Mahadulal vs Chironjilal

A.K. Khan, J.—This is Plaintiff''s first appeal from the judgment and decree of the Additional District Judge, Shivpuri, in case No. 4 of 1952, Original Civil, dismissing the Plaintiff''s claim for the recovery of Rs. 13527-11-6.

The Plaintiffs are the owners of a firm known is Firm Seth Tiparlchand Hiralal, while the Defendants are owners of another Firm, known as Firm Thakurdas Gopilal.

The Plaintiffs'' case is that the owners of the Defendant-firm on 11-3-34, after going through the accounts of the Plaintiff-firm admitted a sum of Rs. 12491/- due to the Plaintiffs and in acknowledgment of the debt signed an entry in the Plaintiffs'' Bahi-Khata. Out of this, a sum of Rs. 3697-10-9 has been realised, and, the present suit is for the recovery of the balance (Rs. 8793-5-3) and interest thereon at 9 percent per annum.

The Defendants admitted signing the Bahi-Khata. But the main ground on which they resisted the suit was that subsequent to the signing of the Bahi khata, an agreement dated 15-3-34 was concluded between the Defendants on one hand, and the Plaintiffs and other creditors of the Defendants on the other whereby it was agreed that the present Plaintiffs and other creditors would in satisfaction of their debts accept the movable and immovable properties of the Defendants as shown in Ex. D. 1, that the property entered in Ex. D. 1 shall be sold and that the sale proceeds shall be rateably distributed among all the creditiors and in this way all the debts, including the one due of the Plaintiffs, shall stand discharged. The Defendants contended that in view the composition ded, the Plaintiffs were not entitled to maintain this suit on the basis of the entry in the Bahi-khata referred to above

On the above objection being taken by the Defendants, regarding the composition of debts, the Plaintiffs amended their plaint and in the alternative based their claim on Ex. D. 1 which does not merely bear the signatures of the Defendants but also the signatures of all the creditors, including that of the Plaintiffs, signiying the acceptance of its terms.

The Plaintiffs at the time of this amendment made other creditors'' pro-forma Defendants. The trial Court after recording the evidence of the parties, dismissed the suit on the ground that the suit was not maintainable on the original cause of action, namely, the settled accounts signed by the Defendants'' firm in the Plaintiffs'' Bahi-khata because subsequent to it there was a novation of the contract on 15-3-34 as evidenced by Ex. D. 1 whereby the Plaintiffs in settlement of their claim had agreed to accept payment of their debt at ratable distribution along with other creditors, from the sale-proceeds of property mentioned in Ex. D. 1. It also held that the Plaintiffs could not other-wise succeed also because the suit as framed was bad. They ought to have filed a suit for specific performance which they did not and that if this is treated as a suit for specific performance, then because other creditors were joined as Defendants after three years from the date of Ex- D. 1, the suit had become time barred.

So far as the decision of the Trial Court regarding the non-maintainability of the suit on the basis of the signed entry in the Bahi Khata is concerned, it is conceded, by Mr. Patankar, learned Counsel for the Plaintiffs-Appellants, that the suit is not maintainable. This leaves us to determine two question (1) whether the suit is time barred because of the adding of some persons as performa Defendants and (2) whether the Plaintiffs are otherwise entitled to succeed.

It is admitted that the suit as originally framed was against Defendant-firm only. But when the Defendant firm raised the plea of the novation of the contract on the basis of Ex. D. 1, the Plaintiff-firm sought an amendment, resting their case on Ex. D. 1. The trial Court allowed the amendment on 1-6-45. Against this, according to S. 50 of the Gwalior C. P. C. (the Indian CPC was not then in force) the Defendants went in appeal before the Gwalior High Court, challenging the amendment on the ground that it changed the neuter of the suit and that if the Plaintiffs were allowed to and other creditors as Defendants after a period of three years, it would have the effect of taking away from the Defendants a right that had accrued to them by lapse of time. The Gwalior High Court in its judgment (Appeal No. 19 of Samvat 2001 Civil Miscellaneous Division Bench) examined the whole position at length and held that the amendment allowed by the trial Court was within time. This amendment was not only in respect of the composition-deed (Ex. D. 1) but it also included the addition of other Defendants (who were the other creditiors of the Defendant-firm as proforma Defendants. Since the entire amendment was allowed, not only by the trial Court, but by the Gwalior High Court as well, the question that the other Defendants were added after the period of limitation does not now arise. The decision of the Gwalior High Court has became final and the trial Court is in manifest error in going behind It and holding that the adding of the proforma Defendants made the suit time-barred.

