K.J Paratwar, Presiding Officer:— This is an application for recovery of:

Rs. 1,55,58,120/- being dues under cash credit facility with interest @ 20.75% p.a from the date of filing the original application till full realization.

Rs. 32,64,671/- being dues under over draft facility with interest as above.

2. The borrower company (defendant No. 1) is in liquidation but for the sake of convenience I shall refer it as the borrower or defendant No. 1. The defendant Nos. 2 and 3 are guarantors. The defendant No. 4 is sued as illegal occupant of mortgaged property.

3. The defendant No. 1 is the applicant's constituent since July 1981 enjoying certain credit facilities which were renewed from time to time. On or about 31.8.1994, the facilities were Cash Credit (Hypothecation) facility of Rs. 80 lacs and overdraft of Rs. 20 lacs. The said facilities were subsequently renewed. The borrower and the guarantors had from time to time executed usual security documents, letters of guarantee. The further security was of Equitable Mortgage, by deposit of title deeds of Property being Unit No. 319, 3rd Floor, Kewal Industrial Estate, Senapati Bapat Marg, Lower Parel, Bombay-400 013 contained an agreement of sale dated 18.3.1974 between Kewal Builders Pvt. Ltd. and one Shardaben V. Doshi endorsed in the defendant No. 1's favour on 2.8.1978 Sometime in 1995, the defendant No. 1 sought modification of equitable mortgage by Unit No. 105, A/3, Dhanraj Industrial Estate; Lower Parel, Bombay-400 013 (registered office of defendant No. 1) owned by M/s. Asian Plast, an associate concern of life defendant No. 1, in the place of the property earlier mortgaged. The applicant was agreeable to the modification provided Equitable Mortgage of new property at Dhanraj Industrial Estate created but the defendant No. 1 failed in complying the same.

4. The defendant No. 1 had availed of the loan/credit facilities. On failure to pay the outstandings, acknowledgements of indebtedness was given on. 4.3.1996

5. Sometime in 1998, the applicant came to know that the defendant No. 4 was occupying the property. The applicant's officer therefore visited the property and was told by defendant No. 4; that in the negotiations in 1990, the defendant No. 1 had told that the property was free from encumbrance; that after negotiation the agreement for sale was executed on 25.12.1990 At the time of purchase the defendant No. 1 had written to Kewal Industrial Estate and Kewal Builders Pvt. Ltd. about the sale of the property and for transfer of the same and also of original agreement of sale in favour of defendant No. 4. The Kewal Builders Pvt. Ltd. accepted cheque of Rs. 19,375/- being transfer charges from defendant No. 4 which is why implied consent for the transfer was given. The applicant contends that the transfer was fraudulent. In the O.A reference to copious correspondence between the parties is made of which resume is unnecessary. Suffice it to say that the O.A is sought to be allowed in respect of monetary claim as also with reference to mortgaged properties.

6. The Official Liquidator of defendant No. 1 did not file written statement.

7. The defendant Nos. 1 to 3 filed common written statement at Exh. 18. Since however Official Liquidator has been appointed of defendant. No. 1, the same can be treated to be of defendant Nos. 2 and 3. The O.A is said to be barred by limitation. The defendant Nos. 2 and 3 did not seem to seriously deny that they stood as guarantors. They have however denied the calculations. The execution of acknowledgements of debt on the purported date is denied. There is no other specific defence in the lengthy written statement.

8. The defendant No. 4 in written statement at Exh. 12 have initially taken up more or less same contentions. But, his written statement so far as the transaction between the Bank and defendant Nos. 1 to 3 are concerned is relevant. This defendant has challenged creation of equitable mortgage. It has also pointed out that the Bank has not clarified as to when the title deed was deposited and what was the amount secured by it. The letters extending the mortgage, according to this defendant, required registration. The creation of the mortgage is invalid and unenforceable. This defendant has claimed to have purchased the property for Rs. 5 lacs in December, 1990. An agreement dated 25.12.1990 was signed. It is stated that before the agreement, he had by letter dated 18.12.1990 to M/s. Kewal Builders Pvt. Ltd. intimated about the same and requested to transfer the property in his favour. The defendant No. 1 by letter of even date also to Kewal Builders Pvt. Ltd. surrendered his rights. Kewal Builders charges compensation of Rs. 19,375/-. The necessary intimation to the society also was given. The defendant claims to have been put in possession on 25.12.1990 and is continuing to be in possession since then. The defendants thus claim to be bona fide purchaser for value without notice of the mortgage of the applicant's favour. On these contentions, defendant No. 4 has sought for dismissal of the original application.

