Vriddhachalam Pillai Vs. Chaldean
Syrian Bank Ltd., an another [1963] INSC 237 (3 December 1963)
03/12/1963 AYYANGAR, N. RAJAGOPALA AYYANGAR,
N. RAJAGOPALA GAJENDRAGADKAR, P.B.
SUBBARAO, K.
WANCHOO, K.N.
CITATION: 1964 AIR 1425 1964 SCR (5) 647
CITATOR INFO :
R 1978 SC1791 (13)
ACT:
Hindu Law-Partition-If bonafide-Onus of
proof-Father's debt--Liability of joint family property for antecedent
debt-Personal law and lex situs-Which applicable ?
HEADNOTE:
Kalayanasundaram and the members of his
family were permanent residents of Palghat in the then State of Madras. and his
son, the appellant, formed members of an undivided Hind family. The family had
properties not only in Palghat but also in Cochin.
In 1945, Kalayanasundaram entered into many
contracts with the Government of India for the supply of black pepper As he had
no ready money to implement those contracts, he approached the Respondent Bank
for funds to finance those contract For that purpose, he executed three
promissory notes in favour the bank for a total sum of Rs. 1,10,000.
He also deposited title deeds of his
properties with the Bank as security. As Kalayanasudaram did not pay the
borrowed amount, the Bank filed a suit against him on June 17, 1948. But even
before that date, a deed of partition was executed on June 3, 1948 between
Kalayanasundaram a the appellant, his son, by which the properties of the
family in the Cochin State were divided into two equal parts, the father taking
over himself the liability to pay the amount due to the Bank. It was stated in
the deed of partition that the debt due to the bank was a personal debt of the
father and hence was not binding on the son.
To the mortgage suit filed by the Bank,
several defences we raised. However, the trial court decreed the suit against
the father and there was no appeal against that. Against the decision of the
trial Judge that the Bank had no right to obtain a mortgage decree against the
appellant and his half share in the family property an appeal was filed by the
Bank which was accepted by the High Court which modified the decree by passing
a mortgage decree against the appellant qua his share as well. The appellant
came to this court in appeal after obtaining a certificate of fitness.
The contentions raised by the appellant in
this Court were the finding of the High Court that the partition of the family
properties effected between the appellant and his father was not bonafide was
not justified on the admitted facts and was based ON 648 erroneous reasoning,
that the High Court erred in holding that the Hindu Law as understood and
applied by the Courts in the previous Cochin State could determine the
liability of the appellant who was a resident of Palghat and that the High
Court erred in holding that the mortgage evidenced by Ex. 'E' was to any extent
I for the discharge of antecedent debts. Dismissing the appeals, Held: (i) The
finding of the High Court that the partition of family properties effected
between the appellant and his father was not bona-fide, was correct.
The partition deed did not set apart
sufficient property for the share of the father to enable him to discharge all
his debts. Moreover, onus should have been placed on the appellant to establish
that the nature of the arrangement under the partition was such as made proper
and adequate provision for the discharge of the debt, but actually the onus was
wrongly placed on the Bank.
(ii) The view of the High Court that when the
transactions took place, British India and Cochin State were independent
sovereign states and according to Private International Law, it was the law of
the situs of the property that should govern the contracts relating to it, was
not correct. The rule was not any statutory law which was binding on parties
who had dealings in regard to land in that State. Taking the Cochin State
itself, the power of a person to dispose of property or to encumber it depends
upon whether he is a Hindu, Muslim or Christian and in each case the right of
the owner to dispose of the property depends upon his personal law as modified
by any statute applicable to that community to which he belongs. There is no
situs which can be applied irrespective of the personal law governing the
owner. In the present case, Kalayanasundaram and his family were permanent
residents of Palghat. The law applicable was the law laid down by the Privy
Council and accepted by the Full Bench decisions of the Madras High Court and
finally laid down by the Supreme Court. When the Bank dealt with
Kalayanasundaram, it must be taken to have contracted with him on the basis of
such a law being applicable to the transaction.
(iii) There was a real and factual antecedence
between the loan of Rs. 80,000 for which the draft was given on November 16,
1945, and the previously existing indebtedness of Rs. 1,09,000, and odd in the
over drafts account No. 1 and 2 of Kalayanasundaram to the Bank which was
discharged thereby.
A father can by incurring a debt, even though
the same be not for any purpose necessary or beneficial to the family, so long
as it is not for illegal or immoral purposes, lay the entire joint family
property including the interests of his sons open to be taken in execution
proceedings upon a decree for the payment of debt. The father can, so long as
the family continues undivided, alienate the entirety of the family property
for the discharge of his antece649 dent personal debts subject to their not
being illegal or immoral. In other words, the power of the father to alienate
for satisfying his debts is co-extensive with the right of the creditors to
obtain satisfaction out of family property including the share of the sons in
such property.
Where a father purports to burden the estate
by a mortgage for purposes not necessary and beneficial to the family, the
mortgage qua mortgage would not be binding on the sons unless the same was for
the discharge of an antecedent debt.
Where there is no antecedency, a mortgage by
the father would stand in the same position as an out and out sale by the
father of family property for a purpose not binding on the family under which
he receives the sale price which is utilised for his personal needs. After the
joint status of the family is disrupted by a partition, the father has no right
to deal with the family property by sale or mortgage even to discharge an
antecedent debt, nor is the son under any legal or moral obligation to
discharge the post-partition debt of the father. Antecedent debt in this
context means a debt antecedent in fact as well as in time. The debt must be
truly independent and not part of the mortgage which is impeached. The prior
debt must be independent of the debt for which the mortgage is created and the
two transactions must be dissociated in fact so that they cannot be regarded as
part of the same transaction.
Brij Narain v. Mangal Prasad, 51 I.A. 129,
Panna Lal v. Mst.
