THE HON’BLE SRI JUSTICE V.V.S.RAO APPEAL SUIT NO.2417 OF 1987 06.08.2010 Between: Tamil Nadu Handloom Weavers Cooperative Society Limited Represented by Marketing Officer …. Appellant AND M.Satyanarayana Chetty And others. … Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO APPEAL SUIT NO.2417 OF 1987 JUDGMENT: This is plaintiff’s appeal against the Judgment and Decree dated 24.02.1987 in O.S.No.80 of 1976 on the file of the Court of the Additional Subordinate Judge, Tirupathi. The appellant is Tamil Nadu Handloom Weavers Cooperative Society Limited. The suit was filed for recovery of a sum of Rs.2,01,011.08/-. The Court below by impugned Judgment partly decreed the same for a sum of Rs.50,428.19/- with interest 6% per annum. The suit was originally filed against first defendant and his father second defendant. After death of second defendant, defendants 3 to 8 were brought on record. The plaintiff is a Society registered under Tamil Nadu Cooperative Societies Act having its Head Office at Madras and regional marketing office at Vijayawada. It is engaged in marketing handloom fabrics to Sales Emporea in India. First defendant was appointed as an agent under an agreement, dated 12.05.1975. As a surety, second defendant deposited title deeds duly executing a Memorandum of Deposit of Title Deeds on 16.05.1975. Under the agreement, first defendant is required to sell the fabrics and deposit the daily sale proceeds in the plaintiff’s Bank. The agreement also provides for credit sales to Government and quasi Government employees but the dealer has to maintain account of credit sales. The plaintiff supplied handloom fabrics but first defendant failed to account. The audit revealed that there are huge stock deficit and an amount of Rs.2,01,011.08 ps., was due as on 14.12.1976. Therefore, the plaintiff got issued a registered notice dated 08.09.1976 and terminated the agency/dealership on 02.11.1976. On 14.12.1976, the office of the first defendant was taken possession by the plaintiff allegedly in his presence, thereafter suit was filed for recovery of money being the value of deficit stock. First defendant filed written statement contending that the agreement is against public policy and equitable being one sided that notice of termination was not issued and that there is no misappropriation by him. He further alleges that he could not recover the credit bills as the plaintiff issued hand bills (pamphlets) advising customers and general public that the first defendant seized to be their agent and not to pay any amounts to him. He could not verify the account books as plaintiff seized all of them. He also alleged that on 14.12.1976 the servants of the shop entered into the shop when he was not present and made a list of stocks. If there is any misappropriation, it is by the servants of the plaintiff. He also alleges that his commission was not paid on the sales made prior to 14.12.1976. The second defendant filed written statement denying the execution of Memorandum of Deposit of Title Deeds and execution of promissory note as alleged as a collateral security. Based on the pleadings, the Court below framed three issues, namely, (i) whether the first defendant is not entitled to create equitable mortgage in favour of plaintiff; (ii) whether the second defendant has not created an equitable mortgage in favour of plaintiff as pleaded in paragraph 5 of the written statement of the second defendant; and (iii) whether the plaintiff is entitled to suit claim? The plaintiff Society examined three witnesses, P.W.1 to P.W.3 and marked Exs.A.1 to A.90. The first defendant gave evidence as D.W.1 besides examining his employee as D.W.2. Exs.B.1 to B.4 were marked on behalf of defendants. Considering the evidence, the trial Judge recorded findings as follows. There is no equitable mortgage created by second defendant. The plaintiff prevented customers from paying to first defendant by issuing hand bills (pamphlets), and therefore, the credit amount due from customers cannot be recovered. Plaintiff failed to prove the deficit of stocks and plaintiff proved their case only to the extent of Rs.50,428.19/-. In this appeal, counsel for appellant/plaintiff submits that Exs.A.70, A.71 read with A.83 conclusively establish that defendant is liable to pay the insurance charges and the same was partly denied. He nextly contends that when plaintiff’s claimed Rs.1,98,272.73 ps., towards credit sales, lower Court wrongly allowed an amount of Rs.12,082.39 ps., and that hand bills issued by the plaintiff cannot have any effect on first defendant nor they prevented him from collecting credit bills. He also submits that on 14.12.1976, when the list of stocks was prepared first defendant was very much present, and therefore total value of the stocks is a relevant consideration for arriving at the amount due. Lastly, he contends that there was valid mortgage by second defendant. Though the notices are served, none appears for the respondents (defendants). In the background of pleadings and submissions made before this Court, two points would arise for consideration. Whether there was a valid equitable mortgage created by second defendant? And whether the plaintiff proved, on probabilities, the amount due from the first defendant as an agent/dealer of the plaintiff. Insofar as first point is concerned, Exs.A.2 to A.17 are relevant documents. No evidence was let in by the legal representatives of the deceased second defendant to explain as to why Exs.A.2 to A.17, the title deeds regarding immovable property came to be in possession of the plaintiffs’ managers. Therefore, the deposit of these documents cannot be disputed. Nevertheless, P.W.1 himself admitted that the documents were obtained from second defendant towards performance guarantee for limited period. Admittedly, by 16.08.1976 or 12.05.1975, there was no debt due by first defendant to plaintiff and therefore, the question of creating equitable mortgage would not arise. Even according to Ex.A.1, which is an agreement executed between plaintiff and first defendant, security for faithful performance of the terms and conditions was called for and it is not intended to create a mortgage of immovable property enabling the plaintiff to recover the amounts in future. Therefore, on the first point, it must be held that there was no valid and binding equitable mortgage created by second defendant. Under Ex.A.1, first defendant was required to furnish security for faithful performance, and therefore, there was no intention for creation of equitable mortgage. Insofar as second point is concerned, it is not denied that plaintiff issued Ex.B.1 hand bill/notice to customers that the first defendants it not agent. It is in all probability disabled first defendant from collecting credit bills and therefore, when the sales were made, there is bound to be stock deficit. Secondly, in his evidence, D.W.1, first defendant, denied Ex.A.48. That was an important document on which reliance was placed by the plaintiff, which itself is doubtful. The plaintiff filed the suit for recovery of deficit as on 31.01.1976 in a sum of Rs.1,422.78/-, stock deficit as on 30.06.1976, Rs.1,783.23/-, deficit stock as on 14.12.1976 Rs.34,499.95/-. P.W.1 to P.W.3 deposed that D.W.1 has misappropriated the stocks or failed to prove the sales on record, which resulted in deficiency. If only the plaintiff had to prove the total quantity of stock supplied and the deficiency of the stock in the time and/or at the time of preparing stock list on 14.12.1976, the plaintiff ought to have marked various invoices or LRs or delivery challans under which stocks were supplied. The evidence of P.W.1 to P.W.3 itself shows on all probabilities plaintiff itself is not clear as to the stock actually supplied and the amounts due. A suggestion was made to P.W.3 that in all probability, the sales may not have been brought on record. Therefore, the plea of misappropriation cannot be accepted. Considering the evidence, especially the letters exchanged between plaintiff and first defendant, the Court below determined the amount due towards stocks deficits and credit sales due at Rs.50,428.19/- to the extent plaintiff proved the case and insofar as other amounts are concerned, as rightly pointed out by Court below there was no acceptable evidence. Further, it is an admitted case of the parties that the first defendant was permitted to sell the fabric to Government and quasi Government employees on credit basis and admittedly plaintiff did not make any efforts to recover the amounts from those customers, who obtained fabric on credit basis. In that view of the matter, there is no reason to interfere with the findings of the Court below. The appeal is accordingly dismissed confirming the Judgment and decree of Court below. _______________ (V.V.S.RAO, J) 06.08.2010 pln