Delhi High Court

Atul Anand vs Nanak Food Industries And Ors. on 2 August, 2006

Equivalent citations: IV (2006) BC 513, 132 (2006) DLT 481
Author: P Nandrajog
Bench: P Nandrajog

JUDGMENT Pradeep Nandrajog, J.

1. Present order disposes of IA No. 991/2004, being application filed by

defendants 1, 3, 4 and 5 under Order 37 Rule 3(5) CPC and IA No. 6906/2005
filed by defendant No. 2 under Order 37 Rule 3(5) CPC.

2. Needless to state, said defendants seek leave to defend.

3. I would also be dealing with the request of defendants 6 to 9 to discharge the

bank guarantees submitted by them pursuant to the order dated 8th January,
2004.

4. Before dealing with the 2 applications which seek leave to defend, I deal with
the request of defendants 6 to 9 for release of the bank guarantees.

5. Defendants 6 to 9 have no concern with the plaintiff. Suit filed by the

plaintiff was against Nanak Food Industries, a partnership firm and its 4
partners who were imp leaded as defendants 2 to 5.

6. On 24th August, 2001 defendants were restrained from alienating property

No. A-10/6, Vasant Vihar, New Delhi. The defendants 6 to 9 filed an
application registered as IA No. 11035/2002 seeking recall of the injunction
order stating that much before 24th August, 2001 when the restrain order was
passed, said defendants had entered into an agreement to sell for purchase of the
property and on 17.4.2001 requisite permission was obtained from the statutory
authorities under the Income Tax Act. That the agreement to sell was entered
into on 3.1.2001 for a total sale consideration of Rs. 8.33 crores out of which
Rs. 84 lacs were paid when agreement to sell was entered into and that balance
sale consideration in sum of Rs. 7.49 crores was paid at the time of execution of
the sale deed(s) on 27.8.2001. It was stated that on 21.8.2001 stamp papers in
sum of Rs. 66.64 lacs were purchased on which sale deed(s) was executed. They
stated that in view of the order dated 24.8.2001, Sub-Registrar was not returning
the sale deed(s) presented for registration on 27.8.2001.

7. Notwithstanding that the suit invokes Order 37 CPC, said defendants who
were not originally imp leaded as defendants later on came to be imp leaded as
defendants. Their application was disposed of with a direction that on furnishing
a bank guarantee by said defendants to secure the suit amount, sale deed which
was registered by the Sub-Registrar would be handed over to them.

8. Qua said defendants only issue which needs to be decided is whether they are
entitled to release of the bank guarantee furnished by them.

9. Law is clear on the subject and save and except noting one decision, I would
be wasting precious judicial time in unnecessarily elaborating on the issue.

10. In the decision reported as Vannarakkal Kallalathil Sreedharan v.

Chandramaath Balakrishnan and Ors. taking note of the Order 38 Rule 10 and
Section 64 Code of Civil Procedure 1908 as also Sections 40 and 54 of the
Transfer of Property Act, 1882 their Lordships of the Supreme Court held that
under a contract of sale entered into before attachment the conveyance although
after attachment, in pursuance of the contract passes good title to the purchaser
in spite of the attachment. It was further held that agreement for sale creates an
obligation attached to the ownership of property and since the attaching creditor
is entitled to attach only the right, title and interest of the judgment debtor, the
attachment cannot be free from the obligations incurred under the contract for
sale. Referring to Section 64 of the Code of Civil Procedure, 1908 it was held
that the said provision was intended to protect the attaching creditor, but if the
subsequent conveyance is in pursuance of an agreement for sale which was
before the attachment, the contractual obligation arising there from must be
allowed to prevail over the rights of the attaching creditor.

11. On facts it was noted that the attachment was effected on 16.11.1978 but the
agreement to sell was prior in point of time i.e. 9.10.1978. But, sale deed was
executed after 16.11.1978. It was held that the attachment could not affect the
right of the purchaser.

12. Similar view has been consistently taken by various High Courts. Since we
have an authoritative pronouncement from the Supreme Court, no useful
purpose would be served in noting the decisions of various High Courts on the
point.

