B.M. Gandhi vs Oriental Bank Of Commerce And Ors.

Ranjit Singh, J

On the basis of a suit filed by Oriental Bank of Commerce, on 2.11.1995, the defendants have been held liable for recovery of Rs. 20,18,152/- along with interest and cost. The liability of the present appellant (defendant No. 5 before the Tribunal below), however, has been limited proportionate to the loan amount of Rs. 5 lacs with interest as determined vide order dated 2.11.1995. The appellant was also given benefit of Rs. 1.60 lacs which was recovered during the proceedings before the Tribunal below in the same ratio as fastened on to the appellant pro-rata to the total amount for which the suit was decreed. Aggrieved against this, the appellant has filed the present appeal. M/s. Durga Industries, a partnership concern with Ms. Rita Sharma and Mr. Ramji Lal as its partners, had availed Cash Credit facility of Rs. 5 lac from the respondent Oriental Bank of Commerce. Mr. Shiv Narain Sharma and the present appellant stood as guarantors. The appellant had also created equitable mortgage of his property No. 34/113-A, Mukherjee Nagar Extn., New Delhi. Both the guarantors had executed letter of guarantee. The borrower/defendants had executed agreement of hypothecation of stocks, mixers, grinders and jars, etc. to secure the said loan. The borrower utilized the Cash Credit facility from time-to-time. The limit was enhanced to Rs. 7.5 lacs. The borrower, however, could not maintain the financial discipline and became irregular in the repayment of the loan. Despite legal notice and correspondence, the borrower failed to liquidate the liability. As on 5.3.1995, the outstanding amount was Rs. 20,18,152/-, on the basis of which the Bank had filed the suit. This suit was transferred to the Debts Recovery Tribunal (DRT) created under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. On 2.11.1995, the parties compromised and the order was passed in terms of the said compromise. The operative part of the said order reads as under:

"4. Both the parties have agreed to pass final order for a sum of Rs. 20,18,152.00 with legal expenses/cost of the suit along with the pendente lite and future interest at the rate of 18.5% p.a. against respondent Nos. 1 to 4, accordingly it is ordered that respondent Nos. 1 to 4 shall pay a sum of Rs. 20,18,152/- with legal expenses/costs of the suit along with pendente lite and future interest @ 18.5% p.a. In case respondent Nos. 1 to 4 make the payment of Rs. 19.03 lacs with legal expenses/costs of the suit and future interest at the rate of 16% p.a. simple w.e.f. 1.7.1995 till the date of payment in the installments as under, the final order shall stand satisfied:

(i) First six months @ Rs. 10,000.00 p.m.

(ii) 7th to 12th months @ Rs. 15,000.00 p.m.

(iii) 13th to 18th months @ Rs. 20,000.00 p.m.

(iv) 19th to 24th months @ Rs. 25,000.00 p.m.

(v) 25th to 36th months @ Rs. 30,000.00 p.m.

(vi) 37th to 48th months @ Rs. 35,000.00 p.m.

(vii) 49th month to onwards months @ Rs. 40,000.00 p.m.

The payment of monthly installments shall start immediately on passing of the final order.

In case respondents 1 to 4 make any default in payment as mentioned above the entire amount of the final order shall become due at once and the applicant Bank will be entitled to execute the final order forthwith.

In case the respondent Nos. 1 to 4 pay the suit amount the suit/original application against respondent No. 5 shall also be withdrawn on the satisfaction of final order, otherwise the proceedings in Original Application against the respondent No. 5 shall continue.

The compromise deed shall form part of this order. The certificate under Section 19(7) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 be issued in terms of compromise deed i.e. for Rs. 20,18,152/- with legal expenses/costs of the suit with future interest along with pendente lite and future interest @ 18.5%."

The borrower/defendants, however, failed to comply with the conditions contained in the abovenoted compromise. The respondent Bank then filed an application for revival of the O.A. against the appellant. This application was allowed on 7.7.2000 and the O.A. was revived in this manner against the appellant. As per the Bank, the appellant was guarantor and had mortgaged his immovable property to secure the credit facility extended to the borrower company M/s. Durga Industries.

The case set up by the appellant in his written statement was that the Bank had not made the present approach with clean hands and is guilty of committing fraud and forgery while filing the O.A. on the basis of forged documents. The appellant would plead that he is a partner of M/s. Ginni Plastic Industries. He was in need of financial assistance and Mr. Shiv Narain Sharma who was known to him, assured the appellant that he can arrange loan for the appellant from the Bank. As per the stand of the appellant, he and said Mr. Shiv Narain Sharma then approached the Mr. Ravinder Yadav, Senior Manager of the respondent Bank, who asked for hypothecation of some property. The appellant then agreed to hypothecate his share in the property No. 113-A, WZ-34, Mukherjee Park Extn. and submitted the copies of partition deed of the said property along with site plan and valuation report. Appellant would urge that said Mr. Ravinder Yadav obtained his signatures on various partly filled and blank documents stating that he would take care of the rest. It was alleged that the Bank had granted certain facilities to M/s. Durga Industries, a firm in the name of Mr. Shiv Narain Sharma where the appellant was fraudulently shown as surety and mortgagor.

As alleged by the appellant, Mr. Ravindra Yadav, Manager of the Bank had illegally favoured Mr. Shiv Narain Sharma by disbursing various loans to the fictitious companies for which the appellant had also made complaint against said person, leading his being placed under suspension. The appellant has, therefore, pleaded that he has been held liable wrongly.