Naraini, [1952] S.C.R. 544, Chidambara
Mudaliar v. Rootha Perumal, I.L.R. 27 Mad. 326 and Vankataramayya v.
Vankataramana, 29 Mad. 200, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.547 of 1961.
Appeal from the judgment and decree dated
October 16, 1956 of the Kerala High Court in Appeal Suit No. 135 of 1953.
T.N. Subramania lyer, M.S. Narasimhan and
M.S. Sastri, for the appellant.
A.V. Viswanatha sastri, T.S. Venkateswara
Iyer, K. Jayaram and R. Ganapathy Iyer, for respondent No. 1.
December 3, 1963. The Judgment of the Court
was delivered by AYYANGAR J.-This appeal is directed against the judgment of
the High Court of Kerala and has been filed on the strength of a certificate of
fitness 650 granted by the High Court under Art. 133(1)(a) of the Constitution.
The appeal arises out of a suit filed by the
respondent-The Chaldean Syrian Bank Ltd.-which for shortness we shall refer to
as the Bank, for the recovery of certain sums due on a mortgage by deposit of
title deeds executed by Kalayanasundaram Pillai-the appellant's father who was
impleaded as the 1st defendant and is now the 2nd respondent before us.
The mortgage on which the Bank laid this suit
was evidenced by Ex. 'E'-a memorandum recording the deposit of title deeds of
certain properties in the former princely State of Cochin. The debt for which
the said deposit was made was the principal and interest due on two promissory
notes for Rs. 50,000 and Rs. 30,000 respectively which were marked as Exs. A
& B in the case. It was not in dispute that the property which was the
subject of mortgage belonged to the joint family composed of the 1st defendant
and his son-the appellant. The appellant was a minor on the date of the
suit-transaction and even at the date of the suit. To the suit that it filed
the Bank impleaded not merely Kalyanasundaram and his minor son, but the
latter's sisters and mother and even the lessees of the mortgaged property.
These were defendants 3 to 11. They, however,
have dropped out of the proceedings at earlier stages and the only -parties to
the appeal whose rights we are called on to adjudicate are the Bank and the
appellant. The Bank's suit was decreed by the trial court against the
father-Ist defendant and there was no appeal against it and that decree is no
longer in challenge. The trial Judge however held that the Bank had no right to
obtain a mortgage decree against the appellant and his half share in the family
property, but on appeal by the Bank, the learned Judges allowed the appeal and
modified the decree by passing a mortgage decree against the appellant qua his
share as well.
It is the correctness of this variation that
is questioned in this appeal.
651 The execution of the promissory notes and
the receipt of consideration therefore as recited therein were admitted by the
1st defendant, as also the creation of the security by the deposit of the title
deeds of properties and whatever contentions were raised in respect of these
matters on behalf of the appellant have now been abandoned. Some point was made
on behalf of the appellant regarding the suit debt being avyavaharika, but this
also has been found against and given up. The only question that survives is
whether the mortgage evidenced by Ex. 'E' is binding on the appellant.
Here again it is now common ground, that the
debt was a personal borrowing by the father, not for any purpose binding on the
joint family.
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 652 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 653 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 application 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 654 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.
Issue no 2 ran:
"Whether the trade mentioned in the
plaint was a new trade started by the 1st defendant or an ancestral trade and
are not the debts contracted by the father-the 1st defendant-for purposes of
the trade binding on defendant no.
2 even if the said trade be not
ancestral?" This issue, at least the first part of it has been found in
favour of the appellant that the trade viz., the supply of black pepper to the
Government was a new trade started by the 1st defendant and was not an
ancestral trade and that finding has not been disturbed by the High Court and
being a concurrent finding on a question of fact was not naturally challenged
before us. Closely related to this is issue no.
14 which ran:
"Are the debts sued on incurred for
family necessity and binding upon the 2nd defendant?" The learned trial
Judge recorded a finding that the debts sued on were not incurred for family
necessity nor for the benefit of the family. These findings also which were not
varied by the High Court were not questioned before us.
Incidentally it should be mentioned that the
learned trial Judge found, when dealing with issue no. 9 which was a general
issue relating 655 to the binding character of the debt on the appellant, that
the mortgage was not for securing an antecedent debt, but this finding was
reversed by the High Court, the learned Judges holding that to the extent of
Rs. 59,000 the mortgage loan went in discharge of antecedent debts and we shall
have occasion to deal with this matter in detail later in this judgment.
The 13th issue ran:
"Is the partition setup by the
defendants true and bona fide and binding upon the family?" This was
answered in the affirmative and in favour of the appellant by the learned trial
Judge but that finding has been reversed and the partition has been found not
to be bona fide by the High Court and that is one of the points in controversy
in the appeal before us. Issue no. 1 0 was in these terms:
"Are the Defendants Cochin domiciles?
Are they not governed by the law of the Indian Union being permanent residents
of the Indian Union?" An issue in this form arose because of the different
views entertained of the Hindu law as regards the scope of the pious obligation
of a son to discharge the debts of the father which are not illegal or immoral.
In the view of Hindu lawyers the repayment of a debt was conceived of not
merely as a legal obligation which had been undertaken when the debt was
incurred but non-repayment was considered a sin. The duty of relieving the
debtor from this sin was fastened on his male descendents to the third degree.
The duty being thus religious, it was held not attracted if in its nature it
was illegal, or immoral i.e., avyavaharika.
Whatever might have been the extent of the
son's liability according to the Hindu law givers, under the Mitakshara law as
administered in all the States, the liability of the son, grandson, great grandson
etc., was not treated as a personal liability but as dependent on his becoming
entitled to 656 family assets and that it extended to the entirety of his
interest therein, but no more.
The authorities to which it is wholly
unnecessary to refer, have firmly established the following and the position is
not in doubt:
(1) A father can by incurring a debt, even
though the same be not for any purpose necessary or beneficial to the family so
long as it is not for illegal or immoral purposes, lay the entire joint family
property including the interests of his sons open to be taken in execution
proceedings upon a decree for the payment of that debt.
