chit transaction - liability of guarantor Under Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. = whether defendant Nos.5 and 6 are liable to pay the suit amount in terms of Exs.A-4- agreement of guarantee and Ex.A-5-promissory note?= The entire case of defendant Nos.5 and 6 is based on Clause 18 (ii) of the Chit Agreement, which reads as under: “In cases where the future liability is over Rs.3,00,000/-, no personal security will normally be accepted. Only immovable local urban property, the value of which is at least one and half times the liability will be accepted as security. In exceptional cases, and entirely at the discretion of the Foreman, personal sureties may also be accepted. Normally sureties and securities are accepted only from such places or towns where the Foreman’s Branches are situated. However, the Foreman may, at his discretion, accept sureties from any other place.” Admittedly, the suit claim is more than Rs.5,00,000/-. Clause 18(ii) of the Chit Agreement gives a discretion to the Foreman of the Chit Fund Company with regard to acceptance of sureties. For that, there is no need to examine the Foreman when he exercised his discretion to accept the personal sureties when the value of the chit amount is more than Rs.1,00,000/-. It is also within the discretion of the Foreman to accept the personal sureties outside the jurisdictional area of the Foreman of the Chit transaction. Simply because the Foreman accepted the sureties of defendant Nos.5 and 6, as the value of chit transaction is more than Rs.1,00,000/-, it does not mean that the suit has to be dismissed in respect of those sureties in view of the fact that this clause is only enabling the Foreman to accept or reject personal sureties in order to exercise his discretion. Therefore, in view of the fact that Exs.A-4 and A-5 have been established beyond preponderance of probability, they were executed by defendant Nos.5 and 6, they are jointly and severally liable to pay the decretal amount along with the other defendants. Clause 18(ii) of the Chit Agreement empowers the Foreman to exercise his discretion in accepting the sureties outside the jurisdiction and also to accept the immovable property where the value is more than Rs.1,00,000/-. Therefore, the trial Court committed a grave error in not decreeing the suit against defendant Nos.5 and 6. The documents – Exs.A-4 and A-5 have not been taken into consideration by the trial Court. Under Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. It is not the case of the defendants that Exs.A-4 and A-5 were fabricated or forged document. The only contention of the learned counsel for defendant Nos.5 and 6 is that the Foreman obtained the signatures on Exs.A-4 and A-5 at Hyderabad but there is no such pleading that those documents were obtained at Hyderabad. Considering this aspect, defendant nos.5 and 6 are also jointly and severally liable to pay the decretal amount. 14. Accordingly, the Appeal Suit is allowed setting aside the impugned judgment and decree, dated 21.09.2007, in O.S.No.58 of 2005 on the file of the Senior Civil Judge, Adilabad insofar as dismissing the suit as against defendant Nos.5 and 6. There shall be no order as to costs.


AS 91 / 2008

ASSR 1683 / 2008
PETITIONERRESPONDENT
M/S. MARGADARSI CHIT FUND LTD., ADILABAD  VSMR. DAMANI PRAKASH & 5 OTHERS
PET.ADV. : SESHA SAIRESP.ADV. : CHINTALA RAMESH
SUBJECT: MONEY SUITSDISTRICT:  ADILABAD

THE HON'BLE SRI JUSTICE K.C.BHANU


A.S.No.91 OF 2008
JUDGMENT:

         
          This appeal, under Section 96 of the Code of Civil Procedure, 1908, is directed against the judgment and decree, dated 21.09.2007, in O.S.No.58 of 2005 on the file of the Senior Civil Judge, Adilabad.