9. The evidence in this case comprises of claim affidavits of Mr. S.P Yadav (Exh. 13), Mr. V.R Sivaramakrishnan (Exh. 15) and Mr. Babulal Jain (Exh. 144) and the latest documents being statement of account (Exhs. 29 and 30), demand promissory notes (Exhs. 52 and 55), title deeds (agreement of sale) dated 18.3.1974 (Exh. 39), letter recording creation of equitable mortgage in respect of unit No. 319 dated 4.7.1984 (Exh. 40), memorandum of entry of even date (Exh. 41), statement recording creation of mortgage dated 10.8.1988 (Exh. 42), memorandum of entry in respect of unit No. 310 of said date (Exh. 43), statements recording creation of equitable mortgage dated 7.8.1989 (Exhs. 44 and 46), memorandum of entry of said date (Exh. 45), resolution of defendant No. 1 company dated 7.9.1994 (Exh. 4B), letter from the applicant to Kewal Industrial Estate dated 12.9.1994 (Exh. 49), agreement of hypothecation (Exhs. 50, 53 and 56), letters of undertaking (Exhs. 58 and 60), deed of guarantee dated 4.6.1996 (Exh. 63), letters of acknowledgement dated 4.6.1996 (Exhs. 64 and 65).

10. The defendant No. 3 filed counter affidavit at Exh. 146 for himself and for defendant No. 2 while defendant No. 4 filed his counter affidavit at Exh. 16. The defendant No. 4 has filed voluminous documents at Exhs. 78 to 117, the material amongst which would be referred at the appropriate place, defendant Nos. 2 and 3 filed statement of account (Exh. 149) got privately prepared by them.

11. At the end, I have heard arguments of learned Counsel representing the rival parties.

12. The applicant's case as against defendant No. 1 is liable to be straightaway accepted since the same has gone unchallenged. There is also considerable evidence catalogued above to prove the grant and availment of the loan/credit facilities as alleged by the applicant, enhancements from time to time and execution of the documents. In fact, the written statement (Exh. 18) filed by-defendant Nos. 2 and 3 (with defendant No. 1 when it was not in liquidation), the availment of the facility and the execution of the documents in lieu thereof is not denied. The defendant Nos. 2 and 3 also have not denied to have signed the letters of guarantee and to have stood as guarantors. From the rival contentions, ¾ points appear to be in controversy. I shall now take up such issue one after another.

Limitation:

13. Neither of the parties have pointed out the provision of the Limitation Act which would apply to the Original Application and the period of the limitation. But, I shall consider the issue considering the period of limitation to be 3 years by keeping aside the fact that the outstandings are secured by mortgage for which 12 years period of limitation is prescribed. It is no doubt true that last credit entries in the cash credit account (Exh. 29) and overdraft account (Exh. 30) are beyond 3 years of filing the original application. But, there are letters of acknowledgement (Exhs. 64 and 65) both dated 4.6.1996 in respect of the outstandings on 31.3.1996 The OA has been filed within 3 years therefrom. The date of letters of acknowledgement have however seriously disputed. While pointing out that the adhesive stamps on those documents bear date 28.6.1994, Mr. Sharma has urged that the signatures were taken at or about that time (along with other documents) when Exhs. 64 and 65 were blank. Reliance has been placed on Ranadhin Singh v. Siqram Singh, AIR 1957 Patna 64, on the point of proof of execution of the document qua signatures on blank paper.

