High Court · 2009

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 29.04.2009CORAMTHE HONOURABLE MR.JUSTICE D.MURUGESANANDTHE HONOURABLE MR.JUSTICE C.S.KARNANO.S.A.No.218 of 2006M/s The Motor & General Finance Limitedrep. by its Regional Manager"Continental Chambers" 1st FloorNo.142, Nungambakkam High RoadMadras 600 034.. Appellant/1st Respondent/Plaintiff-Vs-1. S.Durailingam also known as S.Duraisingam .. 1st Respondent/ Applicant/2nd Defendant2. Gladius D.Kulothungan.. 2nd Respondent/ 2nd Respondent/1st Defendant Memorandum of Grounds of Original Side Appeal under Order XXXVIRule 9 of Original Side Rules read with Clause 15 of Letters Patentagainst the order dated 27.3.2006 made in Application No.1039 of 2006in C.S.No.1622 of 1992.For Appellant:: Mr.T.K.SeshadriSenior Counsel forMr.T.K.BhaskarFor Respondents:: Mr.AR.L.SundaresanSenior Counsel forMrs.AL.Ganthimathi for R1 JUDGMENT D.MURUGESAN, J.The appeal is directed against the judgment and decree dated27.3.2006 made in Application No.1039 of 2006 in C.S.No.1622 of 1992.2. For convenience, the parties will be referred to as arrayedin the suit and the appeal arises under the following circumstances:The plaintiff is engaged in finance business and granting loanson securities and also extending hire purchase and leasing facilitiesfor vehicles and machineries etc. The first defendant approached theplaintiff for a loan of Rs.20,00,000/- and an agreement was alsoentered into on 11.1.91. The first defendant created an equitable https://hcservices.ecourts.gov.in/hcservices/ mortgage of deposit of title deeds of the property for the value ofRs.20,00,000/- and the second defendant stood as a guarantor. As thefirst defendant failed to pay the first instalment, the plaintiffissued legal notices dated 21.9.91 to both the principal debtor andthe guarantor namely, the defendants and the legal notice sent to thesecond defendant was acknowledged on behalf of him on 27.9.91.However, the legal notice sent to the first defendant was not served.Thereafter, the appellant/plaintiff-M/s The Motor and General FinanceLimited filed a suit in C.S.No.1622 of 1992 under Order XXXVII Rule 1of Original Side Rules and Order IV Rule 1 of Original Side Rulesread with Order XXXIV Rule 1 and Section 26 of Civil Procedure Codefor a judgment and decree directing the defendants to pay to theplaintiff the sum of Rs.26,45,000/- together with further interestat the rate of 2.5% per month from the date of plaint till the dateof realisation on the sum of Rs.23,00,000/- within the timestipulated by this Court and in the event of default by thedefendants of the payment of the amount, the property set out in theschedule to be brought to sale after defraying the expenses andappropriate the sale proceeds towards the amount decreed and shouldthere be any deficiency, directing the defendants to pay suchdeficiency personally and also to pay costs. 3. Both the defendants were set ex parte on 7.10.2002. Evidencewas taken on 10.10.2002 and the suit was decreed ex parte againstboth the defendants. The decree was transferred to the Court of theCity Civil Judge, Bangalore for execution and the executing Courtordered attachment of the mortgaged property on 27.2.2006. 4. The second defendant filed Application Nos.1039 and 1040 of2006 in C.S.No.1622 of 1992 before this Court to set aside the exparte decree and to stay the decree pending the said applications.By order dated 27.3.2006, the learned Judge set aside the ex partedecree against both the defendants with a condition that the seconddefendant should deposit a sum of Rs.15,00,000/- within a period ofeight weeks. The said order is questioned in this appeal.5. We have heard Mr.T.K.Seshadri, learned senior counselappearing for the plaintiff and Mr.AR.L.Sundaresan, learned seniorcounsel appearing for the second defendant. 6. The challenge to the order under appeal is mainly on thefollowing grounds:(i) The ex parte decree was passed on 10.10.2002. Even thoughthe second defendant was served with the lawyer's notice dated21.9.91, the subsequent summons could not be served as he has shiftedhis place of residence without informing the plaintiff and thereforesubstituted service was taken on 7.10.2002 and the publication waseffected and in spite of the paper publication, both the defendantsdid not appear and therefore the ex parte decree came to be passed on10.10.2002. As both the defendants were served and they had theknowledge of the suit, in the absence of any application forcondonation of delay, the application filed by the second defendantto set aside the ex parte decree dated 10.10.2002 ought not to havebeen entertained and should have been rejected. https://hcservices.ecourts.gov.in/hcservices/ (ii) Inasmuch as the decree is joint and severable, it could beexecuted against any one of the defendants in terms of the proviso toOrder IX Rule 13 of Civil Procedure Code, the learned Judge ought notto have set aside the decree in respect of both the defendants.