On general grounds it may also be said that the question of limitation does not arise when a person is added as a party merely to enable the Court to adjudicate effectually and completely upon questions involved in the suit, without any relief being claimed against him. Sub-Section 2 of Order 1 Rule 10 Code of CPC provides for the addition of (1) necessary parties and (2) of proper parties. Necessary parties are parties who ought to have been joined and without joining whom, no decree at all can be passed. And proper parties are those whose presence enables the Court to [adjudicate more effectually and completely. In adding necessary parties, Section 22 of the Limitation Act has to be taken into account. But in adding proper parties, against whom no relief is sought, the provisions of Section 22 of Limitation Act do not apply. See 12 Calcutta Weekly Notes page 84 (Mahmed Ishaq and Ors. v. Sheikh Akramul Haq and others) and The Coorla Spinning and Weaving Mills Company Limited Vs. Vallabhdas Kallianji,

Thus, both by reason of the fact that the Gwalior High Court had held that the adding of other creditors as proforma Defendants was within time, and, also because the adding of proforma Defendants does not attract the application of Section 22 of the Limitation Act, I have no hesitation in holding that the suit is within time.

In considering the other question whether the Plaintiff-firm is entitled to succeed, after the suit has been held to be within time, I purpose to consider the proposition from two different angles.

The first is as suggested by the trial Court, that the case should be treated as one for specific performance. The agreement Ex. D. 1 is a composition deed of debts and there is no impediment in holding it to be a valid contract, enforceable at law. It being so, the Plaintiff-firm is justified in bringing this suit to enforce is (Ex. D. 1) and in asking the Defendant-firm to sell the properties indicated in it and to give the Plaintiffs his share of money on the basis of rateable distribution. No reason has been advanced by the Defendant-firm why a suit for this purpose does not lie. It is admitted that after the execution of the composition-deed (Ex. D. 1), the Defendants as a matter of fact reteably distributed the Kittha (cashew), a property mentioned in Ex. D. 1 allong all creditors, including the Plaintiffs. Further more it appears that the Defendant-firm sold some other property mentioned in Ex, D. 1 and disposed of the saleproceeds according to the wishes of the creditors. But the rest of the property has remained with the Defendants without being sold and this has necessitated the institution of the present suit. The Defendants are indulging in masterly inactivity and this has forced the Plaintiffs to institute this suit.

In para No. 3 of the written statement, filed by Defendants (on page 15 of the Paper-Book), it is said that the Defendants besides being indebted to the Plaintiff-firm were also indebted to other creditors (whose names it is not necessary to mention here) and in settlement of the outstanding debts there was an agreement between creditors (including the Plaintiff) on one hand, and debtors (the Defendants) on the other to the effect that seven houses and other movable property shown in the agreement would be sold and the proceeds would be rateably distributed among the creditors and thus all the debts shall be completely wiped out. This agreement was reduced to writing, is dated 15-3-34, and all the parties have signed it. It is said that the Defendants served a notice on the creditors to get the immovable property transferred to them by a registered deed and to give the Defendants a receipt to the effect that the debts are paid up. But the creditors did not pay any heed to it.

In para 5 of the written statement, it is stated that the Defendants were according to composition deed ready to transfer the properties by a registered deed and that they have been always ready to fulfil their part of the contract.

In Ex. 3 (Page 167 line No. 34 of the Paper Book) the defandents on 9 to (sic) 34 in reply to a notice of Seth Mathra Dashi Mahadulalji (one of the creditors) said:

The Defendants after narrating all the above facts, resisted the suit on the ground that after the composition deed, the Plaintiffs were not entitled to bring the suit on the basis of Kattha. It is true that in view of Ex. D. 1, the composition deed, the Plaintiffs cannot maintain this suit on the basis of a signed entry prior to the composition deed. But why should a decree not be passed against the Defendants on the basis of the composition deed (Ex. D. 1), which the Defendants have themselves produced ? In this connection I would like to refer to Srinivas Ram Kumar Vs. Mahabir Prasad and Others, in which their Lordships of the Supreme Court at page 179 have observed:

