Ahmed Sait v. Bank Of Mysore, Ltd.

This is an appeal from the Judgment of our brother Kumaraswami Sastri, J., decreeing a suit by the Bank of Mysore based on a mortgage, dated the 6th May, 1925 for Rs. 1,00,000.

The plaint (paragraph 6) alleges that the defendants paid on the whole Rs. 18,672-2-0 up to 6th February, 1927, which the plaintiff Bank appropriated in a particular manner. The suit is to recover the balance. The defendants admit the allegations contained in paragraph 6 of the plaint but plead that “on account of the relationship existing between them and at their request the said Haji Sir Ismail Sait has paid to the plaintiff the entire amount due on the mortgages referred to in the plaint. The actual date of the payments are not known personally to these, defendants but they are informed and believe the same to be true that by 3rd March 1926 or thereabouts the payments aforesaid by Haji Sir Ismail Sait were completed.” The defendants also pleaded in the course of the trial as probabilising the above plea of discharge that Haji Sir Ismail Sait had a large sum of money amounting nearly to two lakhs belonging to them in his hands and that the payments made by Haji Sir Ismail Sait were made out of these funds. A third plea which was not raised either in the written statement or in the issues or at the trial before the court below is that the Memorandum of Association of the plaintiff Bank prohibits the Bank from lending on mortgage, and the suit transaction is therefore void as being ultra vires and is not enforceable at the instance of the plaintiff.

This last point will be taken up first. The learned Advocate for the appellants relied on the decision in Ashbury Railway Carriage and Iron Co. v. Riche (1) and the decision in Sinclair v. Brougham (2) which follows it. In the first case it was held that a transaction which was ultra vires of the company could not be enforced against it. In the latter case questions of priority arose between the outside creditors, the unadvanced, share-holders and the depositors of a building society formed, under the Building Societies Act of 1836, the assets being insufficient to pay off all the claimants and it was held that the depositors were not entitled to priority over other claimants as the contracts of loan were ultra vires. The question before us is not similar to the question raised in those two cases. In Brice on the doctrine of Ultra Vires it was laid down that “property legally and by formal transfer or conveyance transferred to a corporation is in law duly vested in Such corporation, even though the corporation was not empowered to acquire such property.” Under the Indian Law a mortgage is a transfer of interest in immovable property. The case of Ayers v. South Australian Banking Co., (3) is given as an illustration. There the transaction was ultra vires as it was prohibited by the charter of the company. Still it was held that the company could recover and Mr. Brice observed that the reasoning applies equally to reality. Another case relied on by the learned Advocate for the respondent is in In re Coltman, Coltman v. Coltman (4) in which the Court of Appeal reversing the Judgment of Fry, J., held that all contracts which were ultra vires were not necessarily illegal. This was a case of the trustees of a friendly society. In Turner v. The Bank of Bombay (5), it was held by Sir Lawrence Jenkins, C. J., and Tyabji, J., confirming the Judgment of Russel, J., that notwithstanding Sect. 37 of the Presidency Banks Act, the Bank was entitled to realise money lent on equitable mortgages. The abovementioned decision in Ashbury Railway Carriage and Iron Co. v. Riche was referred to by Russel, J., and the decision in Ayers. v. South Australian Banking Co. was applied and followed by the learned Judges. For examples of the same principle The National Bank of Australia v. Cherry and G.E Railway Co. v. Turner were also relied on. Russel, J., observes that it is unfortunate that the words ‘ultra vires’ should be used to describe two classes of cases, namely, those which are merely ultra vires and those which are also illegal. Following the above decisions we think that the Bank of Mysore is entitled to sue. It is unnecessary to describe what exact position the Bank occupies with reference to Sir Haji Ismail Sait on the facts of the case, that is, whether the Bank is a benamidar or a trustee or an agent of an undisclosed principal or does not occupy any of those positions.