(iii) The plaintiff, being entitled to abandon the suit againstany of the defendants, had filed a memo to withdraw the suit againstthe second defendant in terms of Order XXIII Rule 1 of CivilProcedure Code read with Sections 43 and 44 of the Indian ContractAct, 1872 and hence the second defendant cannot claim that such asuit cannot be now withdrawn and in the event the suit is withdrawnagainst the second defendant, the decree in favour of the firstdefendant could be enforced and therefore the ex parte decree againstthe first defendant ought not to have been set aside. 7. On the other hand, it is the case of the second defendantthat he came to know of the ex parte decree only on 1.3.2006 when theattachment of the property was sought to be made with policeprotection pursuant to the orders of the learned City Civil Judge,Bangalore and the said attachment was to be made by 8.3.2006 itselfand the society, having been in possession of the property, broughtto the knowledge of the defendants only on 3.3.2006 as to the decree,and the applications were filed on 6.3.2006. Hence there is no delayas, in terms of the proviso to Article 123 of the Limitation Act,1963, the applications were filed within 30 days from the date ofknowledge. So far as the second contention is concerned, it is thecase of the second defendant that by virtue of Sections 91 and 92 ofthe Transfer of Property Act, 1882, the second defendant is entitledto redeem the property in question and the decree is not severableand the liability of both the defendants is co-extensive. Hence inthe wake of the right of the surety to redeem the property, thelearned Judge is right in setting aside the decree against both thedefendants. Insofar as the last contention relating to theabandonment of the suit in respect of the second defendant alone, itis submitted that the provision of Order XXIII Rule 1 of CivilProcedure Code relating to the abandonment of the suit against one orother defendants cannot be accepted, in view of the right of thesecond defendant to redeem the property.8. Point No.(i): The plaint was laid on 16.12.92. The statementof details of service filed by the second defendant shows that thefirst summons were issued on 17.2.93 and the same were returned as'no such person'. Hence fresh summons were ordered subsequently onthree occasions and those summons could not be served. On 27.2.2002,private notices were ordered which were also returned as 'partyleft'. Thereafter, paper publication was ordered on 30.9.2002 andthe same was effected on 7.10.2002 and in three days time, the matterwas listed and the evidence was taken and the ex parte decree wasordered on 10.10.2002. From the above narration of events, it isclear that no summons were served on the second defendant except theeffecting of paper publication on 7.10.2002.9. Mr.T.K.Seshadri, learned senior counsel appearing for theplaintiff would submit that even prior to the filing of the suit, a https://hcservices.ecourts.gov.in/hcservices/ lawyer's notice dated 21.9.91 was sent on behalf of the plaintiff andthe same was acknowledged and therefore in the absence of change ofaddress intimated to the plaintiff, summons were taken to theerstwhile address of the second defendant and therefore he cannotclaim that he has not been served. In this context, it is to be seenthat even in the counter affidavit filed in the application, theplaintiff has stated in paragraph-8 that the legal notice sent to thesecond defendant was only acknowledged on behalf of the seconddefendant, evidencing thereby that the said lawyer's notice was notserved on the second defendant. Service of summons means service onthe person to whom it was intended. Though the second defendant wasa guarantor and the first defendant was the principal debtor, it ispossible for the first defendant to acknowledge both the summons andkeep quiet in not informing the guarantor, making the seconddefendant also to face the litigation in future without himselfopposing the suit. Hence the notice acknowledged on behalf of thesecond defendant cannot be considered to be a proper service of legalnotice to contend that the second defendant was aware of the failureon the part of the first defendant to pay the instalments. Even forthe sake of arguments, the said acknowledgement of the notice onbehalf of the second defendant is accepted, the same cannot beconsidered to be a notice in the suit, as it was prior to filing ofthe suit. In the absence of service of notice, the argument of thelearned counsel for the plaintiff that the second defendant hadfailed to inform the change of address is not acceptable. 