14. Mr. Rishabh Shah on the other hand has drawn my attention to the franking of the stamp duty of Rs. 2 done on 10.4.1996 Thereupon, the argument that the signatures on Exhs. 64 and 65 Gould not have been taken before 10.4.1996 will have to be endorsed; for the franking is done by the authorities concerned only when the document is not completed. Thus, the contention that the signatures were obtained in 1994 does not hold merit. The citation in the matter of Ramadhin Singh (supra) relied on behalf of the defendants is in-applicable because in that matter the question was about the signatures appended on a blank piece of paper. In cases where the person signs on blank standard documents, the legal position is laid down in United Dominion Trust v. Western, 1 QB (1976) 513, that such person takes responsibility of the blanks being filled in. The plea of non est factum is just not available to such person. Indeed the higher Courts have gone to the extent of ruling that such persons give implied authority to fill the documents at least as per the then existing position. In the light of above, the defendant Nos. 2 and 3 cannot be allowed to get away with the letters of acknowledgement as tried to be done. In fact, these defendants had on 4.6.1996 itself also executed letter of guarantee (Exh. 63) which means that the original application having been filed within 3 years therefrom is within limitation.

15. There is another aspect to the issue which is that in any case as against the guarantors, the limitation starts from the date of recall as held in Margaret v. Indo Commercial Bank, (1979) 2 SCC 396 : AIR 1979 SC 102. Upon that Mr. Sharma pointed out that, the Bank has not tendered any evidence to show that the recall notice was served on his clients. I do not think that the factuality in the submission, even if assumed to be correct, they help the guarantors; since the filing of the O.A can itself be construed to be invocation of guarantee. The consequent submission advanced on behalf of defendant Nos. 2 and 3 that this O.A itself is untenable and that the Bank should file another O.A against the guarantors is far fetched. The idea of giving notice is to enable the guarantor to tender the amount so that they are not saddled with the cost of the O.A The Guarantors herein have never shown readiness to pay any amount. Such persons cannot in my view be heard to say that the Bank should have filed another suit for recovery against them.

Equitable Mortgage:

16. The defendant Nos. 2 to 4, particularly defendant No. 4, has challenged the creation of Equitable Mortgage. The title deed namely agreement of sale by Kewal Builders in favour of Shardaben V. Doshi (admittedly the original owner) is filed by the Bank at Exh. 39 endorsed by both the parties in favour of the defendant No. 1. According to defendants it is not title deed. It may be that by mere endorsement, the title may not strictly speaking pass. At the same time, it is to be noted that in all the records the defendant No. 1's name has been entered as owner of the property on the basis of said title deed. That apart, defendant No. 4 does not come out with a case that defendant No. 1 became the owner of the property by some other document of title and not by Exh. 39. Above all the defendant No. 4 itself claims to have purchased the property from defendant No. 1. Therefore, the defendant No. 4 is in my view estopped from challenging the defect in the title of the defendant No. 1. In the circumstances, I do not think that the finer aspects and the niceties in the title can be gone into or Exh. 39 can be held to be not a document of title.

17. The fact that Exh. 39 is with the applicant Bank coupled with the fact that there is existing debt can be construed to mean that the title deeds are with the Bank as security for the outstandings. That apart, there is also evidence about creation of equitable mortgage comprising of the defendant No. 1's letter dated 4.7.1984 (Exh. 40) to the Bank stating that the title deeds were re-deposited with contention to secure the renewed facilities. There is another letter by defendant No. 2 on stamp folio of Rs. 5,000/- dated 10.8.1988 written pursuant to the resolution of the company dated 5.8.1988 declaring and re-affirming that the Bank shall continue to held the title deed as security for the enhanced facility. One more letter dated 7.8.1989 by the company to the above effect is also on the record at Exh. 46. The Bank's sanction letter dated 13.8.1994 (Exh. 47) shows that the existing mortgage was to continue for the enhanced facility of Rs. 80 + 20 lacs. This imposing evidence is in my view more than sufficient for holding that the equitable mortgage was created and extended for securing the outstandings.

