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Case Number

Appeal No. 308 of 1961.

Advocates

Messrs. G. Ramakrishna Ayyar and Jiddu Lakshmayya for Appt,
Meetrs. R Narasimhachari and N. Varadarajan for Repts.

Judges

Ramaehandra Iyer, C.J
Venkatadri, J.

Acts

provisions of S. 91 of the Indian Evidence Act,
S. 92 of the Indian Evidence Act.
Indian Companies Act. 1913.
S. 92 of the Evidence Act
Indian Companies Act

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The Deccan Chemicals Ltd. borrowed Rs. 10,000 from the first respondent (Indo-Commercial Bank Ltd.) on pledge of certain goods; interest was agreed at six per cent per annum. The company defaulted. After service of the statutory notice, the bank filed O. P. No. 68 of 1955 for winding up the company on the ground of inability to pay its debts.

To avoid the winding up proceedings the appellant, who was the managing director of Deccan Chemicals Ltd., negotiated a settlement and on 6-8-1955 executed a written guarantee in favour of the bank. The guarantee recited that the bank had agreed at the appellant's request to give time to the company and to settle (withdraw) O. P. No. 68 of 1955, and the appellant guaranteed repayment of monies due and undertook to pay personally if the company failed to pay on or before 31-10-1955.

The company failed to pay by the date. The bank issued statutory notices on the company and a notice on the appellant to perform his guarantee; there was no response. The pledged goods were sold by public auction with the parties' consent; Rs. 3,000 was realised and appropriated in part satisfaction of the debt. On 7-3-1956 the appellant wrote a further letter accepting the sale and stating his responsibility for the balance due, confirming his guarantee to that extent.

Subsequently the bank filed O. P. 147 of 1956 to wind up the company; that application succeeded. The bank then sued the appellant (the guarantor) for recovery of the amount due. The learned Assistant Judge, City Civil Court, Madras, excluded oral evidence of any additional agreement and entered a decree in favour of the bank. The appellant appealed against that decision; the present opinion disposes of that appeal.

Legal Issues Presented

Whether the appellant could lead oral evidence to show that, in addition to the consideration recited in the written guarantee, there existed a separate oral promise by the creditor that it would not proceed in future to wind up the company (i.e., whether an extra contractual / collateral oral promise about future winding-up proceedings could be proved).
Whether proviso (1) to Section 92 of the Indian Evidence Act permits proof of an additional oral agreement or additional consideration where the written document expressly recites the consideration.
Whether the exclusion of such oral evidence by the trial court was legally correct.

Arguments of the Parties

Appellant's Arguments

The appellant's substantial defence before the trial court was that the guarantee was executed on the express understanding that the creditor would never proceed against the company by instituting winding up proceedings; that undertaking was an additional part of the consideration for his guarantee.
The appellant sought to adduce oral evidence to prove that, over and above the consideration recited in the written guarantee (time and withdrawal of O.P. No. 68 of 1955), there existed a separate oral promise by the bank not to initiate winding up proceedings against the company in the future.
Counsel (Mr. Ramakrishna Iyer) contended that the case fell within the second proviso to Section 92 and relied on the decision in Ran Bahadur Singh v. Awadhbehari to support admissibility of such evidence where the document is silent on a particular matter and the oral agreement is not inconsistent with it.

Respondent's / Bank's Position (as reflected in the opinion and trial court ruling)