13. The bank guarantee submitted on behalf of defendants 6 to 9 is accordingly

directed to be released by the registry of this Court and returned to said
defendants through their counsel on record.

14. Dealing with the main controversy, the suit in sum of Rs. 31,26,464/-
alleges that defendant No. 1 is a partnership firm and defendants 2 to 5 are its
partners. That at the request of the partnership firm, by way of loan, plaintiff
gave a sum of Rs. 20 lacs by cheque No. 172291 dated 25.6.1998 drawn on
Canara Bank. That the loan was to be returned in 10 monthly installments of Rs.
2 lacs each commencing from 25.7.1998. Interest @ 20% p.a. was to be paid.
Overdue interest @ 3% per month was payable in case of default. It is further
stated that 10 post dated cheques in sum of Rs. 2 lacs each payable on the 25th
day of each calender month from the month of July, 1998 till month of April,
1999 were issued.

15. Details of the said cheques issued by defendant No. 1 have been set out in
para 3 of the plaint.

16. For the interest to be paid, on reducing balance of the loan amount, it is
stated that 10 cheques dated 25th of each calender month effective from the
month of July, 1998 till the month of April, 1999 were issued as per details in
para 3 of the plaint. Since tax was to be deducted at source as per provisions
of Income Tax Act, interest reflected under the amount of cheque was minus the
TDS figure. Details of the cheques issued on account of interest as per para 3 of
the plaint are as under:

Date Amount (Rs.) TDS Net Amount

Cheque No.
25.07.1998 33,300.00 3,330.00 29,970.00
667881
25.08.1998 30,000.00 3,000.00 27,000.00
667882
25.09.1998 26,700.00 2,670.00 24,030.00
667883
25.10.1998 23.350.00 2,335.00 21,015.00
667884
25.11.1998 20,000.00 2,000.00 18,000.00
667886
25.01.1999 13,350.00 1,350.00 12,015.00
667887
25.02.1999 10,000.00 1,000.00 9,000.00
667888
25.03.1999 6,700.00 670.00 6,030.00
667889
25.04.1999 3,350.00 335.00 3,015.00
667890
17. It is stated that on behalf of defendant No. 1, defendants 3 and 4 executed a
promissory note promising to pay to the plaintiff, on demand a sum of Rs. 20
lacs together with interest @ 20% p.a. with overdue interest @ 3% per month.
Defendants 3 and 4 also executed separate deeds of personal guarantee in favor
of the plaintiffs on 25.6.1998. It is further stated that defendant No. 3 handed
over a cheque on 25.4.1999 bearing No. 846096 drawn on Bank of India.
Similarly, defendant No. 4 also handed over a personal cheque No. 04254 dated
25.4.1999 drawn on the Bank of India, Connaught Place. Both cheques were
drawn in favor of the plaintiff.

18. Plaintiff states that the cheques dated 25.7.1998 towards refund of the
principal sum and the interest for the first month were honoured by the banker
of defendant No. 1 but the second cheque towards repayment of principal and
interest, both dated 25.8.1998, were dishonoured with the remarks 'insufficient
funds'.

19. Stating that legal notice was served asking for clearance of the amounts due
since none was paid, plaintiffs filed the suit to seek recovery of the balance
principal sum of Rs. 18 lacs together with the accrued interest at the agreed rate.

20. Notwithstanding that the plaintiff has stated that the accrued rate of interest
was 20% per annum with a default that on monthly payments not being cleared
overdue interest would be @ 3% p.a., interest has been restricted @ 23% p.a
from the date of suit till realisation. While claiming the decree, plaintiff has
claimed interest at same rate on the balance principal sum payable. Thus, Rs. 18
lacs is the principal sum and Rs. 13,26,464/- is the pre-suit interest.

21. I may note that before the suit was filed, defendant No. 2 had died and his
wife being the legal heir has been brought on record. There is some controversy
as to date of death of defendant No. 2. But that is irrelevant in as much as the
plaintiff was not aware of the death of defendant No. 2. When summons were
sought to be served, it transpired that he had died. His wife was brought on
record as his legal heir as his sons were already a party. Wife of defendant No. 2
has filed IA No. 6906/2005 praying for leave to defend.

