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TMI Blog1980 (2) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... endant to execute and register a mortgage deed in favour of the plaintiff in respect of his properties described in the first schedule to the plaint as per the agreement dated December 16, 1967, or, in the alternative, for a decree for recovery of the said sum of Rs. 1,98,746.70 as damages for breach of the said agreement. The case of the plaintiff, hereinafter referred to as the bank, as set out in the plaint was as follows: The bank is carrying on banking business among other places at Coonoor. The 1st defendant, a partnership firm, is doing business as tea blenders and merchants at Coonoor and the 2nd and 3rd defendants are its partners of which the former is the managing partner. The 1st defendant firm had been maintaining a current account with the bank since 1962, and it has also been granted facilities at the Coonoor branch of the bank in connection with the sale of their tea. At its request, the 1st defendant was granted by the bank on 27th July, 1966, advances by way of cash credit facility in two accounts, (i) cash credit (hypothecation) account up to a limit of Rs. 75,000, and (ii) a cash credit (pledge) account up to a limit of Rs. 75,000, each repayable on demand at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her with interest on the said sum at 10 per cent. per annum. Under the said mortgage deed, the time for payment of the principal was 9th February, 1970, and the interest was payable regularly in quarterly intervals commencing from 1st April, 1968, and in case of default in payment of the said interest regularly, the entire principal and interest would become payable forthwith. The amount due under the said mortgage on the date of suit is a sum of Rs. 1,32,397.52. In consideration of the bank agreeing to give further time and for forbearing to sue defendants Nos. 1 to 3 for recovery of the amounts due from them on all these accounts, at the instance of the 1st defendant, the 5th defendant executed a letter of guarantee dated. December 16, 1967, guaranteeing the due payment by the 1st defendant of all monies due and payable to the bank on all their accounts to the extent of two lakhs of rupees and all costs and charges and expenses mentioned in the guarantee. The 5th defendant also undertook to execute and register a mortgage in respect of an extent of land measuring 1.52 acres out of 1.59 acres of his land in s. Nos. 408/B and 408/2 in Hubbathalai village including a tea factory, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the guarantee letters cannot be enforced as against them, that the letters of guarantee executed by them were null and void as they were not supported by consideration, that the claim as against them was barred under 0. 2, r. 2, CPC, as also by the principle of res judicata under s. 11, CPC, as the bank has filed a written statement in O.s. No. 181 of 1970 filed by one Noel Shreshta against the 6th defendant on a mortgage claiming a sum of Rs. 1,22,083 from defendants Nos. 1 to 4. They had also contended that the 4th defendant had no power to give the guarantee letter as per the memorandum and Articles of association of the 6th defendant-company and, therefore, that guarantee letter cannot bind the 6th defendant. The 5th defendant in his written statement contended that as the guarantee letter was given by him to the bank to stifle a criminal prosecution which the bank intended to launch against defendants Nos. 1 to 4 who had clandestinely removed the tea stocks which had been pledged with the bank, the guarantee letter was void and unenforceable, that he never promised to give security of his properties to the bank, nor did he seek forbearance from the bank on behalf of defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tore, which has been impleaded as a party on its own petition filed a written statement to the following effect: The 6th defendant in the suit owed a sum of Rs. 32,273 towards income-tax for the assessment years from 1961-62 to 1967-68, that certificates under s. 222 of the I.T. Act had been issued by the TRO on March 7, 1969, for Rs. 15,126, that further amounts of tax were due from the 6th defendant for subsequent years, that on the date of the alleged mortgage by the 6th defendant in favour of the bank there was an income-tax liability due by the 6th defendant to the extent of Rs. 25,625 that the said mortgage had been executed by the 6th defendant only to defraud and deprive the I.T. Dept. through its managing director, the 4th defendant, that at the time of the execution of the mortgage the bank was fully aware of the amount due to the I.T. Dept. by the 6th defendant, and that, the bank, defendants Nos. 1 and 2 and 4 and 6 had colluded together to bring about the suit mortgage. On these pleadings as many as 17 issues came to be framed by the trial court. After due consideration of the evidence adduced by the parties the court below decreed that the bank was entitled to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The court below is of the view that ex. A-26 and A-27 executed by the 5th defendant are not supported by consideration, that the monies lent by the bank already to the 1st defendant cannot form the consideration for ex. A-26 and A-27 which came into existence later, and that the plaintiff had not threatened