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2009 (10) TMI 973 - SC - Indian LawsChallenged the Order Of HC - transfer of publication and printing rights and machineries as also to create a lease in the buildings owned by the Trust - Interested persons seeking removal of trustees scheme for management of the Trust etc - M/s Karnataka Patrika (P) Ltd. (KPP) entered into an agreement with M/s Jaya Karnataka News and Printers (P) Ltd. ( JKNP ) for transfer of all its rights interest and liabilities - loan transaction between JKNP and the respondent Bank - (i) Whether the deceased surety and his legal representatives are liable to repay the disputed loan amount? (ii) Whether the conduct of parties amounts to novation of the contract between the parties? (iii) Whether the Lokashikshana Trust alone is responsible to repay the disputed loan amount being the beneficiary of the same? (iv) Whether LST having benefited from the loan transaction disputed herein can be estopped from denying its liability? HELD THAT - If we acknowledge the fact that banks might be in a dominant position there was absolutely no evidence to show that the Bank had in fact exercised its dominant power to force the surety into entering the contract that he ultimately did. If the appellant had been interested in insisting upon this matter then the least he could have done was to have entered the witness box and facilitated a method of clearing the air about it. Nor was there any explanation adduced at a later stage explaining the reason for the surety not entering evidence on his behalf. In the absence of any conclusive evidence to point to the entering of dates at a later stage we cannot find any difficulty in rejecting the aforesaid contentions of the appellants. Thus the appellant guarantor cannot be held liable for the loan. But the learned counsel for the appellants had failed to produce any evidence on behalf of the appellant to satisfy the Court in support of his argument. Instead they contended that the Bank was in possession of such documents and was suppressing it. It is highly unimaginable that when parties are entering into contracts for the purpose of seriously conducting some businesses that there would not be multiple copies of the executed agreement or at least one copy with either of the appellants. Thus this contention of the appellants does not inspire any confidence. We therefore find no difficulty in rejecting the same. In the present facts and circumstances we therefore do not find any difficulty in affirming the concurrent findings of the High Court and of the trial court on the point that the agreement executed for the purpose of a continuing liability despite the variation of terms of the contract and in the absence of a specific written document by Basavaraj (since deceased) revoking the guarantee the guarantee stands and the legal representatives of the deceased are liable to repay the loan. As rightly held by the High Court at present there is no need to look into the question as to which of the machineries were specifically hypothecated to the Bank. But the facts in this case are enough to show that a charge was in fact created on the said machinery by JKNP and which had reverted back to the original owner LST in the chain of circumstances. Nevertheless there is enough evidence on record to show that there was indeed a hypothecation of the said machinery. Hence we find no difficulty in rejecting the argument of the appellant. Accordingly we affirm the decision of the High Court as the plea of JKNP regarding the novation of a contract was found to be unsustainable and therefore the liability of LST to pay the amount involved in the suit would not stand either except to the extent that LST holds any of the hypothecated machineries. The learned counsel for the appellant submitted that JKNP was deprived of the possession management and control of the suit property by an interim order of the court passed in OS and never regained the same. It was further contended that the loan obtained by the appellant was for and on behalf of the Trust and hence JKNP cannot be held liable for repayment of the same. There is no doubt that LST being the beneficiary of the loan is liable to repay the loan amount u/s 70 of the Act; but the question here is whether it is alone responsible to pay the same. The courts below held that LST was liable for payment of the suit claim but the learned counsel for the respondent claimed that once takeover of the Trust property was declared invalid any liabilities incurred in the intervening period of time including actions by the State would also be unenforceable against it. However the High Court failed to consider that LST was liable to repay the loan on the principle of Section 70 of the Contract Act inasmuch as it was LST who had been benefited from the loan which JKNP had secured. We therefore agree with the views expressed by the trial court and disapprove the finding of the High Court on this count. The Board of Trustees was competent to take any loan which would be considered to be loan taken by the Trust. In such a case any loan taken by the Administrator appointed by the State shall also be deemed as loan taken by the Trust and hence the Trust would be liable to repay the loan. Bank has granted the loan for proper functioning of the Trust and on hypothecation of the properties of the Trust itself. From the very beginning all the transactions which had been entered into had clearly been for the sake of the running of the publications of Samyukta Karnataka and other periodicals like Kasturi. In fact first KPP and then JKNP both private limited companies were formed for the sole purpose of the management of the running of the business of LST. These companies had been formed because LST was running losses and was unable to properly manage its affairs. Even the appointment of Receivers and the subsequent transactions entered into by the Administrators appointed under the LST Act had been for the purpose of furthering the business concerns of LST itself. Thus the appeal is allowed and the judgment of the High Court is set aside and that of the trial court is restored. There will be no order as to costs.
Issues Involved:
1. Liability of the deceased surety and his legal representatives to repay the disputed loan amount. 2. Whether the conduct of parties amounts to novation of the contract between the parties. 3. Whether the Lokashikshana Trust (LST) alone is responsible to repay the disputed loan amount being the beneficiary of the same. 4. Whether LST, having benefited from the loan transaction, can be estopped from denying its liability. Issue-Wise Detailed Analysis: 1. Liability of the Deceased Surety and His Legal Representatives: The appellants argued that the original surety, Basavaraj, did not have the chance to verify the documents he signed and that the dates on the documents were inserted later. However, the court found no evidence to support this claim. The court emphasized the principle of waiver, citing Provash Chandra Dalui v. Biswanath Banerjee, which states that waiver involves the voluntary relinquishment of a known right. The agreement was deemed a continuing guarantee under Section 129 of the Contract Act, 1872, which extends to a series of transactions unless revoked in writing. The court upheld the findings of the High Court and trial court, affirming that the legal representatives of the deceased surety are liable to repay the loan. 2. Novation of the Contract: The appellants contended that the contract between JKNP, the Bank, and the guarantor Basavaraj had been substituted by a new contract requiring LST to liquidate the outstanding amount. The court examined Section 62 of the Contract Act, which requires the consent of both parties for novation. The court found no record of withdrawals from JKNP's loan account that would indicate the Bank's consent to a change in liability. The mere deposit of amounts by a third party does not constitute novation. The court also rejected the argument of alteration in the terms of the contract, stating that the Bank had no say in the matter, and the property was entrusted to a Receiver by court decree. 3. Responsibility of Lokashikshana Trust (LST): The court discussed Section 70 of the Contract Act, which obligates a person enjoying the benefit of a non-gratuitous act to compensate the person who provided the benefit. The court agreed with the trial court that LST, being the beneficiary of the loan, is liable to repay the loan amount. The court disapproved of the High Court's finding that LST was not liable, emphasizing that the Trust was competent to take loans and any loan taken by the Administrator appointed by the State should be deemed as a loan taken by the Trust. 4. Estoppel Against Lokashikshana Trust (LST): The court explained the principle of estoppel, which prevents a party from denying a fact that has been established as true based on their previous actions or statements. The court found that LST had benefited from the loan transactions and was the ultimate beneficiary. The principle of estoppel, as discussed in B.L Sreedhar v. K.M Munireddy, applies here, preventing LST from denying its liability. The court concluded that LST is not only liable for the repayment but is also estopped from denying its liability under the contract. Conclusion: The appeal was allowed, the judgment of the High Court was set aside, and the trial court's decision was restored. There was no order as to costs.
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