22. Seeking leave to defend, defendants 1, 3, 4 and 5 have stated that on

18.8.1995, 4.9.1998 and 17.9.2003 plaintiff received a sum of Rs. 2 lacs, 1.5
lacs and 1.5 lacs respectively in cash. That said amount was not reflected in the
plaint and therefore said defendants are entitled to leave to defend on said count.

23. Second ground urged is that except for 1st two cheques the other cheques
were never presented for encashment and hence suit does not lie.
24. Third ground on which leave to defend has been urged is that the loan is in
contravention of the Punjab Money Lenders Act as applicable in Delhi in as
much as plaintiff does not have the requisite license under the said Act.

25. Fourth ground taken is that since no equitable mortgage was created, suit
cannot be tried in Delhi. Fifth ground taken is that the rate of interest as claimed
was never admitted to be paid. Alternatively, it is prayed that the rate of interest
is against public policy.

26. defense taken by Balwant Kaur is that her husband had died when the suit
was filed and being filed against a dead person, suit against defendant No. 2 was
a nullity. She has stated that she was never a party to the loan agreement. On
merits she has taken a defense at par with other defendants. She has further
stated that the plaintiff has not pleaded having received any payment under the
promissory note and therefore the same could not be the foundation of the suit.

27. I fail to understand the pleas of the defendants pertaining to the so called
mortgage for the reason suit seeks a money decree and is not a suit for
foreclosure of the right to redeem a mortgage.

28. Head Office of defendant No. 1 is stated to be A-10/6, Vasant Vihar which
is also the residence of defendants 2 to 5. Thus, this Court would have territorial
jurisdiction to entertain the suit. Even otherwise the principal of law that a
debtor must pay the creditor at the place of his residence would confer
jurisdiction on this Court.

29. Turning to the second objection, cause of action pleaded in the plaint is in
para 18 which reads as under:

18. The plaintiff states that the cause of action firstly arose when the plaintiff
advanced the loan to defendant No. 1 on 25.6.1998, the documents detailed
above were executed on 25.6.1998, the defendants issued the post dated cheques
towards repayment of principal and the interest. It further arose when the
cheques dated 25.8.1998 presented for payment in the defendants account were
returned unpaid to the plaintiff by the defendants' Banker due to insufficiency of
funds. It arose further from time to time when the defendants failed to repay the
loan amount and the interest due to the plaintiff in spite of requests, demands
and legal notice dated 12.2.2001. The cause of action is continuing. The suit is
within limitation.

30. The cause pleaded is the loan advanced and its non repayment. To sustain
the cause, return of the cheques issued towards interest and second installment
is brought in aid. There was no use for the plaintiffs to present the other cheques
for payment as admittedly there was no money in the account with the bank on
whom the cheques were drawn.

31. Defendants have not denied the cheques issued by defendant No. 1. They
have not denied plaintiff's averments that there was no money in the account.

32. Plea of defendants 1, 3 to 5 that sum of Rs. 6 lacs was returned to the
plaintiff in cash cannot be accepted by this Court for the reason no receipt has
been produced or relied upon to justify the defense. I may note that the plaintiff
has denied that said sum was ever received.

33. Defendant No. 1 is engaged in business and I presume that said defendant
would be maintaining the records pertaining to monetary transactions. Under
the Income Tax Act vide Section 269SS no loan exceeding Rs. 20,000/- can be
received or given in cash, nor its repayment can be in cash if amount is beyond
Rs. 20,000/-. It is not pleaded that any receipt or voucher was signed by the
plaintiff when he received the money.

34. The plea of wife of defendant No. 2 that her husband died when suit was
filed and therefore suit against a dead person is not maintainable is untenable in
law for the reason where, ignorant of the death of a person, a suit is filed, legal
heirs can be brought on record subsequently, if not under Order 22 Rule 4 CPC,
under Order 1 Rule 10 CPC. It would be a case of a person, inadvertently not
imp leaded as a party and subsequently imp leaded as a party. For purposes of
limitation, Section 21 of the Limitation Act 1963 would come into
force. Section 21 reads as under:

21. Effect of substituting or adding new plaintiff or defendant.-

(1) Where after the institution of a suit, a new plaintiff or, defendant is
substituted or added, the suit shall, as regards him, be deemed to have been
instituted when he was so made a party.

