IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE C.T.RAVIKUMAR FRIDAY, THE 27TH FEBRUARY 2009 / 8TH PHALGUNA 1930 AS.No. 680 of 1994() -------------------- OS.143/1991 of SUB COURT, QUILANDY .................... APPELLANT(S)/PLAINTIFF: -------------- SYNDICATE BANK, MAIN BRANCH, FORT ROAD, KANNUR, THROUGH THE BRANCH MANAGER, KANNUR. BY ADVS. SRI.S.V.BALAKRISHNA IYER, SENIOR ADVOCATE SRI.K.JAYAKUMAR RESPONDENT(S)/DEFENDANTS: --------------- 1. M/S. TYRE SAVER FLAPS, MINI INDUSTRIAL ESTATE, MATTANNUR, REPRESENTED BY ITS MANAGING PARTNER. 2. O. PADMANABHAN NAMBIAR, S/O. T. NARAYANA KURUP, MANAGING PARTER, M/S. TYRE SAVER FLAPS, KANNUR. 3. MRS. T.V. NANI AMMA, W/O. PADMANABHAN NAMBIAR, PARTNER, M/S. TYRE SAVER FLAPS, KANNUR. 4. C. DEVIKUTTY AMMA, W/O. LATE GOVINDAN NAIR, CHATHOTH, MEPPAYYUR. ADVS. SRI.R.K.MURALEEDHARAN FOR R4 SRI.G.MOHAN FOR R2 & R3 SRI. M.K. ABOOBACKER -R4 THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 12/01/2009, THE COURT ON 27.2.2009 DELIVERED THE FOLLOWING: P.R. RAMAN & C.T. RAVIKUMAR, JJ. --------------------------------------------------------- A.S. NO. 680 OF 1994 --------------------------------------------------------- Dated this the 27th day of February, 2009 JUDGMENT Ravikumar, J. The appellant - plaintiff, a body corporate constituted under the provisions of the Banking Companies (Acquisition and Transfer of Under takings) Act, 1970 filed O.S. No.143 of 1991 before the Sub Court, Quilandy for recovery of money. The respondents herein were the defendants in the suit. The parties are hereinafter referred to in this judgment in accordance with their status in this appeal. 2. Respondents 2 and 3 who are the partners of the first respondent - firm applied for a loan from the appellant - bank for the purpose of rehabilitation of the sick partnership unit which was dealing with the manufacture of rubber based products. Accordingly two loans were sanctioned. An amount of Rs.96,771/- was advanced on 10.6.1989 as per loan account No. OSL/SSI-31/89 and an amount of Rs.1,00,874/- was advanced as per loan account No. OSL/SSI-30/89. On the same day of receipt of the said amounts, they executed receipts in favour of the A.S. NO.680/1994 2 appellant-bank acknowledging receipt of the said amounts. Towards the first loan, they had agreed that the amount would be debited at the rate of Rs.1,800/- per month and towards the second loan at the rate of Rs.3,060/- per month till the entire loan was discharged. In respect of both the loans, they had executed articles of agreement agreeing to repay the amount by way of interest at the rate of 10% per annum and in case of default, it was agreed that the amount by way of interest which remains unpaid could be added to the loan amount and could be treated as the principal amount. The fourth respondent executed the same as a surety and deposited the title deeds in respect of an extent of 59 3/4 cents comprised in R.S. No.13/4 in Muyippoth amsom described as plaint A schedule. She deposited the title deeds in respect of the said property with the intention to create an equitable mortgage on the said property by way of security towards the aforesaid loan amounts. The respondents committed default in repayment and, therefore, on 24.1.1991 notices were issued to them. Respondents 1 to 3 did not respond to the notices whereas the fourth defendant sent a reply on 19.3.1991 admitting the deposit of the title deeds in respect of the aforesaid property about 9 years ago to create an equitable mortgage in favour of the appellant - bank and agreeing to be a co-obligant for the respondents. It was further stated in the reply notice that the appellant -bank obtained a decree against the respondents in O.S. A.S. NO.680/1994 3 No.26 of 1985 of the Sub Court, Badagara on 8.9.1986 for a sum of Rs.1,20,675.23 with interest at the rate of 15% per annum. The second respondent made her to believe that the decree thus obtained by the appellant - bank would not be executed if she agreed to sign certain fresh loan papers for the purpose of closing the debt due under the decree in O.S. N o.26 of 1985. It was under such circumstances that she along with the second respondent went to the appellant- bank where she was made to put her signature in several papers, some of which were printed and some others were blank. Based on the said contentions she had stated in the reply notice that she had no intention at all to deposit the title deeds in respect of the property mentioned above as security for the purpose of the loan mentioned above and that she had no intention to create an equitable mortgage. Contending that the aforesaid contentions