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TMI Blog1947 (3) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plaintiff's dues not being fully realized by the execution of the mortgage decree. The defendant-appellant denied liability is under both the bonds. As regards the first bond, he pleaded that, under its terms, the liability could not, in any event, exceed Rs. 15,000, with interest, and that the bond had been satisfied by payments made by him from time to time to the Bank. With regard to the second bond, he denied the passing of the consideration alleged. There were also defences relating to the rate of interest payable and raising the plea of limitation. The learned Subordinate Judge held that, under the first bond, the plaintiff was entitled to recover only Rs. 15,000 inclusive of interest, and that all items of overdrawal of the defendant's account with the Bank exceeding this amount were barred by limitation. With regard to the second bond, the Subordinate Judge allowed the claim of the Bank in full. On these findings, he gave the Bank a preliminary mortgage decree with interest at six per cent per annum till the date of realisation. Hence the present appeal. A cross-objection has been filed by the Bank. 2. The suit arises out of transactions which the appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January, 1940, stood at Rs. 33,485-13-1. The last deposit in cash was one of Rs. 156-11-6 made on 5-8-1937. The last deposit seems to be on 19-12-1938, by a cheque for Rs. 1200. A further entry of a cheque deposit appears on 12-8-1939, but, from the corresponding entry in the withdrawal column, this would appear to be merely an instance of a cheque presented by the defendant to the Bank for encashment. The entries subsequent to this date are all of interest on the outstanding amount. 5. The first point urged by the learned Advocate General appearing for the appellant is that the bond of 1928 was executed as security for an existing liability of Rs. 15,000 and not for a floating balance of account, and in consequence was paid off on 21-8-1931, when the balance of the account stood in favour of the defendant. The bond is Ex. 1 at page 20 of the paper book. It recites that the defendant has been carrying on business from before with the bank by taking loans from its branch at Dhanbad, and that the bank has asked him to execute a simple mortgage bond in respect of your dues from me ; and, therefore, he executes this bond and agrees to the terms specified. It then proceeds to set out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. This contention is based on In re Boys; Eedes v. Boys (1870) 10 E.Q. 467 There the instrument in question was a promissory note executed by .Boys for 500 payable eight months from date, and containing no express reference to the account. Hence, an inference had to be drawn from the circumstances, as to whether it was intended as security for advances then made or to be made or for floating balance of account. In coming to the conclusion in favour of the former alternative, the Master of the Bolls pointed out that the promissory note was payable on a fixed date, and not when the account was closed or when the bank thought fit to say that it would not advance any more money. The Master of the Rolls, however, attached greater weight to another circumstances, namely that, on the day that the promissory note was executed and six days later, by two payments, the bank advanced the exact sum of 500 to Boys. Here, there is nothing in the date fixed for the repayment of the advance which is inconsistent with the security being for the day to day balance, and on the terms of the mortgage bond it is clear to me that it is intended to be a security of this kind. 9. Finally, the Advocate-G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the aforesaid manner shall at no time be in excess of RS. 15,000 (rupees fifteen thousand) inclusive of interest. Clause 6 then provides: Three years' time, that is till December 1931, is fixed for the repayment of the amount. If the entire amount is not repaid, that at any time after the expiry of the said period of time, you shall be competent to institute a suit for the realisation of your entire principal amount together with interest, (thereon) on account of this Sthitabadha mortgage bond, and you shall be competent to realise your money according to the stipulations made in para. 5 of this deed. I cannot read these provisions as intended only for the protection of the bank. The intention of the parties seems rather to have been that the defendant should reduce his indebtedness, that his total indebtedness should be confined to Rs. 15,000 and that he should clear off his debts within the time specified. The drafting may be inartistic but the meaning is plain, namely that the security was being given for an indebtedness of Rs. 15.000 which limit was also to include the interest on the money lent. 11. In view of the terms of the bond limiting the transactions to the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion regarding the realisation of interest on the amount due after the stipulated period is not limited as regards the amount. Various dates have been suggested to us as the dates from which this interest should run. The proper date, it seems to me, should be 1-1-1932, from which date fresh transactions under the bond cease to be entered into. 13. The next question for consideration is that of Imitation. This has two aspects. There is first the portion of the debt covered by the security of the first bond. Limitation for this purpose is governed by Article 182 of the Schedule to the Limitation Act, and began to run from 1-1-1932. The suit was, therefore, within time when it was filed on 2-1-1941. As regards the unsecured portion of the bank's dues as appearing in the defendant's current account, the contention of Mr. De, for the bank, is two-fold, firstly, that this is a mutual, open and current account, governed by Article 85 of the Schedule to the Limitation Act, and, secondly, that limitation is saved by certain payments made by the defendant. 14. It is not contested that this is a current and open account, but is it mutual? The Subordinate Judge has answered this questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, I have no doubt that this account cannot be regarded as a mutual one. For short periods from March 1922 to July 1927, there were small balances to the credit of the defendant, but from July 1927, to the filing of the suit, the account has been overdrawn throughout except for a short period of four days in August 1931, when the defendant suddenly deposited a total amount of Rs. 35,275 11-3. The whole of this deposit was withdrawn by 7th September. Apparently, the defendant had somehow come by the money and kept it in the bank until he could apply it to the purpose for which he got it. This is hardly a transaction forming part of a mutual dealing between the bank and the defendant. 