SARASWATHI AMMAL Vs. KOTTAYAM BANK LTD

JUDGEMENT

(1.) These two appeals arise from the judgment and decree of the Kottayam District court in O.S. No. 72 of 1115. In that suit the Kottayam Bank Ltd., Kottayam (hereinafter in this judgment referred to as the Bank) sought to recover from defendants 1 and 2 the balance of three loans they advanced to defendant 1 on the security of some shares he had in two limited companies and on the strength of a letter of guarantee from defendant 2. Defendant 1 is defendant 2's son inlaw. The aggregate amount of the three loans came to Rs. 14,775 and each loan is evidenced by a promissory note executed by defendant 1. The first loan was for an amount of Rs. 5775, the second for Rs. 2400 and the third for Rs. 6600. The relative promissory notes are Ext. B, C and D and they are dated 11.9.1112, 14.9.1112 and 23.9.1112 respectively. Exts. B, C and D provide for payment of interest at 10 1/2 per cent per annum. One hundred shares of the Indian Iron and Steel Company Ltd., and two hundred shares of the Midland Rubber Company Ltd., were pledged with the Bank when the first loan was advanced. For the second loan the security given was two hundred shares of the Midland Rubber Company Ltd., and for the third two hundred shares of the Indian Iron and Steel Company Ltd. On the day the first loan was advanced (11.9.1112 corresponding to 23.4.1937) and before the advance itself was made defendant 2 gave a letter of guarantee to the Bank undertaking responsibility for all loans the Bank advanced to defendant 1 on promissory notes and on the security of shares in limited companies. The said letter of guarantee is Ext. A. No payment was made towards the transactions for very nearly 10 months and when the price of shares began to fall the Bank started pressing defendant 1 for payment. As however no response was made they issued notice, Ext. F (4.2.1938) demanding payment of all amounts due within 7 days and intimating defendant 1 that otherwise they would sell the shares and proceed to realise the balance. To this defendant 1 sent a reply Ext. E (7.2.1938) to the effect that he was endeavouring his best to close the transactions and that it would be inopportune to sell the shares at that time when the market was dull. Though the reply proceeds on the assumption that the Bank needed his permission to effect the sale it also contained a request to the Bank to refrain from taking any 'hasty and unsympathetic course'. Apparently the Bank did not want to precipitate matters and sent another letter Ext. VII (10.2.1938) stating that at the current price of the shares the loans far exceeded the value of the securities given and calling upon him to make some remittance to cover the margin. This defendant 1 did not comply with. The Bank however did not take any action for some further time. In October 1938 they caused lawyer's notice (Ext. IX) to be sent demanding settlement of these and other transactions defendant 1 had with them failing which they threatened they would take legal action. That threat was also not executed. However in August, 1939 they sold the 400 shares of the Midland Rubber Company Ltd., at the then market rate for Rs. 1125. Defendant 1 was informed of this sale as per Ext. F (18.9.1939). That letter also contained a demand to close the transactions by payment of the balance and that otherwise the remaining securities also would be sold and necessary action taken against him and defendant 2 for the balance that would be found due. Time allowed for payment was four days and no settlement taking place the remaining securities viz., the 300 shares of the Indian Iron & Steel Company Ltd., were also sold. This sale was on 28.9.1939 and it fetched Rs. 9349-12-0. Besides the amounts fetched by the two sales the Bank had realised dividends on the Indian Iron & Steel Co. Ltd., shares to the extent of Rs. 2097-14-0 and the suit giving rise to these appeals was brought to realise the balance from defendants 1 and 2. The balance claimed was Rs. 5420-11-9. Though the stipulated rate of interest was 10 1/2 per cent per annum the Bank claimed only 9 per cent.

(2.) Defendant 2 died soon after the suit was filed and his legal heirs were brought on the record as defendants 3 to 6. They are none other than defendant 1's wife (D.3) and children. The children are minors and their court guardian as well as defendant 1 contested the suit.

(3.) The main defence raised by defendant 1 was that the sale of the shares was unauthorised and without proper or reasonable notice to him and hence invalid. He contended that the shares were sold at very low price and that, had they been sold at proper prices besides satisfying the amounts due to the Bank there would also have been a large surplus. According to him it was a case of wrongful conversion and he put forward a counter claim for Rs. 6737-8-0. It was further contended that the debt being secured, under Act III of 1116 the Bank cannot claim more than 6 per cent interest per annum.