Bank Of India vs M/S. Mayur Engineers & Ors.
2012 Latest Caselaw 3581 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           RFA No.181/1997

%                                                          29th May, 2012

BANK OF INDIA                                             ...... Appellant
                            Through:     Ms. Sumati Anand, Advocate.


                            VERSUS


M/S. MAYUR ENGINEERS & ORS.             ...... Respondents

Through: Ms. Maldeep Siddhu, Advocate for respondent No.3.

Mr. V.K. Sharma, Advocate for respondent Nos.4(i), (iii) & (iv).

CORAM:

HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?

VALMIKI J. MEHTA, J (ORAL)

1. This Regular First Appeal filed under Section 96 of the Code

of Civil Procedure, 1908 (CPC) impugns the judgment of the trial Court

dated 5.3.1997 dismissing the suit for recovery of ` 81,663.52/- filed by the

appellant/plaintiff-bank against ten defendants. Defendant Nos.1 to 6 were

the principal borrowers with the defendant No.1, being a partnership firm

and the defendant Nos.2 to 6 being partners of defendant No.1. Defendant

Nos.7 to 10 were sued as guarantors. Reference in this judgment is made

to the parties as per their original numbering as defendants in the suit.

2. Before proceeding ahead, I may note that the appellant during

the pendency of the appeal dropped its claim against defendant No.3,5,6,8,

9 and 10. The liability therefore has to be seen in this appeal only of the

defendant No.1 (the partnership firm), defendant No.2(continuing partner

of the defendant No.1), defendant No.4 (the retiring partner) and defendant

No.7 (guarantor who is now deceased and represented by his legal heirs).

3. The facts of the case are that the appellant/plaintiff-bank gave

a cash credit facility to the defendant No.1/respondent No.1 partnership

firm on 1.8.1979 of an amount of ` 2 lacs. In consideration of grant of the

aforesaid cash credit facility, the defendant Nos.2 to 6 as partners of

defendant No.1 executed various security documents dated 1.8.1979 i.e.

demand promissory note, continuity security letter, deed of hypothecation,

letter of undertaking and letter of declaration and lien and set off.

Defendant Nos.7 to 10 stood as guarantors in consideration of the cash

credit facility being advanced to the defendant Nos.1 to 6 and executed the

guarantee letter on 1.8.1979 in favour of the appellant/plaintiff-bank. The

sanctioned facility was utilized by defendant Nos.1 to 6. The defendant

Nos.4 and 5 retired from the partnership firm/defendant No.1 from

21.8.1980, and also informed the appellant/plaintiff-bank. On such

information being received by the appellant/plaintiff-bank the

appellant/plaintiff-bank is stated to have crystallized the liability of the

retiring partners/defendant Nos.4 and 5 and thereafter allowed the

continuing partners to operate the account. This stand of the appellant is

best understood by reference to para 8 of the plaint which reads as under:-

"8. That the plaintiff bank respectfully submits that in August, 1980 defendants 4 and 5 advised the plaintiff bank having resigned from the partnership of defendant No.1 whereby the defendant No.1 stood duly dissolved. Hence for appropriate accounting and for the purpose of crystallizing the joint and several liability of the defendants, the plaintiff bank had frozen the operation of the said cash credit account of defendant No.1 in August, 1981. The plaintiff bank, however, permitted the, separate account to be operated in the name of defendant No.1, operations against credit duly received in the said account. It is submitted that the account was broken to crystallize the liability of out-going partners in August, 1980. The plaintiff has, before filing of the suit appropriated and adjusted the entire credit balance amounting to ` 31,959.56 P in the said account towards the amount due and outstanding in the said cash credit account of defendant No.1 whereby the balance due and outstanding comes to a sum of ` 81,663.52 P as on 29.7.82."

The subject suit thereafter came to be filed as the amount

due in cash credit facility was not paid and which balance amount was said

be a sum of ` 81,663.52/- as on 29.7.1982. This amount was claimed

alongwith pendente lite and future interest @ 15% per annum with

quarterly rests.

