HONBLE SRI JUSTICE SURESH KUMAR KAIT AND HONBLE SRI JUSTICE D.V.S.S. SOMAYAJULU
C.C.C.A. Nos.28 of 2010
14-11-2017
Mrs. M. Pratima Reddy Appellants/Defendants
NICCO UCO Alliance Credit Ltd. Kolkatta, rep.by its Managing Director, Respondents/Plaintiffs
Counsel for the appellants: Sri T. Rajendra Prasad
Counsel for the Respondents: Srinivas Chitluru
<Gist:
>Head Note:
? Cases referred:
(1995) 4 SCC 153
2 (2005) 7 SCC 791
3 (2007) 11 SCC 75
4 AIR 1992 SC 1740
HONBLE SRI JUSTICE SURESH KUMAR KAIT
AND
HONBLE SRI JUSTICE D.V.S.S. SOMAYAJULU
CCCA No.28 of 2010
Judgment (per Honble Sri Justice D.V.S.S. Somayajulu):
This civil appeal arises out of the judgment and decree
dated 24.10.2007 passed in O.S.No.594 of 2000 on the file of
the XII Additional Chief Judge, City Civil Court at Hyderabad.
2. The suit O.S.No.594 of 2000 is filed by NICCO UCO
Alliance Credit Ltd. against 7 defendants initially. Later,
defendant No.8 is added as the legal heir of the deceased-
defendant No.5 and defendants 9, 10 & 11 are added as legal
heirs of the deceased-defendant No.3.
3. The suit is filed by the plaintiff, which is a non-banking
financial company. According to the averments of the plaint,
defendant No.1, which is a company incorporated under the
Companies Act, has approached the plaintiff for financial
assistance for purchase of 4 numbers of 1000 KVA diesel
generator sets. Defendant No.1 is the borrower company,
defendants 2, 3 & 4 are the guarantors for the financial
facilities availed. The financial facilities were also secured by
the equitable mortgage of plaint A, B & C schedule properties
belonging to defendants 3, 5 & 6 respectively. Defendant No.7
is the supplier of the equipment. The property mortgaged is
described as plaint A, B and C schedule.
4. Defendants 1, 2, 6, 9 and 10 filed detailed written
statements denying the suit claim and raising, inter alia among
other things, the following pleas:
i) that the suit is barred by the provisions of Order
II Rule-2 CPC as the plaintiff filed a suit
C.S.No.640 of 1999 on the file of the original
suit of Honble High Court of Calcutta.
ii) that defendant No.3 is not authorized to create
a mortgage and that the property said to have
been mortgaged is in fact belonging to DW.6
(Smt. G.Bujamma), the mother of defendant
No.9 and that no mortgage is created.
iii) The Court has no territorial jurisdiction.
5. Based on the pleadings, the lower Court initially framed
two issues and later on framed 7 additional issues also. After
hearing both the parties and after recording the evidence of 2
witnesses for the plaintiff and 6 witnesses for the defendants
and after marking Exs.A.1 to A.32 (for plaintiff) and Exs.B.1 to
B.17 (for the defendants), the lower Court passed a decree
which is now impugned in the present appeal. The lower Court
passed a preliminary decree entitling the plaintiff to recover the
suit amount with costs and interest @ 6% p.a. and also held
that the decree should first be satisfied by sale of mortgaged
property only and if the said sale proceeds are insufficient, the
lower Court granted decree against defendants 2, 6, 7, 9 & 10.
The suit against defendant No.4 was dismissed as abated and
the suit against defendant No.8 was dismissed as she has no
personal liability.
6. Aggrieved by the said judgment and decree, the present
appeal is filed by defendants 9, 10 & 11, who were the
appellants herein.
7. Heard the learned counsels Sri T. Rajendra Prasad, for
the appellants and Sri Srinivas Chitluru, for the contesting
respondents.
8. The first and foremost contention that raised by Sri T.
Rajendra Prasad, learned counsel for the appellants is that the
Court at Hyderabad, wherein the suit was presented has no
territorial jurisdiction at all (issue No.2). It is the argument of
the learned counsel for the appellants that as per clause 22 of
the lease agreement (Ex.A.1), it is the Court at Calcutta alone
that has exclusive jurisdiction. He also states that the entire
transaction took place at Calcutta and hence, the Hyderabad
Court has no jurisdiction.
9. The learned counsel for the appellants also drew the
attention of this Court to the judgment reported in Angile
Insulations v. Davy Ashmore India Ltd and another and
contends that the suit is not maintainable in the Hyderabad
Court. However, a reading of this judgment makes it clear that
the suit in which the Honble Supreme Court was dealing was
not a suit pertaining to enforcement of a mortgage and was a
suit for recovery of money based on a contract. Therefore, this
Court is of the opinion that the said judgment is not applicable
to the facts of the case.
10. The reply of the learned counsel for the respondents, Sri
Srinivas Chitluru is that this lease agreement (Ex.A.1) on the
basis of which it is contended that the Hyderabad Court has no
jurisdiction is between the plaintiff and defendant No.1 alone
and that none of the other defendants are a party to the suit.
In addition, it is also pointed out that the suit at Hyderabad is
filed for recovery of money based on a mortgage of immovable
property situated at Hyderabad. Therefore, the learned counsel
submitted that the suit is maintainable at Hyderabad.
11. Besides, Section 16 (c) CPC makes it clear that all suits
pertaining to a mortgage can only be instituted within the local
jurisdiction of the Court in which the property is situated. In
this case, admittedly, the mortgaged property is situated within
the jurisdiction of the Court at Hyderabad and as such the
contention of the learned counsel for the appellants is not
tenable. The learned counsel for the respondents relied upon
Harshad Chiman Lal Modi v. DLF Universal Ltd. and another
which very clearly supports his contentions. The lower Court
has also decided this issue after the analysis of facts and law
and held that it has the jurisdiction and for all the above
reasons, this Court holds that the suit is instituted in the
proper Court only.