(2) The father can, so long as the family
continues undivided alienate the entirety of the family property for the
discharge of his antecedent personal debts subject to their not being illegal
or immoral.
In other words, the power of the father to
alienate for satisfying his debts, is co-extensive with the right of the
creditors to obtain satisfaction out of family property including the share of
the sons in such property.
(3) Where a father purports to burden the
estate by a mortgage for purposes not necessary and beneficial to the family,
the mortgage qua mortgage would not be binding on the sons unless the same was
for the discharge of an antecedent debt. Where there is no antecedency, a
mortgage by the father would stand in the same position as an out and out sale
by the father of family property for a purpose not binding on the family under
which he receives the sale price which is utilised for his personal needs.
It need hardly be added that after the joint
status of the family is disrupted by a partition, the father has. no right to
deal with the family property by sale or mortgage even to discharge an
antecedent debt, nor is the son under any legal or moral obligation to
discharge the post-partition debts of the father.
(4) Antecedent debt in this context means a
debt antecedent in fact as well as in time, i.e., the 657 debt must be truly
independent and not part of the mortgage which is impeached. In other words,
the prior debt must be independent of the debt for which the mortgage is
created and the two transactions must be dissociated in fact so that they cannot
be regarded as part of the same transaction.
The latest of the rulings of the Privy
Council in which the law as stated above was expounded is reported, as Brij
Narain v. Mangla Prasad(1) and this Court in Panna Lal 'I v. Mst. Naraini(2)
has expressly approved and adopted the same.
in Cochin and Travancore, however, the law
was understood somewhat differently. Both the High Courts of Cochin and
Travancore when these States were under princely rule, held, following what
they considered as the logical result of certain earlier decisions of the Privy
Council, that a mortgage executed by a father, notwithstanding that the debt
secured thereby be not incurred for family necessity or benefit but were purely
personal, would be binding against the joint family property in the hands of
the son even if the debt be not antecedent to the creation of the mortgage on
the doctrine of the latter's pious obligation to discharge them. This was on
the principle enunciated by Bashyam Ayyangar in Chidambara Mudaliar v. Kootha
Perumal(3) (a decision, however, subsequently overruled by a Full Bench of the
Madras High Court in Venkataramayya V. Venkataramana(4) on the ground that it
was inconsistent with several earlier rulings of the Privy Council) that it was
difficult to make any distinction between a mortgage created for the discharge
of an antecedent debt and a mortgage created for a debt then incurred, for in
either case the debt not being avyavaharika is binding upon the son and the
enforcement of the security exonerates the son from the burden of the father's
debt.
(1) 51 I.A. 129.
(3) I.L.R. 27 Mad. 326.
(2) [1952] S.C.R. 544 (4) I.L.R. 29 Mad 200.
1/SCI/64-42 658 It would, therefore, be seen
that if it were found that the debt to the Bank was not incurred for purposes
necessary or beneficial to the family, the question whether the Hindu law rule
applicable was the one as understood and applied in Cochin or that expounded in
Brij Narain(1) would assume great importance, and for the' ascertainment of the
particular law which applied; the place of domicile of the family would have
relevance.
The learned Subordinate Judge found that the
family of the father1st defendant-was a resident of and domiciled in Palghat
and that therefore would not be governed by the rule of Hindu law as understood
and applied by the High Courts of Travancore and Cochin. The learned Judges of
the High Court while affirming the finding that the defendants were domiciled
in and residents of Palghat and were not even residents of Cochin, were still
of the opinion that as the properties which were the subject of the mortgage
were in Cochin, the Cochin view' of the Hindu law was applicable to determine
the rights of the parties on the basis of that interpretation of the lawbeing
the lex situs and applying that law came to the conclusion that eve a if the
mortgage--Ex. 'E' was concurrent with and part of the same transaction as the
debts which it secured, the mortgage was binding on the appellant's share in
the family property. It was on this line of reasoning that the learned Judges
heldthat even though of the mortgage debt under Ex. 'E, only Rs. 59,000 was
found by them as having been utilised for discharging the antecedent debts of
the father, still the Bank was entitled to a mortgage decree against the share
of the appellant to the extent of the entire mortgage money.
This was one of the points which was
canvassed before us, which. we shall deal with in its proper place.
Pausing here and before setting out the
points urged before us by the appellant, there is one matter that has to be
mentioned merely for the purpose of clarification. As already stated, the suit
as originally (1) 51 1. A. 129.
659 filed was for the recovery of the debt
due under all the three promissory notes-Exs. A, B & C and the interest
accrued thereon which totalled over Rs. 1,27,000 though the property against
which the mortgage decree was sought was confined to the Cochin property which
was covered by the memorandum of deposit-Ex. E. The learned Sub-Judge, however,
held that the suit in so for as the debt under the pronote Ex. C. for which
properties in Palghat were given as security could not be sued for in his Court
and disallowed the Bank's claim to that extent. That portion of the decree has
become final and was not challenged by the Bank on appeal. It might be
mentioned that the Bank is stated to have subsequently filed a suit for that
sum in the court in Palghat and has obtained a decree thereon. We are setting
out these matters for pointing out that the appeal is practically confined to
the binding character of the mortgage--ExE in so for as it secured the
repayment of the debts evidenced by. Exs. A & B.
Learned counsel for the appellant urged the
following contentions in support of the appeal:
(1) The finding by the High Court that the
partition of the family properties effected between the appellant and his
father was not bona,' fide was not justified on the, admitted facts and was
based on erroneous reasoning.
(2) The learned Judges erred in holding that
the Hindu Law as understood and applied by the Courts in the previous Cochin
State could determine the liability of the appellant who was a resident of
Palghat.