of the 4th respondent are incorrect and further that the 4th respondent had agreed to be a surety for respondents 1 to 3 and deposited the title deeds with the bank with full knowledge and consent and moreover, with an intention to create an equitable mortgage in respect of plaint A schedule property as security for the two loans advanced to respondents 1 to 3 and, therefore, all the respondents are jointly and severally liable to pay the loan amount, the appellant - bank filed the above suit. According to the appellant, the transaction was purely commercial and, therefore, the bank is entitled to A.S. NO.680/1994 4 future interest at the contractual rate. These are the plaint averments. 3. After entering appearance, respondents 1 to 3 preferred not to file written statements whilst the 4th defendant filed her written statement and contested the matter. She contended that the suit is not maintainable and she had also denied execution of articles of agreement. According to the 4th defendant, she has not deposited any title deeds in respect of 59 3/4 cents of land comprised in R.S. No.13/4, described as plaint A schedule, in respect of the plaint claim. She had no intention to create an equitable mortgage in respect of that property in favour of the appellant - bank. Her written statement is in conformity with her stand revealed vide reply dated 19.3.1991. According to her, besides the second respondent, the officials of the plaintiff - bank had also made her to believe that her signature was necessary for closing the loan account due as per the decree in O.S. No.26 of 1985. The Manager of the appellant - bank got her signature on several printed and blank papers and she was not aware of the contents of those papers and they were not read over to her. She had also specifically denied the plaint averments that she put her signatures in the loan papers as a surety and that a charge was created relating to plaint A schedule property. In short, she contended that it was on account of fraud, collusion, misrepresentation between the second respondent and A.S. NO.680/1994 5 the appellant and also mistake of facts that she happened to put her signature in the loan papers. In view of the said contentions, she sought for dismissal of the suit. 4. Considering the rival contentions, the trial court framed the following issues: i. Whether the suit is barred by res judicata on account of the decision in O.S. 26 of 1985 before the Hon'ble Subordinate Judge of Vadakara? ii. Whether the 4th defendant has deposited her title deeds in respect of 591/4 cents in R.S. No.13/4 in Muyippoth amsom by way of mortgage or the plaint claim? iii.Whether the 4th defendant has executed any agreement as alleged in the plaint? iv.Whether the transaction implicating the 4th defendant is not due to fraud and collusion and is not executed due to mistake of facts, false representation and misrepresentation? v. Whether the 4th defendant is liable for any amount as per the plaint? vi.What order as to costs? The evidence in this case consists of the oral testimonies of PW.1 and A.S. NO.680/1994 6 DW.1. Exts.A1 to A30 were marked on the side of the appellant/plaintiff and Exts.B1 to B3 were marked on the side of the respondents/defendants. Issue No.(i) was struck off by the trial court as no plea was raised in the written statement regarding the question of res judicata. Issue Nos. 2 to 5 were considered jointly. 5. As stated earlier, the 4th respondent alone contested the suit. She adduced evidence to the effect that she was made to believe by the second respondent as also by the officials of the plaintiff - bank that her signature is necessary for closing the account in respect of the amount covered by the decree in O.S. No.26 of 1985 and that it was for that purpose she went to the bank along with the second respondent. She had also deposed that it was with the said belief that she had put her signatures in the printed and blank papers. It was also deposed that she had no intention to create an equitable mortgage and, therefore, it cannot be said that she had deposited the title deeds in respect of the plant A schedule property to create an equitable mortgage in respect of that property as security for the amount covered by the loan accounts mentioned in the plaint. The contention of the 4th respondent that there was no deposit of title deeds and that she was not having any intention to create an equitable mortgage in favour of the appellant- bank in respect of A.S. NO.680/1994 7 the plaint claim was accepted by the trial court. Accordingly, the court below held that the 4th respondent cannot be made liable for any amount due to the appellant - bank towards the plaint claim. Thereupon, a decree was passed only against respondents 1 to 3 for Rs.2,90630.95 with interest at the rate of 15% per annum from 11.12.1991 till realisation and costs. 