12. The second important contention urged by the learned
counsel for the appellants, Sri T. Rajendra Prasad is that the
suit is barred by the provisions of Order II Rule 2 CPC as an
earlier suit C.S.No.640 of 1999 was filed at Calcutta on the
same cause of action. The contention of the learned counsel is
that the petitioner was aware of the loan default/mortgage and
that therefore, the cause of action for mortgage suit arose
before the suit C.S.No.640 of 1999 was filed before the High
Court of Calcutta. He also argued that an appropriate prayer
was not made for filing a fresh suit when the earlier suit was
withdrawn. The learned counsel for the respondents contended
on the other hand that both the suits are not identical and are
based on the different causes of action.
He also pleaded that he withdrew the suit and got the liberty to
file a fresh suit also.
13. It cannot be disputed that if the causes of action for the
earlier suit and the later suit are identical and all the facts
constituting the cause of action have arisen by the date of first
suit, subsequent suit is barred since the plaintiff ought to
have raised all these issues in the first suit itself.
14. However, a reading of the plaint O.S.No.640 of 1999
shows that it is filed by the plaintiff against the present
defendant No.1 and 5 and others of whom defendant No.6 is a
pro-forma defendant. The prayer in this suit is for recovery of
money against Defendants 1 to 4 with interest and a claim for
damages of Rs.3 crores against defendant No.5, a perpetual
injunction against defendant No.1 from withdrawing any
amount from the account No.795 of Andhra Bank, Raj Bhavan
Road Branch, Hyderabad, a mandatory injunction directing
defendant No.5 to transfer any amount already deposited etc.
15. The suit in Hyderabad in which impugned judgment is
passed is, on the other hand, the pure and simple suit for
recovery of money by sale of the mortgaged property.
Therefore, it cannot be said that the provisions of Order II, Rule
2 CPC bar the second suit filed in Hyderabad, as the two suits
are different.
16. In addition, the learned counsel for the respondents also
drew the attention of this Court to the order dated 18.05.2005
passed in C.S.No.640 of 1999 by Sri Justice Girish Chandra
Gupta wherein the learned single Judge permitted the plaintiff
to withdraw the suit. The learned counsel for the respondents
also drew the attention of this Court to Order XXXIV Rule 14
sub-clause (2) wherein it is clearly held that the suit for
mortgage filed under Order XXXIV Rule 2 CPC is not hit by the
bar contained in Order II Rule 2 CPC. The counsel cited the
judgment reported in S. Nazeer Ahmed v. State Bank of
Mysore and others and relied on paras 9 to 12 which clearly
support his submission. The Honble Supreme Court clearly
held that Order XXXIV Rule 14 read with Rule 15 clearly
removes the bar if any contained by virtue of Order II Rule 2
CPC (para 14 of the judgment).
17. In view of the above reasons and Order XXXIV Rule
14 (1), this Court is of the opinion that there is no force in the
contention of the learned counsel that the suit is barred by the
provisions of Order II Rule 2 CPC. It is also clear that the
present suit is different both in content and in form from the
first suit C.S.No.640 of 1999. There is no identity in cause of
action. For all these reasons, this Court holds that subsequent
suit is not barred by law and is maintainable.
18. The other important defence raised by the appellants is
that by the date of the mortgage pleaded by the
plaintiff/respondent No.1, the mortgagors have already sold
their properties to DW.6 and that consequently, there is no
valid mortgage created by deposit of title deeds.
19. This is a plea which has far reaching consequences.
According to the plaint averments, A-schedule property
belongs to Defendant No.3, B-schedule property belongs to
defendant No.5 and C-schedule property belongs to defendant
No.6. As per the plaint averments and the evidence, defendant
No.3 acquired the A-schedule property under registered sale
deed dated 15.04.1986. He deposited the said title deed on
11.05.1999 along with Exs.A.9, A.10 and A.11. Ex.A.9 is the
Encumbrance Certificate dated 25.03.1999 for the period from
23.03.1982 to 24.03.1999 and it shows only the transaction
covered by Ex.A.8. Ex.A.10 is the notarized sworn affidavit of
Sri M. Mohan Reddy (defendant No.3) wherein he clearly states
on oath that he has purchased
A-schedule property and that he is proposing to mortgage the
same in favour of the plaintiff as a security. Ex.A.11 is a letter
dated 11.05.1999 executed by defendant No.3 in favour of the
plaintiff confirming the fact that on 11.05.1999 he has created
a mortgage over the A-schedule property with an intention that
the same shall be security for the lease finance of Rs.202 lakhs
availed from the plaintiff.
20. Similarly, Ex.A.12 is a registered sale deed dated
15.04.1986 in favour of defendant No.5 which is deposited
with the plaintiff with an intention to create a mortgage.
Ex.A.13 is the encumbrance certificate No.528 of 1999 for the
period from 23.03.1982 to 23.04.1999. It shows no
encumbrances or other sales except Ex.A.12. Ex.A.14 is the
power of attorney executed by G.J. Mohan Rao-defendant No.6
in favour of defendant No.3. This is the registered power of
attorney by which defendant No.6 authorized defendant No.3 to
deposit his title deeds on his behalf for the finance of Rs.202
lakhs being availed from the plaintiff. In addition, defendant
No.6 also executed a sworn affidavit dated 08.05.1999
confirming the fact that he has valid title and is proposing to
mortgage the property as security being the finances availed.
Defendant No.3 as the power of attorney holder for defendant
No.6 executed a confirmatory letter dated 11.05.1999
confirming the deposit of title deeds. There is a similar set of
documents marked as Exs.A.17 to A.20 for deposit of title
deeds for C-schedule property by defendant No.6. Defendant
No.6 also executed a power of attorney (Ex.A19) in favour of
defendant No.3 wherein the loan transaction with plaintiff and
the need to deposit the title deed as security for the loan of
Rs.202 lakhs is also discussed. His agent is authorized to
mortgage the property, as security for the finances being
extended. It is thus clear that the three title deed dated
15.04.1986 were deposited on 11.05.1999 and confirmatory
letters were also executed confirming the creation of the
equitable mortgage.
21. In contra distinction to this, it is the contention of the
defendants/appellants that by the date of creation of the
mortgage on 11.05.1999 the said three items of property were
already conveyed and sold by the said 3 three persons
(mortgagors) in favour of DW.6 on 25.04.1994. The certified
copies of these three sale deeds dated 25.04.1994 are marked
as Exs.B.10 to B.12. Therefore, the contention of the learned
counsel for the appellants is that neither defendant No.3 nor
others have any title to the property on the date on which the
mortgage was created.
