Case: Dena Bank Vs. Gautam Ratilal Shah &amp; Others

2. In 1975 the appellants who are a nationalised Bank and who will hereinafter be referred to as the "Plaintiffs" filed a suit against the four Respondents who will hereinafter be referred to as "the Defendants" on promissory notes executed on 31st January, 1973 by the defendants .The suit was one under Order XXXVII of the Code of Civil Procedure and in the plaint an amount of Rs. 13,85,237.37 was claimed with further interest on a slightly lesser amount at 10 per cent per annum. In the body of the plaint it is set out that the loan was given to Shah Frozen Foods Private Ltd. and that in respect of certain credit facilities given to the said Company and money advanced thereon the said company as well as the defendants had jointly and severally executed a demand promissory note. Amounts due from the said Company in respect of two of its accounts have thereafter been mentioned and after setting out the correspondence the plaintiffs have claimed the aforesaid amount contending that the suit is one within Order XXXVII of the Code of Civil Procedure and the reliefs claimed therein fall totally within the ambit of the said Order. It may be mentioned further that in the list of documents annexed to the plaint one finds reference only to the promissory notes, letters between the plaintiffs and the said Company and thereafter between the legal advisers of the plaintiffs an the defendants and /or their legal advisers.3. After the defendants to the suit were served with the writ of summons, they find their appearance within the time permitted by the rules with the result that the plaintiffs took out a Summons for judgment. The said summons for judgment was duly served upon the advocates representing the defendants and in those proceedings affidavits were filed by the several defendants. The stands taken by the defendants, were not identical but at least in the affidavit filed on behalf of the defendant No. 2 but more particularly in that filed on behalf of defendants No. 3 and 4 it was contended that the suit simpliciter upon the promissory notes was incomplete and that the defendants were in the position of guarantors, the principal debtor being the said Company. It was also urged in the affidavit in reply and particularly in that filed by defendants Nos. 3 and 4 that apart from the promissory notes the defendants had executed various documents, including a deed of guarantee and it was contended that the promissory notes and the deed of guarantee as well as the deed of hypothecation were required to be considered together. In their affidavit in rejoinder it was contended on behalf of the plaintiffs, by the Assistant General Manager that the suit was based on promissory notes only. The defendants contention that they were entitled to inspection of the deed of hypothecation or the letter of continuity (guarantee) was disputed. It was emphasised that the plaintiffs suit was based only on the negotiable instruments, viz.,the two promissory notes and not on the guarantee.On the Summons for judgment unconditional leave was granted to the defendants to defend the suit and the suit was directed to stand transferred to the List of Commercial Causes. Further directions as regards filing of Written Statement and discovery were also given. It would appear that in pursuance of these directions defendants Nos. 3 and 4 filed their written statement on 24th January, 1977. The 2nd defendant thereafter filed his Written Statement on the 22nd September, 1981 and the 1st Defendant on 9th August, 1982. The stand taken in the Written Statement is substantially in accord with that indicated in the respective affidavits in reply. To deal with the chronologically defendants Nos. 34 in their written Statement have contended that the plaintiffs were not entitled to sue simpliciter on the promissory notes and that the liability of the defendants was as guarantors. It was further contented that the plaintiffs had acted in a manner inconsistent with the safety or security given by the Company and had permitted the 1st defendant to deal with the same. Certain action of the first defendant have been set out by reason of which it is alleged that the said security was jeopardised and it was urged that thereby the other guarantors had been discharges. Broadly speaking, this very stand is reflected in the written statement filed on behalf of the 2nd defendant. He also contends that the promissory notes were obtained from defendants Nos. 1 to 4 as the then directors of the Company. In his written Statement the 1st defendant has principally relied upon briefly the legal plea and states that the liabilities of the defendants arose only as guarantors and/or sureties in respect of amounts, if any, due and payable by the Company to the plaintiffs and not as debtors simpliciter upon the promissory notes.5. Before adverting to the circumstances under which the Chamber Summons cane to be taken out, it may be mentioned that an affidavit of documents was made by the plaintiffs on the 14th June, 1982 and in the said affidavit of documents the plaintiffs have referred to the agreement of hypothecation, the letter of continuity, the demand promissory notes and the deed of guarantee all dated 31st January, 1973.6. Now we may advert to the circumstances under which the Chamber Summons came to be taken out. These circumstances have been indicated is an affidavit of March 1985 filed on behalf of the appellants in pursuance of directions given by the Division Bench previously. According to this affidavit, the matter was originally handled by a firm of Advocates viz. M/s. MotichandDevidas and this continued up to 1979 when the proprietor of the said firm Mr. Tanubahi Desai, a well known Advocate of this Court expired. The present Advocates were engaged in May, 1979, but according to this affidavit, it was only after briefs were delivered to Counsel for the appeal in June, 1982 that Counsel advised that amendment was necessary. According to this affidavit, when the defences had been taken in the affidavits in reply which defences have been indicated therein, the previous Advocates i.e. the said Tanubhai, had advised that it was not necessary to amend the plaint and the suit must continue as filed, i.e. as a suit simpliciter on the promissory notes.7. By the Chamber Summon dated 3rd September, 1982, very substantial amendments are being sought in the plaint. These are indicated in the schedule to the Chamber Summons. By the said schedule, paragraphsare sought to be added and paragraph 8 sought to be amended. The amendment sought for in paragraphsrefer to the letters of continuity and letters of guarantee all executed on the same date on which the promissory notes were executed, viz., 31st January, 1973. Paragraphsought to be added with the alleged security created in favour of the plaintiffs by the company and by the said paragraph the plaintiff purport to point out that the security was no longer existing. By the amendment sought for of paragraph 8 of the plaint, the plaintiffs seek a money decree not only under the promissory notes but also under the deed of guarantee and further not only as principal debtors but also alternatively as guarantors.