A Plaintiff may rely upon different rights alternatively and there is nothing in the C. P. Code to prevent a party from making two or more inconsistent sets of allegations and claiming relief thereunder in the alternative. Ordinarily, the Court cannot grant relief to the Plaintiff on a case for which there was no foundation in the pleadings and which the other side was not called upon or had an opportunity to meet. But when the alternative case, which the Plaintiff could have made, was hot only admitted by the Defendant in his Written statement but was expressly put forward as an answer to the claim which the Plaintiff made in the suit, there would be nothing improper in giving the Plaintiff a decree upon the case which the Defendant himself makes. A demand of the Plaintiff based on the Defendant''s own plea cannot possibly be regarded with surprise by the latter and no question of adducing evidence on these facts would arise when they were expressly admitted by the Defendant in his pleadings. In such circumstances, when no injustice can possibly result to the Defendant, it may not be proper to drive the Plaintiff to a separate suit.

Thus, where in a suit for specific performance of a contract, in part performance of which the Plaintiff alleges to have paid the Defendant some-money, the Defendant denies the contract and pleads that the money was taken by him as a loan, the Court can pass a decree for recovery of the loan in favour of the Plaintiff on his failure to prove the contract even though the Plaintiff had failed to plead, and claim relief on, this alternative rase.

This case not only obviates the necessity of an amendment by the Plaintiffs (the amendment in the present case has however been made and allowed), but a decree in favour of the Plaintiffs can also be passed on facts which the Defendants themselves have stated and admitted,

Another way of looking at this suit is this. The debtor has executed a composition deed, has earmarked the property for the payment of debts and has also named the persons to whom the payment is to be made. If the document had been registered, it would have been a trust according to Indian Trusts Act. Excluding the lack of registration, the composition deed possesses all the features of a trust. To me it seems that in the present circumstances, it is what is known in Equity, a constructive trust. A constructive trust is one "which the Court elicits by a construction put upon the acts of the parties." According to Halsbury''s Laws of England page 89 (Lord Halsham II Edition Vol. 33) a constructive trust arises, when property, to which no express trust is for the time being attached, is acquired or held by a person in circumstances which render him bound in Equity to hold it in trust for the benefit of some other person or object or beneficiary.

According to the Indian Trusts Act, a trust can be created for any lawful purpose (Section 4). The paying of one''s debt is a lawful purpose and Explanation to Section 11 also speaks of a trust for the payment of one''s debt. The requirements for the creation of trust according to Section 6 are: (1) an intention to create a trust; in the instant case it is obvious from Ex. D. 1, (2) the purpose of trust which is the payment of debts; (3) the naming of beneficiaries, who are creditors in this case; (4) the demarcation of trust property, which is clearly mentioned in Ex.: D.1.

It is a well recognised principle of the doctrine of trust that a trust does not fail, because no trustee has been named. The mere omission to appoint a trustee does not invalidate a trust, for Equity never allows a trust to fail for want of a trustee. In case where a creator of trust has not appointed a trustee, "the trust does not fail, but it fastens itself upon the conscience of any person in whose hands the property come Or is (See Attorney General Lady Downing, Wi. 21).

In the present Case the Defendant debtors retained the property after the execution of the composition deed and so they must be deemed to be trustees. As a matter of fact the debtors acted as trustees, because they disposed of Kattha mentioned in Ex. D. 1, and they also sold "Gharo Makhn Aur Dookan" mentioned in Ex. D. 1, and disposed of the proceeds according to the wishes of the creditors, both, because the debtors in this case actually acted as trustees, and, also because when a trust is created without conveying the property to any one, the creators of a trust must be deemed to hold the property as trustees (See page 244 of the Indian Trusts Act by G. P. Aggarwal) the Defendants are constructive trustees.

Thus it will be seen that the composition deed (Ex. D.1) possesses all the features of a trust. The only element which it lacks is that because some of the trust property is immovable, the deed ought to have been registered vide Section 5 of the Trust Act. Having regard to all the circumstances of the case, I am inclined to think that this case attracts the application of Sec-94 of the Trusts Act, which reads as follows:

In any case not coming within the scope of any of the preceding Sections, where there is no trust, but the person having possession of property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be), to the extent necessary to satisfy their just demands.

