JAGJIVANDAS JETHALAL Vs. KING, HAMILTON AND CO

JUDGEMENT

(1.) In this case the plaintiffs are suing to enforce an equitable mortgage of immoveable property situated at Dadar. It is, I think, quite clear from the plaint that the plaintiffs case is that the defendants as owners of the immoveable property in question created an equitable mortgage upon it as sureties for the firm of Sarda & Sons who were carrying on business in Calcutta and who owed money to the plaintiffs who were carrying on the business of banking in Calcutta. The defendants case, according to their written statement, was that in April 1922 the defendants applied to Sarda & Sons for a loan whereupon V.V. Sarda, a member of the firm, stated that he would negotiate with the plaintiffs for an overdraft to Sarda & Sons secured by a mortgage of the defendants Dadar property and they say that those negotiations broke down and that no loan resulted. It appears from the evidence of Krishnalal Gokuldas, who is a brother of defendant No. 2 and attends to his business, that in May 1922, an interview took place in Calcutta between the witness, defendant No. 1, Sarda and the plaintiffs, at which interview there was a discussion, putting it no higher, as to whether the plaintiffs would advance money to Sarda on the security of the defendants immoveable property. Having regard to the evidence of Krishnalal Qokuldas and to the subsequent correspondence I think that the defendants case that negotiations broke down and that no business resulted is a false one. I think it quite clear that the plaintiffs did, as a result of negotiations, of which this interview formed part, advance moneys to Sarda, and I think that they did so on the security of the defendants property. It may well be that the defendants themselves got part of the advance, but whether that is so or not, it is, I think, perfectly plain that the advance was made to Sarda & Sons as the principal debtors and that the defendants have never been treated as being personally liable for the debt. They are not so treated in the plaint and they are referred to as sureties in letters written by the plaintiffs solicitors. It appears that at the date of that interview in May 1922, Sarda & Sons were indebted to the plaintiffs. That appears from the account which is Ex. E. In May 1922 there was an indebtedness of rather over Rs. 20,000, and on May 25, 1922,- -a material date as I will show presently--a further sum of Rs. 10,000 was advanced by the plaintiffs to Sarda & Sons. Subsequently, as the account shows, substantial further sums were advanced, but the advances stopped on November 1, 1922, at which date there was a debt from Sarda & Sons to the plaintiffs of over Rs. 90,000. It further appears that at the date of this interview in May 1922 the position of the defendants with regard to the immoveable property at Dadar was this: The defendants are contractors and they had built some buildings on this property for a client named Vardhman Jetsey. The client had not paid the amount due to the contractors and the defendants accordingly had arranged to take over the client's interest in the property in payment of the debt. The client, however, had only a building agreement under which when the building was erected he would become entitled to a lease of the property from the Bombay Improvement Trust, and the only interest which the defendants had in the property in May 1922 was a right through their client Vardhman Jetsey to this building agreement and to get the lease when it was ultimately granted. The lease was in fact granted on February 27, 1923. On May 26, 1922, i.e., just after the interview at Calcutta, and I think undoubtedly as a result of that interview, defendant No. 1 wrote a letter to the plaintiffs in these terms:-- We have instructed our solicitors Messrs. Pandia & Co. of Bombay to make over the title-deeds of our property at Badar-Matunga Estate, Bombay, Plot No. 21, value Rs. 1,00,000, monthly rent Rs. 730, to Messrs. King, King & Co,, Bombay, to be held by you as a security against advances you may make to Messrs. Sarda & Sons, Calcutta. King, King & Co. of Bombay were the plaintiffs Bombay house. Further correspondence took place between the parties and on November 16, 1922, the defendants wrote a letter to the Estate Agent of the Bombay Improvement Trust in which they say: With reference to your letter No. E 21353 of 1922 dated September 6, 1922, addressed to Messrs. King, King & Co., Bombay, regarding Dadar- Matunga Estate, Plot No. 21, we hereby authorise you to forward the lease when completed to Messrs. King, King & Co., Bombay. We shall also be obliged if you will have the lease prepared as quickly as possible as it is urgently required. Acting upon that authority from the defendants the Improvement Trust did, on July 26, 1923, forward to the plaintiffs the lease of the property which had been previously granted, and they wrote a letter to the defendants solicitors pointing out that that had been done. The only other fact which, I think, it is material to mention is that in 1925 the plaintiffs sued Sarda & Sons in the High Court at Calcutta for the amount due, which was then Rs. 68,530-14, and a consent order was made in that action on June 12, 1925, decreeing payment of the amount due on the terms of an adjustment arrived at between the parties, that adjustment providing for payment of the amount due by instalments-- Rs. 15,000 to be paid within two months from March 12, 1925, and the balance by instalments of Rs. 2,000 per month commencing from March 1925.

(2.) Now on these facts the appellants take two points. They say, first of all, that the only facts which the Court has before it from which an equitable charge can be inferred are, first, that the defendants documents have been deposited with the plaintiffs and, secondly, that Sarda & Sons owed money to the plaintiffs, and they say that there is nothing to connect the deposit of the title-deeds of the defendants with the amount owing by Sarda except the letter of May 26, 1922; and that being so, they say that that letter creates or declares a title to immoveable property and therefore requires registration under the provisions of Section 17 of the Indian Registration Act, and as the document was not registered they say that it cannot be put in evidence and therefore thereis nothing to connect the deposit of the defendants title-deeds with the debt due from Sarda to the plaintiffs. I think there are two answers to that point. The first is that on the evidence it is proved, I think, apart altogether from the letter of May 26, that the advance to Sarda was made at the request of the defendants and that one can properly infer that the deposit which is subsequently proved was made in respect of that advance. Apart from that, however, I am myself disposed to hold that the letter of May 26, 1922, even if one has to look at it in order to connect the deposit of the defendants title-deeds with the advance made to Sarda, is not a document which requires registration under the Act. In order to bring the document within the Act it must purport or operate to create or declare an interest in immoveable. property. The immoveable property in question is the lease of the Dadar property which at the date of that letter did not exist, and which did not come into existence for nearly a year afterwards, and I fail to see how that letter could possibly have created or declared any interest in property, viz,, the lease which had no existence. The letter could only operate as a contract imposing upon the defendants an obligation to create a mortgage when they acquired the property to be mortgaged, and if that is so, the document does not fall within the operative words of Section 17 (1)(b), and on the other hand does, it seems to me, fall within the exception contained in Sub-section (2) of sub-paragraph (v). In my view, therefore, the appellants fail on their first point.

(3.) Their second point is this, that by reason of the consent decree of 1925 to which I have referred, time was given to the principal debtor and that the effect of that under the ordinary law was to release the surety, there being no evidence that the surety was in any way consulted and there being nothing in the consent order to keep the rights of the surety alive. Mr. Desai's answer to that is that the defendants here "were not sureties. He relies on Section 126 of the Indian Contract Act which provides that a "contract of guarantee " is a contract to perform the promise or discharge the liability of a third person in case of his default, and the person who gives the guarantee is called the surety . Mr. Desai says that here there was no personal obligation on the defendants to pay anything: they merely handed over their property as security, and that being so, there was no contract to perform the promise or discharge the liability of a third person. Then he says that in Section 135, which provides that a contract between the creditor and the principal debtor by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor discharges the surety unless the surety assents to such contract, the word surety must have the same meaning as in Section 126, and therefore a person who merely deposits the documents as security is not a surety within Section 135. There may possibly be something in that argument on the wording of the sections, but it has been held often that the Indian Contract Act is not exhaustive, and, therefore, one has to consider apart from the Act what the general law is.