Court's reasoning:
19. In our opinion, the point being considered by us does not strictly fit in with the facts indicated in any of the judgments which are cited at the bar. We will make the position clear. As the facts are now brought out, the claim is made by a nationalised Bank against four persons who were the Directors of Private Limited Company and who had guaranteed the amount borrowed by the said company form the Bank and signed various documents in favour of the Bank. The Company went into liquidation and the securities becameand were not available to the Bank. No purpose would be served by the Company or its Liquidator. In the circumstances the Bank chose to file a money claim only against the Directors but based only on some of the documents executed by the defendants, viz., the promissory notes. It did not choose to indicate its pleading viz., the plaint, all the documents though the defendants were aware of them at all times and indeed have referred to them both in their affidavit in reply and in the Written Statement.In 1982 a suit based on the letter of guarantee or against the defendants as guarantors would perhaps be barred by the law of limitation and this seems to be borne out by observation made in (Margaret Lalita Samuel v. indo commrl. Bank )8, (1979)2 S.C.C 396. However, apart from this plea the two points which are required to be considered according to us are (1) whether the case made by the plaintiffs is a totally new case based on a new set of ideas and (2) would the defendant be prejudice in their defence if these additional facts were allowed to be pleaded, in the sense that necessary evidence would not be available.Apart from these aspects, we are faced with the facts that the plaintiffs had deliberately opted to file a suit on the promissory note and excluding the deed of hypothecation and the letters of continuity and guarantee to ensure that the same was within the parameters of Order XXXVII of the Code of Civil Procedure. Further even after the affidavit in reply were filed and unconditional leave to defend was generated in 1977, no amendment of the plaintiff was sought until 1982. No real explanations has been offered in Balans affidavit filed in March 1985 although it indicates that the frame of the suit and the maintenance of that frame despite submissions to the contrary were principally at the instance of the plaintiffs Advocate and his obduracy in maintaining that the pleading as it stood was a proper pleading.The defendants have not denied that a letter of hypothecation have been executed by the Company and its Directors or that letters of continuity and guaranted had been signed by all of them on 31st Januay, 1973. Subsequently we find that statements have been sent and acknowledged though these may not bring the claim within three years from 1982. Principally, however, what the plaintiffs have claimed in the plaint as it stands is a money decree against the defendants. The prayer is not sought to be altered, but what is sought is to give support to that prayer by additional documents and additional facts although it must be conceded that they were fully within the knowledge of the plaintiffs from the very beginning and the plaintiffs had deliberately on legal advise choose not to mention the same in the plaint. Does it make any difference We think not. If ineffectiveness or incompetence on the part of the pleader is to be forgiven then so must be obduracy and obstinacy. It must be fairly conceded, that we have before us acase, but on the balance we are of opinion that interests of justice require that the amendment should not be allowed since, in our opinion this is not a case where the defendants cannot be compensated in terms of money. To insist that they must be protected by the law of limitation against the claim as now made on a proper basis would be to make a fetish of upholding procedural technicalities at the cost of substantial justice.In other words we are inclined to allow the appeal through the amendment will have to be permitted on terms.We have considered idea as to the proceedings taken in and after 1982. Even the appeal adjournments had to be taken to enable the appellants to explain the circumstances under which it took more than five years for making the application for amendment (after the order on the Summons for Judgment). We have also to consider the position and allegations made by the defendants Nos. 1, 2, 34 against the first defendant. Baring all these circumstances in mind and since we are now permitting introduction of additional facts to complete a defective cause of action we think fairly stringent terms may be imposed on the appellants.