Grindlays Bank Ltd. Amritsar v. Hindustan Embroidery Mills P. Ltd.

At the conclusion of the arguments I pronounced the judgment. I dismissed the application with costs. Now I give my reasons for the decision.

2. This is an application for stay of suit under Section 10 of the Code of Civil Procedure. These are the facts. The plaintiff Grindlays Bank Limited has instituted a suit for the recovery of Rs. 24,29,589.90 against six defendants, namely, (1) Hindustan Embroidery Mills Private Limited (the Company) (2) Sardar Gurdial Singh Uppal. (3) Sardar Inder Singh Uppal, (4) Sardar Iqbal Singh Uppal. (5) Sardar Harkishan Singh Uppal and (6) Sardar Man Mohan Singh Uppal. Defendant No. 1 is a company and defendants 2 to 6 are its directors. The suit is based on an overdraft facility which the bank had given to the defendants. The defendants executed letter of hypothecation and continuing security on all its existing and future stocks etc. It is alleged that under the letter of hypothecation the bank has a right to take possession of the hypothecated goods and to sell the same in the event of the defendants' failure to make payment on demand of the bank dues. It is claimed by the bank that on the date of the institution of the suit a sum of Rs. 24,29,589.90 was due from the defendants. This amount comprises of a sum of Rs. 15,24,740.15 being the debt outstanding in the company's account on 30-11-1971 and which amount was duly certified and acknowledged by the defendants as being due and payable to the bank. A sum of Rs. 81,493/- is claimed on account of the payment which the bank had to make to the Company's workmen and which the defendants in their letter of 23-5-1975 agreed to pay. The rest of the amount is claimed on account of interest. It is alleged that defendants 2 to 6 are jointly and severally liable with the company, defendant No. 1, to make payment of the suit amount.

3. The bank has prayed for the following reliefs :

(i) A decree for Rs. 24,29,589.90 against the defendants with future interest:

(ii) that the pledged goods and the pledged machines be sold by public auction and the sale proceeds thereof be paid over to the bank towards the decretal amount. This suit was brought on 5-4-1977 in this Court.

4. Prior to this suit the company, Hindustan Embroidery Mills Private Ltd. (Which is defendant No. 1 in Delhi suit), instituted two suits in Amritsar Courts. One was suit No. 33/76 filed on 26-7-1976. The other was suit No. 23/77 filed on 2-3-1977. It is on the basis of these two suits pending in Amritsar Courts that the defendants claim stay of Delhi suit.

5. In order to understand the controversy between the parties it is necessary to see the nature and scope of Amritsar suits. Suit No. 33 of 1976 is essentially a suit for mandatory injunction and prohibitory injunction against the bank. The bank threatened to sell the goods and machines which had been pledged by the company in its favour. They issued a notice to the Company on 11-6-1976 calling upon them to pay the amount failing which the bank intimated them that they will sell the hypothecated property. The company thereupon brought the suit asking for a prohibitory injunction against the bank not to sell the hypothecated property. The threatened sale by the bank was the reason for bringing the suit. After the bank had instituted its suit in this court counsel for the bank stated before the Punjab High Court that the bank will not sell the hypothecated goods except under the orders of the Delhi High Court. In view of this position this suit has lost all importance, though even now it is pending and is being tried in the Amritsar Court.

6. Counsel for the defendants mainly relies on the second suit in the Amritsar Court and it is because of that suit that he says that the Delhi suit ought to be stayed. The second suit in Amritsar Court (Suit No. 23 of 1977) is a suit for damages brought by the company against the bank. It is a suit for the recovery of Rs. 4 lakhs on account of damages which the company stated to have suffered. The grounds of damages are mainly these. That the goods pledged by the company in favour of the bank have gone bad and that the pledged machinery was not taken care of by the bank and as a result it has deteriorated in value. The claim for damages is founded on negligence and misconduct of the bank. The Company alleges that they have suffered on account of bank's negligence and misconduct damages amounting to Rs. 45.00,000/-. The sum of Rs. 45 lakhs comprises of the value of the machines and the value of the goods. Then it is alleged that a sum of Rs. 23,26,337.90 is due from the company to the bank. After adjusting Rs. 23 lakhs against the claim of Rs. 45 lakhs nearly Rs. 11 lakhs and odd are due to the company from the bank. But the company has restricted its claim to Rs. 4 lakhs. A decree of Rs. 4 lakhs has been claimed in the suit against the bank. This is the sum and substance of the plaint.

7. Counsel for the company submits that the matter in issue in the Delhi suit is also directly and substantially in issue in the previously instituted suit for the recovery of Rs. 4 lakhs at Amritsar. This is the main argument advanced before me. The other subsidiary arguments I will examine later.