22. DW.6-Smt. G. Bujjamma the alleged owner of the A to C
schedule properties was residing with the contesting defendant
and she is the mother of defendant No.9. As pointed out by the
learned counsel for the respondents, Smt. G. Bujjamma was
examined as DW.6 but she did not choose to implead herself in
the suit to protect her interest in the property. DW.6 also
filed an appeal against the impugned judgment and decree
dated 24.10.2007 in this Court.
The said appeal was numbered as CCCA (SR) No.15691 of
2011. Along with the same, she filed a Miscellaneous Petition
No.596 of 2013 to condone the delay of 1320 days in filing her
appeal. This Court vide its order dated 23.07.2015 dismissed
the application to condone the delay. While dismissing, it is
noticed that no valid reasons are given to condone the delay
and the affidavit is also silent as to how the petitioner came to
know about passing of the impugned order. It is also noticed
that she did not make any attempt to implead herself in the
suit. Therefore, the application was dismissed and the appeal
was also consequently rejected. No further steps were taken
by DW.6 and order dated 23.07.2015 has attained the finality.
23. In addition to the above, it is important to note that if
DW.6 was really owner of the property, she should have been
in custody of the original documents viz., Exs.A.8, A.12 &
Ex.A.17 sale deeds. In the evidence, only the certified copies
were filed while the recital in the deed so that the originals are
delivered to her. Her examination as DW.6 also does not
clearly show that she is a genuine purchaser. In the affidavit in
lieu of the chief examination, she states that she acquired the
properties for valuable consideration under 3 sale deeds dated
25.04.1994. But in her cross-examination, she does not give
any answer in support of the said sales. She is not even aware
for which the suit is filed. She also states that since her son-in-
law defendant No.3 did not refund some amount the suit is
filed. She states that the property tax is paid by defendant
No.3 on her instructions. She further states that the suit
schedule property stands in her name in the municipal records
but she did not produce the tax receipts to show her
possession. She also admits that she does not know where the
original sale deeds of Exs.B.10 to B.12. She also admits that
she has taken all the link documents pertaining to the suit
schedule property after registration of Exs.B.10 to B.12. She
denies the suggestion that she did not pay the sale
consideration of Exs.B.10 to B.12.
24. Exs.B.10 to B.12 are certified copies of sale deeds said to
have been executed in favour of G. Bujjamma.
The originals are not produced and no satisfactory explanation
is given for marking the secondary evidence. These documents
were marked through Mrs. Pratima Reddy (defendant No.9),
who was examined as DW.4.
On 10.09.2007 itself an objection was taken by the counsel for
the plaintiff about the competence of DW.4 to mark these
exhibits. The learned Judge received these documents after
noting down the objections on 10.09.2007 and marked these
documents subject to proof and relevancy. The learned
counsel for the plaintiff also cross-examined the witnesses
about the originals of Exs.B.10 to B.12; about the property tax
being paid by DW.2 and also drew the attention of the
witnesses to the fact that the encumbrance certificate filed
namely Exs.A.9, A.13 and A.18 do not reflect the transactions
supposedly covered by Exs.B.10 to B.12.
25. It is pertinent to note as pointed out by the learned
counsel for respondents that despite the cross-examination,
neither the tax receipts nor the originals were produced when
G. Bujjamma was examined as DW.6 on 01.10.2007. After
DW.4 was examined, DW.5 was also examined and the issues
relating to Exs.B.10 to B.12 were raised in the chief and cross-
examination. Question about the right/title of Mrs.Bujjamma
were posed to this witness. It was also suggested to the witness
that Exs.B.10 to B.12 were sham documents created in the
name of fictitious persons. Despite this sequence, DW.6, who
was the last witness examined did not give any convincing
reasons for failure to produce clinching evidence of her
title/possession and to justify that these sale deeds ExsB.10 to
B.12 were genuine. The lower Court also rightly observed that
mere marking of the document is not proof of contents of the
document. It is well settled law that when the proof of contents
of the document is an issue the author of the document or the
attestor or a person connected with the execution of the
document is to be examined to prove the contents of the same.
Mere marking is not proof of contents. Thus, this Court is of
the opinion that Exs.B.10 to B.12 are not validly proved.
26. In addition, an ex facie reading of these three documents
Exs.B.10 to B.12 also does not inspire confidence and there
are extrapolation and corrections in the documents which are
not satisfactorily explained. For example, in Ex.B.10 sale deed
document No.2309 of 1994 executed by G.J. Mohan Rao in
favour of G. Bujjamma, there are certain matters scored off in
page-5 and the sale consideration is mentioned as
Rs.8,50,000/-. The amounts supposedly receivable by them in
page-7 are struck off and the receipt of a sum of Rs.2,50,000/-
is acknowledged in page-7. In page-8 the sale consideration is
mentioned as Rs.9,50,000/-, which is supposedly received by
the vendor as aforementioned. There are no details of the
receipt of the money as stated in the sale deed. The same is the
case with the other two sale deeds also. Critical and important
aspects are scored out or blackened with ink. Thus, these
three sale deeds do not inspire much confidence and the
evidentiary value of these three sale deeds will have to be
weighed against the exhibits Exs.A.8 to A.11 (A-schedule),
Exs.A.12 to A.16 (B-schedule) and Exs.A.17 to A.20 (C-
schedule) seen in the total perspective . The defendants 3, 5
and 6 executed the sworn affidavit and letters confirming the
deposit of title deeds in May 1999 where they clearly averred
and stated that they have a subsisting right and title to the
property and that they are depositing the title deeds with an
intention to create mortgage.
27. The lower Court also thoroughly analyzed the causes and
in fact framed additional issue No.3 for this. The lower Court
gave 12 reasons why these documents are not acceptable. The
lower Court came to the conclusion that Exs.B.10 to B.12 are
not valid executed documents and that therefore, the
mortgators viz., defendants 3, 5 & 6 had valid title to the A, B &
C schedule properties on the date of creation of the mortgage.
This Court does not see any reason to disagree with the
findings of the lower Court on this issue.