10. This leads us to the next question as to whether after thesuit was laid, the second defendant was served. In fact paperpublication was effected on 7.10.2002 and within a period of threedays, the suit was decreed ex parte i.e., on 10.10.2002. This exparte decree was not within the knowledge of the second defendant, asit is not the case of the plaintiff even. The said ex parte decreewas transferred to the Court of the City Civil Judge, Bangalore forexecution and the attachment was ordered on 27.2.2006. It is alsonot the case of the plaintiff that the summons under the executionpetition were also served on the defendants. On the other hand, itis seen that both the summons were returned unserved leading to theorder of attachment. In the application to set aside the ex partedecree, the second defendant has specifically stated that theproperty was leased out to an organisation by name M/s Bright Societywhich was running an orphanage in the said place for Srilankanrefugee children. It appears that when the officers of the Courtinspected the place of the property on 18.2.2006, the society came toknow of the ex parte decree for sale of the property and therefore ithad filed an obstruction petition and by order dated 1.3.2006, theCity Civil Court, Bangalore ordered attachment of the property by8.3.2006. The society thereafter informed the second defendant on3.3.2006 and the application to set aside the ex parte decree on6.3.2006 was filed. In the wake of the said explanation, it cannot besaid that the second defendant had the knowledge of the ex partedecree till 3.3.2006. Article 123 of the Limitation Act , 1963provides 30 days period for an application to be filed to set aside adecree passed ex parte from the date of the decree or where thesummons or notice were not duly served when the applicant had the https://hcservices.ecourts.gov.in/hcservices/ knowledge of the decree. Admittedly, in this case, summons ornotices were not served and the applicant had the knowledge of thedecree only on 3.3.2006. In this context, the explanation to Article123 is also referable. By that explanation, the substituted serviceunder Order V Rule 20 of Civil Procedure Code shall not be deemed tobe due service. Hence, in our opinion, the substituted service dated30.9.2002 is also not of any assistance in this case and theapplication filed on 6.3.2006 made within 30 days of the knowledge ofthe ex parte decree is maintainable and the argument of the learnedsenior counsel appearing for the plaintiff that the application forsetting aside the ex parte decree ought not to have been entertainedwithout there being any application for condonation of delay cannotbe therefore accepted. Accordingly, we reject the first challenge tothe impugned order.11. Point No.(ii): The next contention is whether in terms ofthe proviso to Order IX Rule 13, an ex parte order could be set asideagainst both the defendants. Law on this is now well settled by theApex Court in the recent judgment in Bank of India v. M/s MehtaBrothers & Others, 2009 (1) MLJ 81. It is the submission of thelearned senior counsel for the plaintiff that in view of the saidjudgment, only if the decree is of such a nature that it cannot beset aside only against one defendant, it can be set aside against allthe defendants. Inasmuch as the decree in question is joint andseveral, the learned Judge ought not to have set aside the decreeagainst both the defendants. In this context, the learned seniorcounsel also relied upon Section 43 of the Indian Contract Act, 1872and contended that when two or more persons make a joint promise, thepromisee may, in the absence of express agreement to the contrary,compel any (one or more) of such joint promisors to perform the wholeof the promise. When the plaintiff is entitled to compel theperformance by one of the defendants, the decree ought not to havebeen set aside against the first defendant as well at the instance ofthe second defendant alone. 