8. Counsel says that for arriving at the decision in Amritsar Court where the company has claimed Rs. 4 lakhs on account of damage it will be necessary for the Amritsar Court to determine two things, namely. (1) whether the company has suffered damages to the extent of Rupees 45 lakhs, and (2) whether Rupees 23,26,337.90 are due to the bank. After ascertaining these two claims, namely, the claim of the company against the bank and the claim of the bank against the company, he said that it will be possible for the court to grant a decree of Rs. 4 lakhs in favour of the company. I must frankly confess that I have found this argument beyond my mental comprehension. I have found it difficult to understand and much less to accept. The matter is simple. The company's suit at Amritsar is a suit for the recovery of Rs. 4 lakhs on account of damages to goods and machines. It is nothing more and nothing less. How and why it should be necessary for the court to enquire into the question whether the damages suffered are of the order of Rs. 45 lakhs I do not quite see. Similarly, it will not be necessary for the Amritsar Court to enquire as to what is the exact amount which is due to the bank from the company on the basis of the overdraft facilities.

9. Counsel for the company contended that the frame of the suit, though limited to Rs. 4 lakhs, is so comprehensive that it will involve an investigation into the claim of Rs. 45 lakhs as well as the bank's dues of Rs. 23 lakhs and odd. It will not be proper for me to rule on the frame of the suit or its maintainability because that is, properly speaking, for the Amritsar Court to decide. Whatever may be the form of the suit, the substance of the claim is that the company has asked for a decree of Rs. 4 lakhs on account of damages to machines and goods. The court has to make an enquiry into damages. What it has to see is whether by reason of alleged negligence and misconduct of the bank the company has suffered damages and if so, whether they suffered damages to the extent of Rs. 4 lakhs, the amount for which a decree has been claimed. Therefore, about the Amritsar suit what we have to remember is that it is a suit for damages and the claim is limited to Rs. 4 lakhs.

10. Now we turn to the Delhi suit. The suit in this court is based on the overdraft facility which the bank had given to its customer. The suit is based on the advances made by the bank from time to time against the hypothecation of goods. The amount claimed in the suit is on the foot of this account and the letters of hypothecation which the company and its directors have executed in favour of the bank. The bank has claimed a decree for Rs. 24,29,589.90 and the sale of the hypothecated goods and machines to satisfy its claims.

11. The Amritsar suit is essentially a claim for damages. I cannot accept the argument that the nature of enquiry in Amritsar suit is so wide ranging that it will first necessitate finding out whether the bank (company?) has sustained damages to the tune of Rs. 45 lakhs and thereafter such amount as is found to be due to the bank will be setoff against the amount of Rs. 45 lakhs and the resultant figure will be Rs. 11 lakhs and odd, but the court will be obliged to pass a decree only for Rs. 4 lakhs. What this argument really means is that the bank's claim which is the subject matter of the Delhi suit will be adjudicated upon by the Amritsar Court in order to wipe out the bank's claim against the company's claim of Rs. 23 lakhs and odd will be swallowed up by the company's claim for damages and it will not be necessary to pass any decree in Delhi suit if the company succeeds at Amritsar even though the ultimate result of such an enquiry will be to pass a decree of Rs. 4 lakhs in favour of the company against the bank. In my opinion, this is a fallacious argument. A court has to do no more than to confine its attention to the relief which a plaintiff claims in a given suit and to limit the enquiry with that end in view. It is not the object of law to make a roving enquiry whether the company has sustained damages amounting to Rs. 45 lakhs and then to set off the bank's advances against the amount of damages, leaving it unnecessary for the bank to bring a suit of its own for its claim against the company.

12. The suit in this court is for the amount due to the bank on advance. The suit in Amritsar Court is for damages. The two claims can be tried side by side. There will be no conflict of decisions. One suit cannot be said to be parallel to another. The matter in issue in Amritsar suit is not directly and substantially in issue in the Delhi suit. One claim is for money lent by the banker to the customer and for sale of the properties hypothecated with it. The other is a claim for damages for negligence and misconduct of the bank in handling the goods and machines of the company. This is the scope of the two suits. Such is the field of controversy between the parties. I do not agree that Delhi suit should be stayed because Amritsar suit for damages has been previously instituted.

13. One staple test of the applicability of Section 10 to a Particular case is whether on the final decision being reached in the previous suit, such decision would operate as res judicata in the subsequent suit numerous decisions lay down this test. They are noted in Chitaley C.P.C 9th Ed. page 199 (Note 9). Applying this test I cannot say that the decision in Amritsar suit on the claim of damages for Rs. 4 lakhs would operate as res judicata in the Delhi suit. In truth it is wholly unnecessary for the Amritsar court to enquire into the claim of the bank on the foot of the account between the banker and the customer. All it has to do is to find whether in dealing with hypothecated articles and machinery the bank has acted in the manner so as to be guilty of negligence and misconduct and whether the company has sustained damages in the sum claimed, namely Rs. 4 lakhs.

14. The object of Section 10 is to prevent courts of concurrent jurisdiction from simultaneously entertaining and adjudicating upon two parallel litigations in respect of the same cause of action, the same subject matter and the same relief. Cause of action in Amritsar Court is founded on the tort of negligence. In Delhi Court it is the money advanced on loan. The reliefs are different. The subject-matter is different. In Amritsar there will be an enquiry into damages. In Delhi the bank is enforcing the security submitted to it as cover for advances to a customer. There is no possibility of contradictory verdicts in the two suits with which we are concerned because they are not for the same relief.