2.              Heard.

3.      The case of plaintiff is that it is a registered company under Indian Companies Act with registration No.927 of 1962-63 and has been doing chit fund business having its registered office and corporate office at Hyderabad.  
On 30.03.2003, defendant No.1 joined as a member of chit fund scheme of plaintiff company as per rules and regulations. 
 Defendant No.1 was allotted ticket No.FT 1ZAB-24 the total value of the chit being Rs.10,00,000/- to be subscribed at the rate of Rs.25,000/- per month for 40 months and signed an agreement of chit on 30.03.2003.  
In the auction conducted on 20.07.2003, defendant No.1 became successful bidder and agreed to forego Rs.4 lakhs, which was duly confirmed by the plaintiff company. 
After deducting company’s commission from the foregone amount, the balance was distributed among the other members in the aforementioned series.  
 Defendant No.1 furnished guarantors as defendant Nos.2 to 6 for withdrawing the prize amount and got executed agreement of guarantee for an amount of Rs.8,25,000/- jointly and severally to pay the amount in default by defendant No.1 with interest at the rate of 12% per annum.  
All the defendants also executed a promissory note, dated 03.08.2003, for Rs.8,25,000/- as collateral security.  
Defendant No.1 paid Rs.1,75,000/- til the date of prize amount and the future liability was Rs.8,25,000/-.  
Guarantee agreement and pronote were executed for the said amount.  
The prize amount of Rs.5,82,960/- was paid by cheque no.947826 and Rs.17,040/- paid by receipt No.833229, dated 04.08.2003.  
The total amount paid was Rs.6 lakhs.  
Defendant No.1 executed cash voucher in respect of the said payment.  
Defendant No.1 committed default in paying instalments from 10.10.2004.  
Inspite of demands made by the plaintiff company, the defendants failed to pay the same.  The plaintiff got issued a legal notice on 30.05.2005 to all the defendants to pay a sum of Rs.4,75,000/- due to the plaintiff company.  
In total, the defendants are due to a sum of Rs.5,38,920/- to the plaintiff.  
Hence, the suit. 

4.          Defendant No.1 filed written statement.  Defendant Nos.3 to 5 filed adoption memo adopting the written statement of defendant No.1.  Defendant No.6 filed written statement separately.  
Defendant No.2 was set ex parte. Subsequently, at the time of adducing evidence of defendants, the defendants’ counsel withdrew the vakalat of defendant Nos.1, 3 and 4.

5.       The brief averments of the written statement filed by defendant No.1 are that this defendant denied that the plaintiff was a registered company.  He admitted that he joined the suit chit but denied that he was furnished with rules and regulations of the plaintiff Company.  He participated in the auction held on 20.07.2003 and became successful bidder agreeing to forego Rs.4 lakhs by executing agreement of guarantee and promissory note in favour of the plaintiff and that he was paid Rs.5,82,960/-.  The plaintiff obtained his signatures on several blank printed documents without filling the blanks and when he questioned, he was said that the staff was not sufficient at that time and subsequently, everything would be filled as per the records.  He trusted their version but the plaintiff company calculated the amounts wrongly suppressing the fact of payments made by him by filling the blanks of printed documents on which his signatures were obtained and filed this suit.  He did not commit any default in payment of chit instalments. The plaintiff has also not issued any legal notice and hence, the question of demanding payment of future instalments does not arise. The calculation of the amounts is not correct.  The person, who signed on the plaint, does not have any authority to sign the plaint and the plaintiff was running an unregistered chit.  The present chit was also not registered before the Chit Registrar and the plaintiff was not following the rules of the A.P. Chit Funds Act and hence, he prayed to dismiss the suit.             

6.          Defendant No.6 filed separate written statement denying that the plaintiff was a registered company.  She also denied the allegation that defendant No.1 joined as a member of plaintiff Company.  She never executed any document in favour of the plaintiff. She denied the allegation that defendant No.1 committed default and the plaintiff may recover the amounts, if any, from other defendants, as she is a house wife and income less group, and as such, the suit against her may be dismissed.  She also denied that the plaintiff got issued legal notice and it was served on her demanding any amount.  She did not receive any prize amount and hence, the question of payment of future instalments does not arise.  The calculations made by the plaintiff are not correct and prayed to dismiss the suit.

7.          Basing on the above pleadings, the following issues have been framed for trial:

1.      Whether plaintiff is entitled for suit claim as prayed for?
2.      To what relief?


8.         On behalf of the plaintiff, P.W.1 was examined and  Exs.A-1 to A-22 were marked.  On behalf of the defendants, D.W.1 was examined and no documents were marked.

9.         The Trial Court, after considering the evidence and other material on record, decreed the suit against defendant Nos.1 to 4 and dismissed the suit against defendant Nos.5 and 6. 
 Challenging the same, plaintiff filed this appeal.

10.     Now the point for consideration is 
whether defendant Nos.5 and 6 are liable to pay the suit amount in terms of Exs.A-4- agreement of guarantee and Ex.A-5-promissory note?

11.          Learned counsel for the appellant/plaintiff contended that it is within the discretion of the Foreman to accept the sureties even though the bid amount is less than Rs.1,00,000/- and therefore, the Foreman accepted the personal sureties of defendant Nos.5 and 6, who executed Exs.A-4 and A-5, and hence, he prays to decree the suit against defendant Nos.5 and 6 also.