the defendants Nos. 1 to 3 with any criminal or civil proceedings so as to bring in the theory of forbearance to sue which might form proper consideration. We have to, therefore, see as to the circumstances under which ex. A-26 and A-27 came to be executed and whether those documents are devoid of consideration as has been held by the court below. In the original plaint it has been averred by the bank that the 5th defendant, the proprietor of Hubbathalai Tea Factory was brought to the plaintiff by the 1st defendant, that in consideration of the plaintiff agreeing to give further time and forbearing to sue defendants Nos. 1 to 3 he executed a letter of guarantee dated December 16, 1967, guaranteeing the due repayment by the 1st defendant of all the monies due and payable to the plaintiff to the extent of Rs. 2 lakhs together with interest thereon and all costs and charges, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also executed Ex. A-27 on the same date as Ex. A-26. Only after the contents of Ex. A-26 and A-27 were written and completed and only after satisfying himself of all particulars, D-5 signed in them ...... we also reminded D-5 of his undertaking to give a registered mortgage, but eventually he did not do so. It is not true to say that the bank refused to release the tea stock in the bank's possession. On the other hand we have been pressing D-1 to pay the amount and take the stocks. " In cross-examination he again repeats: " When the first defendant's tea stock got deplenished we did not threaten D-2 with criminal or Civil proceedings. We asked D-2 to pay off the money to put this account in order. At that time D-2 brought D-5. I explained to D-5 this position. D-5 offered to give security. D-5 told me that the property belonged to him. D-5 did not say that it was his joint family property ...... At the time when Ex. A-26 and A-27 were drafted by D-5, I told him his liability to be fixed by them. I did not tell him that only if he executes a mortgage deed there will be the liability. The consideration for that must be between D-2 and D-5 and we had nothing to do with that. " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds on the basis of the 5th defendant's liability as a guarantor. Therefore, there need not be any separate consideration for the enforceability of Ex. A-27, if it is found that Ex. A-26 is supported by valid consideration. A-27 will also be void and unenforceable for want of consideration. Exhibit A-26, which is in a printed form, recites two items of consideration as will be seen from the extract set out above. (1) The plaintiff making or continuing to make advances to the 1st defendant from time to time or otherwise giving credit accommodation and (2) the plaintiff granting time to the 1st defendant as long as the bank thinks fit. The first item of consideration can come into operation only when there are future advances or accommodation given by the bank to the 1st defendant and the earlier advances made to the 1st defendant cannot be brought within that recital as forming part of the consideration for the guarantee given by the 5th defendant. It is not even the case of the plaintiff that the 5th defendant gave guarantee for future advances to be made or accommodation to be given, to the 1st defendant by the bank. The other item of consideration is granting time for the first d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by the bank to defendants Nos. 1 to 3 for payment of their dues. Even assuming that extension of time for payment will form proper consideration for the guarantee given by the 5th defendant, the extension of time sought for by defendants Nos. 1 to 3 or the 5th defendant and given by the bank should be for a definite period and it cannot be indefinite. A promise or agreement to give time by the bank can form a valid consideration for the guarantee only when the promise is definite and specific and is capable of enforcement. We find that the printed form, Ex. A-26, is quite inappropriate to the situation and the said form is appropriate to the guarantee letter executed at the time of the original borrowing. Even P.W. 1 does not say that defendants Nos. 1 to 4 or the 5th defendant stipulated for any specific period of time for payment of the dues by defendants Nos. 1 to 4 and it is only in consideration of such grant of time by the bank that the 5th defendant executed the guarantee letter, Ex. A-26. P.W. 1 completely gives up the case of the bank and says that the guarantee was given only as an additional security as the bank was not satisfied with the security already given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank thinks fit. It is not in dispute that at the time when the 5th defendant executed Ex. A-26, monies had been advanced by the bank long ago and security for payment had also been given by defendants Nos. 1 to 4 and no money consideration passed between the bank on the one hand and defendants Nos. 1 to 3 and 5 on the other on the date of Ex A-26. It is true, there need not be a separate money consideration, for, forbearance to sue for recovery of money for specified time will form a proper consideration for a guarantee given by the 5th defendant. But in this case the plaintiff's own evidence is to the effect that there was no idea to sue for recovery of the money from or to prosecute the defendants Nos. 1 to 3 for clandestine removal of