K. Rajeswara Rao vs Central Bank Of India, Hyderabad
2022 Latest Caselaw 6687 Tel

     THE HONOURABLE SMT. JUSTICE P.SREE SUDHA

               APPEAL SUIT No.2551 of 2001

JUDGMENT:

This appeal is filed against the Judgment of the trial

Court in O.S.No.216 of 1995 dated 02.06.2001.

2. The Central Bank of India filed suit for recovery of amount

of Rs.5,76,161.10ps from the defendants on the basis of

demand promissory note, hypothecation agreement, guarantee

agreement and on the basis of equitable mortgage before the

trial Court. The first defendant is a company incorporated under

Indian Companies Act. Defendant No.2 is the Managing Director

and defendant No.3 was the Director of the first defendant. At

request of the first defendant, bank sanctioned cash credit loan

of Rs.1,00,000/- on 27.02.1990 with interest at the rate of 14%

per annum with quarterly rests. The first defendant also

executed the relevant documents. On the same day again bank

sanctioned term loan facility to an extent of 2.16 lakhs

repayable in 36 months with interest at the rate of 13.5% per

annum and the concerned documents were also executed by the

first defendant. The above two loan facilities are guaranteed by

execution of a guarantee deed dated 27.02.1990 by defendant

Nos.2 and 3 in their individual capacity along with defendant

Nos.5 to 7 making themselves jointly and severally liable along

with the first defendant to repay the loan.

3. As per the resolution of the first defendant dated

20.01.1992 the resignation of the third defendant as Director

was accepted. On 01.07.1992 first defendant represented by

Managing Director second defendant acknowledged the liability

of Rs.82,188.47ps under cash credit loan and another sum of

Rs.2,92,550/- under term loan facility outstanding as on

30.06.1992. As per resolution dated 07.06.1993 the first

defendant co-opted defendant No.4 as one of the Directors and

authorized defendant No.2 and 4 as Directors of the first

defendant company to operate the bank account.

4. On 08.10.1993 first defendant executed the relevant

documents acknowledging the liability. The loan amount is

guaranteed by the defendant Nos.2 and 4 in their individual

capacity and also executed a form of guarantee dated

08.10.1993 making themselves jointly and severally liable along

with defendant Nos.5 to 7 to repay the loan. The first defendant

executed a promissory note on 08.10.1993 for Rs.3,64,955/-

with interest at the rate of 18.75% per annum with quarterly

rests. The above two loans sanctioned by the bank secured by

equitable mortgage by deposit of title deeds created by the

defendant No.6 who is also guarantor in respect of his

immovable property on 27.02.1990. The defendant No.6 also

informed the same to the bank his intention to create equitable

mortgage of his immovable property as a security and it was

acknowledged by the bank on 26.06.1990 and they also

received title deeds from defendant No.6. The defendant No.6

deposited the original registered sale deed dated 25.04.1969

along with a copy of encumbrance certificate. The property

mortgaged is a vacant plot bearing No.56, block No.D,

admeasuring 400 Sq.yards situated in Sy.Nos.268, 269 and 270

of Rampally village, Medchal Taluk. As the first defendant failed

to repay the amount, bank issued legal notice on 13.10.1994

and 20.12.1994 and they did not give reply to the notice. Hence

bank filed suit for recovery of amount.

5. The defendant Nos.1 to 3 and 5 to 7 remained exparte.

The defendant No.4 alone filed the written statement and

contested the suit. He denied the loan transaction, execution of

the relevant documents and also correctness of statement of

account filed by the bank and further stated that plaint is not

properly signed and verified in accordance with the provisions of

C.P.C and G.P.A holder cannot file the suit.

6. The trial Court examined P.W.1 and 2 and marked Exs.A1

to A35. As the defendants did not adduce any evidence

considering the arguments of both sides passed preliminary

decree for sale of A-schedule property against defendant No.6

for realization of Rs.5,76,161.10ps with costs and subsequent

interest at the rate of 18.75% per annum from the date of suit

till the date of realization and also for the sale of hypothecated

machinery shown in plaint 'B' schedule belonging to

defendant Nos.1 to 4.

