SRI BALASARASWATHI Vs. A PARAMESWARA AIYAR

JUDGEMENT

(1.) THESE are three connected appeals against the judgment and decrees of the subordinate Judge of Tirunelveli in O. S. Nos. 131 of 1950 and 101 of 1951.

(2.) THE facts were briefly these: One Subbiah Ayyar of Kesavasamudram was a banker doing business in money-lending. He used to take deposits from persons, including widows and orphans, at an attractive rate of interest, said to be ranging from 7 1/2 per cent to 9 per cent per annum, and lend out the moneys so borrowed to busowners and others, at 12 per cent, compound interest per annum, with yearly rests, such bus owners etc. , making high profits and being ready to give such interest which he considered to be quite reasonable in the circumstances. One Sadagopal Naidu, the second defendant in both the suits, and his brother, Srinivasaga Naidu, the third defendant in O. S. No. 101 of 1951 and not a defendant in the other suit, were running some buses even early in 1945, having contracted loans from Subbiah Aiyar and purchased five buses. The loans thus contracted by the brothers with interest amounted to Rs. 65240-10-4 on 17th august 1945, as shown in Ex. A-l, the pass book relating to the debit and credit transactions opened by Subbiah Aiyar himself. On 17th August 1945, both of them agreed to pay Subbiah Aiyar the said sum of Rs. 65,240-10-4, with interest thereon at 1 per cent per month from that day. There was no stipulation for compound interest in that document, and it was only shown in the vaddi chittais, sent first to the brothers, and then to the company, and defendant 2, where compound interest was added not only with yearly rests but at odd and irregular intervals whenever Subbiah Aiyar calculated the balance due. These brothers were also carrying on a forest coupe contract business, a toddy business, and a trade in groceries. On 14th December 1945, the two brothers formed a private limited company called Balasaraswathi Ltd. . consisting only of two shareholders, via. , themselves, for running buses, as a G. O. current then required a company. Then they borrowed Rs. 1,40,000, from Subbiah Aiyar and purchased some 16 more buses and began operating a fleet of buses in the urban area of Tirunelveli district. Under the Articles of Association of this private limited company, the second defendant. Sadagopal, was the managing director and was en-titled to represent the company in all suits and legal proceedings and to contract debts and do all other necessary business of the company. On 1-1-1947, the two brothers, Sadagopal and srinivasaga, executed a promissory note, Ex. B-ll, in favour of Subbiah Aiyar for rs. 3,97,671-7-7, the sums advanced, with compound interest added at irregular intervals till that day, and promised to pay the said amount with 1 per cent, interest per month. Here too, there was no stipulation for compound interest, though it was actually charged at irregular intervals by Subbiah Aiyar later on. On 16-8-1947, Rs. 1,26,400 was paid by the two brothers to Subbiah Aiyar, and this payment was endorsed on Ex. B-ll soon after this, Srinivasaga filed a partition suit, O. S. No. 37 of 1947, on the file of the Sub-court, Tirunelveli against his brother Sadagopal. On 10-12-1947, this suit was compromised, under Ex. A-3, between the brothers. One of the terms of the compromise was that Srinivasaga was to take for his share eleven buses and a lorry, and their routes, and to take over Rs. 2,62,000 out of the debt due to Subbiah Aiyar. This debt due to Subbiah Aiyar from the two brothers was first entered in a pass book, Ex. A-l, till the formation of the company on 14-12-1945, and thereafter in the pass book, Ex. A-6, and thereafter in another pass book Ex. A-7. In accordance with the arrangement to take over the debt of Bs, 2,62,000, out of the debt due to Subbiah Aiyar, srinivasaga Naidu executed a promissory note, Ex, A-5, for Rs. 2,62,000 to Subbiah Aiyar on 8-12-1947 itself, Subbiah Aiyar, of course, advancing that money by adjustment towards the money due to him from the first defendant company and tile two brothers, thereafter only looking to Srinivasaga for that portion of the debt. Srinivasaga Naidu has discharged that debt in full.

(3.) AFTER Srinivasaga Naidu had gone out of the company, of which he was a director and a shareholder, Sadagopal took in his wife, Sithalakshmi Ammal, as director and shareholder in his place. He continued his transactions with Subbiah aiyar. On 28-4-1950, Subbiah Aiyar died, leaving behind his widow, Vengu ammal, and seven daughters. On 18-6-1950, the second defendant, the managing director of the first defendant company, signed in a settlement of accounts in the pass book, Ex. A-7, acknowledging the balance of Rs. 1,76,989-14-11 as the principal amount due from him on that date. That has been treated in O. S. No. 131 of 1950 as a promissory note executed by him on behalf of the company and on behalf of himself. He also executed an agreement, Ex. A-8, to Vengu Ammal, undertaking personal liability for the amount. According to him, this agreement was executed in favour of the estate of subbiah Aiyar, though in the name of Vengu Animal. He had also pledged his life insurance policy of Rs. 75,000 to Subbiah Aiyar as collateral security for the debt due to him. He undertook to pay Vengu Ammal Rs. 100 per day from the net income of the bus services till 1-3-1951 towards the debts of Subbiah Aiyar acknowledged by him, and Rs. 150 per day after that date. But he paid only Rs. 3,500 under the daily payment system, and then defaulted.