Indian Kanoon - Search engine for Indian Law

A few more facts have to be stated in order that the precise range of the controversy in this appeal might be properly understood. That Kalyanasundaram and the members of his family were permanent residents of Palghat in the then State of Madras that he with the appellant formed members of an undivided Hindu family and that the properties which were the subject of the mortgage were joint family properties, none of these were in dispute The family possessed properties not merely in Cochin but also in Palghat. We shall now proceed to detail the circumstances in which the borrowings which has given rise to this litigation were made. In or about May 1945 Kalyanasundaram entered into a contract with the Government of India for the supply of 100 tons of black pepper and also into further contracts of the same type later in the year. He had apparently no ready cash to implement these contracts and approached the Bank for funds for financing the undertaking. For this purpose he executed three promissory notes in favour of the Bank for a total of Rs. 1,10,000. The promissory notes marked Exhibits A and B for Rs. 50,000 and Rs. 30,000 respectively already referred to, were executed on November 14, 1945 and the debt evidenced by them was secured by a mortgage by deposit of title-deeds of properties in the Cochin State and this is the subject-matter of the proceedings giving rise to this appeal. A few months later, on February 20, 1946 he executed another promissory note which is marked as Ex. 'C' for Rs. 30,000. That also was accompanied by a further deposit of title deed which is recorded in Ex. 'F' , but that was in part in relation to the family properties in Palghat in the State of Madras. As the amount due under these notes was not repaid at the time promised, the Bank filed the suit out of which the present appeal arises, in the Court of the Subordinate Judge, Chittur, which is in the Cochin State, for a mortgage decree in its favour for the amount of all the three promissory notes with the interest due thereon, though a mortgage decree was sought only against the properties in Cochin which were set out in the Schedule to the plaint.

This suit was filed on June 17, 1948 but before the filing of the suit certain events happened to which it would be convenient to refer at this stage, because they figure largely in the defences that were raised in the suit on behalf of the appellant who was represented by his mother as guardian ad litem. On March 23, 1948 a petition for permission to file a suit in form pauperis was filed in the court of the Subordinate Judge at Palghat on behalf of the appellant by his uncle as his next friend. To that suit were impleaded as defendants Kalyanasundaram, the father, as well as the mother and as many as 31 other creditors of Kalyanasundaram including the respondent Bank. The relief sought in the suit was the effecting of a Partition of the family properties situated in Palghat and for the delivery of the half-share therein to the minor plaintiff. With this was coupled a prayer for the setting aside of certain decrees which had been obtained by certain of the creditors who were impleaded as defendants, on the ground either that the promissory notes or other documents on which the decrees had been passed were not supported by consideration, or that these debts were tainted with illegality or immorality, the allegation being that the father was leading a reckless and immoral life and was addicted to women. So far as the debt due to the Bank was concerned, the allegation was, though not expressed very clearly, that it was a borrowing for a personal business newly started by the father and would not, therefore, bind the minor's share in the family properties. As already stated, the relief for partition in that suit was confined to the properties at Palghat in Madras. While this appli- cation for leave to sue in forma pauperis was pending a notice was issued on May 27, 1948 through a lawyer purporting to act on behalf of the appellant, addressed to his father, in which the partition of the properties of the family situated in the Cochin State was demanded This notice was followed, by a deed of partition dated June 3, 1948 by which the properties of the family in the Cochin State were purported to be divided into two equal parts, the father being directed to pay the debts borrowed by him out of the share allotted to him, the deed reciting an agreement with the father that the minor should be free from any obligation discharge those debts. The debt due to the Bank which is the subject of the present proceedings, was among those the discharge of which the father under took under this deed marked as Ex. VI. The deed recited that this debt was a personal debt of the father and was therefore not binding on the son and this was assigned as the reason for the provision made for its discharge by the father without any obligation being laid upon the son in that behalf. One of the questions arising in the appeal is as regards the effect of this partition on the rights of the Bank to realise the moneys due to it from the share allotted to the son in the Cochin properties which were mortgaged under Ex. 'E.' Reverting to the proceedings giving rise to this appeal, to the mortgage suit filed by the Bank several defences were raised on behalf of the appellant. It is not necessary to set out all of them but it would sufficient if those which have a bearing on the points urged before us are mentioned. Before dealing with the controversial issues we may state that there were a few to which it is sufficient to make a passing reference. There was a formal denial of the truth and validity of the promissory notes and the passing of consideration thereunder and also about the sufficiency or admissibility of the memorandum Ex. 'E' to create a mortgage by deposit of title deeds. These do not appear to have been seriously pressed and have been found in favour of the plaintiff-bank. There was also an issue that the suit-debt was tainted with illegality and immorality, but on the facts it was such an untenable plea that it was easily found against.