4. Defendant No.4 filed a joint written statement alongwith

defendant Nos.5 and 8. In the written statement there are averments of

these defendants being not liable as guarantors as there is variation in terms

of the contract as entered into between the appellant and the said

defendants. There are also averments in the written statement of these

defendants that the bank having not accounted for hypothecated goods as

on the date of the dissolution of the firm besides of other continuing

partners taking benefit of the various assets of the partnership firm

including amounts received from the debtors. The relevant averments are

contained in para (vi) of the preliminary objection and in para 10 of the

reply on merits in the written statement. These paras read as under:-

"(vi). That the defendant No.8 is not bound as guarantor. There is variance in the terms of the contract between the plaintiff and the answering defendants. No notice which is required under law has been served on the guarantor before the filing of the suit, no such notice having been given by the plaintiff, the suit is liable to be dismissed on this ground alone.

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10. Para No.10 of the plaint as stated is not admitted to be correct. It is, however, submitted that the plaintiff has not accounted for the hypothecated goods. In fact the goods hypothecated with the bank are more than the alleged loan amount and particularly as on 21st August, 1980 when the balance of the money due to the bank was approximately ` 90,000/- the goods hypothecated with the bank were:

       (i)    H.B.B. Motor (Electric)          :` 66,000.00
       (ii) Kirloskar Pumps 47 Nos.            :` 27,000.00
       (iii) Mayur Pumps                       :` 19,600.00

      (iv)    Greaves Pumps & Base Plates:` 1,550.00
     (v)     Indra Pumps                    :` 4,000.00
     (vi)    Mayur cooled engine radiator :` 12,500.00
     (vii)   (1) 7 nos. Kangaroo Diesel Engine
             (2) 3Nos. Mayur          -do-
             (3) 12 Nos. Mayur Pumps        :` 34,550.00
                                      Total :` 1,66,200.00

That thus the value of the hypothecated goods lying with the bank was much more than the money, if any legally due to the plaintiff- bank and in case the goods have been spoiled and/or their value goes down due to deterioration it will be due to the plaintiff's own fault and responsibility. The above statement would show that not only nothing is due to the bank but even the bank is liable to pay to the defendant firm. In any case the answering defendants are not at all liable to pay any amount. The defendant No.1 and the continuing partners had following assets in their hand when the answering defendants 4 and 5 left the firm with effect from 21.8.80 and bank informed. In fact, the defendant firm was running in profits and the answering defendants No.4 & 5 had retired after taking their share of investment and profits as shown in the dissolution deed, copy enclosed. The firm's assets as on 21.8.80 are also shown below:-

      1.     Various Dealers in Uttar Pradesh,
             Rajasthan & Haryana                   :` 1,72,000.00

     2.      Office Premises, Security            :`    5,000.00

     3.      Balance payments from Punjab &
             Haryana Government.                  :` 96,000.00

     4.      Security & CDR as Earnest
             Money deposits from State Govt.
             Punjab & Haryana                     :` 80,280.00

     5.      Office furniture                     :`    3,500.00

     6.      Balance payments from PWD
             Muktsar & Ropar                      :` 14,000.00

     7.      M/s Trust Worthy                     :`   14,100.00
     8.      M/s Economic Traders, Rajkot         :`    6,100.00

                                 Total                 :` 2,90,880.00"

5. Defendant No.7 filed his written statement jointly alongwith

defendant No.9 and in which once again discharge from liability was

claimed as the guarantee was said to be given for old firm and not for the

new firm. There are also averments in the written statement of the

guarantor/defendant No.7 being discharged as the reconstitution of the firm

was done at the back of the said defendant. Relevant averments in the

written statement are contained in para 2 of the preliminary objections and

para 5 of the reply on merits which read as under:-

"2. That the suit has been filed in violation of the provisions of law and the answering defendants were relieved from the guarantee, if any, executed after Firm defendant No.1 was dissolved and reconstituted and duly accepted by the plaintiff vide their letter dated 5-11-80. As the guarantee was given by the answering defendants not for the new firm but for the old one and the constitution was changed which was duly accepted by the plaintiff and the answering defendants never executed any guarantee bonds for the new firm with changed constitution.

xxxx xxxx xxxx xxxx

5. That the contents of para-5 are wrong, false and denied and the plaintiff be put to strict proof. It is submitted that the answering defendants had given guarantee for a firm which was duly dissolved and thereafter it was reconstituted at the back of the answering defendants and the reconstitution was duly accepted by the plaintiff vide their letter dated 5-11-80 and the acceptance of re-constituted firm by the plaintiff itself immunes the answering defendants from liability, if any, and otherwise also the guarantee bonds, if any executed stand discharged. In any case, the execution of guarantee deed, if any, is denied and the answering defendants are not at all liable."