The defendant No. 4 being purchaser for value without notice of the mortgage:

18. The defendant No. 4, it may be reiterated, has come up with a plea of having purchased the property for valuable consideration without notice of the mortgage. The contention is that negotiations about the same which took place in 1990 culminated with execution of agreement of sale dated 25.12.1990 (Exh. 78). Voluminous evidence has been placed on record in order to show that at the time of purchase, defendant No. 4 had written to the builder as also the co-operative society; that the builder accepted certain money from it; that the electricity and other connections are standing in its name etc. In my opinion, however, the question raised by defendant No. 4 cannot be decided by this Tribunal. As to whether he is a bona fide purchaser for value without notice of the mortgage in favour of the applicant is a question which does not fall within the scope of R.D.D.B Act. That is a question to be decided by Court having ordinary civil jurisdiction. The defendant No. 4 may, if so advised, therefore file suit in the appropriate Court. The conclusion that the outstandings are secured by mortgage would be subject to the decision in such suit, if filed within two months.

Extent of outstandings:

19. The defendant Nos. 2 and 3 in particular have seriously disputed the extent of outstandings. In my view, however, it is not open from them to question the extent of outstandings as before 31.3.1996 since by Exhs. 64 and 65, they have admitted the liability as mentioned in the documents. The defendant Nos. 2 and 3 had taken couple of applications in that regard. Pursuant to the order of this Tribunal, the applicant Bank re-calculated the outstandings by levying agreed rate of interest and separately showing penal interest and interest on penal interest. The summary of the outstandings in Exh. ‘G’ to the statement of account annexed to affidavit of Mr. Babulal Jain (Exh. 144) shows interest amount in cash credit, account of Rs. 57,17,361/- and in overdraft account to the tune of Rs. 12,17,762/-. The summary also gives amount of penal interest and interest on penal interest which is in the aggregate of Rs. 8,72,964/-. Since however no foundation has been laid for granting penal interest, the sale cannot be allowed, interest thereupon anyway being not allowable as per the Ravindra's case. In other words the interest of Rs. 69,35,123/- having been calculated as per the agreed rate of interest apart from principal amount of Rs. one crore will have to be allowed. The defendant Nos. 2 and 3 have filed on record the statement of account got prepared from M/s. H.G Salvaiya and Co. (Chartered Accountant) showing that the correct outstandings would be Rs. 1.27 crores (approximately). I do not think that such private calculation of interest can be given any importance moreso when the interest appears to have been calculated from 1987 while I have earlier indicated that in view of the acknowledgement Exhs. 64 and 65, the extent of amount standing were crystallized as on 31.3.1996 Thus, I find no merit in this defence

20. The applicant has thus proved its case. The Bank therefore is entitled to monetary claim as also in respect of mortgaged property. But, since the Bank has not shown that the charge of the mortgaged property has been registered with ROC (Exhs. 61 and 62 not showing that it is in respect of mortgaged property), its entitlement thereto as secured creditor would be subject to the proof of the same before the Official Liquidator. As said earlier, relief with, reference to mortgaged property shall also be subject to the civil suit that may be filed by defendant No. 4.

21. Having regard to the facts, it-may be proper to award half costs.

(A) The original application is allowed with half costs against the defendant Nos. 1 to 4.

(B) The defendant Nos. 1 to 3 do jointly and severally pay to the applicant Rs. 1,69,35,123/- (Rs. one crores sixty-nine lacs thirty-five thousand one hundred twenty-three only) with interest @ 16.50% p.a from the date of filing Original Application till full realisation.

(C) Subject to the proof before Official Liquidator about the registration of the charge with ROC and subject to the decision in the suit that may be filed by defendant No. 4 within 2 months, it is declared that the outstandings are secured by the defendant No. 1's property being Unit No. 319, 3rd Floor, Kewal Industrial Estate, Senapati Bapat Marg, Lower Parel, Bombay-400 013.

(D) Issue recovery certificate accordingly.

O.A allowed with half costs against defendant Nos. 1 to 4.