12. To find out as to whether by virtue of the proviso to OrderIX Rule 13 of Civil Procedure Code, an ex parte decree against boththe defendants could be set aside, we must first consider whether thedecree is joint and several or it is otherwise. In a suit relating tomortgage of property, the plaintiff could file a suit to bring theproperty for sale and equally he is entitled to sue for recovery ofmoney against the guarantor as well. To test whether the decreecould be enforced only against one defendant at the choice of theplaintiff, the case put forth by the plaintiff and the nature of thedecree are relevant. In this context, firstly the lawyer's noticedated 21.9.91 is referable. In the said notice addressed to both thedefendants, the plaintiff had stated that both the defendantsexecuted a demand promissory note and both of them are borrower andguarantor and the second defendant, being the guarantor, is jointlyand severally liable for due repayment of the loan. Therefore theplaintiff had called upon both the defendants to pay the sum withinterest. With the same averments in the plaint, a judgment anddecree was also prayed against both the defendants for payment of theamount with interest and in default to bring the property for sale. https://hcservices.ecourts.gov.in/hcservices/ The learned senior counsel for the plaintiff would contend that thesuit being one for sale of the property and not a suit forredemption, the provisions of Sections 43 and 44 of the IndianContract Act alone would apply and in such case, the plaintiff wouldbe entitled to proceed against any one of the defendants for recoveryof the amount. In our opinion, the said contention holds no merit.As referred to earlier, the suit was laid, among other provisions,under Order XXXIV Rule 1 of Civil Procedure Code as well. OrderXXXIV of Civil Procedure Code refers to suits relating to mortgage ofimmovable property. Rule 1 of the said Order contemplates that allpersons having interest either in the mortgage and security or in theright of redemption shall be joined as parties to any suit relatingto the mortgage. In the event such a suit is laid against theguarantor as well, certainly it would be open to the guarantor tosettle the plaintiff by paying the amount due and in view of suchpayment, would redeem the property and proceed with the property tomake good the loss. In this context, we may also refer to Sections91 and 92 of the Transfer of Property Act, 1882. Section 91(b) ofthe said Act empowers any surety for the payment of the mortgage-debtor any part of that to redeem the mortgaged property. By virtue ofsuch right, if once the mortgage is redeemed, then he has got a rightof subrogation under Section 92. A combined reading of Order XXXIVRule 1 of Civil Procedure Code and Sections 91 and 92 of the Transferof Property Act would show that the right of a mortgagee to defendthe case is co-extensive with the principal debtor as well as theguarantor. In this context, we may also refer to Section 128 of theIndian Contract Act, 1872 relating to the surety's liability. Thatsection contemplates that the liability of a surety is co-extensivewith that of the principal debtor unless it is otherwise provided bythe contract. As we have already referred to, it is the case of theplaintiff that both the principal debtor and the guarantor hadjointly entered into the agreement and also executed a promissorynote and there is nothing placed on record to show that the contractprovided otherwise. Section 140 of the said Act contemplates a rightof the surety on payment or performance. As per the said section,where a guaranteed debt has become due or default of the principaldebtor to perform a guaranteed duty has taken place, the surety, uponpayment or performance of all that he is liable for, is invested withall the rights which the creditor had against the principal debtor.Section 141 of the said Act again contemplates that a surety isentitled to the benefit of every security which the creditor hasagainst the principal debtor at the time when the contract ofsuretyship was entered into. Therefore, the decree relating to themortgage cannot be considered to be severable, as the right of theprincipal debtor and the guarantor is co-extensive. 