Section 94 is attracted in all cases, when in the strict sense of the law, no trust is created, but all the same there exist some features of a trust such as the holding of property for the benefit of others, then despite we fact that no trust is created in the strict legal sense, the person holding such property must satisfy the just demands of those who have on interest in it.

In Ebrahim Peer Mohamed Vs. Kissen Gopal Bagree and Others, , a deed between a debtor and his creditor provided for the payment for debtors debts. This deed did not contain any word of conveyance, non was it registered. In these circumstances, the deed was held to create a constructive trust or what is called an obligation in the nature of trust, and, was said to be governed by Section 94 of the Trusts Act.

As a result of the above discussion, my conclusion is that bearing the particular facts in mind, it would be in consonance with Justice, equity and good conscience to hold that the Defendants (dabtors) who have been holding the property mentioned in Ex. D.1 for the benefit of all creditors, must satisfy the just demand of the Plaintiff firm which on(sic) one of the creditors.

For reasons stated above, I would allow the appeal and setting aside the judgment and decree of the Tril Court, I would direct the defandants to sell the remaining properties included in Ex. D. 1 within three months from the date of this order at the prevailing market price after obtaininig saction of the Trial Court, and to give to the Plaintiffs their share rateable to the Plaintiffs their share actably(sic) to which they are entitled. And it is further ordered that if the defehdants do not within the period specified do as directed, the Trial Court shall sell the remaining property mentioned in Ex. D. 1 at the cost of Defendants and pay the Plaintiff his share on rateable basis. The Plaintiff shall in case the Defendants do not make available all or any of the remaining properties listed in the composition scheme, be entitled to get from the Defendants personally(sic) the price of such property rateably, according to the price estimated in Ex D. 1. It is made clear that the Plaintiffs'' share to, be paid rateably shall be determined on the basis of that debt only for which the present suit was instituted. The Plaintiffs shall be entitled to costs in both the Courts from the debtor-Respondent. The other creditors (proforma Defendants) shall bear their own costs throughout.

Shivdayal, J.

I agree that this appeal must be allowed. I would like to state my conclusions in my own words.

Mahadulal and Basantlal instituted a suit against Banshidhar Chironjilal and Ramji-das for the recovery of Rs. 13527/11/6 on foot of a stated account dated March 11, 1934, for Rs. 12491/-. The balance out-standing on the settlement of the account was signed in the Plaintiff''s book by the above named Defendants. It was stated in the plaint that Rs. 3697/10/9 were repaid by the Defendant leaving a balance of Rs. 8793/5/3. To that a sum of Rs. 4734/1/6 was added on account of interest at 9% per annum and Re /4/9 for notice expenses. This suit was instituted on March 8, 1940.

The defended resisted the claim alleging inter, alia that there had been a com* position between the Defendants and all the creditors. A document Ex. D. 1 was executed on March 15, 1934, and the Plaintiffs were party to the scheme of composition.

On October 12, 1943, the Plaintiffs applied for leave to amend the plaint. That was allowed by the trial Judge on June 1, 1945. The Defendants went in appeal to the High Court of Gwalior State but it was dismissed on March 9, 1946. Under the Gwalior Code of CPC (Zabta Diwani) not only that an order allowing an amendment of the plaint was appealable but also that no objection could subsequently be taken if an appeal was not preferred (Section 50 (4) of that Code). The High Court of Gwalior State while dismissing the Defendant''s appeal held that the amendment bad been rightly allowed by the Trial Judge and the amended suit was maintainable. The plaint was accordingly amended and all other creditors who were parties to the scheme of composition were made pro forma Defendants in this suit.

It must also be mentioned here that the present suit was numbered as 4 of Samvat 1996. Another suit, to which reference will be made at the appropriate place, was instituted the same day and was numbered as 5 of Samvat 1996. Both the suits were instituted in the Court of the District Judge, Shivpuri, but later on, owning to the raising of the pecuniary jurisdiction of the Civil Judge 1st class, the second suit (No. 5 of Samvat 1996) was transferred to him.