I now proceed to the merits of the case of the three defendants. Defendants 1 and 3 are the sons-in-law of Haji Sir Ismail Sait already referred to. They are the sons of one Haji Muhammad Rahimtulla Sait who was a cousin of Haji Sir Ismail Sait. Haji Ismail Sait and his cousin were carrying on a partnership for several years up to 1899. In the course of the said dealings they acquired certain properties in the Mount Road, Madras, known as Blacker's Yard and Taylor's Yard. These were allotted to the share of Haji Muhammad Rahimtulla Sait in 1899 but the title deeds continued to stand in the name of Haji Sir Ismail Sait. On the 28th of March 1899, the terms of the old partnership were changed and a new partnership was constituted with a more limited scope. In the year 1914, the premises described as Taylor's yard were acquired by Government. Excess compensation was claimed; and proceedings in connection with the said claim were carried on by Haji Sir Ismail Sait both before the Chief Judge of the Small Cause Court and the High Court. The Acquiring Officer originally awarded Rs. 1,80,000. In the Small Cause Court Rs. 11,000 more were awarded. This was in 1915. In the High Court a further sum of Rs. 32,000 was awarded. This was in 1917. Meanwhile Haji Muhammad Rahimtulla Sait died on the 26th February 1915 and all the disputes between Haji Sir Ismail Sait and defendants relating to the partnership carried on from 1899 up to 1916, at Kolar, Gadag and Calicut, as also certain matters relating to the English Warehouse and Saw Mills at Madras were referred to an arbitrator. The arbitrator gave his award Ex. II on the 11th of November 1916. It is in evidence that the defendants and Haji Sir Ismail Sait were on bitterly inimical terms from 1915. Vide Haji Sir Ismail Sait's evidence at page 29 where he says:

“The defendants and myself have been on very bad terms, quarrelling with each other, going to the law, going to the solicitor as far as the Privy Council.”

