against the 2nd defendant and also the manager of the Bank in CC 2884/1992 before the First Additional Chief Metropolitan Magistrate, Bangalore, which were marked as Exs. D4 to D12, to prove that there was a fraud committed by the 2nd defendant and the manager, and therefore, he is not liable, cannot be accepted. Exs. D4 to D12 are the documents indicating the action taken by the Bank against the defendants 1 and 2 about the fraud committed by them. Though the 3rd defendant has stated that the 2nd defendant played a fraud with the connivance of the Bank Manager, he has not chosen to take any action against the Bank and the 2nd defendant, which has dissuaded the DRT from accepting the case of the 3rd defendant. That apart, the third defendant having admitted his signatures in Exs. A9, A10, A12 and that he handed over his documents of title deeds, which are Exs. A16 to A26 with an intention to create equitable mortgage, and he has sworn the affidavit Ex. A27 declaring that he stood as a surety for the defendants 1 and 2, had amply proved that he stood as a surety and his theory that his documents of title deeds were misused for the loan granted to D1 and D2, and his signatures were obtained in blank papers pale into insignificance. The 3rd defendant is liable to the extent of Rs. 16,43,412.20p. as evidenced in Esx. A9 and A12.
9. Coming to the case of 5th defendant, who is the 2nd appellant in this appeal, this defendant also approached the respondent Bank for a loan and also handed over his documents of title deeds, which was under the consideration of the Bank. But, it appears that the respondent Bank has not come forward to grant any loan nor this defendant had signed any of the documents, either for the loan sought for by him or to stand as a surety for the defendants 1 and 2. This defendant has also taken action against the Bank by issuing legal notice for not having granted the loan and also for the return of the documents. In the absence of any documents to establish that this defendant had availed loan, or stood as a surety, it would be very difficult to fasten the liability on this defendant. The observation of the DRT as far as this defendant is concerned, that he, having deposited the title deeds with the respondent Bank would amount to creation of equitable mortgage and there is no necessity for the execution of separate memorandum of deposit of title deeds and, therefore, he is also liable for the loan availed by D1 and D2, is not correct. Mere handing over/deposit of documents of title deeds to the Bank, without an intention to create a mortgage, cannot be regarded as a valid equitable mortgage. Mere possession of the documents of title deeds by the Banks also not sufficient, without evidence, as to the creation of equitable mortgage. As such, the claim against D5 stands disproved.
10. In the result, the appeal of the 1st appellant, namely M. Sathyanarayana Reddy is dismissed.
11. As far as the 2nd appellant, namely K.K. Ganapathy is concerned, his appeal is allowed, and the claim of the respondent Bank against this appellant is dismissed.
12. The Regular Appeal RA 19/2005 is ordered accordingly.