The trial court (learned Assistant Judge) held it was not competent for the appellant to introduce evidence to show that, besides the consideration set out in the letter of guarantee, there was some other consideration agreed between the parties; the document itself specified the consideration and thus prevented such variation by oral evidence.
The bank relied on the written terms of the guarantee (which referred to giving time and withdrawing the then-pending winding up petition to 31-10-1955) and treated the guarantee as clear and unambiguous in not restricting its rights to initiate future winding up proceedings for subsequent defaults.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Adityam Ayer v. Ramakrishna Iyer, ILR 38 Mad 514 : (AIR 1915 Mad 868)	Where a registered deed of sale contains a clause as to the amount of the price, the amount is an essential term of the contract and evidence of an oral agreement that varies that amount is inadmissible under Section 92 of the Indian Evidence Act.	The court relied on this authority to illustrate that a term of a contract (here, the consideration recited in the guarantee) cannot be contradicted or varied by oral evidence; it supports exclusion of the appellant's evidence attempting to add to the consideration recited in the document.
Mahomed Taki Khan v. Jang Singh, AIR 1935 All 529 (Full Bench)	Where the amount of sale consideration is proved in accordance with Section 91, no evidence of any oral agreement can be admitted to contradict, vary, add to or subtract from that term; want or failure of consideration must be total before a document's term is contradicted.	The court applied the principle to emphasize that showing the consideration recited in a document to be only part of a larger, unrecited consideration would amount to contradicting the document; thus oral evidence to that effect was inadmissible.
Ran Bahadur Singh v. Awadhbehari, AIR 1939 Pat 411	Addressed admission of oral evidence in relation to a plea of discharge of liability not specified in the document (relied upon to argue admissibility where the document is silent).	The court distinguished this authority: it held the present case different because the document is not silent as to consideration (it expressly recites the consideration), and therefore Ran Bahadur Singh did not assist the appellant's contention.

Court's Reasoning and Analysis

The court began by examining the written guarantee (Ex. A.2) and observed that the only promise given by the creditor, as recited in that letter, was to give time to Deccan Chemicals Ltd. and to withdraw the then-pending winding up proceedings (O. P. No. 68 of 1955), and that the company was to pay on or before 31-10-1955. The court noted that, in accordance with the letter, O. P. No. 68 of 1955 was indeed withdrawn.

The court then asked whether the appellant could prove, by oral evidence, that in addition to the consideration recited in the letter there was another consideration — namely, an undertaking by the bank not to initiate winding up proceedings in the future. The court concluded that such evidence could not be allowed.

The legal foundation for excluding the evidence was found in proviso (1) to Section 92 of the Indian Evidence Act. The court explained the established principle that while the proviso permits proof of facts that would invalidate a document or show want or failure of consideration (for example, total absence of consideration or a different kind of consideration from that stated), it does not permit proof that varies the consideration recited in the document. Consideration specified in a document forms an essential term of the contract evidenced by the document; a party cannot admit the recited consideration and then try to show it was different in amount or that there was additional, unrecited consideration which would alter the terms.

The court relied on the cited authorities (Adityam Ayer and Mahomed Taki Khan) to support this principle and rejected the appellant's attempt to invoke Ran Bahadur Singh. The court distinguished Ran Bahadur Singh on the ground that that case concerned a plea of discharge of liability not specified in the document; by contrast, the present document expressly recited the consideration, and was not silent on the point. Therefore, evidence of a separate oral agreement inconsistent with or adding to the recited consideration could not be admitted.

Concluding its analysis, the court held that there was no scope in the letter of guarantee for the contention that the bank had bound itself not to file any application for winding up the company for future defaults. Accordingly, exclusion of the appellant's oral evidence by the trial court was held to be correct.

Holding and Implications

Holding: The appeal is dismissed and the decree in favour of the bank is upheld. The court found no merit in the appellant's contention that oral evidence could be admitted to show an additional oral agreement preventing future winding up proceedings.

Implications:

The direct effect is that the trial court's exclusion of oral evidence and its decree for recovery against the appellant/guarantor stand affirmed; the appellant remains liable under the written guarantee as interpreted by the court.
The court applied established principles under proviso (1) to Section 92 of the Indian Evidence Act to exclude evidence that would vary the consideration expressly recited in a written document; the opinion does not state that it establishes a new legal precedent beyond applying these authorities to the facts of the case.

Judicial concurrence noted: Venkatadri, J. delivered the opinion and another judge recorded agreement ("I agree.").

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K.S. Narasimhachari v. Indo-Commercial Bank Ltd.