6. The appellant preferred this appeal against the said judgment and decree of the trial court dated 23.3.1994 in so far as the 4th respondent was absolved of the liability for the plaint claim. The appellant contended that the trial court ought to have held that the 4th respondent had deposited her title deeds in respect of 59 3/4 cents in R.S. No.13/4 in Muyippoth amsom Muyippoth desom by way of mortgage for the claim raised in the plaint. It is the further contention of the appellant that the trial court ought to have held that the 4th respondent had executed an agreement as stated in the plaint and that there was no fraud and collusion in getting the 4th respondent execute the document. It is also contended that the court below had failed to see that the very contention of the 4th respondent regarding misrepresentation and fraud was against the second respondent and not against the appellant - bank. According to the appellant, there was no justifiable reason for the trial court to hold that A.S. NO.680/1994 8 when the 4th respondent put her signature in the loan documents, she had no intention to deposit the title deeds relating to plaint A schedule property to create an equitable mortgage in respect of that property. The appellant has also raised the contention that the court below has failed to see the effect of Section 21A of the Banking Regulation Act and that the court below ought to have granted a decree for realisation of the amount by sale of the plaint A schedule property. In short, it is the contention of the appellant that the court below was not justified in restricting the decree only against respondents 1 to 3 and that a personal decree ought to have been passed against the 4th respondent as well. In the circumstances, the following points arise for consideration: i. Whether the 4th respondent had deposited the title deeds in respect of 59 3/4 cents of land in R.S. No.13/4 in Muyippoth amsom Muyippoth desom (described as plaint A schedule) to create an equitable mortgage in favour of the appellant - bank in respect of that property by way of security towards the loan amounts advanced by the bank as per loan account Nos. OSL/SSI-31/89 and OSL/SSI- 30/89? ii. Whether there is fraud and collusion or false and misrepresentation by the appellant - bank to get the 4th respondent to execute the documents ? A.S. NO.680/1994 9 iii.Whether the 4th respondent is to be made liable for the plaint claim? 7. The second and third points will arise for consideration only if the answer to the first point is in the affirmative. It is an admitted case that the title deeds in respect of plaint A schedule property was earlier deposited by the 4th respondent with the appellant - bank with the intention to create an equitable mortgage in respect of the loan availed of by the respondents 1 to 3 from the appellant - bank from which the claim covered by the decree in O.S. No.26 of 1985 of the Sub Court, Badagara arose. Now, as regards the present case, Exts.A1 and A2 are the articles of agreement relating respectively to loan account Nos. OSL/SSI-31/89 and OSL/SSI-30/89. In Exts.A1 and A2, the 4th respondent was described as the surety and her signature was also seen affixed. Exts.A9 and A10 are the receipts executed by respondents 1 to 3 in favour of the appellant - bank in token of the receipt of the loan amounts, one for Rs.96,771/- and the other for a sum of Rs.1,00,874/-. Exts.A1 and A2 contain a recital to the effect that the borrowers who are respondents 2 and 3 were in need of money for the purpose of rehabilitation of the sick partnership unit and on their request vide applications dated 10.2.1989 for Rs.96,771/- and for Rs.1,00,874/-, the appellant - bank agreed to grant a loan for the said A.S. NO.680/1994 10 amount upon the terms set forth in Exts.A1 and A2 and other documents listed in the third schedule therewith as also in other such documents collectively referred to as security documents. Each of the pages in Exts.A1and A2 bears the signature of the 4th respondent. Admittedly, the 4th respondent did not dispute her signatures in the said documents and at the same time denied their execution. In page No.5 of Ext.A1, there is a column in the third schedule for entering the details under the caption 'brief particulars of property secured by instrument'. In the said column, what is entered is 59 3/4 cents in R.S. No.73/4 of Muyippoth Amsom Muyippoth Desom valued Rs.94,000/-. Ext.A2 is the articles of agreement in respect of the loan amount of Rs.1,00,874/-. Identical recitals seen in Ext.A1 are seen in Ext.A2 as well with variation only in respect of the amount requested and agreed to be granted. In Ext.A2 also the 4th respondent has affixed her signature in all the pages. As in the case of Ext.A1, in page No.5 of Ext.A2, the third schedule contains the column for making entry regarding the brief particulars of property secured by instrument and what is entered therein is '59 3/4 cents in R.S. No.73/4 of Muyippoth Amsom Muyippoth Desom valued Rs.94,000/-'. 