ON Civil Appeal No 652 of 1966
Appeal by special leave from the judgment and order dated November 23 1964 of the Kerala High Court in AS No 502 of 1961
SV Gupte Anantha Krishna lyer section Balakrishnan and R Thiagarajan for the appellant
HR Gokhale JS Arora and K Baldev Mehta for the respondent
The High Land Bank Kottayam of which the
appellant MC Chacko was the Manager had an overdraft account with the Kottayam Bank
KC Chacko father of the appellant had executed from time to time letters of guarantee in favour of the Kottayam Bank agreeing to pay the amounts due by the High Land Bank under the overdraft arrangement
By the last letter of guarantee dated 22nd January 1953 KC Chacko agreed to hold himself liable for the amounts due by the High Land Bank to the Kottayam Bank on the overdraft arrangement subject to a limit of Rs 20000
The Kottayam Bank Ltd filed a suit in the court of the Subordinate Judge of Kottayam against the High Land Bank for a decree for the amount due in the account
To this suit were also impleaded KC Chacko the guarantor MC Chacko Manager of the High Land Bank and MC Joseph Kuriakose Annamma and Chinnamma the last three being the son daughter and wife respectively of KC Chacko
Against the High Land Bank the claim was made on the footing of the overdraft account against KC Chacko on the letter of guarantee and against M C Chacko his brother his sister and his mother as universal donees of the property of K C Chacko under a deed dated June 21 1951 under which it was claimed a charge was created on the properties to which the deed related and against MC Chacko also on the claim that he had personally agreed to pay the amount due by the High Land Bank
During the pendency of the suit KC Chacko died and the suit was prosecuted against his widow
660 daughter and sons who were described also as his legal representatives
The trial court decreed the suit against the High Land Bank and also against MC Chacko limited to the property received by him from his father under the deed dated June 21 1951
The claim of the Kottayam Bank to enforce the liability under the letter of guarantee personally against KC Chacko was held barred by the law of limitation and on that account not enforceable against his heirs and legal representatives
The Court also rejected the claim that MC Chacko had personally agreed to pay the amount due under the overdraft arrangement
In appeal to the High Court by MC Chacko the decree C passed by the trial court was confirmed and the cross objections filed by the State Bank of Travancore with which the Kottayam Bank was merged claiming that MC Chacko was personally liable were dismissed
This appeal with special leave is preferred by MC Chacko against the decree of the High Court
Two questions arise in this appeal 1 whether under exhibit D 1 a charge is created in favour of the Kottayam Bank to satisfy the debt arising under the letter of guarantee and 2 whether the charge assuming that a charge arises is enfforceable by the Bank when it was not a party to the deed Ex
D 1 is called a deed of partition in truth it is a deed
whereby KC Chacko gave the properties described in the Schedule A to MC Chacko and other properties described in Schs
B to F to M C Chacko MC Joseph Annamma and Chinnamma
In paragraph 17 it is recited I have no debts whatsoever
If in pursuance of the  letter given by me to the Kottayam Bank at the request of my eldest son Chacko for the purpose of the High Land Bank Ltd Kottayam of which he is the Managing Director any amount is due and payable to the Kottayam Bank that amount is to be paid from the High Land Bank by my son Chacko
If the same is not so done and any amount becomes payable by me as per my letter for that my eldest son Chacko and the properties in Schedule A alone will be answerable for that amount
 The other paragraphs which deal with the properties in Schedule A may also be referred to
Paragraph 10 of the deed recited The donees of the properties included in A B and C schedules are as from this
date to be in possession of their respective properties and to get mutation of 661 registry in their names pay land revenue and enjoy the income save that from cocoanut trees
 By paragraph 12 it was declared that notwithstanding the deed of partition KC Chacko will take the income from the cocoanut trees standing on the properties included in Schedules A B C and F till his death and that the donees of the properties will take and enjoy the income from the cocoanut trees in their respective properties after his death
In paragraph 13 it was recited that As it is decided that Chinnamma  should receive and have for her maintenance the rent of the building in item 7 in the A schedule as well as the rent of the building in item 18 of the B schedule she is to be in possession of these buildings as from this date and is to let them out and enjoy the rent
The respective donees will have possession and enjoyment after her death