(1) The appellant was the managing director of the Deccan Chemicals Ltd., a company registered under the Indian Companies Act. 1913. The company has borrowed from the first respondent a sum of Rs. 10,000 on pledge of certain goods. Interest was agreed to be paid at six per cent per annum on the amount due. The company defaulted in the due repayment of the debt. After giving the statutory notice demanding payment of money due, the first respondent filed on 8-2-1955. O. P. No. 68 of 1955 for the winding up of the company on the ground that it was unable to pay its debts. The managing director who was anxious to avoid the winding up proceedings negotiated a settlement with the first respondent under which the latter agreed to withdraw the winding up proceedings initiated by it, if he were to guarantee the payment. To this the managing director agreed. accordingly he executed on 6-8-1955 a letter in favour of the first respondent in the following terms:

"In consideration of your having agreed at my request to give time to the Deccan Chemicals Ltd., for payment of the debt due by them and for settling the O. P. No. 68 of 1955 filed by you for the winding up of the Deccan Chemicals Ltd., I hereby agree to guarantee the due repayment of all monies due by the Deccan Chemicals Ltd, to the Indo-Commercial Bank Ltd. If the said company fails to pay off the entire amount due on or before 31-10-1955, I shall pay the same personally and I am liable for the same."

The contingency contemplated by that letter happened. The company defaulted to pay the amount due within the time specified. The first respondent thereupon issued a statutory notice upon the company making a demand for payment. It also issued a notice to the appellant calling upon him to perform his obligations under the letter aforesaid. There was no response by either party to the demands made, either by payment or even by any answer to the letters. As we stated the bank had certain security by way of pledge of goods for the amount due to it. With the consent of the parties concerned those goods were sold by public auction and a sum of Rs. 3000 was realised at such sale; the proceeds were appropriated by the first respondent in part satisfaction of the amount due to it under the loan transaction.

Soon after the sale on 7-3-1956 the appellant wrote another letter to the bank accepting the sale of the pledged goods; referring to the letter of personal guarantee executed by him, he stated

"I accept the above arrangement and hold myself responsible for the payment of the balance due to you and my guarantee to that extent will be in full force"

. The company was not able to pay the balance of the amount due under the loan transaction, nor did the appellant honour his obligations which he undertook under the letters aforesaid. The bank thereupon filed O. P. 147 of 1956 on the company side of this court to wind up the company. That application was successful. sometime after the initiation of those proceedings it filed the suit out of which this appeal arises against the appellant for recovery of the amount due by the company from the appellant, the guarantor.

(2) The substantial defence to the action was that the letter of guarantee was one executed on the express understanding that the company would never be proceeded against by initiating the winding up proceedings and inasmuch as the bank had, contrary to such undertaking, commenced such proceedings, it would not be entitled to maintain any action on the letter of guarantee. In support of that contention evidence was sought to be let in to show that the consideration for the letter of guarantee in addition to what as stated in it, consisted in an undertaking on the part of the creditor not to proceed against the company at any time thereafter by way of winding it up by reason of any inability to pay up its debts. The learned Assistant Judge, City Civil Court, Madras did not accept the defence. He held that it should not be competent for the appellant to let in evidence to show that besides the actual consideration set out in the letter of guarantee which formed the basis of the contract, there was some other consideration agreed to between the parties. The suit against the appellant was, therefore decreed. hence this appeal.

(3) From the terms of Ex. A. 2 to which we have made reference earlier, it is plain that the only promise given by the creditor was to give time to the Deccan Chemicals Ltd., for payment of the debt due to it and to withdraw the winding up proceedings then instituted. The letter itself contains a provision about the length of time given when it said that the company was to pay the entire amount due on or before 31-10-1955. It is not now disputed that in accordance with that letter O. P. 68 of 1955 was withdrawn and thereby the proceedings against the company then pending came to an end. The letter of guarantee is clear and unambiguous and on its terms there is really no scope for any contention that the creditor's right to institute proceedings under the Indian Companies Act for future defaults had been taken away. In other words there is nothing in the letter to show that the creditor has bound itself not to file any application for the winding up of the company, for future defaults in respect of a monetary liability.