(3) The learned Judges erred in their finding
that the mortgage evidenced Sy Ex. 'E' was to any extent for the discharge of
antecedent debts.
The first question that falls for decision
and of which the learned Judges of the High Court difference from the trial
Judge was in relation to the nature of the partition which was evidenced by the
registered instrument marked Ex. VIwhether it was such as could be termed bona
fide and satisfied the 660 requirements of a partition which would preclude the
creditor of the father from having recourse to the share of the family property
in the hands of the son.
Before we deal with the facts relevant to
that matter we consider it would be convenient to focus attention on the real
points for determination in that context and for that purpose we shall extract
a passage from the judgment of this Court in Pannalal v. Mst. Naraini(1) where
this is dealt with. Mukherjea, J. explained the law on the point in these
terms:
"The sons are liable to pay these debts
even after partition unless there was an arrangement for payment of these debts
at the time when the partition took place.................. The question now
comes as to what is meant by an arrangement for payment of debts. The
expressions 'bona fide' and 'mala fide' partition seem to have been frequently
used in this connection in various decided cases. The use of such expressions
far from being useful does not unoften lead to error and confusion. If by mala
fide partition is meant a partition the object of which is to delay and defeat
the crediditors who have claims upon the joint family property, obviously this
would be a fraudulent transaction not binding in law and it would be open to
the creditors to avoid it by appropriate means. So also a mere colourable
partition not meant to operate between the parties can be ignored and the
creditor can enforce his remedies as if the parties still continued to be
joint. But a partition need not be mala fide in the sense that the dominant
intention of the parties was to defeat the claims of the creditors; if it makes
no arrangement or provision for the payment of the just debts payable out of
the joint family property, the liability of the sons for payment of the
pre-partition debts of the father will still remain .................... An
arrangement for payment of debts does not necessarily imply (1). [1952] S.C.R.
544.
661 that a separate fund should be set apart
for payment of these debts before the net assets are divided,, or that some
additional property must be given to the father over and above his legitimate
share sufficient to meet the demands of his creditors. Whether there is a proper
arrangement for payment of the debts or not, would have to be decided on the
facts and circumstances of each individual case. We can conceive of cases where
the property allotted to the father in his own legitimate share was considered,
more than enough for his own necessities and heundertook to pay off all his
personal debts and release the sons from their obligation in respect there That
may also be considered to be a proper arrangement for payment of the creditor
in the circumstance of a particular case. After all the prima liability to pay
his debts is upon the father himself and the sons should not be made liable if
the property in the hands of the father is more the adequate for the purpose.
If the arrangement made at the time of partition is reasonable a proper, an
unsecured creditor cannot have an reason to complain. The fact that he is no
party to such arrangement is, in our opinion immaterial of course, if the
transaction is fraudulent or is not meant to be operative, it could be ignored
or set aside; but otherwise it is the duty of unsecured creditor to be on his
guard lest any family property over which he ha no charge or hen is diminished
for purpose of realization of his dues............ Thus, in our opinion, a son
is liable, even after partition for the pre-partition debts of his father which
are not immoral or illegal and for the payment of which no arrangement was made
at the date of the partition." There are one or two observations which it
is necessary to make before applying the law as here laid down to the facts of
the present case. In the 662 first place we are here concerned primarily with
the rights of the Bank as a secured creditor to proceed against the security,
ignoring the partition. To such a situation the law as explained in the
judgment in Pannalal's case (1) would not have immediate relevance, for
Mukherjea J. was dealing with the rights of an unsecured creditor of the father
to proceed against the shares of the sons after a partition. In other words,
the nature and bona fides of the partition and the right of the creditor to
proceed against the share allotted to the son in such partition would arise for
consideration only if the Bank were unable to establish that the mortgage was
as such not binding on the son. This was the situation of the Bank when the
learned trial Judge found that the mortgage was not binding on the appellant's
share in the family property. If, however, the mortgage were binding on the son
either because it was created to raise money for purposes binding on the family
as necessary or beneficial there for or was executed in order to discharge an
antecedent debt of the father, the bona fides of the partition and the
allotment of property to the sons cannot affect the rights of the secured
creditor to proceed against the properties allotted to the son which are the
subject of mortgage. In the present appeal, in view of the conclusion we have
reached, for reasons which we shall discuss later in the judgment, that the
mortgage under Ex.
'E' was for securing the repayment of an
antecedent debt, the bona fides of the partition would not have a crucial
significance. Since however the question of the reality or the binding nature
of the partition would arise in the event of the mortgaged, property being
found in sufficient to discharge the decree and the creditor or the decree
holder thereafter seeks to proceed against properties allotted to the share of
the appellant which were not included in the mortgage, we have thought it
necessary and proper to examine it.
Proceeding then to deal with the matter, we
must first observe that the onus of proving that (1) [1952] S.C.R. 544.
663 the partition arrangement is fair and
bonafide in the sense explained by this Court in Panna Lal's case(,,) was upon
the appellant, and that the approach of the learned trial Judge to the question
is vitiated by casting the burden of proving that the arrangement was mala fide
on the creditor Bank.
And for this reason. At the moment the
liability was incurred by the father the creditor had a right to proceed
against the entirety of the joint family estate including the share of the son
since, the debt not being avyavaharika, the son was under a pious obligation to
discharge it out of family property. Subsequent thereto a partition takes place
by which the share of the son in the property is separated and vested in him,
free from the rights and powers of the father. It is the plea of the son that
by reason of an arrangement which he has entered into or which has been entered
into on his behalf, he has discharged himself from liability to the creditor an
arrangement to which the creditor is not a party but which under the law is
binding on the creditor provided the arrangement fulfils certain conditions.
From this it would seem to follow logically that the onus would be upon the son
to establish that the nature of the arrangement under the partition was such,
as made proper and adequate provision for the discharge of the debt, for that
is the basis upon which his own discharge from liability depends. The learned
trial Judge framed an issue regarding the partition being fair and bona fides
and binding on the Bank but the entire discussion on the facts relating to it
proceeded on the footing that the onus was upon the Bank to establish that the
partition was mala fide.
