RAJAGOPALA AIYAR Vs. ANKRMRAMAN CHETTIYAR

JUDGEMENT

(1.) The appellant before us is defendant 3 in the suit which was brought to enforce a mortgage bond, Ex. A, dated the 20 May 1920, executed in favour of the plaintiffs by defendants 1 and 2 and by defendant 3's mother on his behalf as his guardian, he being then a minor. The plaintiffs who are the mortgagees under Ex. A, are the proprietors of four different firms which have their principal place of business at Madras. Their case is that each of the said firms had dealings with the firm of R. Rangaswami Ayyar & Sons which was carrying on business in Javuli or cloths at Madras having also a branch of the same business at Madura. The plaintiffs say that for the purposes of the trade of R. Rangaswami Ayyar & Sons, Hanumantha Ayyar who was the managing proprietor of the said business borrowed moneys from each of them from time to time and also purchased piece goods from them, and that in connexion with his Madura branch the said Hanumantha Ayyar also borrowed moneys from plaintiff 1 for purchasing a house at Madura and making additions and improvements thereto to make it suitable for the carrying on of the business and also for the residence of his family therein. As a result of the afore- said dealings the firm was indebted to all the four plaintiffs in the sum of about Rs. 25 000 at the time of Hanumantha Ayyar's death which took place at Madura about four days prior to the execution of the mortgage bond, Ex. A. On hearing of Hanumantha Ayyar's death the representatives of the four firms went to Madura for the purpose of realizing the amounts due to them from the firm of R. Rangaswami & Sons. That firm was an ancestral trading firm which was started by defendant's grandfather Rangaswami Ayyar, along with his two sons Hanumantha Ayyar and Ramaswami Ayyar, the father of defendant 3. Ramaswamy Ayyar died in 1909 and the business was thereafter continued by Ranagaswami Ayyar and Hanumantha Ayyar. Rangaswami Ayyar died in 1912 and the business was thenceforward conducted by Hanumantha Ayyar, on behalf of himself and his minor nephew, defendant 3. Hanumantha Ayyar had no son but left a widow who is defendant 2 in the suit. Defendant 1 was the sister's husband of Hanumantha Ayyar and he was managing the affairs of the business during the lifetime of Hanumantha Ayyar. The plaintiffs say that their representatives saw defendants 1 and 2 and the mother of defendant 3 and pressed them for immediate payment of the amount due to their firms by R. Rangaswami & Sons. The latter thereupon expressed their inability to comply with the plaintiffs demand for immediate payment and asked for time promising to discharge the debt in instalments out of the earnings of the firm and also offering as security a mortgage of the firm's properties. Thereupon an agreement for the liquidation of plaintiff's debts as per the terms set out in Ex. A, was entered into between the parties and the suit mortgage bond was executed by defendants 1 and 2 and defendant 3's mother as his guardian for the repayment of the Rs. 25,000 to all the plaintiffs jointly in the manner and subject to the terms provided therein.

(2.) The defendants made some payments for interest due on the mortgage bond but did not pay even a single instalment in respect of the principal amount. The suit was therefore brought for the recovery of the amount due on the bond by enforcing the mortgage security and also for a decree against defendants 1 and 2 personally. Defendant 3 was practically the only contesting defendant in the suit. Defendants 1 and 2 did not dispute the plaintiffs claim save as to the interest claimed, their plea on that point being that the stipulation in the mortgage bond as to interest was penal and therefore unenforceable. On behalf of defendant 3 his guardian for the suit denied the plaintiffs claim in toto. His case was that the business of R. Rangaswami, & Sons was an ancestral trading business of the family and that after death of the defendant 3s grandfather the only persons interested therein were defendant 3s paternal uncle Hanumantha Ayyar and defendant 3 and that on the death of Hanumantha Ayyar, defendant 3 became exclusively entitled to the business and its assets and that defendant 2 had only a right to maintenance out of the assets of the firm. Defendant 1 was only an employee of the firm under Hanumantha Ayyar and had no interest in the partnership but with the fraudulent intention of securing to himself an interest in the said business, he took advantage of the unfortunate position in which defendant 3's mother was then placed and got her to execute the suit bond on the false representation that she was only executing a power- of-attorney in his favour in order to enable him to carry on the business of the firm on behalf of the minor, defendant 3. The mortgage bond contains a false and fraudulent recital that defendant 1 was also interested in the business of R. R. & Sons and its assets as one of its partners. The plaintiffs for their own purposes colluded with defendant 1 in the fraud he practised on defendant 3's guardian. The suit mortgage was therefore not binding on defendant 3. Defendant 3's guardian also denied that any of the liabilities recited in the mortgage bond were in fact contracted by Hanumantha Ayyar for the purposes of the firm or that there was any necessity for the firm to contract such liabilities and that in any case there was any necessity for mortgaging defendant's (minor s) properties, as the debts, even if true and binding, could have been discharged out of the liquid assets of the firm. He also pleaded that the rate of interest stipulated in the bond was penal and unenforceable.

(3.) The issues raised in the case relate to the above contentions put forward on behalf of defendant 3. The learned Subordinate Judge has, after a careful consideration of the evidence, found all the issues in plaintiffs favour and given a decree for the plaintiffs as prayed.