28. It is important to note that the appeal is filed only by Mrs.
M.Pratima Reddy, M. Rohit Reddy and Mrs. Nitya Reddy, who
are defendant Nos.9, 10 and 11 in the suit. The other
defendants in the suit did not challenge the findings of the
lower Court relating to them. Therefore, the issue whether
defendant No.2 is a Director of the defendant No.1- company
or not and whether defendant Nos.1 to 7 have personal liability
or not is not really necessary for the purpose of decision in this
appeal. Nevertheless, the evidence on record clearly
establishes that defendant No.2 is a Director of the defendant
No.1-company. Exs.13 and 14, which are the copies of the
annual returns of the defendant No.1-company clearly show
that defendant No.2 is a Director. In addition, Ex.A.31 is a
cheque dated 11.07.199 which was marked through D.W.1-
K.Hanumanth Rao clearly shows that he is Director of the
company.
29. The other issues are about the personal liability of the
defendants. Learned counsel for the appellants has pointed out
that there is a contradictory finding of the lower Court with
regard to the liability of the present appeals. While deciding
additional issue No.5, whether defendant Nos.9 to 11 have got
any personal liability, the lower Court clearly held that
defendant Nos.9 to 11 are not liable to pay the debt as they are
Directors of the company. However, in operative portion of the
judgment, the Court decreed the suit against defendant Nos.9
and 10 only holding that they are personally liable.
30. In view of the fact that defendant Nos.9 to 11 are the
Directors of the company and are not the guarantors, they
cannot be held to be personally liable on the basis of their
status as Directors of the company. They were also brought on
record as the legal representatives of defendant No.3. However,
the Court came to a conclusion that defendants Nos.9 and 10
have misappropriated the money that was advanced to the
company and were part of the fraud perpetuated by DW.3. The
Court, therefore, came to a conclusion that defendant Nos.9
and 10 are liable to pay the suit debt.
31. This finding of the lower Court is challenged by the learned
counsel for the appellants, who contends that defendant Nos. 9
and 10 cannot be made liable for the suit debt and that it runs
contrary to the very concept of a limited company wherein the
Directors liability is limited. The lower Court came to this
conclusion that defendant Nos.9 and 10 are liable to pay the
debt on the ground that they were part of the fraud
perpetuated by defendant No.3. Fraud is a matter which has
to be specifically pleaded as per order VI Rule 4 of C.P.C.
There should also be a clear proof of the fraud. The plaint was
initially filed in the year 2000 and defendant Nos.9 to 11 were
impleaded as the legal heirs in the year 2006. Neither in the
original plaint nor in the amended plaint is there any pleading
on the fraud supposedly perpetuated by the defendant Nos.9
to 11. A reading of para 22 of the plaint also makes it clear
that the suit is filed for enforcement of the mortgage and for
recovery of money against defendant Nos. 1 to 3 and 7 only
due to the fraudulent misappropriation. There is no prayer for
a personal decree on the ground of fraud perpetuated by
defendant No.3 or his legal representatives defendant Nos.9 to
11. Directors of a company are liable for fraud on the basis of
tort and not under the company law unless they sign a
guarantee deed or the like. The plaintiffs should therefore
plead and prove that defendant Nos.9 to 11 were part of the
fraud supposedly perpetuated by defendant No.3. As there
are no requisite details either in the plaint or in the evidence, a
personal decree cannot be passed against defendant Nos.9 to
11. However, the estate of the deceased defendant No.3, if any,
in the hands of defendant Nos.9 to 11, is definitely liable for the
satisfaction of the debt, as defendant No.3 is a guarantor for
the debt.
32. The defendant No.1-company and its assets are liable for
the suit debt. Defendants Nos.2 and 4 as the guarantors are
personally liable for the payment of the decretal amount and
their liability as guarantors is coextensive with the liability of
defendant No.1- borrower.
33. No personal decree can be passed against defendant
Nos.6, 7 and 8 as they are not mortgagors or guarantors. As
far as defendant Nos.9 to 11 are concerned, they are also not
personally liable.
34. The last question that survives for consideration is,
whether the finding of the lower Court in issue No.2 (b) is
correct or not?
35. The lower Court while deciding issue 2 (b) held that the
plaintiff has to execute the decree by selling the mortgaged
property first and if the sale consideration is not sufficient, the
plaintiff can proceed against the defendants personally. It is
this finding that is assailed by learned counsel Sri Srinivas
Chitluru for the respondents, who argued that he cannot be
precluded from proceeding simultaneously against the
property and also the guarantors.
36. The learned counsel for the respondents relied upon a
judgment reported in State Bank of India v. M/s. Index Port
Registered and others , wherein the Honble Supreme Court
held that if the decree in question is a composite decree
wherein there is both a personal decree and a decree for sale of
the property without any limitation on its execution, the decree
holder, in principle, cannot be forced to first exhaust the
remedy by way of execution of the mortgage decree alone.
37. There is considerable force in the submission of the
learned counsel for the respondents and hence this Court is of
the opinion that the finding that the plaintiff has to first execute
the decree and sell the mortgage property alone is not correct.
The plaintiff is at liberty to proceed against the mortgaged
property and also against the persons held personally liable to
pay the suit debt and need not wait for the sale of the
mortgaged property before proceeding against the guarantors
etc.
38. In the result, the appeal is allowed in part and a
preliminary decree is passed holding that:
(a) the plaintiffs/respondents in the appeal are entitled to
recover suit amount with costs and subsequent interest
at 6% per annum from the date of suit till realization.
Two months time is given for redemption.
(b) the plaintiff can execute the decree without first having to
proceed against the mortgaged property alone.
(c) that the defendant Nos.2 and 4 are personally liable for
the suit debt along with defendant No.1-company.
Defendants 6, 7, 8, 9, 10 and 11 are not personally liable
for the suit debt.
(d) the assets of the defendant No.1-company are liable for
the decretal amount. Similarly, the estate of the deceased
defendant No.3 in the hands of defendant Nos. 9 to 11 is
liable for the same.
(e) The respondents are entitled to the costs throughout.
39. Miscellaneous Petitions, if any, pending in this appeal
shall stand closed.