8. It is thus evident that both Exts.A1 and A2 carry the signatures of the 4th respondent in the status as surety. At the same time, entry under A.S. NO.680/1994 11 the column for 'brief particulars of property secured by instrument' given under the third schedule in page 5 of Exts.A1 and A2 would reveal that the instrument thereunder is pertaining to the property having an extent of 59 3/4 cents in R.S. No.73/4 of Muyippoth Amsom Muyippoth Desom valued Rs.94,000/-. The plaint would reveal that the A schedule property is comprised in R.S. No.13/4 of Muyippoth Amsom Muyippoth Desom. Can these incongruities be taken as simple mistakes especially in the light of the specific contention of the 4th respondent that she did not put her signatures in any document pertaining to the plaint claim with the intention to create an equitable mortgage in respect of her property comprised in R.S. No.13/4 of Muyippoth Amsom Muyippoth Desom? Admittedly, the title deeds in respect of her property comprised in R.S. No.13/4 of Muyippoth Amsom Muyippoth Desom was already with the bank and the same was deposited at the time when the loan which is the subject matter in O.S. No.26 of 1985 was availed of by respondents 1 to 3. 9. Requisites of mortgage by deposit of title deeds are specifically given under Section 58 of the Transfer of Property Act and the Honourable Apex Court in the decision reported in A.I.R. 1965 S.C. 430 held that such requisites are (i) a debt, (ii) a deposit of title deeds and (iii) an intention that the deeds shall be security for the debt. In the said decision, A.S. NO.680/1994 12 it was observed that whether there is an intention that the deeds shall be security for the debt is a question of fact in each case and the same has to be decided on presumption and oral/documentary or circumstantial evidence. It be the position, the question to be considered is whether the 4th respondent had deposited her title deeds in respect of the property comprised in R.S. No.13/4 of Muyippoth Amsom Muyippoth Desom as security for the debt. Her definite case is that she had deposited the title deeds in respect of the said property at the time of the earlier transaction of respondents 1 to 3 with the appellant - bank when she stood as surety. According to her, the second respondent made her to believe that for the purpose of getting back the said title deeds so deposited, she had to put her signatures in certain papers. The further case of the 4th respondent is that the Manager of the appellant - bank asked her to put signatures on printed and blank papers and that the contents of the printed papers were not read over to her. Ext.A18 is a reply notice sent by Adv. Jayadeep Jayachandran to one Sri. Karunakaran Nambiar and it is significant to note that in Ext.A18 there is specific denial that the title deeds were deposited towards the loan transaction referred to in the lawyer notice issued by the appellant and that the 4th respondent has not mentioned anything therein to indicate that she had an intention to deposit the title deeds with the appellant - bank to create an equitable mortgage towards the loan A.S. NO.680/1994 13 transaction referred to in the plaint. 10. Exts.A7 and A8 were also taken into consideration by the trial court for arriving at a decision in regard to the question as to the liability of the 4th respondent. Exts.A7 and A8 are letters which are purported to be letters of undertaking issued by the 4th respondent to the appellant - bank undertaking to produce the encumbrance certificate of the property for the subsequent period. In both Exts.A7 and A8, the signatures of the 4th respondent are seen put in two places. It is true that it raises a suspicion and also lends support to the case of the 4th respondent that her signatures were obtained by the officials of the bank in printed and blank papers. It is the case of the 4th respondent that it was the then Manager of the appellant - bank who made her to put her signatures in printed and blank papers. PW.1 