12.     On the other hand, learned counsel appearing for the respondent Nos.5 and 6/defendant Nos.5 and 6 contended that since there is no evidence to show that the Foreman had exercised his discretion in accepting the sureties where the value is more than Rs.1,00,000/-, the trial Court rightly not decreed the suit insofar as defendant Nos.5 and 6 is concerned; that they have not executed the agreement of guarantee and the promissory note; that the agreement of guarantee and the promissory note are in contrary to the terms of the chit transaction and hence, he prays to dismiss the appeal.

13.          Defendant No.6 filed written statement generally denying the averments made in the plaint.  Defendant Nos.5 and 6 did not specifically deny the execution of agreement of guarantee and promissory note-Exs.A-4 and A-5 respectively. On the other hand, D.W.1, in his cross examination, specifically admitted that he along with his wife signed on Exs.A-4 and A-5.  Though it was stated by him that at the time of signing on those documents, Exs.A-4 and A-5 were blank, but there was no such plea taken in the written statement. Similarly, no such suggestion was given to P.W.1 to the effect that he obtained the signatures of defendant Nos.5 and 6 on the blank documents.  In the absence of any pleading on this aspect, any amount of evidence is valueless.  The evidence of P.W.1 would clearly go to show that defendant No.1 participated in the auction and he became the highest bidder and defendant Nos.2 to 6 stood as the guarantors to defendant No.1 and they executed the agreement of guarantee and a demand promissory note on 03.08.2003 jointly and severally liable to pay the amount to plaintiff company and thereafter, defendant No.1 committed default in payment of the suit promissory note amount.  The entire case of defendant Nos.5 and 6 is based on Clause 18 (ii) of the Chit Agreement, which reads as under:
          “In cases where the future liability is over Rs.3,00,000/-, no personal security will normally be accepted.  Only immovable local urban property, the value of which is at least one and half times the liability will be accepted as security.  In exceptional cases, and entirely at the discretion of the Foreman, personal sureties may also be accepted.

             Normally sureties and securities are accepted only from such places or towns where the Foreman’s Branches are situated.  However, the Foreman may, at his discretion, accept sureties from any other place.”

Admittedly, the suit claim is more than Rs.5,00,000/-.  Clause 18(ii) of the Chit Agreement gives a discretion to the Foreman of the Chit Fund Company with regard to acceptance of sureties.  For that, there is no need to examine the Foreman when he exercised his discretion to accept the personal sureties when the value of the chit amount is more than Rs.1,00,000/-.  It is also within the discretion of the Foreman to accept the personal sureties outside the jurisdictional area of the Foreman of the Chit transaction.  Simply because the Foreman accepted the sureties of defendant Nos.5 and 6, as the value of chit transaction is more than Rs.1,00,000/-, it does not mean that the suit has to be dismissed in respect of those sureties in view of the fact that this clause is only enabling the Foreman to accept or reject personal sureties in order to exercise his discretion.  Therefore, in view of the fact that Exs.A-4 and A-5 have been established beyond preponderance of probability, they were executed by defendant Nos.5 and 6, they are jointly and severally liable to pay the decretal amount along with the other defendants.  Clause 18(ii) of the Chit Agreement empowers the Foreman to exercise his discretion in accepting the sureties outside the jurisdiction and also to accept the immovable property where the value is more than Rs.1,00,000/-.  
Therefore, the trial Court committed a grave error in not decreeing the suit against defendant Nos.5 and 6.  The documents – Exs.A-4 and A-5 have not been taken into consideration by the trial Court. 
 Under Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.  
It is not the case of the defendants that Exs.A-4 and A-5 were fabricated or forged document.  
The only contention of the learned counsel for defendant Nos.5 and 6 is that the Foreman obtained the signatures on Exs.A-4 and A-5 at Hyderabad but there is no such pleading that those documents were obtained at Hyderabad.  
Considering this aspect, defendant nos.5 and 6 are also jointly and severally liable to pay the decretal amount.   

14.          Accordingly, the Appeal Suit is allowed setting aside the impugned judgment and decree, dated 21.09.2007, in O.S.No.58 of 2005 on the file of the Senior Civil Judge, Adilabad insofar as dismissing the suit as against defendant Nos.5 and 6. There shall be no order as to costs.  
_______________

K.C. BHANU, J  

20th October, 2011
AMD


THE HON'BLE SRI JUSTICE K.C.BHANU



























A.S.No.91 OF 2008

















Date:20.10.2011



AMD

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