17. This solitary instance on which the defendant had a balance to his credit is more than eight years before the closing of the account, and during this time the position of the defendant continued to grow worse; and, the original security for Rs. 15,000 proving insufficient, the bank took a further security for Rs. 20,000. Can we reasonably say, in these circumstances, that there was a possibility of a shifting balance in favour of the defendant? I would answer the question definitely in the negative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Bank v. (1910) 1 Ch. 648: A security in favour of a bank to secure a sum and further advances operates in the case of each further advance as a further disposition of the property made at the date of the further advance which takes effect by force of the antecedent deed of security. Here, the position is somewhat complicated by the fact that at the time when these loans were given, the security no longer operated to cover new loans, but if during its operation the security did not affect the applicability of the rule in Clayton's Case (1816) 1 Mer. 572 it would not do so after it ceased to operate. The last overdrawal in the account was made in 1936. For the above reasons, therefore, recovery of the unsecured overdrawals was barred when the suit was instituted. This was the conclusion arrived at in Uma Shankeer v. Bank of Bihar Ltd. A.I.R. 1942 Pat. 201 where it was held that the bank could recover only Rs. 30,000/ covered by the security and that the recovery of Rs. 5,000/- advanced in excess of this amount was barred, being governed by Article 57 of the Schedule to the Limitation Act. There was a similar result in Chota Nagpur Banking Association Ltd. Purubia v. Lal Mohan A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure the balance of a customer's account. When the bank receives notice of a second mortgage by the customer to a third person it does not in my opinion affect the nature of the security. It remains a security for the balance of the account from moment to moment. But it puts a limit to the amount of that security. It cannot be increased beyond the balance at the date of the notice, but it may be diminished. If the debit balance is at any moment brought lower than this by the subsequent payments in and out, the secured amount is correspondingly reduced and once reduced cannot again be raised. This fully satisfies the broad principle of justice referred to by Lord Blackburn and does not unnecessarily interfere with the position of the prior incumbrancer, All this is altered if the rule in Clayton's Case (1816) 1 Mer 572 is to be applied in the manner contended for by the plaintiff. The security is no longer for the balance of an account, but for certain items on the debit side In all their subsequent transactions the bank are presumed to have the intention of applying all payments into the destruction of their own security in favour of the subsequent mortgagee, although no san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, who seem to have treated the mortgage bond as existing security to the extent of Rs. 15,000. This is indicated by the bond being left, with the bank, and the taking of the subsequent mortgage for only Rs. 20,000 though the thru existing overdraft was over Rs. 30,000. The other circumstance is the delay in the crediting of the Rs. 20,000 in this account. The loan was taken on the second mortgage bond in April 1983. The balance of the account was then Rs. 31,468-9-9. Had the money been credited then, the balance would have been reducted to less than Rs. 15,000 and the security of the first bond would have been lessened to that extent as explained in the passage cited above from the judgment of Fletcher-Moulton, L.J. Evidently, to avoid this, the credit into the current account was delayed till August 1983, when the overdraft had reached the figure of Rs. 186,178-11-3. The loss suffered by the defendant by this delay was subsequently made good by crediting him with interest on this amount of Rs. 537-9-3. I would, therefore, hold that the secured account was not satisfied by the application of the rule in Clayton's Case (1816) l Mer. 572. 22. A further point, however, remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on Rs. 15,000 from 1-1-1932 to 15-8-1933, at twelve annas per hundred rupees compoundable with monthly rests comes to Rs. 2352 14-0. Compoundable with yearly-rests it is Rs. 2269-11-0. The difference between the two sums Rs. 83-8-0 is the overcharge. The correct opening balance on the 16-8-1933, was therefore Rs. 36,173-11-8 minus Rs. 83-3-0 i.e. Rs. 56,090-8-8. Out of this the amount secured by the first bond was Rs. 16,350, the amount of principal as compounded on 1st January 1933, and Rs. 919-11-0, the interest for the current year, making a total of Rs. 17,269-11-0. The credit of Rs. 20,000 would go first to satisfy the unsecured debt, which on that day was rupees 86,090-8-8 minus Rs. 17,269-li-0 i.e. Rs. 18,820-13-8. The balance of the Rs. 20,000 would go to satisfy the secured debt, being applied first, to satisfy the interest and then the principal as provided in the bond. The result would be to wipe out the interest altogether and to reduce the principal to Rs. 16,090-8-8. From then onward the plaintiff bank would be entitled to get interest at the bond rate on this sum, applying fresh deposits to the satisfaction of unsecured and then of secured debt in the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree based on both the bonds. 26. Thirdly, it is contended that the amount borrowed on the second bond must be applied to the satisfaction of the debts of the defendant as they stood on that date. On that day, the opening debit balance of the overdraft amount was about Rs. 35,500. It is argued that deducting Rs. 5787-9-9, on account of interest charged to the account from January 1932 onwards, and Rs. 15,000 (inclusive of interest) due on the first bond, the consideration for the second bond should be taken at the utmost to be about Rs. 10,600. I have held above that the bank was entitled to charge interest as shown in the accounts, except on the secured amount, and for that mistake I have made due allowance in arriving at my result. As for the necessity for applying the loan to the satisfaction of the existing debts on that very day, we have been shown no authority for it. The bond itself gives no directions to this effect, and it is not suggested that any instructions for the immediate application of the loan for this purpose were given by the defendant. The bank was, therefore, entitled to apply the money according to its convenience and so as to safeguard its own interests. I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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