the tea stocks which were hypothecated with the bank and there was only a pressure on defendants Nos. 1 to 3 to bring in additional security and it is only at that stage the 5th defendant was brought for giving Ex. A-26 and Ex. A-27. If no specified time was granted by the bank to defendants Nos. 1 to 3 for payment of their dues as to form a proper consideration for the guarantee executed by the 5th defendant, the guarantee cannot be taken to be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he surety bond. But, where the surety bond comes into existence after the original borrowing, the creditor must prove if he wants to proceed against the surety or guarantor, that in consideration of the contract of surety or guarantee he did something or refrained from doing something. Since the plaintiff has given up its case of forbearance to sue and has relied only on the plea of additional security, the decision in that case will squarely govern this case as well. A similar question came up for consideration in Muthukaruppa Mudali v. Kathapudayan [1914] 27 MLJ 249 (Mad), wherein a Division Bench held that advances made on the recommendation of a person were not sufficient consideration in law for a subsequent promise by him guaranteeing their payment. In that case, on the recommendation of K certain amount was advanced by a creditor to a debtor.. Subsequently, K guaranteed the payment of the sum borrowed by the debtor. When the question arose as to the enforceability of the subsequent guarantee given by K it was urged that a mere recommendation by one party to another to lend money to a third party did not render the first party to repay the loan, that at the time when the guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration for person becoming a surety for the debt but there must be a promise or undertaking to forbear or an actual forbearance at the surety's express or implied request and the promise by the creditor to forbear to form a consideration should be such as is capable of being enforced. In this case Ex. No. A-26 talks of the plaintiff granting time as long as it thinks fit. Such a vague provision without any specified time-limit is incapable of being enforced by the surety. Therefore, it cannot be taken to be a sufficient consideration to support the contract of guarantee. Further, any promise made by the bank either to extend time or to forbear to sue if it is to be treated as consideration for the guarantee bond given by the 5th defendant, that promise should be such as is enforceable against the bank. As already stated, the bank has given up its case of forbearance to sue as forming consideration for the guarantee bond but has restricted its case in the evidence only to the plea of extension of time. The extension of time sought for either by defendants Nos. 1 to 3 or by the 5th defendant is not specific and Ex. A-26 proceeds on the basis that the bank can give such time as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the I.T. Act, 1961, hereinafter referred to as the Act. Section 281 of the Act provides that if any assessee creates a charge on, or parts with possession by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever of any of his assets in favour of any other person such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of any proceeding under the Act. The proviso to the said section, however, says that such charge or transfer shall not be void if it is made for adequate consideration and without notice of the pendency of the proceeding, or without notice of such tax or other sum payable by the assessee or with the previous permission of the ITO. Sub-clause (2) says that sub-s. (1) will apply only if the tax due exceeds Rs. 5,000 and the assets charged or transferred exceed Rs. 10,000 in value. That the property charged by the 6th defendant in favour of the plaintiff-bank was more than Rs. 10,000 in value is not in dispute. According to the appellant since the 6th defendant had to pay Rs. 33,273 as income-tax arrears for the assessment years 1961-62 to 1967-68, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and deliberately stood guarantee to the 1st defendant and that can be only with an intention to defraud the I.T. Dept. of its legitimate dues and that the said intention was obvious from the fact that the 6th defendant had no interest in the affairs of the 1st defendant for whose benefit the mortgage had been executed. As already stated, even before the execution of the mortgage deed, the 6th defendant had applied for under Ex. B-10 and obtained a certificate under s. 230A of the Act wherein certain income-tax arrears have been referred to. The ITO while granting the said certificate has specifically stated that the 6th defendant had made satisfactory provision for payment of tax due under the I.T. Act, Excess Profits Tax Act, Business Profits Tax Act, Wealth-tax Act, Expenditure-tax Act and Gift-tax Act and that the registration of the document would not prejudicially affect the recovery of any of the taxes under those Acts. Thus, the certificate given by the ITO prior to the registration of the mortgage deed, Ex. B-11, clearly indicates that the 6th defendant did not intend to defraud the revenue by executing the mortgage deed, Ex. A-28. When the ITO himself says that the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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