On this he has not been cross-examined. It is admitted that the compensation money was drawn by Haji Sir Ismail Sait, but he swears that the amount was paid off to the defendants or adjusted in some way though he is not able to refer to any account exactly showing this. The accounts show that when he drew the amount he transferred it to the name of the defendants. Vide Ex. L, N, O and P. It was admitted by the defendants that no demand for this amount has ever been made by them from 1917 to 1925. In the beginning of 1924 the defendants' financial condition was so hopelessly bad that they applied for a loan of Rs. 25,000 to Haji Sir Ismail Sait (Ex. G). In this letter they say that they propose to sell out in auction their saw mill at Madras and the metal and mining store stock at Champion Reef. The terms of this letter show that no money could have been due to them from Haji Sir Ismail Sait on that date. This is not a letter addressed to a person who is indebted in a large amount to the writers of the letter. Though we may not know what exactly happened between 1917 and 1924 this latter is absolutely conclusive to show that nothing remained due from Haji Sir Ismail Sait to the defendants at the beginning of 1924. It is also admitted by the defendants that the sum of Rs. 25,000 lent in accordance with Ex. G and another sum of Rs. 5,000 were paid off by the defendants out of the sum borrowed under the suit mortgage bond. Exs. Q and Q-1 show that by the 28th February, 1925 a sum of Rs. 1,34,213 was due from the defendants to Haji Sir Ismail Sait and this amount was written off in September of that year. In May of that year the defendants wanted a loan on mortgage from the Bank of Mysore. The loan was actually made on the 6th of May but on the day before the loan a number of documents were executed settling all matters between Haji Sir Ismail Sait and the defendants. Ex. B is the document settling all affairs between the parties in respect of their partnership business continued from 1899 and in respect of matters arising out of the award of 1916. Ex. C is another document reciting that all accounts in respect of dealings and transactions between the parties have been settled and releasing the parties from all actions, accounts, claims and demands whatsoever in respect of or concerning the said dealings or transactions between them. Ex. 1 is another release deed releasing Blacker's Yard in favour of the defendants. It is only after these documents were executed that the loan was brought about. It is Haji Sir Ismail Sait's case that on account of the enmity between him and the defendants he was unwilling to have any direct dealings with them though on account of the relationship with them he was still willing to help them. According to him therefore the arrangement was that the Bank of Mysore should advance the loans, but to ensure that the Bank itself should not be a loser nor be put to any inconvenience by the transaction an amount equivalent to the money to be lent should be put into the Bank by Haji Sir Ismail Sait and this will be carrying interest. The Bank would be owing to a certain amount to Haji Sir Ismail Sait on account of such advances but will be entitled to recover the loan from the defendants and whatever sum it got from the defendants would be paid to Haji Sir Ismail Sait, the Bank itself merely getting a commission on the interest and otherwise neither gaining nor losing by the transaction. The defendants ignored such arrangement. Ex. F shows that on the 3rd of May Haji Sir Ismail Sait sent a cheque for Rs. 1,00,000 (vide Exs. F and F-1), This cheque was cashed only on the 12th of May. On the 6th of May Haji Sir Ismail Sait paid from his current account Rs. 40,000 to the Bank—vide Ex. F-2. F-3, dated the 6th of May shows the arrangement as described by me above. Mr. Krishnaswami Iyengar the learned Advocate for the appellant wants to argue that the payments made on the 6th of May and the 3rd of May by way of cheque are payments discharging the debt of the defendants to the Bank. This would be of course absurd, for on the 3rd of May there was no debt and the 6th of May is the date of the loan. He contends that the words “I am to pay that money to the Bank” in Ex. F-3 mean that he was to discharge a debt but it is significant that the word is ‘pay’ not ‘pay off’ and the words following ‘to be credited to my account’ show that Haji Sir Ismail Sait's case is correct. The opening sentence of Ex. F-3 “I have not taken any loan nor do I desire to be a debtor jointly” makes the position absolutely clear. The Bank was misunderstanding the true position but Haji Sir Ismail Sait was always maintaining what his position was. Ex. F-4, dated 8th of May and Ex. F-5 show payment by cheque of Rs. 50,000 and Ex. F-6 shows payment of another Rs. 50,000 by another cheque. One of these cheques was lost in transit and had to be replaced by another cheque. Both the cheques were cashed ultimately on the 26th of May and the 18th of June. It is almost ridiculous to suggest that the loan for Rs. 1,00,000 made on the 6th of May was practically paid off by the 18th of June though the plea of the defendants is that it was paid off by March 26. In the Bank account Ex. 11-A, an item of interest Rs. 2,457 is added to the amount. This represents interest on the sums advanced by Haji Sir Ismail Sait from the dates of advances and not interest due from the defendants on the loans advanced to them. The heading of Ex. 11-A, was objected to by Haji Sir Ismail Sait as Ex. F-3 shows. In Ex. F-10 the Bank admits its mistake and Exs. F-11, F-12 and F-14 show the real nature of the transaction. At the end of Ex. 11-A, the Bank while really showing Rs. 2,00,000 and odd as due to Haji Sir Ismail Sait make, a cross entry of the same amount. They really mean thereby that what they owe to Haji Sir Ismail Sait is equivalent to the amount due to them from the defendants and so far as they are concerned they ultimately work off as cross items. But this does not mean that the defendants' debts are discharged. It only means that the Bank was to recover a certain sum of money from the defendants and pay another certain sum of money to Haji Sir Ismail Sait. This is the true interpretation of Ex. 11-A, in the light thrown by Ex. F series. Ex. IV is the account of the actual loan advanced to the defendants and the payments made by them and is the basis of the plaint amount. This of course is not questioned by the defendants but they want to construe Ex. 11-A, as showing payment in discharge of their debt altogether. In 1927 the Bank filed a suit before the District Judge of the Civil and Military Station, Bangalore. Ex. D is the written statement in that case. In paragraph 4 of that statement the defendants pleaded that the suit was a hasty suit as “the plaintiff Bank has more than ample securities for its dues and the defendants have paid already Rs. 18,672-2-0 towards interest. The defendants never denied their liability and have strong and good ground to believe that the suit is the result of malice and instigation “. Here they did not plead any discharge but admitted their liability. Seeing that their present plea is that the discharge was made at their request it is surprising that no plea of discharge was then made. The present Ex. 11-A, was filed as an Exhibit in that suit and the defendants had an opportunity of looking into it. Another suit was filed by the Bank in the same Court as O. S. No. 9 of 1928. The defendants' written statement in it is Ex. E. In paragraph 2 they pleaded “There is no amount shown as due by the defendants in the books of the Bank, as a third party has paid off to the plaintiff Bank the entire amount due by the defendants and has constituted himself an assignee of the debt by the defendants.” This written statement shows that as a result of their interpretation of Ex. 11-A, the defendant then thought the Bank's debt had been paid off by Haji Sir Ismail Sait and the Bank had no more any right to sue. But even then the only position taken up by the defendants was that Haji Sir Ismail Sait became an assignee of the debt and that they themselves remained indebted to him. The present plea that Haji Sir Ismail Sait had been indebted to them in respect of the amount of compensation given by Government for Taylor's yard is a pure afterthought conceived for the first time in the present suit; and that it is absolutely falsa is shown not only by the transactions referred to by me above, especially Exs. G and C but also by the written statement Ex. E. Not only was there not any sum of money due by Haji Sir Ismail Sait to the defendants but payments made by him to the Bank up to the 26th of June were not payments made in discharge of the defendants' debt; nor did he become an assignee merely by such payments. The Bank continued to be the person entitled to sue the defendants. If Haji Sir Ismail Sait insists upon assignment it may be that the Bank is bound to give such an assignment to him. That has not yet happened. On a proper reading of the documentary and oral evidence in the case it is clear that the defendants' plea of discharge must be found against.

Agreeing with the trial Judge we dismiss the appeal with taxed costs. We certify for two Counsels.

N. R. R.Appeal dismissed.