Case: Margaret Lalita Samuel Vs. Indo Commercial Bank Ltd

The defendant in the action is the appel lant in this appeal by special leave. The respondent plaintiff is the Indo Commercial Bank Ltd., Madras, now taken over and represented by the Punjab National Bank. We will hereafter refer to the plaintiff as the Bank. In 1943 Kawasji Karanjia and Jai Karanjia and C. B. Samuel, husband of the defendant, floated a company known as the Modern Hindustan Food Products Ltd. at Poona. Jal Karanjia, C. B. Samuel and the defendant were Directors of the Company. The Company opened a current account with the plaintiff bank in 1943 which was later converted into an overdraft account with the maximum limit of Rs. 25, 000/-. By a subsequent arrangement dated 19th June, 1944, the limit of the overdraft account was raised to Rs. 10 lacs. C. B. Samuel, as Managing Director of the Company, executed a promissory note for Rs. 10 lacs and he and his wife Margaret Samuel (defendant) executed a guarantee Bond (Exhibit 57) by which they jointly and severally guaranteed to the bank the repayment of all money which shall at any time be due to the Bank from the Company on the general balance of their account with the bank, or on any account whatever. The guarantee was to be a continuing guarantee to the extent of Rs. 10 lacs at any one time. We will have occasion to refer to the terms of the bond in detail later. The overdraft facility was utilised by the Company and amounts were drawn from the Bank at various times. The Company ceased business on 30th June 19 46, and thereafter the Company entered into an arrangement with the plaintiff bank by which the plaintiff bank was authoroised to receive all amounts due from the Director General of Food Supplies, Government of India, or from any other person or Department and appropriate the sums collected towards the money due to the bank from the Company. An irrevocable power of attorney authorsing the bank to do so was executed by C. B. Samuel as Managing Director of the Company. All Bills and documents were accordingly handed over to the plaintiff bank for realisation of the amount due to the Company. C. B. Samuel died on 27th April 1951. By her letter Exhibit 55 dated 2nd February 1952, the defendant acknowledged her personal guarantee to repay to the plaintiff the sum of Rs. 2, 71, 531-8-6 which was stated to be the balance due to the plaintiff from the Company as on 31st December, 1951. Adding a sum of Rs. 21, 886-6 Ans-0 ps. by way of interest from 1st January 1952 till 30th September, 1953, and deducting a sum of Rs. 57, 964-14-6 said to be the amount recovered between those dates, the balance due on 8th November, 1954, was stated to be Rs. 2, 35, 453-1- 0. On 8th November, 1954 the present suit was filled by the Bank to enforce the guarantee bond against the defendant Margaret Samuel and to recover a sum of Rs. 1, 50, 000/- from her. It was stated in the plaint that a sum of Rs. 85, 453-1- 0 was remitted and the suit was laid to recover the sum of Rs. 1 , 50  , 000/- only. Alongwith the plaint an extract of the account subsequent to 1946 was filed.The defence of Margaret Samuel, to the extent that is relevant for the purposes of the present appeal, was that the suit was barred by limitation, that the letter dated 2nd February, 1952 was obtained from her by fraud and that she was, in any case, not liable to pay amounts disputed by her in paragraph 15 of her written statement. She also pleaded that the plaintiff had deliberately withheld produ ction of the accounts between 1943 to 1946 during which period most of the transactions took place and that if those accounts were produced she would be in a position to challenge other items as wellSoon after filing the written statement th e defendant filed an application in the Trial Court to direct the plaintiff to produce, among other documents, the accounts from 1943 onwards. The Trial Judge by his order dated 10th March 1955 directed the plaintiff to produce the documents within 2 weeks from the date. The plaintiff did not produce the documents within the time allowed. Subsequently, however, an extract of the accounts from 1943 to 1946 was produced on 1st September 1955, the date of hearing of the suit. On 10t h October, 1955, the defendant filed Exhibit 85, an application seeking a direction from the Court "that the plaintiff be allowed to produce any documentary evidence which they might possess in support of the items mentioned in the schedules even ti ll the time the evidence is finished and the defendant be allowed to deny, under the circumstances mentioned all the items mentioned in Schedule `B, with her explanation for the items". Alongwith the application the defendant filed t wo schedules, Schedule `A showing the items specifically denied by the defendant in her written statement and schedule `B showing the items which were denied by her after the accounts from 1943 to 1946 were produced in Court by the pla intiff. The application was opposed by the plaintiff. The Trial Court dismissed the application on the ground that it was belated. The Trial Court observed that if the defendant wanted to dispute any item from the accounts she should have got the accounts produced even before she filed the written statement. No doubt she had filed an application soon afterwards to direct the plaintiff to produce the accounts and other documents within two weeks, but when the plaintiff failed to p roduce the accounts within two weeks, she did not take any further action in the matter. Having failed to take steps to compel the plaintiff to produce the accounts earlier, the Court said, she could not