7. Against the said Judgment defendant No.4 preferred an

appeal and he mainly contended that he is not liable to pay any

amount as he never received amount from the bank and there is

no privity of contract between him and the bank and his liability

in personal capacity is barred by limitation. Bank might have

used his blank signatures under Ex.A14 and A18. He also

stated that he was not the Director of the bank and he is not

liable for cash credit loan and term loan. He also contended that

P.W.1 was not signatory on the plaint and is not proper person

to speak about the pleadings. P.W.2 is not authorized by the

bank and thus their oral evidence is to be excluded. In view of

the improper pleadings, he also stated that rate of interest is

exorbitant and unreasonable. The trial Court ought to have

used its discretion under Order 34 rule 11 of C.P.C. The bank

ought to have proceeded against defendant No.1 Company and

also against the mortgaged property for recovery of suit claim

instead of the proceedings against him and requested this Court

to set aside the Judgment of the trial Court.

8. Heard arguments of appellant counsel on 30.11.2022 and

respondents counsel was absent and hence posted for their

arguments on 02.12.2022. Even on that day respondents did

not turn up for arguments hence treated as there is no

argument of respondents counsel and reserved for Judgment.

9. The counsel for the appellant mainly contended that

interest granted at the rate of 18.75% per annum was decreed

from the date of suit till the date of realization and it is to be

altered. Admittedly first defendant firm executed a demand

promissory note on 08.10.1993 for Rs.3,64,955/- with interest

at the rate of 18.75% per annum with quarterly rests and also

acknowledged the deed, moreover defendant No.6 mortgaged his

property vide registered sale deed dated 25.04.1969 and bank

also received the same on 26.06.1990. The said mortgage

property is a land admeasuring 400 Sq.yards in Sy.Nos.268,

269 and 270 of Rampally village, Medchal Taluk. The argument

of the appellant is that there is no privity of contract between

him and the bank and he is not liable to pay the amount but it

was held by the trial Court that defendant No.4 was one of the

Directors of the company. As per the resolution dated

07.06.1993 the first defendant authorized defendant No.2 and 4

as Directors and to operate bank account with plaintiff bank

and they also executed relevant documents on 08.10.1993, as

such arguments of the appellants that there is no privity of

contract and he is not liable cannot be accepted. The defendant

No.4 filed written statement but he denied the entire transaction

without any basis. The issue of Jurisdiction was dealt with by

the trial Court and held that the concerned Court is having

jurisdiction and issue of limitation was also dealt with.

Regarding the issue of limitation it was held that the suit is

within the limitation. They claimed relief of sale of mortgaged

property for recovery of amount. It was held that suit loan

transaction took place on 27.02.1990 and the suit was filed on

27.03.1995 and well within the time. Even regarding the

personal decree against the defendants, the period of limitation

is 3 years. The agreement of loan along with guarantee

agreement executed on 27.02.1990. The relevant clause in

Ex.A9 reads that an acknowledgment of liability by the principle

borrower in writing binds the guarantor also for the purpose of

Limitation Act and thus the trial Court held that limitation

extends to all the defendants except defendant No.4. It was

further held that defendant No.4 also executed guarantee

agreement on 08.10.1993 and thus the suit is well within the

limitation against defendant No.4. The trial Court held that

though defendant No.4 contesting the matter, he did not cross-

examine P.W.Nos.1 & 2 and he did not choose to enter into the

witness box though he denied the statement of account as

incorrect and thus he is liable to pay the suit amount as the

Director of defendant No.1 and also in his individual capacity.

Considering the evidence of P.W.1 and 2 along with Ex.A19

defendant Nos.1 to 7 are liable to pay the suit amount and the

equitable mortgage was created under Ex.A10 & A20 and it is

valid and binding on defendant No.6 and accordingly suit was

decreed. Therefore, this Court finds that there is no irregularity

or illegality in the Judgment of the trial Court and it warrants

no interference. However, this Court finds it reasonable to

modify the interest as follows:

" The plaintiff is entitled for interest @ 18.75% per annum from the date of suit till the date of decree and 6% per annum from the date of decree till the date of realization."

In the result, appeal is dismissed except to an extent of

interest. Defendant No.4 is liable to pay the interest @ 18.75%

per annum from the date of suit till the date of decree and 6%

per annum from the date of decree till the date of realization.

There shall be no order as to costs.

Miscellaneous petitions pending, if any, shall stand

closed.

_________________________

JUSTICE P.SREE SUDHA

DATED: 12.12.2022

tri

THE HONOURABLE SMT. JUSTICE P.SREE SUDHA

APPEAL SUIT No.2551 of 2001

DATED: 12 .12 .2022

TRI