15. In Jai Hind Iron Mart v. Tulsi Ram, AIR 1953 Bom 117, Chagla, C.J said that Section 10 does not contemplate identity of issues in two suits nor that the matter in issue in the two suits should be entirely the same on identical. What Section 10 requires is that the matter in issue in the two suits should be directly and substantially the same. It was held that there should be identity of the subject-matter, and the field of controversy between the parties in the two suits must be the same. The identity and the field of controversy need not be identical and same in every particular, but the identity and the field of controversy must be substantially the same. This decision has been accepted as laying down correct law by other courts. (See Arun General Industries v. Rishabh Manufacturers, AIR 1972 Cal 128 (138). C. Raman and Co. v. Modern Motor Works, AIR 1973. Punj and Har 454, Shorab Merawanji. Modi v. Mansata Films, AIR 1957 Cal 727), I have no doubt that the fields in controversy in the two suits are entirely different.

16. It was said that issue No. 6 in Amritsar suit shows that the matters in issue are substantially the same. This issue says : “Whether the defendant is entitled to deduct any amount from the damages, if so, to what amount? This issue does not show that the Amritsar Court will be obliged to find the amount due to the bank on the foot of the account. That is a controversy entirely foreign to the suit at Amritsar which is founded on a claim for damages. The enquiry there is confined to the question whether the cost of the machinery which has deteriorated and the cost of the goods which have been spoilt is Rs. 4 lakhs by reason of negligence and misconduct of the bank.

17. There is another solid reason why the present suit should not be stayed. Parties in the two suits are different. In the Amritsar suits the Company, Hindustan Embroidery Mills Pvt. Limited, is the Plaintiff. In the Delhi suit the company and its five directors are defendants. The liability of the directors is said to be that of the principal debtors. It is said in para 9 (vi) of the plaint that the directors have executed deeds which are deeds not only of guarantee but also of indemnity and for any loss that the bank may sustain, they, the directors, have undertaken to indemnify the bank. The directors are not plaintiffs in any of the suits in Amritsar. There being no identity of parties the Delhi suit cannot be stayed.

18. Counsel for the company countered this argument by saying that though it is true that directors are not plaintiffs in the Amritsar suits that ought not to make any difference because if in the Amritsar suit it is held that the company is not liable to pay any sum to the bank on the foot of the account then automatically the directors, who are in fact guarantors, will at once be absolved of their liability. The liability of the surety being co-extensive with that of the principal debtor it was said that the benefit of a judgment in favour of the company in Amritsar Court will be available to the sureties in the Delhi suit for they can raise their defence here that they are not liable as the judgment has gone in favour of the company at Amritsar. It is impossible to accept this argument for the simple reason that any decision given in Amritsar Court will not bind the directors because they, are not parties to that suit. If the company succeeds in Amritsar suit there will be a decree for Rs. 4 lakhs in its favour. That is all. But the decree will not absolve the directors of their liability under the deed of guarantee or deed of indemnity, whatever it may be. The question of their liability as guarantors or principal debtors is the subject-matter of inquiry in the Delhi suit. The Amritsar suit has nothing to do with it.

19. Lastly, counsel for the company said that if it is found that Section 10 C.P.C does not apply to this case then he should be allowed to invoke Section 151 C.P.C He argued that the balance of convenience requires that Delhi suit should be stayed. He said that his defence to the Delhi suit was the same as the averments made in the plaint in the Amritsar suit and in order to prove his claim there he will be required to produce all the documents in Amritsar suit. This argument has no merit. Inherent power of stay should not be exercised to override express provisions of the Code : See M. Subbaramayya v. B.N Swamy, AIR 1972 Andh Pra 186 (188). Khalli Panda v. Dharam Gauda, AIR 1967 Orissa 172 (173). The documents can be filed in both the courts. I see no difficulty in doing so. Certified copies can always be obtained.

20. To sum up : The true legal issue is whether the Amritsar suit for damages is a preemptive bid to foreclose the banker's right to enforce his security. The banker has letter of hypothecation in his hands. A letter of hypothecation is an equitable charge. It creates a good equitable charge in favour of the banker who made advances on the faith of this security. He is entitled to repayment of the loan as any financer or private lender. A simple contract debt is fortified by a charge to secure it. Lending is the subject of a special contract in writing. The law effecting the security and dealings between the parties will have to be considered. A claim for damages in Amritsar Court which is essentially a claim in tort cannot obviate the necessity of an adjudication on the banker's claim founded on securities for advances made by him which is the subject of a special contract.

21. The Company is gravely mistaken if it thinks that it can by a suit for damages pre-empt the possibility of a lender's suit for recovery of money and enforcement of security. Claims in tort and contract are as different as chalk and cheese. What is important to notice is that the bank has not made any counter-claim in Amritsar suit. Why enquire into bank's claim there then?

22. In every case before Section 10 is applied, one has to see what is the substratum of the dispute. The substance of the matter has to be seen and not its form.

23. For these reasons the application for stay is dismissed with costs. Counsel's fee Rs. 200/-.

Application dismissed.