-their finding.

As stated earlier, the learned Judges of the High Court reversed the finding of the learned trial Judge on this point. Briefly stated their reasons were two fold: (f) That the partition was brought about in order to forestall the action of the creditors of the father, who sought to proceed against the family properties and so the transaction bore the stamp of mala fides. We have already referred to the suit in forma paupereis filed at the Sub-Court, Palghat for the partition of the Palghat properties. In that plaint, and this also has already been adverted to a arg number of debts were set out and in regard to some of them the plaintiff claimed the relief of having them set aside on the ground that they were incurred for illegal or immoral purposes and so were not binding on him. The allegations in that plaint, therefore, made it clear that there were a number of creditors who had filed suits against the father and that was heavily pressed for discharging them. It was in that situation that the suit in Palghat was filed And it was when things were in this state that the partition of the Cochin properties was brought about This necessarily showed that the partition was not bona fide. (2) In the deed of partition-Ex. there is a recital that the debt due to the Bank was not binding on the appellant. There was thus a repudiation of liability on the part of the son and the learned Judges held that such a repudiation would by itself negative the partition being bona fide and binding on the creditor. Learned counsel for the appellant submitted that of the two reasons assigned by the learned Judges for their conclusion that the partition was not bonafide the first was insufficient and the second irrelevant and immaterial. As regards the first ground, he urged that at the most, it would occasion greater scrutiny and provided that, as found by the learned trial Judge, the properties allotted to the share of the father were fairly sufficient for the discharge of the debts binding on the son, the circumstances relied on would not per se render the arrangement mala fide. Regarding the 2nd ground, he pointed out that the fact that the father took over the liability for the reason that the debt was not binding on the son, was a matter of legitimate arrangement inter se between the coparceners and would have no bearing on the fairness or bona fides of the partition with was concerned really with ascertaining whether the property set apart for the father was or was not sufficient for the discharge of the indebtedness which he undertook. We see considerable force in the submission of the learned counsel., particularly was the criticism of the second of the above reasons The recital as to the character of the debt as against the son is a recital in a document to which the father and the son- are parties and if between them the son repudiates the debt as binding on him, that is no reason by itself for holding the partition to be mala fide.

in order to record a finding of antecedency for a part of the suit-mortgage debt. On the other hand, the learned counsel for the respondent has submitted to us that not only were the learned Judges of the High Court right in holding that Rs. 59,000 and odd was an antecedent debt but that the learned Judges should have gone further and held that the entire sum of Rs. 80,000 covered by Exs. A and B was for the discharge of antecedent debts.