The,next error of the learned trial Judge lay
in ignoring the circumstance that the partition did not make provision for the
discharge of the entirety of the debts of the father, nor did it take into
account, all the properties of the family. The partition was evidenced by a
registered instrument dated June 3, 1948 The first feature of this deed is that
though the, (1) [1952] S.C.R. 544.
664 family had properties both at Palghat in
the then State of Madras, as well as in the Cochin State, the partition deed
which has been marked as Ex. VI dealt only with the properties in Cochin. These
properties were divided into two parts which were stated to be equal in value
and they were allotted respectively to the father and the minor son.
It contained a recital that the father
acknowledged that the debts incurred by him were for his own personal purposes
and were not binding on the son and that as a consequence of this state of
affairs the debt due to the Bank was directed to be discharged by the father-a
direction to which he expressed his agreement. The learned trial Judge found
that the total property at Cochin was fetching an income of about 18 to 19
thousand rupees a year and computing the market value of the property on that
basis considered that it. made ample provision for the discharge of the debt
due to the Bank. But he paid no attention to the fact that besides the debts
for the discharge of which provision was made in Ex.
VI, the father had incurred several debts to
creditors in Palghat and which the son was under a pious obligation to reply
but to this we shall revert after setting out the grounds on which the learned
Judges of the High Court based -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 twofold: (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, 665 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 sonare 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.
666 We agree that the real question for
consideration in such cases is whether sufficient property has been set apart
for the share of the father to enable him to discharge the debts which he has
undertaken to discharge. Examined from this point of view we are ,,clearly of
the opinion that the partition deed-Ex. VI does not satisfy this test. In the
first place, we agree with the learned Counsel for the respondent in his
criticism that the learned trial Judge had really no basis in the evidence for
recording his finding ;is regards the income from the property. That finding
was based not on any evidence adduced directed to that point but by taking into
account certain statements made to the Bank by Kalyanasundaram at the time the
loan was raised. As a matter of fact the 1st defendant in his cross examination
stated:
"The properties partitioned and allotted
to me (under Ex. 6) will fetch a pattom of 2,000 and odd (paras of paddy). I
have got debt to the extent of Rs. 80,000. It is the debt under Exs. A & B.
I have to pay other amounts to the bank. I have to pay a debt of about Rs.
2,00,000 to the bank. In addition to that I
have also got other debts to the extent of more than rupees one lakh. The
decrees obtained against me will come to more than Rs. 50,000-60,000. They are
decrees obtained against me." This would disclose two infirmities in the
appellant's case:
(1) No provision was admittedly made under
Ex. VI for the payment of all the debts of the father and there were
considerably more debts payable by him than those for which provision was made
for the discharge out of properties allotted to him. (2) There was no
acceptable evidence regarding the value of the properties in Palghat and
therefore one cannot proceed on the basis that the share of the father in the
Palghat properties would be sufficient to discharge the debts not provided for
under Ex. VI. Learned counsel for the appellant faintly suggested that for considering
the bona fides of the partition under Ex. VI only the debts incurred in Cochin
and 667 on which suits could be laid in Cochin should be considered but this is
obviously incorrect because even assuming that in regard to each one of those
debts, a suit could not be instituted in the Courts in the Cochin State,
undoubtedly the decrees obtained in the Madras State could be transferred for
execution to Cochin and vice versa. In these circumstances, unless the entirety
of the debts payable by the father were taken into account and sufficient and
adequate provision made for the discharge of these debts from and out of the
share allotted to the father-either his original share or any added assets to
enable him to do so -the partition cannot be held to be bona fide within the
meaning of the decisions. We therefore agree with the High Court, though not
for the same reasons, in its finding that the partition under Ex. VT is not
such as to be binding against the Bank.
We shall next deal with the second point which
relates to the reasoning on the strength of which the learned Judges of the
High Court granted a decree to the bank for the entire sum of Rs. 80,000 and
odd covered by the two promissory notes 'A' & 'B' notwithstanding their
finding that only Rs.
50,000 and odd out of the loan of Rs. 80,000
went towards the discharge of antecedent debts. We should add that we are
reserving for later consideration the correctness of the grounds for holding
that to the extent of Rs. 59,000 the mortgage was for discharge of antecedent
debts which is the subject matter of the third of the points raised by the
Appellant.
Their reasoning may be set out in their own
words:
"When the plaint transactions took place
British India and Cochin State were independent sovereign states and according
to Private International law it is the law of the situs of the property that
should govern contracts relating to it." On this principle they applied
the Hindu Law as administered in Cochin State to determine the rights of the
creditor and under, that law even a mortgage, which was contemporaneous with
the debt would 668 be binding on the sons, provided the same was not illegal or
immoral, though the debt was not for a purpose binding on the family either by
way of necessity or benefit. On this basis they held that the bank was entitled
to a mortgage decree for the entire sum even though Rs. 20,000 and odd of it
was held not to be for the discharge of any antecedent debt. Learned counsel
for the appellant challenged the correctness of this reasoning and the
application of the rule of the lex situs to a case like the present. We agree
that the learned Judges were not right in the view they expressed about the
applicability of this rule of Private International Law. The rule that they
applied to determine the rights to immovable property in Cochin was not any
statutory law which was binding on parties who had dealings in regard to land
in that State in which event their reasoning was unexceptional. Taking the
Cochin State itself, the power of a person to dispose of property or to
encumber it would have depended upon whether he was a Hindu or a Muslim or a
Christian and in each case the right of the owner to dispose of the property
would depend upon his Personal Law as modified by any statute applicable to
that community to which he belonged. There was in the matter of dispositions of
the type we have to deal with in this case, no lex situs which could be applied
irrespective of a personal law governing the owner. By way of example, let us
take the case of a testamentary power of disposition over immovable property in
that State. If the owner were a Christian he might be entitled to dispose of
property to the full extent. If he were a Muslim, there would be a limitation
on such a power based upon the rules of Muslim Law applicable to him subject,
of course, to any statutory modifications thereof. In the case of a Hindu, his
power to dispose of by will would depend upon whether the property was
self-acquired or joint and whether he was a member of a Joint Hindu Fami the
existence of coparceners and the like.