_____________________
SURESH KUMAR KAIT, J
____________________
D.V.S.S. SOMAYAJULU, J
Date: 14.11.2017
C.C.C.A. Nos.28 of 2010
14-11-2017
Mrs. M. Pratima Reddy Appellants/Defendants
NICCO UCO Alliance Credit Ltd. Kolkatta, rep.by its Managing Director, Respondents/Plaintiffs
Counsel for the appellants: Sri T. Rajendra Prasad
Counsel for the Respondents: Srinivas Chitluru
<Gist:
>Head Note:
? Cases referred:
(1995) 4 SCC 153
2 (2005) 7 SCC 791
3 (2007) 11 SCC 75
4 AIR 1992 SC 1740
HONBLE SRI JUSTICE SURESH KUMAR KAIT
AND
HONBLE SRI JUSTICE D.V.S.S. SOMAYAJULU
CCCA No.28 of 2010
Judgment (per Honble Sri Justice D.V.S.S. Somayajulu):
This civil appeal arises out of the judgment and decree
dated 24.10.2007 passed in O.S.No.594 of 2000 on the file of
the XII Additional Chief Judge, City Civil Court at Hyderabad.
2. The suit O.S.No.594 of 2000 is filed by NICCO UCO
Alliance Credit Ltd. against 7 defendants initially. Later,
defendant No.8 is added as the legal heir of the deceased-
defendant No.5 and defendants 9, 10 & 11 are added as legal
heirs of the deceased-defendant No.3.
3. The suit is filed by the plaintiff, which is a non-banking
financial company. According to the averments of the plaint,
defendant No.1, which is a company incorporated under the
Companies Act, has approached the plaintiff for financial
assistance for purchase of 4 numbers of 1000 KVA diesel
generator sets. Defendant No.1 is the borrower company,
defendants 2, 3 & 4 are the guarantors for the financial
facilities availed. The financial facilities were also secured by
the equitable mortgage of plaint A, B & C schedule properties
belonging to defendants 3, 5 & 6 respectively. Defendant No.7
is the supplier of the equipment. The property mortgaged is
described as plaint A, B and C schedule.
4. Defendants 1, 2, 6, 9 and 10 filed detailed written
statements denying the suit claim and raising, inter alia among
other things, the following pleas:
i) that the suit is barred by the provisions of Order
II Rule-2 CPC as the plaintiff filed a suit
C.S.No.640 of 1999 on the file of the original
suit of Honble High Court of Calcutta.
ii) that defendant No.3 is not authorized to create
a mortgage and that the property said to have
been mortgaged is in fact belonging to DW.6
(Smt. G.Bujamma), the mother of defendant
No.9 and that no mortgage is created.
iii) The Court has no territorial jurisdiction.
5. Based on the pleadings, the lower Court initially framed
two issues and later on framed 7 additional issues also. After
hearing both the parties and after recording the evidence of 2
witnesses for the plaintiff and 6 witnesses for the defendants
and after marking Exs.A.1 to A.32 (for plaintiff) and Exs.B.1 to
B.17 (for the defendants), the lower Court passed a decree
which is now impugned in the present appeal. The lower Court
passed a preliminary decree entitling the plaintiff to recover the
suit amount with costs and interest @ 6% p.a. and also held
that the decree should first be satisfied by sale of mortgaged
property only and if the said sale proceeds are insufficient, the
lower Court granted decree against defendants 2, 6, 7, 9 & 10.
The suit against defendant No.4 was dismissed as abated and
the suit against defendant No.8 was dismissed as she has no
personal liability.
6. Aggrieved by the said judgment and decree, the present
appeal is filed by defendants 9, 10 & 11, who were the
appellants herein.
7. Heard the learned counsels Sri T. Rajendra Prasad, for
the appellants and Sri Srinivas Chitluru, for the contesting
respondents.
8. The first and foremost contention that raised by Sri T.
Rajendra Prasad, learned counsel for the appellants is that the
Court at Hyderabad, wherein the suit was presented has no
territorial jurisdiction at all (issue No.2). It is the argument of
the learned counsel for the appellants that as per clause 22 of
the lease agreement (Ex.A.1), it is the Court at Calcutta alone
that has exclusive jurisdiction. He also states that the entire
transaction took place at Calcutta and hence, the Hyderabad
Court has no jurisdiction.
9. The learned counsel for the appellants also drew the
attention of this Court to the judgment reported in Angile
Insulations v. Davy Ashmore India Ltd and another and
contends that the suit is not maintainable in the Hyderabad
Court. However, a reading of this judgment makes it clear that
the suit in which the Honble Supreme Court was dealing was
not a suit pertaining to enforcement of a mortgage and was a
suit for recovery of money based on a contract. Therefore, this
Court is of the opinion that the said judgment is not applicable
to the facts of the case.
10. The reply of the learned counsel for the respondents, Sri
Srinivas Chitluru is that this lease agreement (Ex.A.1) on the
basis of which it is contended that the Hyderabad Court has no
jurisdiction is between the plaintiff and defendant No.1 alone
and that none of the other defendants are a party to the suit.
In addition, it is also pointed out that the suit at Hyderabad is
filed for recovery of money based on a mortgage of immovable
property situated at Hyderabad. Therefore, the learned counsel
submitted that the suit is maintainable at Hyderabad.
11. Besides, Section 16 (c) CPC makes it clear that all suits
pertaining to a mortgage can only be instituted within the local
jurisdiction of the Court in which the property is situated. In
this case, admittedly, the mortgaged property is situated within
the jurisdiction of the Court at Hyderabad and as such the
contention of the learned counsel for the appellants is not
tenable. The learned counsel for the respondents relied upon
Harshad Chiman Lal Modi v. DLF Universal Ltd. and another
which very clearly supports his contentions. The lower Court
has also decided this issue after the analysis of facts and law
and held that it has the jurisdiction and for all the above
reasons, this Court holds that the suit is instituted in the
proper Court only.
