2010 Supreme(Mad) 5039

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.R. SHIVAKUMAR
Southern Petrochemical Industries Corporation Ltd., Rep. by its Secretary
Versus
Samyukta Alagappan, Sole Proprietrix of M/s. Sriya Enterprises & Another
C.S.No.825 of 1999
Decided On : 24-11-2010

The enforceability of a suit claim is not barred by Section 23 of the Contract Act if the contract is not opposed to public policy.

Headnote:

Suit for recovery of money secured by mortgage of immovable property - Equitable mortgage created by deposit of title deeds - Enforceability of the suit claim - Bar of Section 23 of the Contract Act - Limitation - Maintainability of the suit - Jurisdiction of the court - Liability of the second defendant as a co-obligor and an equitable mortgagor - Award of interest.

Fact of the Case:

Plaintiff, a public limited company, advanced amounts to the first defendant, a sole proprietrix of Sriya Enterprises, for completing export obligations arising out of orders obtained from parties in the United States of America. A sum of Rs.27,63,694/- was left due and payable by the first defendant. Despite demands, the defendants evaded payment. The first defendant agreed to clear the outstanding by obtaining a Letter of Credit from the buyer in favor of the plaintiff. The plaintiff called upon the defendants to pay the outstanding sum by issuing a cheque. The defendants came forward to offer collateral security in respect of the outstanding amounts. The defendants issued a cheque for the outstanding amount and also deposited the title deeds of the immovable property belonging to the second defendant with an intention to create an equitable mortgage. The cheque was dishonored on presentation for encashment. The defendants requested further time to clear the outstanding. As it was not done within the said period, the plaintiff sent a notice calling upon the defendants to pay the outstanding amount together with interest. The defendants failed to pay the amount even after they were called upon to do so. Hence, the plaintiff approached the court by way of the present suit praying for a decree directing the defendants to jointly and severally pay the total amount of principal and interest up to the date of plaint, together with further interest on the principal sum from the date of plaint till the date of realization @ 20% per annum within a time to be fixed by the court and for a decree on mortgage directing the sale of the properties described in the plaint schedule, in default of payment of the said decreetal amount within the time fixed by the court and also for a personal decree in case of any short fall.

Finding of the Court:

1. The suit is maintainable as the plaintiff has made a clear and concrete averment that it had made financial assistance to the first defendant for the purpose of completing her export obligations arising out of orders obtained from the parties in the United States of America; that in respect of such transactions, the first defendant had left due and payable to the plaintiff a sum of Rs.27,63,694/- as the outstanding amount towards principal; that when demand for payment of the same was made, the defendants agreed to clear the outstandings by obtaining a Letter of Credit in favor of the plaintiff from the buyer on or before 31.07.1997, but subsequently failed to do so; and that a demand was made by the plaintiff to the defendants by sending a fax message to the second defendant, describing him to be the Chief Executive of Sriya Enterprises, calling upon him to send a cheque in favor of the plaintiff for the outstanding amount of Rs.27,63,694/- as assured by him. 2. The suit is not barred by limitation as the suit having been filed within three years from the date of the last acknowledgment of liability by the defendants is within the period of limitation. 3. The court has jurisdiction to entertain the suit as the Madras High Court has full jurisdiction to hear a suit on equitable mortgage for recovery of money by the sale of the mortgage property irrespective of the location of the mortgage property. 4. The second defendant is liable as a co-obligor and an equitable mortgagor for the amount outstanding from the first defendant to the plaintiff as he issued his personal cheque for the discharge of the liability of Sriya Enterprises and deposited the title deeds of his personal property intending to create a security for such amount outstanding from the first defendant towards the plaintiff. 5. The plaintiff is entitled to recover interest only after the service of the notice on the defendants, under which alone a demand for payment of interest was made. The reasonable interest to be awarded shall be only simple interest at the rate of 9% p.a. upto the date of plaint. The plaintiff shall be entitled to an interest at the same rate, namely 9% p.a. from the date of plaint till the date of preliminary decree and from the date of preliminary decree till realization or actual payment of the principal amount.

Issues: 1. Whether the plaintiff is entitled for a decree for a sum of Rs.48,87,367/-together with interest @ 20% p.a. on Rs.27,63,694/-? 2. Whether, in default of decree amount, the plaintiff is entitled for the sale of the properties as found in the plaint schedule? 3. Whether the plaintiff is entitled for any other relief?

Ratio Decidendi: 1. The enforceability of the suit claim is not barred by Section 23 of the Contract Act as the plaintiff has not availed the services of the first defendant with an intention of evading its tax liability by showing inflated export earnings, and there is no clear and cogent evidence to show that any such evasion of tax was made and the money was lent for the purpose of evasion of tax liability. 2. The suit is not barred by limitation as the suit having been filed within three years from the date of the last acknowledgment of liability by the defendants is within the period of limitation. 3. The court has jurisdiction to entertain the suit as the Madras High Court has full jurisdiction to hear a suit on equitable mortgage for recovery of money by the sale of the mortgage property irrespective of the location of the mortgage property. 4. The second defendant is liable as a co-obligor and an equitable mortgagor for the amount outstanding from the first defendant to the plaintiff as he issued his personal cheque for the discharge of the liability of Sriya Enterprises and deposited the title deeds of his personal property intending to create a security for such amount outstanding from the first defendant towards the plaintiff. 5. The plaintiff is entitled to recover interest only after the service of the notice on the defendants, under which alone a demand for payment of interest was made. The reasonable interest to be awarded shall be only simple interest at the rate of 9% p.a. upto the date of plaint. The plaintiff shall be entitled to an interest at the same rate, namely 9% p.a. from the date of plaint till the date of preliminary decree and from the date of preliminary decree till realization or actual payment of the principal amount.

Final Decision: Suit decreed in part; preliminary decree on mortgage for the sale of the suit property granted in favor of the plaintiff directing the defendants 1 and 2 jointly and severally to pay a sum of Rs.27,63,694/- along with an interest on the said amount calculated at the rate of 9% per annum from 27.10.1998 with proportionate cost. The said amount shall be paid within six months from the date of preliminary decree. Otherwise the plaintiff shall be entitled to apply for final decree for the sale of the suit property for the recovery of the above said amount together with future interest on the principal sum of Rs.27,63,694/-@ 9% per annum up to the date of recovery or actual payment. In case the sale proceeds shall be insufficient to satisfy the suit claim, the plaintiff shall be entitled to a personal decree against the defendants for the balance amount due under the decree.