The Cochin law itself, therefore, recognised
that Hindu Law was a Personal Law and that the rights of dealing with property
flowed from the Personal 669 Law of the owner. It is hardly necessary to cite
authority for the position that Hindu Law is a Personal Law. The matter might
be further illustrated by another example.
Even among the Hindus, there are persons
governed by the Dayabhaga system of Hindu Law. If such a one acquired property
in Cochin it could not be that the Dayabhaga not being prevalent in Cochin some
system of law-not the Dayabhaga but either the Mitakshara or some other
systemwould apply in the absence of course of some valid statutory provision to
determine either the rights to property or its devolution. The reasoning of the
learned Judges, therefore, proceeds upon a basic wrong assumption that the
Mitakshara law as understood and administered in Cochin State was some sort of
lex situs which would apply to determine the rights of parties whatever might
be their Person Law i.e., Hindus following either the Mitakshara as understood
elsewhere or governed by some system other than the Mitakshara or not being
Hindus governed by some other system of law. As stated in Mayne' Hindu , Law(1)
though in a slightly different context "Prima facie any Hindu residing in
a particular province of India is held to be subject to the particular
doctrines of Hindu Law recognised in that province............
This law is not merely a local law, it
becomes a personal law and a part of the status of every family which is
governed by it................. In this respect the rule seems an exception to
the usual principle, the lex loci governs matters relating to land and that the
law of the domicil governs personal relations. The same rule as above would
apply to any family which, by local usage, had acquired any special custom of
succession, or the like, peculiar to itself, though differing from that either
of its original, or acquired domicile The reason is that in India there is no
lex loci, every person being governed by the law of his personal status."
(1) Mayne's Hindu Law, 11th Edn. para 56.
670 In the present case on the concurrent
finding of the two courts that the family of the defendants were permanent
residents of and domiciled in Palghat it would follow that the binding
character of the father's alienation by way of mortgage quoad the son had to
'be judged in the light of the principles laid down from very early times by
the Privy Council and accepted by the Full Bench decisions of the Madras High
Court and finally authoritatively expounded in Brij Narain v. Mangla Prasad(1)
which has received the approval of this Court. When the Bank dealt with the 1st
defendant, it must be taken to have contracted with him on the basis of such a
law being applicable to the transaction, so that there is no question of
hardship arising from the application of the British Indian Law to determine
the scope of the father's powers.
This leads us to the third and last point
urged in the appeal as regards whether and to what extent the debt under the
mortgage evidence by Ex. 'E' went towards the discharge of the antecedent debts
of the father for it is only for such amount that the Bank can claim a mortgage
decree against the share of the appellant in the family properties.
Before examining the facts in relation
thereto, it is necessary to narrate briefly the manner in which the attention
of the Courts were directed to this point. In its plaint the Bank averred that
the debt was incurred for a family purpose, it being stated to be in connection
with a family business. This was denied and it is now common ground that the
debt was incurred merely for the starting of a new business by the father and
was not for any ancestral family business. So far as the plaint went, the Bank
had no case that the debt secured by the mortgage was one binding on the family
as being for a necessary purpose. Also in terms there was no plea that the
mortgage was binding on the son's share by reason of the debt being for the
discharge of the antecedent indebtedness of the father. The defence on behalf
of the appellant was threefold: Besides the usual formal denial of the (1) 51
I.A. 129.
mortgage not being supported by
consideration, the contentions raised were: (1) That the mortgage debt was not
binding on the appellant's share of the family properties for the reason that
the debt was not incurred for purposes which in law were either necessary or
binding on the family, and (2) that the debts were tainted with illegality or
immorality. The findings which were recorded on these three defenses were
concurrent and are no longer in controversy.
It was found that the mortgage was fully
supported by consideration, that the debt was not incurred for any necessary or
beneficial purpose of the family and lastly that the purpose for which the debt
was incurred was neither illegal nor immoral. In this context it should be
remembered that the suit was filed by the bank on June 17, 1948 before Cochin
became part of the Indian Union. At that date there could be no doubt that if
the Courts at Cochin applied the Hindu Law as understood by' the High Court of
that State disregarding the circumstance arising from the domicile of the
mortgagors, the question whether the debt secured by the mortgage was or was
not for discharging an earlier antecedent indebtedness of the father was
immaterial and nothing more was needed for the plaintiff to succeed in
obtaining a mortgage decree as against the entire family property including the
son's share therein than a finding by the Court that the debt was not illegal
or immoral. In fact, even the allegation in the Bank's plaint that the debt was
for the purpose of financing a family trade was superfluous, and the negativing
of its averment in that regard would not have affected its rights in any
manner. In the circumstances, the Bank could not be seriously blamed if it
considered that the question whether there was not an antecedent debt which the
mortgage under Ex. E discharged was not relevant at all and made no averment
asserting such a fact. Accordingly no attention was apparently paid by either
party to this question. By the date, however, of the arguments before the
learned trial Judge the princely State of Cochin had acceded to the Indian
Union and had become a Part 'B' State under the 672 Constitution. Founding
himself on this circumstance as also the fact that the defendants were
permanent residents of and domiciled at Palghat learned,counsel for the
appellant submitted to the trial Judge that the Hindu Law as understood and
expounded in Brij Narain v. Mangla Prasad (1) would apply to determine the
rights of the parties to the transaction and if that law were applied, on the
finding that there had been a partition in the family which was stated to be
fair under which a proper provision had been made for the discharge of the
debts of the father, coupled with the finding that debts under Exs. A & B
were not incurred for a family trade or for a purpose binding upon the family,
the mortgagee was not entitled to a decree against the security under Ex. 'E'
which could not extend to the share allotted to the appellant under the
partitionEx. VI. The learned trial Judge made an incidental finding, or more
correctly an observation which it must be taken to be on the state of the
pleadings, that the debts evidenced by Exs. A & B did not go to discharge
any antecedent liability of the father. When the matter went up in appeal
before the High Court the learned Judges considered that even if Brij Narain v.