The Tribunal below, after hearing the parties and considering the evidence produced by respective parties, has held that the case of respondent Bank stood proved and thus decreed the amount claimed in the suit, as already noticed. The appellant, accordingly, has filed this appeal to impugn the said order.

The Counsel for the appellant has primarily made two-fold submission before me. He would submit that the appellant was running M/s. Ginni Plastic Industries and was in need of money. Mr. Shiv Narain Sharma, who was known to him, took him to the Bank in the year 1994 for obtaining a loan of Rs. 5 lacs. At that stage, the Manager of the Bank got a letter signed from him and thus a mortgage in respect of M/s. Durga Industries was created. The Counsel thus would plead that no valid mortgage was created in this case. As per the Counsel, the property described is not relatable to the property owned by the appellant. The Counsel further submits that the mortgage was created on the basis of photocopy of a title deed. In this regard, the Counsel has referred to the pleadings in the suit filed by the Bank where, the document allegedly deposited with the suit was memorandum of deposit of title deed which is partition/division deed relating to property 34/113-A, Mukherjee Nagar, Extension, New Delhi. The Counsel would refer to the fact that the photocopy of the sale deed is referred to as document which was deposited in this regard. As per the Counsel, no valid mortgage can be created by deposit of photocopy of a sale deed Counsel has made an attempt to urge that the mortgage even if found to have been created was not a valid mortgage on this ground as well as on the ground that the property described in the schedule annexed with the guarantee deed was shown as 34/113-A, Mukherjee Nagar Extension, New Delhi, which is not a property owned by the appellant as he owns 34/113-A, Mukherjee Park Extn., New Delhi. As per the Counsel, the property having been so differently described cannot lead creation of any valid mortgage. The Counsel would contend that this property so shown to be mortgaged in the account of the borrower was only because of the connivance of the Bank staff, which would clearly reveal a fraud.

The Counsel has also made some submission to urge that as soon as the compromise was reached between the parties, the first agreement would stand rescinded. In this regard, he has made reference to the provisions of Sections 62 and 63 of the Contract Act. In support of this plea, the Counsel has also relied upon the judgment in the case of Central Bank of India v. V. Guruvian Naidu and Sons (Leather) Pvt. Ltd. & Ors., AIR 1992 Madras 139.

The Counsel for the respondent Bank, however, would refute all the submissions made. The Counsel for the Bank make reference to the averment made in the suit where it was specifically pleaded that the appellant stood as guarantor for the repayment of the loan facility advanced to M/s. Durga Industries and had executed guarantee deed dated 24.4.1992. It was also specifically averred that the appellant had created a valid equitable mortgage in favour of the Bank in respect of immovable property bearing No. 34/113-A, Mukherjee Nagar Extension, New Delhi and this was in respect of the loan facility granted to M/s. Durga industries. The Counsel would also clarify that the equitable mortgage was not created on the basis of any sale deed since there was none, but it was only on the basis of a partition deed entered into between the family members whereby the mortgaged property had fallen into the share of the appellant. Counsel for the Bank has also contested the allegation of fraud as made. He would also refer to the guarantee deed duly signed and executed by the appellant and so also other documents to show that this guarantee was given in respect of loan granted to M/s. Durga Industries.

I have considered the submissions made by the Counsel for the parties. The plea raised by the appellant that he was defrauded to create this equitable mortgage would sound rather far-fetched. One cannot find any reason for which the Bank would have defrauded the appellant to create guarantee deed to secure the loan granted to M/s. Durga Industries. This plea in the suit was taken by the Bank long ago in the year 1995. The borrower had compromised with the Bank but did not adhere to the terms of compromise, because of which the Bank had to seek revival of the O.A. for recovery of its amount from the appellant guarantor as well. In fact, the Tribunal below has considered evidence in detail. The Tribunal below has made reference to Exhibit A W-2/6 whereby the appellant had confirmed the mortgage of his property. Mere perusal of guarantee deed would be enough to negate the submissions made by the appellant. He (appellant) is doing business. He is not an illiterate novice that Bank could have obtained the signatures on documents to create a mortgage in favour of someone else appellant is not a stranger to the borrower and claims to have gone to the Bank with him only. The reasons given by the Tribunal below are found valid and justified to reach this conclusion that this property was mortgaged by the appellant in the account of M/s. Durga Industries.

I have also not been able to appreciate the submission made by the Counsel for the appellant that earlier contract would stand rescinded on the basis of compromise. The judgment relied upon by the Counsel seems to have been passed in a different fact situation. The debtor in the judgment referred to was under obligation to pay certain amount. The Bank had filed suit for recovery of the amount with interest. During pendency of the suit, the parties arrived at a compromise and the Bank agreed to withdraw the suit, provided the debtor paid the amount within a stipulated time. The debtor sought extension of time, which was granted and he repaid the full amount of installment. He accordingly requested the Bank to withdraw the suit. The Bank, however, claimed overdue interest for delayed payment. The Court, in these circumstances, held that the Bank was not entitled to overdue interest. In this context, the Court has referred to the provisions of Sections 62 and 62 of the Contract Act. It is observed that the parties have entered into to a second agreement subsequent to the filing of suit to supersede the liability and the entitlement formulated through the suit transaction and under the circumstances, the subsequent agreement squarely comes within the ambit of Section 62. That is not the situation here. There may have been a compromise, but the terms of the compromise was not honoured. Compromise was not with the appellant. It cannot be said that there was any subsequent contract which would supersede earlier contract. I do not find any justifiable reasons to interfere in the impugned order passed by the Tribunal below. There is no substance in any of the pleas raised by the Counsel for the appellant. The appeal, accordingly, is dismissed.