Provided that where the court is satisfied that the omission to include a new
plaintiff or defendant was due to a mistake made in good faith it may direct that
the suit as regards such plaintiff or defendant shall be deemed to have been
instituted on any earlier date.

(2) Nothing in Sub-section (1) shall apply to a case where a party is added or
substituted owing to assignment or devolution of any interest during the
pendency of a suit or where a plaintiff is made a defendant or a defendant is
made a plaintiff.
The proviso which was not a part of the corresponding Section 22 of the
Limitation Act 1908 was inserted for the first time as a proviso to the
corresponding Section under the 1963 Act. Wife of defendant No. 2 has not
shown that omission to include her name as a defendant was not bona fide or
that the plaintiff was aware that her husband was dead when the suit was
instituted. I would therefore treat that the suit against wife of deceased
defendant No. 2 was instituted as on date when suit was filed. I am fortified in
the view which I had taken as per decisions of the Punjab and Haryana High
Court and Andhra Pradesh High Court reported as Joginder Singh and Ors. v.
Krishan Lal and Ors. and P.B. Rammohanreddy and Anr. v. Chintan Achaiah
and Ors.

35. The plea of the defendants that the suit is barred under the provisions of the
Punjab Registration of Money Lenders Act, 1938 on the ground that the
plaintiff does not have a license to act as a money lender is neither here nor
there for the reason defendants have nowhere pleaded in the applications
seeking leave to defend that the plaintiff was engaged in the business of money
lending. The Punjab Registration of Money Lenders Act, 1939 requires a person
to obtain a license to act as a money lender if the person is in the business of
money lending. It was for the defendants to have made specific averments that
the plaintiff was engaged in the business of money lending. The said Act does
not prohibit casual advancing of loan by a person to a third party. Casual loans
do not require a license.

36. On the issue of interest, the cheques towards repayment of interest have not
been denied as being issued by defendant No. 1. The sums reflected in para 3 of
the plaint evidence that the defendant No. 1 agreed to pay interest @ 20% per
annum.

37. Promissory note executed by defendant No. 3 and 4 on behalf of defendant

No. 1 has not been denied. It reads as under:

On demand, we NANAK FOOD INDUSTRIES, represented by its partners

Mr.Shivraj Singh and Mr.Omkar Singh having its office/Dairy at KH No. 2/17
and 2/23, Vill-Karawal Nagar, Delhi-94, hereby promise to pay Mr.ATUL
ANAND, 8, VILL. HAUZ KHAS, NEW DELHI, on order a sum of Rs.
20,00,000/- (Rupees Twenty Lakhs only) with interest @20% per annum
(Overdue Interest @3% per month over and above normal rate of interest)
payable monthly backended on the principal amount received on 25th June,
1998. The principal repayment will be in 10 monthly installments of Rs. 2 lakh
each starting from 25-07-98 as per detail given in annexure-1 attached.
38. Personal guarantees given by defendant No. 3 and 4 also record that loan
taken by the firm was at interest @20% per annum with 3% per month rate of
default interest. I do not find the interest as contrary to public policy.

39. All partners are jointly and severally liable for the dues of the partnership
firm and therefore defendants No. 2 and 5 as partners are equally liable
notwithstanding that they have not given personal guarantees. Wife of deceased
defendant No. 2 being his legal heir is equally liable but only in respect of the
estate of the deceased inherited by her, which issue has to await adjudication
during execution.

40. No friable issues have been raised by the defendants.

41. The defense is nothing but a moon shine.

42. The IAs are dismissed.

CS(OS) No. 1710/2001 Suit is decreed as prayed for. Pendente lite and post
decretal interest on the principal sum of Rs. 18 lacs is awarded to the plaintiff
@21% per annum.

Plaintiff would be entitled to costs.