Mangla Prasad(1) was applied and even if the finding that there had been no
ancestral trade and that the debt had not been incurred for a family purpose
were accepted, there would still be need to ascertain whether there was any
antecedent debt of the father which had been discharged by the execution of the
promissory notes Exs. A and B and the mortgage deed Ex. E.
For this purpose they called for a finding
from the Subordinate Judge under O. XLI. r. 25, Civil Procedure Co-de and
having regard to the state of the pleadings and the evidence they raised a
specific issue on that point and directed the Subordinate Judge to afford the
parties a further opportunity of adducing such evidence as they desired on the
matter. The Subordinate Judge accordingly heard further evidence and recorded a
specific, finding that the debts under Exs. A and B were not for the purpose of
discharging any antecedent debts which (1) 51 I.A. 129.
673 could really be termed to be independent
transactions. The appeal was thereafter heard and the learned Judges, after
considering this finding, dissented from the view there expressed and held that
out of the Rs. 80,000 which were the principal amounts covered by the two
promissory notes-Exs. A & B, there was, an antecedent debt to the extent of
Rs. 59,000 and odd. Though on this finding, if the decision in Brij Narain v.
Mangla Prasad(1) were applied, the bank would have been entitled to a mortgage
decree only in respect of the principal sum of Rs. 59,000 and odd and to a
personal decree for the balance to be recovered out of the share of the
appellant in the family property on the finding that the partition Ex. VI was
not bonafide and therefore not impeding the rights of the creditor, they,
nevertheless proceeded to grant a decree to the Bank for the entire sum due on
the two promissory notes-Exs. A and B for the reason that they considered that
the law applicable to determine the rights of the Bank was not the Mitakshara
law as understood and explained in Brij Narain's Case(1) but the law as was
understood and applied in the decisions of the High Court of Cochin prior to
the Constitution. We have already dealt with the correctness of the view of the
High Court on this point.
What we are here concerned with is the
finding by the learned Judges of the High Court that out of the sum of Rs.
80,000 covered by Exs. A and B a sum of Rs. 59,000 and odd really went in
discharge of an antecedent debt and that to that extent, even applying the law
as understood in what was formerly British India, the Bank would have the right
to a mortgage decree as against the appellant. The learned counsel for the
appellant has strenuously contended that this finding of the High Court is
wrong and that the entire transaction by which the father obtained finances for
implementing the pepper contract with the Government of India was one single
and entire transaction and that it was not capable of being split up, as the
learned Judges of the High Court had done (1) 511. A. 129.
674 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 defendant father' 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 675 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 676 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 677
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.
1. account. There was a small balance of Rs.
726/15,/4 due which was paid in cash and that account was closed on November
20, 1945. On these. facts the question now for consideration is whether this
loan of Rs. 80,000 is or is not sufficiently dissociated from the liability of
the 1st defendant under the No. 1 and No. 2 accounts which existed before that
date, for admittedly the entire sum was utilised to discharge the debt
remaining due to the Bank on November 20, 1945.
678 Learned counsel for the appellant raised
a sort of preliminary objection that the learned Judges of the High Court
having categorically found that there was an antecedent debt which was
discharged by the suit-mortgage loan only to the extent of Rs. 59,000 and odd
and there being no appeal by the Bank against the finding that the balance of
the Rs. 80,000 had not gone in discharge of an antecedent debt, the respondent
was precluded from putting forward a contention that the entire sum of Rs.
80,000 covered by Exs. A & B went for the discharge of antecedent debts. We
do not see any substance in this objection, because the respondent is entitled
to canvass the correctness of findings against it in order to support the
decree that has been passed against the appellant.
Coming now to the merits of the controversy,
the matter may be viewed thus. We are now concerned with the question whether
Rs. 80,000 which were borrowed under Exs. A & B and in respect of which a
crossed draft for that sum made in favour of the 1st defendant was handed over
to him went in discharge of antecedent debts. If the previously existing debt
on 14.11.1945 of over Rs. 1,09,000 being the total of the amount due under the
No. 1 and 2 accounts was one owed to a third party and that debt had in part
been discharged by a demand draft issued on the execution of Exs. A & B and
the creation of a mortgage by virtue of Ex. E, there could be no doubt that it
would be an antecedent debt. That, however, was not the case but the original
indebtedness was to the Bank itself and that was discharged by the suit-loan
from the Bank. Learned counsel for the appellant laid great stress on the fact
that the entirety of the transactions which resulted in the grant of an
overdraft facility of Rs.
1,10,000 covered by Exs. A, B & C should
be viewed as a single and entire transaction commencing from the grant of the
loans on June 6, 1945 in anticipation of security being furnished, right up to
the date when the suit-promissory notes were executed and the mortgages by
deposit 679 of title deeds was created. We are, unable to accept this
submission in its entirety. It is, no doubt, true that the transaction with the
Bank, so far as the debtor was concerned, was one by which he obtained a loan
for financing the implementation of his contract with the Government of India for
the supply of black pepper but that by itself would not be sufficient to
negative such a financing being composed of independent transactions, though
directed to the same end. Learned counsel for the appellant did not deny that
this was possible nor did he contest the position that if there was a real
dissociation in fact, the circumstance that the creditor was the same or that
the several loans that were made, were for fulfilling the same purpose of the
borrower would not by themselves detract from there being real antecedence for
a later borrowing. It is, therefore, essentially a question of fact and the
matter has to be viewed with reference (a) to the nature of the transactions,
and (b) the intention of the parties, and (c) the inferences to be reasonably
drawn from the form which the parties adopted for putting through their
intention. It is in the context of these considerations that we are inclined to
hold that there was a real and factual antecedence between the loan of Rs.