12. The second important contention urged by the learned
counsel for the appellants, Sri T. Rajendra Prasad is that the
suit is barred by the provisions of Order II Rule 2 CPC as an
earlier suit C.S.No.640 of 1999 was filed at Calcutta on the
same cause of action. The contention of the learned counsel is
that the petitioner was aware of the loan default/mortgage and
that therefore, the cause of action for mortgage suit arose
before the suit C.S.No.640 of 1999 was filed before the High
Court of Calcutta. He also argued that an appropriate prayer
was not made for filing a fresh suit when the earlier suit was
withdrawn. The learned counsel for the respondents contended
on the other hand that both the suits are not identical and are
based on the different causes of action.
He also pleaded that he withdrew the suit and got the liberty to
file a fresh suit also.
13. It cannot be disputed that if the causes of action for the
earlier suit and the later suit are identical and all the facts
constituting the cause of action have arisen by the date of first
suit, subsequent suit is barred since the plaintiff ought to
have raised all these issues in the first suit itself.
14. However, a reading of the plaint O.S.No.640 of 1999
shows that it is filed by the plaintiff against the present
defendant No.1 and 5 and others of whom defendant No.6 is a
pro-forma defendant. The prayer in this suit is for recovery of
money against Defendants 1 to 4 with interest and a claim for
damages of Rs.3 crores against defendant No.5, a perpetual
injunction against defendant No.1 from withdrawing any
amount from the account No.795 of Andhra Bank, Raj Bhavan
Road Branch, Hyderabad, a mandatory injunction directing
defendant No.5 to transfer any amount already deposited etc.
15. The suit in Hyderabad in which impugned judgment is
passed is, on the other hand, the pure and simple suit for
recovery of money by sale of the mortgaged property.
Therefore, it cannot be said that the provisions of Order II, Rule
2 CPC bar the second suit filed in Hyderabad, as the two suits
are different.
16. In addition, the learned counsel for the respondents also
drew the attention of this Court to the order dated 18.05.2005
passed in C.S.No.640 of 1999 by Sri Justice Girish Chandra
Gupta wherein the learned single Judge permitted the plaintiff
to withdraw the suit. The learned counsel for the respondents
also drew the attention of this Court to Order XXXIV Rule 14
sub-clause (2) wherein it is clearly held that the suit for
mortgage filed under Order XXXIV Rule 2 CPC is not hit by the
bar contained in Order II Rule 2 CPC. The counsel cited the
judgment reported in S. Nazeer Ahmed v. State Bank of
Mysore and others and relied on paras 9 to 12 which clearly
support his submission. The Honble Supreme Court clearly
held that Order XXXIV Rule 14 read with Rule 15 clearly
removes the bar if any contained by virtue of Order II Rule 2
CPC (para 14 of the judgment).
17. In view of the above reasons and Order XXXIV Rule
14 (1), this Court is of the opinion that there is no force in the
contention of the learned counsel that the suit is barred by the
provisions of Order II Rule 2 CPC. It is also clear that the
present suit is different both in content and in form from the
first suit C.S.No.640 of 1999. There is no identity in cause of
action. For all these reasons, this Court holds that subsequent
suit is not barred by law and is maintainable.
18. The other important defence raised by the appellants is
that by the date of the mortgage pleaded by the
plaintiff/respondent No.1, the mortgagors have already sold
their properties to DW.6 and that consequently, there is no
valid mortgage created by deposit of title deeds.
19. This is a plea which has far reaching consequences.
According to the plaint averments, A-schedule property
belongs to Defendant No.3, B-schedule property belongs to
defendant No.5 and C-schedule property belongs to defendant
No.6. As per the plaint averments and the evidence, defendant
No.3 acquired the A-schedule property under registered sale
deed dated 15.04.1986. He deposited the said title deed on
11.05.1999 along with Exs.A.9, A.10 and A.11. Ex.A.9 is the
Encumbrance Certificate dated 25.03.1999 for the period from
23.03.1982 to 24.03.1999 and it shows only the transaction
covered by Ex.A.8. Ex.A.10 is the notarized sworn affidavit of
Sri M. Mohan Reddy (defendant No.3) wherein he clearly states
on oath that he has purchased
A-schedule property and that he is proposing to mortgage the
same in favour of the plaintiff as a security. Ex.A.11 is a letter
dated 11.05.1999 executed by defendant No.3 in favour of the
plaintiff confirming the fact that on 11.05.1999 he has created
a mortgage over the A-schedule property with an intention that
the same shall be security for the lease finance of Rs.202 lakhs
availed from the plaintiff.
20. Similarly, Ex.A.12 is a registered sale deed dated
15.04.1986 in favour of defendant No.5 which is deposited
with the plaintiff with an intention to create a mortgage.
Ex.A.13 is the encumbrance certificate No.528 of 1999 for the
period from 23.03.1982 to 23.04.1999. It shows no
encumbrances or other sales except Ex.A.12. Ex.A.14 is the
power of attorney executed by G.J. Mohan Rao-defendant No.6
in favour of defendant No.3. This is the registered power of
attorney by which defendant No.6 authorized defendant No.3 to
deposit his title deeds on his behalf for the finance of Rs.202
lakhs being availed from the plaintiff. In addition, defendant
No.6 also executed a sworn affidavit dated 08.05.1999
confirming the fact that he has valid title and is proposing to
mortgage the property as security being the finances availed.
Defendant No.3 as the power of attorney holder for defendant
No.6 executed a confirmatory letter dated 11.05.1999
confirming the deposit of title deeds. There is a similar set of
documents marked as Exs.A.17 to A.20 for deposit of title
deeds for C-schedule property by defendant No.6. Defendant
No.6 also executed a power of attorney (Ex.A19) in favour of
defendant No.3 wherein the loan transaction with plaintiff and
the need to deposit the title deed as security for the loan of
Rs.202 lakhs is also discussed. His agent is authorized to
mortgage the property, as security for the finances being
extended. It is thus clear that the three title deed dated
15.04.1986 were deposited on 11.05.1999 and confirmatory
letters were also executed confirming the creation of the
equitable mortgage.
21. In contra distinction to this, it is the contention of the
defendants/appellants that by the date of creation of the
mortgage on 11.05.1999 the said three items of property were
already conveyed and sold by the said 3 three persons
(mortgagors) in favour of DW.6 on 25.04.1994. The certified
copies of these three sale deeds dated 25.04.1994 are marked
as Exs.B.10 to B.12. Therefore, the contention of the learned
counsel for the appellants is that neither defendant No.3 nor
others have any title to the property on the date on which the
mortgage was created.