was an officer of the appellant - bank in the recovery section. He had deposed that he was the Manager of the appellant - bank since 1991 and that he had not seen the 4th respondent earlier and that it is only from the records maintained by the bank that he happened to know about the putting of signatures by the 4th respondent in the loan documents in favour of the bank. He was confronted with Exts.B1 to B3. Ext.B1 dated 22.10.1984 is a letter of the Syndicate Bank to the respondents regarding the debt balance due, Ext.B2 dated 30.11.1984 is a A.S. NO.680/1994 14 copy of the registered lawyer notice sent by one Advocate Narayanan to the respondents and Ext.B3 dated 8.9.1986 is the registration copy of the judgment in O.S. No.26 of 1985 on the file of the Sub Court, Badagara. On being so confronted, PW.1 admitted that those documents related to prior loan transaction granted by the appellant - bank in favour of respondents 1 to 3 and that no execution petition was filed by the appellant - bank to realise the decree debt in O.S. No.26 of 1985. PW.1 has also deposed to the effect that whenever the bank grants loan to a customer, the bank used to obtain encumbrance certificate upto the date of the loan pertaining to the property offered as security. Exts.A24 and A25 are the encumbrance certificates relating to the property offered as security in the transaction which is the subject matter in O.S. No.26 of 1985 and they pertain to the period upto 1981. He would also admit that no encumbrance certificate relating to the property of the 4th respondent for the period from 1981 to 1987 was produced by the 4th respondent before the appellant - bank. He had also deposed that as per Ext.B3, the property scheduled is 53 1/4 cents in R.S. No.73/4. Admittedly, the appellant - bank had not cared to examine the then Manager of the bank to give evidence as to what had transpired at the time of taking the signatures of the 4th respondent in the loan papers and also did not care to clarify the said incongruities. The suspicious circumstances emerged would A.S. NO.680/1994 15 definitely make non-examination of the then Manager of the bank during the period the said loan amounts were sanctioned and disbursed or any other competent officer who could satisfactorily give explanation to clear off suspicious circumstances vital and detrimental to the case of the appellant. It adversely and detrimentally affects the appellant's case in as much as the second respondent had not come forward to deny the contentions of the the 4th respondent. 11. There cannot be any doubt that mere putting of signature in a document cannot and will not amount to admission of the execution of that document. According to the appellant - bank, the appearance of the signatures of the 4th respondent in all the pages of Exts.A1 and A2 would undoubtedly show that she had executed the said documents as a surety and that it would further establish that she had executed the same with the intention to create an equitable mortgage in respect of plaint A schedule property. The oral testimony of the 4th respondent would undoubtedly reveal that she had admitted the putting of signatures and according to her she had put signatures only on blank and printed forms. Moreover, she had specifically denied execution of the said documents with a view to create an equitable mortgage in respect of plaint A schedule property. Exts.A1 and A2 would reveal that the property offered as security is 59 3/4 A.S. NO.680/1994 16 cents comprised in R.S. No.73/4 of Muyippoth Amsom Muyippoth Desom. At the same time, the description of plaint A schedule property in the plaint would reveal that it is comprised in R.S. No.13/4 of the said amsom and desom. It is obvious from the deposition of PW.1 that the property scheduled in Ext.B3 is 53 1/4 cents in R.S. No.73/4 of Muyippoth Amsom Muyippoth Desom. 12. Taking into consideration the totality of the circumstances, the case of the 4th respondent cannot be brushed aside without legally acceptable and reliable contra evidence from the appellant - bank. As stated earlier, the appellant - bank succeeded only in proving that the 4th respondent had put the signature in Exts.A1 and A2. The same cannot absolve its onus to prove that the 4th respondent had executed Exts.A1 and A2 with the intention to create an equitable mortgage in respect of the property comprised in R.S. No.13/04 in Muyippoth Amsom Muyippoth Desom (plaint A schedule property) as security in respect of the aforesaid loans and that in pursuance of such execution with such intention, she had deposited/redeposited the title deeds in respect of the