seek to dispute the items after the plain tiffs had closed the evidence of their side. Thereafter the Trial of the suit was concluded.At the trial the plaintiff relied primarily upon Exhibit 55 the letter of acknowledgment dated 2nd February, 1952. This letter of acknowledgment, as a lready mentioned by us was alleged by the defendant to have been obtained from her by fraud. The learned Civil Judge found that the letter was not proved to have been obtained by fraud. He held that the defendant, who was a highly educated lad y, had subscribed her signature to Exhibit 55 fully knowing its contents. He, however, held that the suit was barred by limitation. The learned Civil Judge also held that there was no proper proof of the several debit items and that they were suspicious. The suit was, therefore, dismissedAfter remand the Trial Judge amended original issue No. 9 and added issue No. 9-A. He allowed the parties to lead evidence. The two issues which were tried by him were issues 9 and 9-A which were as follows:"9. Does plaintiff prove the items in dispute as given in the written statement and in Ex. 85 ?9-A. Does defendant prove that the debit entries are in respect of amounts which she is not liable to pay?"On an elaborate consideration of the evidence, the Trial Judge answered issue No. 9 in the affirmative and issue No. 9-A in the negative basing his conclusion primarily on Exhibit 99 a letter dated 30th June 1950, passed by the Company in favour of the bank acknowledging that the balance due at the foot of the over-draft account as on 30th June, 1950 was Rs. 4, 90, 523-5-7. The Trial Judge held that the letter of acknowledgement was binding on the defendant. The suit was decreed for a sum of Rs. 1, 50, 000/- with further interest and costsThe defendant preferred an appeal to the High Court of Bombay. The High Court considered the evidence relating to each item of debit in great detail and found that debit items amounting to Rs. 68, 761-7-0 were not provide to be binding on the defendant. As this amount with interest was less than the amount of Rs. 85, 453-1-0 which had been given up by the plaintiff in the plaint, the High Court affirmed the decree passed by the Trial Court. The finding of the High Court in regard to the various debit items were greatly influenced by a group of three letters Exhibit 104, dated 30th June, 1945, Exhibit 105 dated 27th November, 1 945 and Exhibit 106 dated 6th December, 1945 signed by the defendant herself as Director of the Company. On the basis of these three letters the High Court took the view that, substantially, all the entries of debit made prior to 1st December, 1945 must be held to have been proved.

Reasoning:
As already mentioned by us, the submission of Shri Bal was that every item of anoverdraft accountwas an independent loan, limitation for the recovery of which was determined by Article 57 of the schedule to the Limitation Act, 1908. Limitation, according to the learned Counsel, started to run from the date of each loan. He relied on Basante Kumar Mitra v. Chota Nagpur Banking Association Ltd, .(1) Brajendra Kishore Ray Chowdhury v. Hindustan Cooperative Insurance Society Ltd. National and Grindlays Bank Ltd. v. Tikam Chand Daga &Anr., and Uma Shankar Prasad v. Bank of Bihar Ltd. &Anr. In our view it is unnecessary for the purposes of the present case to go into the question of the nature of anoverdraftaccount. Thepresent suit is in substance and truth one to enforce the guarantee bond executed by the defendant. In order to ascertain the nature of the liability of the defendant it is necessary to refer to the precise terms of the guarantee bond rather than embark into an enquiry as to the nature of anoverdraftaccount.Exhibit 57 is the guarantee bond executed by the defendant and her husband on 23rd October, 1944. It is addressed to the Indo-Commercial Bank Ltd., Madras, and is in the followingIn consideration of your having agreed to allowoverdraftaccommodation upto Rs. 10, 00, 000/- (Rupees Ten Lakhs only) to the Modern Hindustan Food Products Ltd., Poona, we, C. B. Samuel and M. L. Samuel, the undersigned do hereby jointly and severally guarantee to you, the Indo-Commercial Bank Limited the repayment of all money, which shall at any time be due to you from the said Modern Hindustan Food Products Ltd., on the general balance of their accounts with you or on any account whatever (such balances to include all interest, charges, commission and other expenses which you may charge as bankers) and also the due payment at maturity of any promissory note or other negotiable instrument on the security or in respect of which any credit or advance shall be madeAnd we hereby declare that this guarantee shall be a continuing guarantee to the extent at any one time for Rs. 10, 00, 000/- (Rupees Ten Lakhs only) and shall not be considered wholly or partially satisfied by the payment at any one time or at different times of any sums of money due on such general balance of account but shall extend and cover and be a security for every and all further sums at any time due to you thereon. And we further declare that you may grant to the Modern Hindustan Food Products Ltd., any indulgence without discharging our liability."The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach, under Article 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J. C. Shah, J., speaking for the Courtn the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever ..... We are not concerned in thi s case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond ........ We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained a live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."We agree with the view expressed by Shah, J. The intention and effect of a continuing guarantee such as the one with which we are concerned in this case was considered by the Judicial Committee of the Privy Council inWright and Anr. v. New Zealand Farmers Cooperative Association of Canterbury LtdThus far from repudiating her liability and breaking the contract of continuing guarantee, the defendant accepted her obligation under the guarantee bond in respect of theoverdraftaccountwhich continued to be live at least upto 29th September, 1952. The suit which was filed on 8th November, 1954, was therefore, clearly within time under Article 115 of the schedule to the Limitation Act, 1908.We may mention here that it was the contention of Shri Bal that the letter dated 2nd February, 1952, was obtained from the defendant by fraud. Both the Trial Court and the High Court have found that there was no fraud and that the letter was written by the defendant voluntarily and with full knowledge of its contents. We accept the finding of the Trial Court and the High Court that the letter was not obtained by any fraud practiced upon the defendantIt cannot be disputed, and indeed it was not disputed before us, by Shri Mahajan, that the correctness of an order of remand passed by the High Court which could not then be questioned by filing an appeal in the Supreme Court against that order because such an appeal was not competent could nonetheless be challenged later in the appeal before the Supreme Court arising out of the final judgment pronounced in the action videSatyadhyan Ghoshal &Ors v. Smt. Beorajin Debi; Lonankutty v. Thomman &Anr.(2); Jasraj Inder Singh v. Hem Raj Multan Chand(3). It does not, however, mean that the Supreme Court will, every time, exercise its discretionary power under Article 136 of the Constitution merely because it finds that the High Court had wrongly passed an order of remand at an earlier stage of the case. If the Supreme Court is satisfied that as a result of the order of remand substantial justice has been done to the parties in the consequential proceedings, the Supreme Court may decline to exercise its discretionary power to interfere. The jurisdiction under Article 136 is not meant to correct every illegality brought to the notice of the Supreme Court, nor to undo, merely onaccountof such illegality, an adjudication which has done substantial justice to the parties. On the other hand, Article 142 of the Constitution expressly confers powers upon the Supreme Court, in the exercise of its jurisdiction, to pass such decree or make such order as is necessary for doing complete justice in any case or matter pending before it. In the case before us, the Bombay High Court no doubt found that on the material placed before it there was no option except to non- suit the plaintiff. The High Court, however, appears to have felt that the plaintiff bank which had rested its case in the Trial Court almost entirely on the acknowledgement dated 2nd February, 1952, was, perhaps misled into doing so because of the order passed by the Trial Judge on the application Exhibit 85, filed by the defendant. In the order dated 11th October, 1955, passed on the application Exhibit 85, the Trial Judge had observed that the defendant should have taken proper steps earlier if she wanted to dispute the debit items and that having failed to take proper steps she had to pay the penalty for her laches. That order might have made the, plaintiff believe that it was unnecessary to adduce any more evidence. Though the High Court did not expressly state that the plaintiff was misled by the order of the Trial Judge, it is clear from a perusal of the remand order of the High Court that the High Court felt that the order made on the application Exhibit 85, was responsible for the failure of both the plaintiff and defendant to adduce appropriate evidence in regard to the several debit items. It was in those circumstances that the High Court, in the interests of justice, remanded the suit to the Trial Court in order to enable both parties to adduce necessary evidence regarding the items of debit. Whether or not the order of remand is capable of being justified under the provisions of theCode of Civil Procedure, we are of the view that the interests of justice have not suffered but on the other hand substantial justice has been done between the parties as a result of the subsequent proceedings. The Trial Court and the High Court have in their judgments fully and exhaustively discussed the liability of the defendant in regard to each of the debit items. In the special circumstances of this case we do not think that we will be justified in interfering with the decrees of the Lowe r Courts merely because the earlier order of remand passed by the High Court may not be capable of being justified.As mentioned by us earlier the High Court placed great reliance on the three letters dated 30th June, 1945, 27th November, 1945 an d 6th December, 1945, and it was because of those letters the High Court upheld all the items of debit made prior to 1st December, 1945. We think that the High Court was right in doing so. The first of the letters Exhibit 104, is a letter ad dressed by the Bank to the Company informing the latter that the balance due at the foot of theaccountas on 30th June, 1945, was Rs. 6, 81, 242- 9-5. The letter contains an endorsement by the defendant as a Director of the Company confirming the correctness of the statement. The second letter dated 27th November, 1945 (Exhibit 105) is a letter addressed by the Company to the Bank. It is signed