13. In this context, we may usefully refer to the judgment ofthe Apex Court in Bank of India v. M/s Mehta Brothers and others,2009 (1) MLJ 81. That was a case where the Bank of India issued anirrevocable letter of credit for certain sum in favour of one M/sBentrex and Company, Singapore, one of the defendants. Thebeneficiary drew a site draft for a certain amount and presented thesame to one Deutsche Bank Asia, which was arrayed as the sixthdefendant in the said suit. A suit was filed not only against the https://hcservices.ecourts.gov.in/hcservices/ Bentrex and Company, Singapore and others as well as the sixthdefendant. An ex parte decree was passed against the sixth defendantand the suit was dismissed against the other defendants 1 to 5. Anapplication was taken out by the sixth defendant to set aside the exparte decree and the learned single Judge of the High Court set asidethe ex parte decree passed against the sixth defendant. By the sameorder, the learned Judge set aside that portion of the decree wherebythe suit against the other defendants was also dismissed. That orderwas questioned in appeal before a Division Bench and the DivisionBench set aside the order of the learned single Judge insofar assetting aside the ex parte decree against the defendants 1 to 5 andaffirmed the order setting aside the ex parte decree against thesixth defendant. When the matter came up before the Apex Court, thequestion raised was whether by virtue of the proviso to Order IX Rule13 of Civil Procedure Code the Court could set aside the decree inits entirety. Having referred to the provisions of Order IX Rule 13which existed under the Code of Civil Procedure, 1882 and theprovisions after the amendment, ultimately, the Apex Court found thatunder the said provision, an ex parte decree could ordinarily be setaside only against the defendant against whom the decree was ex parteand the suit could be revived only qua the said defendant applyingfor setting aside the ex parte decree. It is also held that in caseswhere the decree is of such a nature that the same cannot be setaside only as against the defendant applying for setting it aside,the decree could also be set aside against any or all of the otherdefendants. The proviso to Order IX Rule 13 therefore empowers theCourt to set aside ex parte decree against all the defendants in anapplication filed by one of the defendants in the event the decree isof such a nature which could be either executed against both thedefendants or any one of the defendants by getting the ex partedecree set aside may exercise his right of redemption over theproperty. If the ex parte decree in question is viewed from thatangle, in our considered view, the decree could be set aside againstall the defendants thereby paving a way for the second defendant tocontest the suit and in the event a decree is passed for payment ofmoney, he may honour the same and proceed against the principaldebtor. On the facts of this case, as we have found that the decreein question is enforceable against both the defendants and the rightconferred on the guarantor to redeem the property, the guarantor isentitled to either defend the suit or to submit to the decree for thepurpose of payment of the claim of the plaintiff and to redeem theproperty. Hence the ex parte decree is liable to be set asideagainst both the defendants and we find no infirmity in the order ofthe learned single Judge in setting aside the decree against both thedefendants. 14. Point No.(iii): Lastly it is contended that the plaintiffwould be entitled to abandon the suit against the second defendantonly in view of Order XXIII Rule 1 of Civil Procedure Code. By thatprovision, the plaintiff may against all or any of the defendantsabandon the suit or abandon a part of the claim at any time after theinstitution of the suit. That question does not arise in an appealquestioning the order of the learned single Judge in setting asidethe ex parte decree. In our considered view, the memo filed by the https://hcservices.ecourts.gov.in/hcservices/ plaintiff at the appellate stage seeking to abandon the suit inrespect of the second defendant would be outside the scope of theconsideration of the order under appeal and hence we are not inclinedto go into the said question. 15. For all the above reasons, we find no merit to interferewith the order under appeal. Accordingly, the original side appealfails and the same is dismissed. No costs.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarssToThe Sub Assistant Registrar (O.S.))High Court,Madras+ 1 CC to M/s.T.K.Bhaskar,Advocate,SR.19304+ 1 CC to M/s.A.L.Ganthimathi,Advocate,SR.19348O.S.A.No.218 of 2006KJI(CO)EM/20.5.09