In the amended plaint the Plaintiffs made the scheme of composition the basis of their alternative case. A prayer was added in the plaint to grant an appropriate relief on the basis of the scheme of composition and such other relief as the Court found the Plaintiffs entitled to.

The suit was resisted on various grounds. Eventually, it was dismissed by the Additional District judge, Shivpuri. The Plaintiffs have come up to this Court in appeal.

Before I deal with the points which we are called upon to determine, five documents must be mentioned in detail at the outset. They are marked Ex. D. 1, D2, D3, D4 and D5.

Exhibit D1 (dated 15-3-34) is the original composition scheme embodying an agreement between Banshidhar, Chirongilal and Ramjidas, proprietors of the firm Thakurdas Gopilal (hereinafter called the debtors), of the one part, and the Plaintiffs'' firm Tiparchand Hiralal (hereinafter called the Plaintiffs) and other creditors, of the other part. It contains (sic) list of the debtors'' properties the value of which is stated to be Rs. 31,600/- It was agreed that the distribution would be pro rata.

Ex. D2 (dated 18-3-34) is a supplementary part of the said scheme of composition, the implementation of which now started. The residential house and cloth were sold to Khub Chand for Rs. 2,750/-. This is signed by the debtors, the creditors and the purchaser.

In further implementation of the scheme, a house called (Secretary Wala Makan) was sold to Amolak Chand for Rs. 2500/-Another house called ''Gopilal Wala Makan'' to Muttradas for Rs. 2150/-, a third house called ''Ramzan Khan Wala Makan'' to Todarmal for Rs. 2500/- and a 4th house called ''Nichle Bazar Wala Makan'' to Laduram for Rs. 1500/-, Ex. D3).

Ex D4 (dated 2-4-34) is a memorandum in which it is resolved that houses, engine and stone as enumerated in the composition scheme dated 15-3-34 would be distributed "tomorrow" while Kattha (catechu) "today". This is signed by all the creditors and the debtors.

Ex. D 5 (dated 5-4-34) is to my mind a significant document. This purports to have been drawn up at the time of distribution of catechu. In order to calculate the amount payable on pro rata distribution the name of and also the total amount payable to each creditor were specified as follows:

PirchandPhoolChand

Rs. 5735/-

GyanmalKishorchand

Rs. 8676/-

SojhiramKishorilal

Rs. 4400/-

GaneshramGopilal

Rs. 2395/-

TiparchandHiralal

Rs. 17207/-

Total

Rs. 38413/-

It is quite clear from all these documents that not only was the scheme of composition agreed upon between the parties but also that it had partly been put into effect and implimented. Thus the original claim of the Plaintiffs was superseded by this substituted contract which alone became enforceable, while the original cause of action did not survive. The Defendants resisted the suit on the basis of the substituted contract. The plaint was amended accordingly. Now there is no reason not to enforce its performance.

It is contended by Shri Mungre that this suit is barred by Order 2 Rule 2. CPC Code, inasmuch as another suit had been brought for the recovery of another part of the sum which was due to the Plaintiff. This contention is untenable for two reasons. Firstly, the Plaintiff had originally two debts to be repaid by the debtors. As such he could bring two separate suits (as initially framed) on the basis of those two separate accounts. Secondly, the bar contained in Order 2 Rule 2 CPC applied to the subsequently instituted suit and not to the previously instituted one, In this case, both the suits were instituted on one and the same date. Where two suit are instituted on the same day, in the absence of anything to prove otherewise, the numbers assigned to the suits must determine which is the previously instituted suit. The number of the present suit is 4 while that of the other is 5: In that view, the bar of spliting of claims could apply to the other suit, but not to the present one.

It is then urged that the dismissal -of the other suit operates as res judicata. In that suit it was held that it could not be treated as a suit for specific performance. In my opinion the findings in the earlier suit cannot be res judicata so far as the present suit is concerned, firstly, because it was decided by the Gwalior State High Court in the present case itself that the amended suit was maintanable. Had it not been so, the amendment could not be possibly allowed, for that was the sole purpose of the (sic). This judgment, right or wrong, binds the parties.

This Court cannot sit in appeal on that judgment. It is conclusive. Secondly, the other suit was heard by a subordinate Civil Judge, which Court was not competent to hear the present suit, the valuation being above Rs. 10,000/-.