22. DW.6-Smt. G. Bujjamma the alleged owner of the A to C
schedule properties was residing with the contesting defendant
and she is the mother of defendant No.9. As pointed out by the
learned counsel for the respondents, Smt. G. Bujjamma was
examined as DW.6 but she did not choose to implead herself in
the suit to protect her interest in the property. DW.6 also
filed an appeal against the impugned judgment and decree
dated 24.10.2007 in this Court.
The said appeal was numbered as CCCA (SR) No.15691 of
2011. Along with the same, she filed a Miscellaneous Petition
No.596 of 2013 to condone the delay of 1320 days in filing her
appeal. This Court vide its order dated 23.07.2015 dismissed
the application to condone the delay. While dismissing, it is
noticed that no valid reasons are given to condone the delay
and the affidavit is also silent as to how the petitioner came to
know about passing of the impugned order. It is also noticed
that she did not make any attempt to implead herself in the
suit. Therefore, the application was dismissed and the appeal
was also consequently rejected. No further steps were taken
by DW.6 and order dated 23.07.2015 has attained the finality.
23. In addition to the above, it is important to note that if
DW.6 was really owner of the property, she should have been
in custody of the original documents viz., Exs.A.8, A.12 &
Ex.A.17 sale deeds. In the evidence, only the certified copies
were filed while the recital in the deed so that the originals are
delivered to her. Her examination as DW.6 also does not
clearly show that she is a genuine purchaser. In the affidavit in
lieu of the chief examination, she states that she acquired the
properties for valuable consideration under 3 sale deeds dated
25.04.1994. But in her cross-examination, she does not give
any answer in support of the said sales. She is not even aware
for which the suit is filed. She also states that since her son-in-
law defendant No.3 did not refund some amount the suit is
filed. She states that the property tax is paid by defendant
No.3 on her instructions. She further states that the suit
schedule property stands in her name in the municipal records
but she did not produce the tax receipts to show her
possession. She also admits that she does not know where the
original sale deeds of Exs.B.10 to B.12. She also admits that
she has taken all the link documents pertaining to the suit
schedule property after registration of Exs.B.10 to B.12. She
denies the suggestion that she did not pay the sale
consideration of Exs.B.10 to B.12.
24. Exs.B.10 to B.12 are certified copies of sale deeds said to
have been executed in favour of G. Bujjamma.
The originals are not produced and no satisfactory explanation
is given for marking the secondary evidence. These documents
were marked through Mrs. Pratima Reddy (defendant No.9),
who was examined as DW.4.
On 10.09.2007 itself an objection was taken by the counsel for
the plaintiff about the competence of DW.4 to mark these
exhibits. The learned Judge received these documents after
noting down the objections on 10.09.2007 and marked these
documents subject to proof and relevancy. The learned
counsel for the plaintiff also cross-examined the witnesses
about the originals of Exs.B.10 to B.12; about the property tax
being paid by DW.2 and also drew the attention of the
witnesses to the fact that the encumbrance certificate filed
namely Exs.A.9, A.13 and A.18 do not reflect the transactions
supposedly covered by Exs.B.10 to B.12.
25. It is pertinent to note as pointed out by the learned
counsel for respondents that despite the cross-examination,
neither the tax receipts nor the originals were produced when
G. Bujjamma was examined as DW.6 on 01.10.2007. After
DW.4 was examined, DW.5 was also examined and the issues
relating to Exs.B.10 to B.12 were raised in the chief and cross-
examination. Question about the right/title of Mrs.Bujjamma
were posed to this witness. It was also suggested to the witness
that Exs.B.10 to B.12 were sham documents created in the
name of fictitious persons. Despite this sequence, DW.6, who
was the last witness examined did not give any convincing
reasons for failure to produce clinching evidence of her
title/possession and to justify that these sale deeds ExsB.10 to
B.12 were genuine. The lower Court also rightly observed that
mere marking of the document is not proof of contents of the
document. It is well settled law that when the proof of contents
of the document is an issue the author of the document or the
attestor or a person connected with the execution of the
document is to be examined to prove the contents of the same.
Mere marking is not proof of contents. Thus, this Court is of
the opinion that Exs.B.10 to B.12 are not validly proved.
26. In addition, an ex facie reading of these three documents
Exs.B.10 to B.12 also does not inspire confidence and there
are extrapolation and corrections in the documents which are
not satisfactorily explained. For example, in Ex.B.10 sale deed
document No.2309 of 1994 executed by G.J. Mohan Rao in
favour of G. Bujjamma, there are certain matters scored off in
page-5 and the sale consideration is mentioned as
Rs.8,50,000/-. The amounts supposedly receivable by them in
page-7 are struck off and the receipt of a sum of Rs.2,50,000/-
is acknowledged in page-7. In page-8 the sale consideration is
mentioned as Rs.9,50,000/-, which is supposedly received by
the vendor as aforementioned. There are no details of the
receipt of the money as stated in the sale deed. The same is the
case with the other two sale deeds also. Critical and important
aspects are scored out or blackened with ink. Thus, these
three sale deeds do not inspire much confidence and the
evidentiary value of these three sale deeds will have to be
weighed against the exhibits Exs.A.8 to A.11 (A-schedule),
Exs.A.12 to A.16 (B-schedule) and Exs.A.17 to A.20 (C-
schedule) seen in the total perspective . The defendants 3, 5
and 6 executed the sworn affidavit and letters confirming the
deposit of title deeds in May 1999 where they clearly averred
and stated that they have a subsisting right and title to the
property and that they are depositing the title deeds with an
intention to create mortgage.
27. The lower Court also thoroughly analyzed the causes and
in fact framed additional issue No.3 for this. The lower Court
gave 12 reasons why these documents are not acceptable. The
lower Court came to the conclusion that Exs.B.10 to B.12 are
not valid executed documents and that therefore, the
mortgators viz., defendants 3, 5 & 6 had valid title to the A, B &
C schedule properties on the date of creation of the mortgage.
This Court does not see any reason to disagree with the
findings of the lower Court on this issue.