6. After completion of pleadings, trial Court framed the

following issues:-

"1. Whether the suit has been signed, verified and filed by a duly authorized person in accordance with law? OPP

2. Whether the suit is within time? OPP

3. Whether the suit is bad for mis-joinder of parties and causes of action as alleged? OPD

4. Whether defendants No.4,5 and 8 were absolved of their liability as per the dissolution deed dated 21.8.80 as alleged? OPD

5. Whether the promissory note is insufficiently stamped as alleged, if so its effect? OPD-4,5 and 8.

6. Whether there is any variance in the original agreement, if so, its effect? OPD-4,5 & 8.

7. Whether plaintiff has misappropriated/not accounted for the pledged goods before filing of the suit? OPD 4,5 & 8.

8. Whether the document in question had been got signed by the plaintiff bank from the defendants in blank, if so its effect as alleged? OPD

9. Whether plaintiff is entitled to the claim suit amount as alleged? OPP

10. Whether plaintiff is entitled to interest, if so, at what rate, for what period and to what amount? OPP

11. Relief."

7. Trial Court has dismissed the suit by holding with respect to

issue No.1 that the suit was not validly instituted as there was no

appropriate notarization of the power of attorney in terms of Section 85 of

the Evidence Act, 1872. With regard to liability of defendant Nos. 4 and 7,

trial Court while dealing with issue No.3 has held that bank failed to get

executed fresh documentation from these defendants after reconstitution of

the firm and therefore the outgoing/old partners and the guarantors stood

absolved from their liability.

I agree with the above conclusions as the assets of a dissolved

partnership firm and moneys of a dissolved partnership firm are surely

available to the outgoing partners and the guarantors for discharge of their

liability, unless fresh set of documentation are executed by these persons

for claiming to be liable for the liabilities of the new firm. It is not in

dispute that neither from the defendant Nos.4 and 5 (retired partners) and

nor from the guarantors (defendant Nos.7 to 10) was any fresh

documentation got signed. Therefore, the appellant/plaintiff-bank should

not have allowed operation of the account in the name of the defendant

No.1/partnership firm inasmuch as in such account the amounts which

would be due of the partnership firm before retirement of the defendant

Nos.4 and 5 as on 21.8.1980 would have in fact been credited and which

amounts have been lost to the outgoing partners and the guarantors and

which would have been available for discharge of their liability. In the

entire evidence which is led on behalf of the appellant/plaintiff-bank i.e. its

witnesses PW-1 and PW-2 there is not a single averment that amounts

which were due of the old partnership firm were not allowed to be credited

in the new account of the defendant No.1 which was maintained post the

dissolution on 21.8.1980. No doubt, the statement of account of the new

firm was filed as Ex.PW2/18 but no one can make out from it that the

credit entries which have been made in this account are only with respect to

the credit entries of the new partnership firm and not the old partnership

firm. Therefore, in my opinion, trial Court has arrived at a correct finding

of the defendant No.4 and the defendant No.7 having been discharged as

the appellant/plaintiff-bank illegally allowed the account to be operated

even post dissolution and which has resulted in loss of valuable securities

to these defendant Nos.4 and 7 being lost.

8. So far as the finding with respect to issue No.1 is concerned,

counsel appearing for defendant Nos.4 and 7 in this Court do not dispute

that such findings can be set aside and the suit can be said to be validly

instituted against the defendants, moreso in view of the judgment of the

Supreme Court in the case of United Bank of India vs. Naresh Kumar &

Ors., 1996 (6) SCC 660: AIR 1997 SC 3.

9. I may note that otherwise the appellant/plaintiff-bank has filed

and proved on record the security documents as Ex.PW1/2 to Ex.PW1/9,

statements of account as Ex.PW2/17 and Ex.PW2/18. The

appellant/plaintiff has thus duly proved its case against defendant Nos.1

and 2.

10. In view of the above, the appeal is dismissed qua defendant

Nos.4 and 7 viz. respondent Nos.4 and 7 (now represented by his legal

heirs as per the original memo of parties). Appeal will however stand

allowed and a decree will be passed in favour of the appellant/plaintiff-

bank against defendant Nos.1 and 2 for a sum of ` 81,663.52/- alongwith

pendente lite and future interest @ 9% per annum simple.

Appellant/plaintiff is also entitled to costs against defendant Nos.1 and 2.

Decree sheet be prepared. Trial Court record be sent back.

VALMIKI J. MEHTA, J MAY 29, 2012 Ne