by the defendant on behalf of the Company. By this letter the Company complained abo ut the dishonour of two cheques for Rs. 20, 000/- each despite the fact that the Company had not exceeded theoverdraftlimit. In the letter it was pointed out that while theoverdraftbalance was Rs. 10, 14, 380-7-6, a bill for Rs. 89, 789/- had been sent by the Company to the Bank on 22nd November, 1945. The letter while taking the plaintiff to task for dishonouring the cheque requested the bank to send a statement ofaccountas on 30th November, 1945. This letter is of great importance since it shows that the Company was aware of the correct balance of theoverdraftaccountwithout reference to the bank. It is apparent from the letter that the Company had kept anaccountof the debits and that any statement of ac count sent by the Bank was being verified by the Company with reference to the Companys books. It may be noticed here that by another letter dated 19th December, 1945, the bank informed the Company that the balance due upto 30th November, 1945, was Rs. 10, 60, 913-8-11 and this was confirmed on behalf of the Company by C. B. Samuel himself. The third letter is Exhibit 106 dated 6th December, 1945. This letter refers to the Banks statement ofaccountfor the month of November, 1945, an d draws the banks attention to the fact that the balance of Rs. 9, 29, 339-15-1 as on 12th November, 1945, had been shown as carried over as Rs. 9, 29, 540-5-4, on 14th November, 1945. There was a difference of Rs. 200-6-3. This letter was also signed b y the defendant on behalf of the Company. The letter indicates that any statement sent by the bank to the Company was being carefully examined by the Company. In regard to these letters the case of the defendant was that she had merely signed the letters which were put up to her by the office and that she had no personal knowledge of the statements made in the letters. We agree with the Trial Court and the High Court that this case of the defendant cannot be accepted. A review of her deposition and the several transactions into which she has entered before and after her husbands death clearly indicate that she is an educated lady, an intelligent woman and `a man of the world if a woman may be so described. We do not have the slightest doubt that the defendant could not have signed those letters without satisfying herself about the correctness of their contents. Having regard to the circumstance that the defendant herself had signed the three letters Exhibit 104, 1 05 and 106 and having regard to the further circumstance that two of these letters contained positive indications that the statements ofaccountsubmitted by the Bank had been verified with reference to the Companys books, the High Court to ok the view that debit items upto 1st December, 1945, could be safely held to have been proved by the bank. We see no reason to take a view different from that taken by the High Court.Shri Bal urged that under the tripartite arrangement between t he bank, the Company and the Govt., the Bank was entitled to receive the amount of Security lying in deposit with the Government and therefore, the item of debit of Rs. 50, 000/- made on 17th July, 1944, in the loanaccountof the Company should be de ducted from the total of the debit items. We are unable to agree with the submission of Shri Bal. In the first place no dispute concerning this item was raised either in the written statement of the Company or in Exhibit 85. In the 2nd place this is also one of the items of debit made prior to 1st December, 1945 and it must have been duly verified before the letters Exhibit 104, 105 and 106 were written. Shri Bal also objected to two items of debit dated 30th September, 1944 and 3 0th June 1945, representing amounts transferred from the Companysaccountto the personalaccountof C.B. Samuel. Both these debits were made prior to 1st December, 1945, and, therefore, we do not think we will be justified in excluding themAs a result of the foregoing discussion we agree with the High Court that the plaintiff bank failed to prove items of debit totalling Rs. 68, 761-7-0. Allowing interest from the various dates of debit, the total amount which has to be deducted from the claim of the plaintiff bank is Rs. 80, 894- 8-4. The question now is whether this has to be deducted from the sum of Rs. 2, 35, 453-1-0 which the plaintiff mentioned in paragraph 8 of the plaint as the amount due to the bank out of which the plaintiff was giving up the sum of Rs. 85, 453-1-0 or from the sum of Rs. 1, 50, 000/- for the recovery of which alone this suit was filed. The High Court thought that since the plaintiff had given up the sum of Rs. 85, 453-1-0 as the plaintiff was doubtful about the recovery of the amount from the defendant, the Court would be justified in deducting the sum of Rs. 80, 894-8-4, from the sum of Rs. 2, 35, 453-1-0 instead of from the sum of Rs. 1, 50, 000/. We do not think there is any justification for the course adopted by the High Court. The plaintiff did not choose to mention in the plaint the particular items of debit which he was giving up. There is, therefore, no reason why the amount given up by the plaintiff should be treated as attributable to the items of debit which have now been found to be not proved. We are, therefore, of the view that the total of the unproved debit items together with interest i.e. the sum of Rs. 80, 894-8-4 should be deducted from the sum of Rs. 1 , 50  , 000/- for which amount only the plaintiff filed the suit. The plaintiff is, therefore, entitled to a decree for Rs. 69, 105-7-8 with interest at 4% from the date of suit till realisation.