This question of fact was the principal matter of contest before us. We shall start by briefly summarising the transactions between the 1st defendantfather' and the Bank. The first defendant entered into a contract with the Government of India for the supply to them of 2000 Cwts. of pepper in or about May 7, 1945. The total cost of the supply was Rs. 1,37,000. He entered into similar contracts later in October and November 1945 and under these the value of the goods to be supplied was respectively Rs. 1,23,000 and Rs. 3,63,000. Even for implemening the first contract of May 1945, the first defendant apparently had need to borrow. An application for a loan was made on or about the 4th or 5th of June 1945 and then the 1st defendant sent the documents of title that he held in respect of his properties in Cochin and 'desired accommodation by way of an over-draft for Rs. 50,000 from the Bank. The letter by the 1st defendant to the Bank is not on the record but it is seen that these documents were sent to the legal Advisor of the Bank on June 6, 1945 and the latter was directed to scrutinise them and inform the Bank whether the documents were complete. They were returned on the same day with a note stating that the Bank should satisfy itself whether the particulars set out in the letter were true and if this were so the amount could be paid on a mortgage by deposit of title deed. This letter of the Legal Adviser as well as the request of the 1st defendant was circulated to the directors of the plaintiff-bank and the loan asked for was sanctioned by the President of the Bank on June 11, 1945 and the same was passed.by the directors on the same day with a limit up to Rs. 50,000. But this was to be on a mortgage of the Cochin properties. However even before the request for the overdraft was circulated to the directors and their sanction obtained, the officers of the Bank, apparently acting on the instructions of the Secretary gave him loans to the extent of Rs. 45,000. A loan of Rs. 30,000 on a promissory note carrying interest at 6 1/4 % was granted on June 6, 1945 and two days later on a further promissory note Rs. 15,000 was lent. The sum of Rs. 45,000 and interest thereon was carried to the debit of what is termed as a No. 1 account at the Palghat branch of the Bank which was an overdraft account with a limit of Rs. 50,000. It should be noticed that the creation of the mortgage was long after this. Apparently, this overdraft account was opened under the directions of the Bank's head office at Trichur by a letter dated June 18, 1945 (referred to in the opening entry) carrying out the directions of the President of the Bank dated June 11, 1945 to which reference has already been made. The amount due on the two promissory notes with interest due up to June 19, 1945 came to Rs. 45,054/11 and this was the debit with which the account opened. Subsequently there were operations in this account either i.e., both by way of payment in, as well as of withdrawal from this account and on November 14, 1945 the date of the promissory notes Exs. A & B the amount due under this account was Rs. 50726/15/4. We shall be referring to how this account was squared on November 20, 1945 after referring to the history of the No. 2 overdraft account of the 1st defendant with the Bank. The 1st defendant made a second application for a loan on October 8, 1945 to the Bank for overdraft accommodation up to a limit of Rs. 3,00,000. The security that he offered for the fresh advance that he required was the contracts entered into by the Government of India which he said would be pledged with the Bank and he suggested that the advances might be made to him on the security of the Inspection Notes of the goods that he would be supplying to Government. He also promised that the receipt for Rs. 50,000 which had either been or would be deposited with the Government of India as security for the due fulfillment of the contract, would be pledged with them, so that they would be in a position to obtain payment of that sum from the Government themselves. The Bank, however, demanded that in addition to pledging the amounts which would be received from the Government under the contract, the 1st defendant should also create a mortgage by deposit of title deeds 'of properties in Palomar for the loan that he desired. The proposal by the 1st defendant was considered at a meeting of the Board of Directors of the plaintiff-bank and it was resolved to give him additional overdraft facility to the extent of Rs. 60,000 which was split into two parts (1) Rs. 30,000 on the security of properties at Palghat in regard to which a mortgage was to be created by deposit of title deeds, and (2) a further sum of Rs. 30,000 to be advanced by an increase in the overdraft limit of Rs. 50,000 on the Cochlea properties. This resolution was passed on November 4, 1945. But even before this resolution was passed and obviously in anticipation of the decision of the Directors the overdraft account No. 2 of the, 1st defendant with the Bank at Palghat was opened on October 24, 1945 with a limit of Rs. 30,000. It would be seen that Exs. A & B were executed on November 19, 1945 and the deposit of title deeds and the memorandum in connection therewith was also on the same date. Between the 24th October 1945 and the 11th of November the 1st defendant had operated on this No. 2 account both by payment in, as well as by withdrawing from it and as a result of these transactions the amount owed by him to the bank on the 19th November 1945 was a sum of Rs. 59,952/12/5. The position on November 19, 1945 when the loan under Exs. A & B was raised and the mortgage Ex. E was executed was therefore this. Under the No. 1 account the 1st defendant owed the Bank Rs. 50,726/15/4. On the No. 2 account the amount due to the Bank was Rs. 59952/12/5. It, was with this state of the account that Exs. A & B were executed and the loan of Rs.80,000 secured by the suit mortgage was raised. This sum of Rs. 80,000 was made available to the 1st defendant, not by the Bank itself adjusting the newly granted loan against the amounts due up to that date and keeping the Rs. 29,000 odd that would still have remained due to it as an unsecured debt due from him. On the other hand, the head office of the Bank at Trichur handed over to the 1st defendant a draft for Rs. 80,000 made out in favour of the 1st defendant on its branch at Palghat. That the draft was handed over to the 1st defendant is admitted. It was handed over at a time when so far as the previous indebtedness was concerned, the bank held no security though there might have been a promise to create one. This draft was taken by the 1st defendant to Palghat and was paid by him into his No. 2 account which therefore became reduced from a debit of Rs. 59,952 and odd to a credit of over Rs. 20,000. It was on this feature and this operation on the account that the learned Judges of the High Court relied on for their conclusion that the Rs. 59,000 odd was an antecedent debt which was discharged by the draft of Rs. 80,000 handed over by the Bank when Exs. A & B were executed. It now remains to narrate how the No. 1 account under which the 1st defendant was a debtor to the extent of Rs. 50,726 and odd became discharged. The 1st defendant drew a cheque in his own name on November 20,1945 from his No. 2 account in which he had an overdraft limit to the extent of Rs. 50,000 and paid this cheque into his No.