Chinnamma is to have full rights and liberty to reside in any of the houses included in A B or C schedule and so long as she so resides in any of the houses the donees of the respective houses is to meet all her expenses
The rent collected by Chinnamma from the buildings given possession of to her is to be utilised by her for her private expenses as she pleases
 In our judgment the various covenants in the deed
were intended to incorporate an arrangement binding between the members of the family for  satisfaction of the debt if any arising under the letter of guarantee
We are unable to agree with the High Court that by cl 17 of the deed it was intended to create a charge in favour of the Kottayam Bank for the amount which may fall due under the letter of guarantee
The letter of guarantee created merely a personal obligation
The deed exhibit D 1 was executed before the last letter of guarantee dated January 22 1953
By cl 17 of exhibit D 1 it is merely directed that the liability if any arising under the letter of guarantee shall be satisfied by MC Chacko and not by the donor his son M C Joseph his daughter Annamma and his wife Chinnamma
The reason for the provision in the deed is clear
MC Chacko was the Managing Director of the High Land Bank Ltd and it was at the instance of M C Chacko that the letters of guarantee were executed by the donor
For creating a charge on immovable property no particular form of words is needed by adequate words intention may be expressed to make property or a fund belonging to a person charged for payment of a debt mentioned in the deed
But in order that a charge may be created there must be evidence of intention disclosed by the deed that a specified property or fund belonging to 662 a person was intended to be made liable to satisfy the debt due by him
The recitals in cl 17 of the deed do not evidence any intention of the donor to create a charge in favour of the Kottayam Bank they merely set out an arrangement between the donor and the members of his family that the liability under the letter of guarantee if and when it arises will be satisfied by MC Chacko out of the property allotted to him under the deed
The debt which MC Chacko was directed by the deed to satisfy was not in any sense a family debt
It was a debt of KC Chacko and KC Chacko was personally liable to pay that debt
After his death his sons his daughter and his widow would be liable to satisfy the debt out of his estate in their hands
From the recitals in the deed Ext
D 1 an intention to convert a personal debt into a secured debt in favour of the Bank a third person cannot be inferred
In Akalla Suryanarayana Rao  Others vs Dwarapudi Basivireddi  Others1 the Madras High Court in construing a deed of partition of joint family property pursuant to a compromise decree held that properties allotted to certain branches to which were also allotted certain debts with a stipulation that until the debts were fully discharged the properties allotted to the shares of the respective persons shall be liable in the first instance were not subject to a charge in favour of the creditors
The Court held that the covenant in the partition deed resulted in a contract of indemnity and not a charge
In the present case also the covenant that MC Chacko will either personally or out of the properties given to him satisfy the debt is intended to confer a right of indemnity upon other members of the family if the Kottayam Bank enforced the liability against them
and created no charge in favour of the Bank
Clauses 12 and 13 of the deed support that view
By el
12 the right to the coconut trees standing in the properties included in Schs
A B C and F is reserved to KC Chacko
Similarly Chinnamma wife of KC Chacko is permitted during her lifetime to occupy the houses in the properties described in the three schedules and to recover the income and to utilise the same for herself
It is clear that KC Chacko had no intention to create a charge or to encumber any of the properties for the debt which may become due to the Bank
The Kottayam Bank not being a party to the deal was not bound by the covenants in the deed nor could it enforce the covenants
It is settled law that a person not a party to a contract cannot subject to certain well recognised exceptions enforce the terms of the contract the recognised exceptions are that beneficiaries under the terms of the contract or where the contract is a part of the family arrangement may enforce the covenant
In 1 ILR 55 Med
663 Krishna Lal Sadhu vs Primila Bala Dasi1 Rankin CJ observed Clause d of section 2 of the Contract Act widens the definition of consideration  so as to enable a party to a contract to enforce the same in india in certain cases in which the English Law would regard the party as the recipient of a purely voluntary promise and would refuse to him a right of action on the ground of nudum pactum
Not only however is there nothing in section 2 to encourage the idea that contracts can be enforced by a person who is not a party to the contract but this notion is rightly excluded by the definition of promisor  and promisee 