28. It is important to note that the appeal is filed only by Mrs.
M.Pratima Reddy, M. Rohit Reddy and Mrs. Nitya Reddy, who
are defendant Nos.9, 10 and 11 in the suit. The other
defendants in the suit did not challenge the findings of the
lower Court relating to them. Therefore, the issue whether
defendant No.2 is a Director of the defendant No.1- company
or not and whether defendant Nos.1 to 7 have personal liability
or not is not really necessary for the purpose of decision in this
appeal. Nevertheless, the evidence on record clearly
establishes that defendant No.2 is a Director of the defendant
No.1-company. Exs.13 and 14, which are the copies of the
annual returns of the defendant No.1-company clearly show
that defendant No.2 is a Director. In addition, Ex.A.31 is a
cheque dated 11.07.199 which was marked through D.W.1-
K.Hanumanth Rao clearly shows that he is Director of the
company.
29. The other issues are about the personal liability of the
defendants. Learned counsel for the appellants has pointed out
that there is a contradictory finding of the lower Court with
regard to the liability of the present appeals. While deciding
additional issue No.5, whether defendant Nos.9 to 11 have got
any personal liability, the lower Court clearly held that
defendant Nos.9 to 11 are not liable to pay the debt as they are
Directors of the company. However, in operative portion of the
judgment, the Court decreed the suit against defendant Nos.9
and 10 only holding that they are personally liable.
30. In view of the fact that defendant Nos.9 to 11 are the
Directors of the company and are not the guarantors, they
cannot be held to be personally liable on the basis of their
status as Directors of the company. They were also brought on
record as the legal representatives of defendant No.3. However,
the Court came to a conclusion that defendants Nos.9 and 10
have misappropriated the money that was advanced to the
company and were part of the fraud perpetuated by DW.3. The
Court, therefore, came to a conclusion that defendant Nos.9
and 10 are liable to pay the suit debt.
31. This finding of the lower Court is challenged by the learned
counsel for the appellants, who contends that defendant Nos. 9
and 10 cannot be made liable for the suit debt and that it runs
contrary to the very concept of a limited company wherein the
Directors liability is limited. The lower Court came to this
conclusion that defendant Nos.9 and 10 are liable to pay the
debt on the ground that they were part of the fraud
perpetuated by defendant No.3. Fraud is a matter which has
to be specifically pleaded as per order VI Rule 4 of C.P.C.
There should also be a clear proof of the fraud. The plaint was
initially filed in the year 2000 and defendant Nos.9 to 11 were
impleaded as the legal heirs in the year 2006. Neither in the
original plaint nor in the amended plaint is there any pleading
on the fraud supposedly perpetuated by the defendant Nos.9
to 11. A reading of para 22 of the plaint also makes it clear
that the suit is filed for enforcement of the mortgage and for
recovery of money against defendant Nos. 1 to 3 and 7 only
due to the fraudulent misappropriation. There is no prayer for
a personal decree on the ground of fraud perpetuated by
defendant No.3 or his legal representatives defendant Nos.9 to
11. Directors of a company are liable for fraud on the basis of
tort and not under the company law unless they sign a
guarantee deed or the like. The plaintiffs should therefore
plead and prove that defendant Nos.9 to 11 were part of the
fraud supposedly perpetuated by defendant No.3. As there
are no requisite details either in the plaint or in the evidence, a
personal decree cannot be passed against defendant Nos.9 to
11. However, the estate of the deceased defendant No.3, if any,
in the hands of defendant Nos.9 to 11, is definitely liable for the
satisfaction of the debt, as defendant No.3 is a guarantor for
the debt.
32. The defendant No.1-company and its assets are liable for
the suit debt. Defendants Nos.2 and 4 as the guarantors are
personally liable for the payment of the decretal amount and
their liability as guarantors is coextensive with the liability of
defendant No.1- borrower.
33. No personal decree can be passed against defendant
Nos.6, 7 and 8 as they are not mortgagors or guarantors. As
far as defendant Nos.9 to 11 are concerned, they are also not
personally liable.
34. The last question that survives for consideration is,
whether the finding of the lower Court in issue No.2 (b) is
correct or not?
35. The lower Court while deciding issue 2 (b) held that the
plaintiff has to execute the decree by selling the mortgaged
property first and if the sale consideration is not sufficient, the
plaintiff can proceed against the defendants personally. It is
this finding that is assailed by learned counsel Sri Srinivas
Chitluru for the respondents, who argued that he cannot be
precluded from proceeding simultaneously against the
property and also the guarantors.
36. The learned counsel for the respondents relied upon a
judgment reported in State Bank of India v. M/s. Index Port
Registered and others , wherein the Honble Supreme Court
held that if the decree in question is a composite decree
wherein there is both a personal decree and a decree for sale of
the property without any limitation on its execution, the decree
holder, in principle, cannot be forced to first exhaust the
remedy by way of execution of the mortgage decree alone.
37. There is considerable force in the submission of the
learned counsel for the respondents and hence this Court is of
the opinion that the finding that the plaintiff has to first execute
the decree and sell the mortgage property alone is not correct.
The plaintiff is at liberty to proceed against the mortgaged
property and also against the persons held personally liable to
pay the suit debt and need not wait for the sale of the
mortgaged property before proceeding against the guarantors
etc.
38. In the result, the appeal is allowed in part and a
preliminary decree is passed holding that:
(a) the plaintiffs/respondents in the appeal are entitled to
recover suit amount with costs and subsequent interest
at 6% per annum from the date of suit till realization.
Two months time is given for redemption.
(b) the plaintiff can execute the decree without first having to
proceed against the mortgaged property alone.
(c) that the defendant Nos.2 and 4 are personally liable for
the suit debt along with defendant No.1-company.
Defendants 6, 7, 8, 9, 10 and 11 are not personally liable
for the suit debt.
(d) the assets of the defendant No.1-company are liable for
the decretal amount. Similarly, the estate of the deceased
defendant No.3 in the hands of defendant Nos. 9 to 11 is
liable for the same.
(e) The respondents are entitled to the costs throughout.
39. Miscellaneous Petitions, if any, pending in this appeal
shall stand closed.
_____________________
SURESH KUMAR KAIT, J
____________________
D.V.S.S. SOMAYAJULU, J
Date: 14.11.2017
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