I now turn to the main dispute in this appeal, whether the scheme of composition dated 15-3-34 could be enforced. As said above, the Plaintiff''s suit was initially founded on the balance struck on 11-3-34. The Defendants in the written statement pleaded the composition scheme and urged that no suit could be based on the original cause of action and also averred that they had been and were willing to comply with the said scheme. The Plaintiff firm then amended the plaint introducing in it the material facts pertaining to the scheme of composition, and praying that suitable relief be granted. Specifies performance of the substituted contract is now sought. The question is whether this is permissible. It is to be borne in mind that the amendment of the plaint was allowed by the Gwalior State High Court under the provisions of the Gwalior CPC where it was finally held that the amended suit was maintainable. Therefore, that question is no more open for decision. That apart, it has been laid down by their Lordships in in Firm Shriniwas v. Mahabir Prasad (1959 SCR 227)that a decree can be passed in favour Of the Plaintiff on the plea raised by the Defendant if that could be the Plaintiff''s alternative case. It is undeniable that in the plain, the Plaintiff could base its claim alternatively on the original cause of action and the subtituted contract. The Defendants in their initial written statement specifically pleaded that they had been and were willing to comply with the composition scheme. They cannot now turn round and say that the decree on the basis of that scheme cannot be passed as the suit was not drawn up in that form. This is merely a technical objection and the dictum in Kidar Lall Seal and Another Vs. Hari Lall Seal, protects this suit.

This brings me to the question of limitation which is to be considered in two parts. In the first place it is contended that the other creditors were necessary parties so that the suit was barred when those parties were added. In my opinion, the other creditors were not necessary parties to this suit. A ''necessary'' party is one without whom no effective decree can be passed. It he Plaintiff''s share (pro rata) was not, capable of being ascertained perhaps it could be argued that no decree for specific performance could be passed without joining the other creditors. If the Plaintiff''s share is ascertainable it is not possible to hold that no effective decree can be passed in the absence of the other creditors.

Here, the Appellant''s share was ascertainable. I have already pointed out that according to Ex. D. 1 all the creditors were to receive their respective shares in the sale proceeds pro rata. The total amount of the debtor''s liability as well as the debt owed by the debtors to each individual creditor were specified in Ex. D 5. Their respective shares were, therefore, ascertained and the Plaintiff''s share pro rata in the sale proceeds can be paid to him. The Plaintiff was, therefore, entitled to enforce the composition scheme by himself; the other creditors were only proper or proforma Defendants See AIR 1937 186 (Nagpur) . The decision of the Judicial Committee in promatha Nath Mitta v. Gostha Behari AIR 1932 Privy Cou 43 cehid(sic) on by Shri Mungre is not applicable to this case. It is undoubted law that Section 22 of the Limitation Act has no application to proper or pro forma parties.

The time prescribed for institution of a suit for specific performance is three years from the date when the Defendant refuses to perform the contract. These provisions contained in Art. 11 of the Gwalior Limitation Act(Qanoon Miyad Samvat) correspond to Article 113 of the Indian Limitation Act. It is true that the plaint does not allege the date on which the Defendants refused to perform the contract. Where the Defendant does not perform the contract, nor does he refuse to perform it, it is usual to give a demand notice to him spcifying a date by which he should perform the contract and to treat the failure to perform that contract by that date as his refusal. In this case, that was not done. The Defendants asserted in the written statement that they were and had always been, willing to perform the contract. That being so, it is not possible to fix the date on which the cause of action arose before the institution of the suit. In other words, the suit was premature. However, when the Defendants filed the second written statement in answer to the amended plaint they contended in paragraph 4 of the additional pleas that the Plaintiff''s were bound by the scheme of composition and the liability of the Defendants was limited to it and was confined to the property enumerated in the scheme, but the Plaintiffs themselves failed to perform that contract and "now" the Plaintiffs wanted performance of that contract, but the Defendants are "now" not bound by it, On this statement the cause of action arose to that Plaintiff. This was during the pendency of the suit. For the ends of justice this can be taken into account. The result of this discussion is that the suit is by no means barred by time. It could be held to be premature. But the Defendants'' refusal in the second written statement to perform the contract can be avaied of by the Plaintiffs.

I agree with my learned brother in the order proposed by him.