 Under the English Common Law only a person who is a party to a contract can sue on it and that the law knows nothing of a right gained by a third party arising out of a contract Dunlop Pneumatic Tyre Co vs Selfridge  Co 2
It has however been recognised that where a trust is created by a contract a beneficiary may enforce the rights which the trust so created has given him The basis of that rule is that though he is not a party to the contract his rights are equitable and not contractual
The Judicial Committee applied that rule to an Indian case Khwaja Muhammad Khan vs Husaini Begam3
In a later case Jaman Das vs Ram Autar4 the Judicial Committee pointed out that the purchaser s contract to pay off a mortgage debt could not be enforced by the mortgagee who was not a party to the contract
It must therefore be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement no right may be enforced by a person who is not a party to the contract
Even if it be granted that there was an intention to create a charge the Kottayam Bank not being a party to the deed could enforce the charge only if it was a beneficiary under the terms of the contract and it is not claimed that the Bank was a beneficiary under the deed exhibit D 1
The suit against MC Chacko must therefore be dismised
The decree passed by the High Court is modified and it is declared that MC Chacko is not personally liable for the debt due under the letter of guarantee executed by KC Chacko nor are the properties in schedule A allotted to MC Chacko under the deed dated June 21 1951 liable to satisfy the debt due to the Kottayam Bank under the letter of guarantee
1 ILR 2  3 1910 37 IA 152
4 1911 39 IA 7
14 Sup CI69 13 664 Having regard to the circumstances of the case and specially that a concession that persons not parties to a contract may enforce the benefit reserved to them under the contract was made before the High Court we direct that the parties to this appeal will bear their respective costs throughout
YP  Decree modified


Summary:
A bank of which the appellant was the Manager had an overdraft account with another bank which later merged with the respondent
The appellant s father had executed from time to time letters of guarantee holding himself liable for the amount under the overdraft arrangements
The appellant s father executed a deed giving away his properties to the appellant and other members of the family
The deed recited that he had executed the letters of guarantee at the request of the appellant and that the amount due to the Bank was to be paid by the appellant but if any amount had to be paid by him father as per the letter of guarantee the appellant and the properties allotted to him were to be answerable for that amount
The creditor bank filed a suit against the debtor bank and also against the appellant and his father s other heirs and legal representatives for the amount due under the overdraft arrangement and claimed that a charge was created on the properties to which the deed executed by the father of the appellant related
The trial court decreed the suit against the debtor bank and also against the appellant limited to the property received by him from his father under the deed but held that the claim to enforce the personal liability of the father against his legal representatives was barred by the law of limitation
The High Court confirmed the decree
On the questions i whether under the deed a charge was created in favour of the creditor bank to satisfy the debt arising under the letter of guarantee and ii whether the charge assuming that a charge arose was enforceable by the creditor bank when it was not a party to the deed HELD i In order that a charge may be created there must be evidence of intention disclosed by the deed that a specified property or fund belonging to a person was intended to be made liable to satisfy the deed In the present ease the recitals in the deed did not evidence any intention of the donor to create a charge in favour of the creditor bank they merely set out an arrangement between the donor and the members of his family that the liability under the letter of guarantee if and when it arose will be satisfied by the appellant out of the property allotted to him under the deed
The letter of guarantee Created merely a personal obligation and an intention tO convert a personal debt into a secured debt in favour of the Bank a third person could not be inferred from the recitals in the deed
Akalla Suryanarayana Rao  Ors
vs Dwarapudi Basivireddi 659 ii Even if it be granted that there was an intention to create a charge the creditor bank not being a party to the deed could not enforce its covenants
It must be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement to right may be enforced by a person who is not a party to a contract
662 H Krishna Lal Sadhu vs Pramila Bain Dasi ILR  referred to