80,000 for which the draft was given on November 16, 1945 and the previously
existing indebtedness of Rs. 1, 09,000 and odd in the overdrafts account No. 1
and 2 of the 1st defendant to the Bank which was discharged thereby. On
November 16, 1945 when the draft was handed over there was admitted a debt of
over Rs. 1, 09,000 due from the 1st defendant to the Bank. Though there had
been an agreement that the title deeds of the 1st defendant's Cochin properties
would be deposited with the Bank a security, the same had not yet been done and
the loan therefore still continued to be a loan on the personal security of the
debtor. At that date this bank draft for Rs. 80,000 was handed over to the
debtor for the purpose of discharging the previous loans due to the Bank.
Learned counsel might be right in saying that the previous loan of Rs. 1,09,000
and odd 680 might have been granted in anticipation of the execution of the
mortgage and the final determination of the amount of the overdraft that should
be permitted to the 1st defendant but that does not by itself conclude the
matter. The learned trial Judge negatived the plea of the respondent that the
Rs. 80,000 went in discharge of an antecedent liability to the Bank by reason
of the evidence of the Secretary of the Bank in which he stated that this sum
of Rs. 80,000 was adjusted towards the earlier debts statement which was
repeated by the 1st defendant himself as P.W.3.
Learned counsel for the appellant drew our
attention to this portion of the evidence and repeated the same arguments. In
our opinion, however, this statement or this manner of describing how the draft
was utilised does not by itself militate against this loan of Rs. 80,000
discharging an antecedent debt. Factually that the loan of Rs. 80,000 was
adjusted by the Bank towards the 1 st defendant's indebtedness is not correct,
though it is possible that if the transaction took that form the submission on
behalf of the appellant would have greater force and substance. That however,
was not the form which the transaction took, and we cannot but assume that the
form reflected the intention of the parties. If instead of handing over a
demand draft to the 1st defendant, which has actually happened, the Bank had
credited the amount to the 1st defendant in his overdraft account then there would
have been an unity between the transaction which started on June 6, 1945 and
which culminated in the execution of the two promissory notes-Exs. A and B and
the security for the repayment thereof Ex. E so as to render all of them a
single transaction, but that was not the method adopted by the creditor or the
debtor. When a fresh loan of Rs. 80,000 was granted under Exs. A & B and a
bank draft for that amount was handed over, it was done without taking into
account the preexisting liability for Rs. 1,09,000 and odd owed by the 1st
defendant to the Bank, so that when the draft was handed over there was a total
liability of Rs. 1,89,000 payable by the 1st defendant to the Bank. If the
appellant's father had failed to credit 681 the demand draft into his No. 2
overdraft account which it was undoubtedly within his power to do, his total
indebtedness would have been Rs 1,89,000. He however paid the draft into his
No. account so that the total indebtedness to the Ban on the two accounts
became Rs. 109,000. From No. 2 account a sum of Rs. 5,000 he drew to discharge
,a liability of Rs. 50,000 under the No. 1 account. so that in effect No. 1 and
No. 2 accounts were fully discharged and Rs. 29,000 became thereafter outside
the security created under Ex. E by the 1st defendant in favour of the Bank. In
the circumstances we consider that the entire loan of Rs. 80,000 went in
discharge of antecedent debts though the same was owned by the 1st defendant to
the same creditor.
Before concluding it is necessary to refer to
variation which the High Court made as regards amount recoverable from the
properties of the family in Cochin. This was because of the construction and
effect of Ex. J which was the memorandum which evidenced the deposit of the
title deeds of the Palgh properties and which was executed on April 23,1946.
Under Ex. J the property mortgaged was not merely the properties in Palghat but
the equity of redemption of the Cochin properties which had been the subject of
mortgage under Ex. F for, Rs. 80,000. In other words, Ex. E created also a
second mortgage on the Cochin properties. On a construction of Ex. J. the High
Court held that the 1st mortgage of the Palghat properties was limited to the
excess over Rs. 30,000 in the overdraft account It followed from this that the
Bank could recover from the Chinese properties that excess and this was found
to be, looking into the debits of the account of the 1st defendant, to amount
to Rs. 3,792/2/1 The learned Judges of the High Court, therefore, granted in
addition to the amounts covered by Exs A and B a decree for Rs. 3792 /211
recoverable from the Cochin properties. In view of the fact that a suit had
already been instituted in the Palghat Sub Court for the entirety of the amount
due to the extent 682 of Rs. 30,000 and interest due under Ex. C & F, the
learned judges added in their judgment a reservation which was incorporated in
the decree that was drawn up in these terms:
"If in the suit instituted by the
plaintiff in the Palghat Sub-court the plaintiff obtains a decree for the whole
amount due under Ex. C and realises the same, the plaintiff will not be
entitled to ignore the decree in this case in respect of the above sum Rs.
3,792/2/1 and interest thereon".
Learned counsel for the appellant -faintly
suggested that the learned Judges were in error in passing a decree for this
further sum of Rs. 3792/2/1 in this suit. It is, however, unnecessary for us to
go into the merits as to whether the learned Judges were right in the
construction of Ex. J and the legal results flowing there from as we are
satisfied that the appellant is not entitled to raise this point. This was not
one of the points raised in the grounds of appeal to this Court when an
application was not made for the grant of a certificate of fitness, nor is this
objection to the decree to be found in the statement of the case filed.
In the circumstances, we need say no more
about it.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.
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