What was agreed to then was only with regard to the proceedings then pending, namely, O. P. 68 of 1955. The case for the appellant, however, is that in addition to the consideration for the letter of guarantee set out in that letter, there was another consideration, namely, a promise by the creditor not to initiate the winding up proceedings against the company and as the document is silent in regard to that matter it would be competent for the aggrieved party to adduce evidence to support that case. We are unable to see how evidence in regard to that matter can at all be allowed.

Proviso (1) to S. 92 of the Evidence Act says that any fact may be proved which would invalidate any document or which would show want or failure of consideration. It is well recognised that under the terms of the proviso while it will be competent to the party to a contract to adduce evidence to prove want of consideration or failure of consideration or a difference in kind of consideration specified in the document, it will not be competent for him to prove a variation of the consideration recited in the document. Consideration specified in a document will be one of the terms of the contract evidenced by it. Thus, where consideration although specified to be of a particular kind, e.g. cash can and will be shown to be for different kind, or it can be shown that it is false and that there was really no consideration. But this is different from a case where a party admits the passing of consideration specified in the document, but attempts to show that the consideration was either less or more than what is specified. This he is not allowed to do.

In Adityam Ayer v. Ramakrishna Iyer, ILR 38 Mad 514 : (AIR 1915 Mad 868) dealing with a registered deed of sale containing a clause as to the amount of the price for the sale, the learned Judges held that the amount of the price agreed to be paid would be an essential term of the contract of sale, and that consequently no evidence of an oral agreement at variance with the provisions of a registered sale deed as to the amount of the price fixed for the sale would be admissible under S. 92 of the Indian Evidence Act.

This question was elaborately considered by a Full Bench of the Allahabad High Court in Mahomed Taki Khan v. Jang Singh, AIR 1935 All 529 (FB) where it was held that the amount of sale consideration would constitute a term of deed of sale and where such term was proved in accordance with the provisions of S. 91 of the Indian Evidence Act, no evidence of any oral agreement or statement could be admitted as between the parties thereto, for the purpose of contradicting, varying, adding to or subtracting from the amount of sale consideration. This will indeed be clear if one closely examines the terms of proviso 1 to S. 92 of the Evidence Act. Want or failure of consideration must be such as to invalidate the document. That would mean that there should be total lack of consideration, before the term of the document in that regard is contradicted. therefore, to say that the consideration recited in the document is but a part of a larger consideration which is not specified in it, it will amount to nothing less than contradicting the very term as to consideration for the document.

Mr. Ramakrishna Iyer, then, contended that the present case would come within the second proviso and evidence would be admissible to show the existence of any separate oral agreement as to a matter on which the document was silent, particularly when it was not inconsistent with its terms. Support for that contention was sought in the decision of the Patna High Court reported in Ran Bahadur Singh v. Awadhbehari, AIR 1939 Pat 411. That case was concerned with a plea of discharge of a liability not specified in the document. the present case is entirely different. The document here is not silent in regard to the consideration; it recites the particular consideration which induced the appellant to execute his letter of guarantee. On the authorities to which we have made reference it will be plain that it would not be competent for the appellant to show that in addition to the consideration recited in the document there was some other inducement therefor, but on which the document is silent. To permit that will plainly be against the specific terms of S. 92 of the Evidence Act.

There is no substance, therefore, in the contention that the lower court was in error in having excluded oral evidence on the question of there having been a separate oral agreement to which the creditor agreed that it will give up its right to proceed against the company under the Indian Companies Act even if the latter failed to perform its obligation undertaken at the time of the settlement. The appeal fails and is dismissed with costs.

Venkatadri, J.

(4) I agree.

(5) Appeal dismissed.

K.S. Narasimhachari v. Indo-Commercial Bank Ltd.

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's / Bank's Position (as reflected in the opinion and trial court ruling)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

K.S. Narasimhachari v. Indo-Commercial Bank Ltd.

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