Bombay High Court
PUNJAB NATIONAL BANK, MUMBAIversusM/S. MOHAN GANDHI AND COMPANY, MADRAS
- Decided
- Disposal
- Allowed
Holding
The 5 July 1982 indenture is a valid agreement for sale, not a security, and specific performance is enforceable.
Summary
The case involved Punjab National Bank (PNB) and M/s. Mohan Gandhi & Co., a partnership firm, concerning an agreement dated 5 July 1982 for the sale of a flat in Cuffe Parade. The firm claimed the document was a security arrangement for a loan taken by Argee Textiles, alleging that minors in the partnership had not consented and that the agreement was void. PNB contended it was a genuine sale contract, that substantial consideration of Rs 14 lakhs had been paid, and that specific performance was due. The High Court examined issues of contract nature, validity of minors’ participation, limitation, stamp duty compliance, and the effect of clauses 7‑8. It held that the document was a bona‑fide agreement for sale, not a security, and that the firm had failed to prove any nullity. Consequently, the appeals were allowed, the earlier common judgment was set aside, Suit 219 (1988) was dismissed, and Suit 17 (1989) was decreed in favour of PNB with an order to pay the balance Rs 1 lakh plus interest.
Issues considered
- Whether the indenture dated 5 July 1982 constitutes a sale agreement or a security for the loan to Argee Textiles.
- Whether the agreement is void or voidable due to execution by minors and lack of guardian consent.
- Whether the suit is barred by limitation.
- Whether clauses 7 and 8 of the agreement indicate a security transaction.
- Whether the consideration of Rs 14 lakhs was actually paid and its legal effect.
- Whether specific performance of the sale is an appropriate remedy.
- Whether PNB is liable to pay mesne profit for occupation of the flat.
- Whether the partnership can alienate the flat with consent of all partners under the Partnership Act.
- Whether the document’s stamp duty deficiency affects its admissibility.
Legislation cited
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Bombay Stamp Act, 1958 — s. 33, 36
- Indian Evidence Act, 1872 — s. 91, 92
- Indian Partnership Act, 1932 — s. 14, 30(2)
Subjects
- agreement for sale
- specific performance
- partnership
- minors
- limitation
- stamp duty
- evidence act
- security vs sale
- loan
- mesne profit
- collateral security
- Debt Recovery Tribunal
- court receiver
Judgment
FA-1287-2024 & FA-1288-2024 (2).doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO. 1288 OF 2024
WITH
INTERIM APPLICATION NO. 2428 OF 2023
IN
FIRST APPEAL NO. 1288 OF 2024
1) Punjab National Bank, ]
A nationalized Bank having its Regional ]
Office at 71/73, Maker Towers, ]
Cuffe Parade, Colaba ]
Bombay – 400 005 ] ...Applicant/
] Appellant
Versus
1) M/s. Mohan Gandhi & Company ]
A Partnership Firm having its registered ]
office at 7/2, Gopalpuram First Street, ]
Coimbatore - 600 018 ]
Tamil Nadu, and branch office at 14, ]
Judge Jabuling Street, Mylapore, ]
Madras - 600 004 ] ...Respondent
WITH
FIRST APPEAL NO. 1287 OF 2024
WITH
INTERIM APPLICATION NO. 3401 OF 2023
IN
FIRST APPEAL NO. 1287 OF 2024
1) Punjab National Bank, ]
A body corporate constituted under the ]
provisions of the Banking Companies ]
(Acquisition and Transfer) of ]
Undertakings Act, 1970 having its Head ]
Office at Plot No.4, Sector 10, Dwarka, ]
New Delhi - 110 075 and a Zonal office at ]
Arya Chavan 1/61
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11th Floor, Dalamal House, Jamnalal Bajaj ]
Marg, Nariman Point, ]
Mumbai - 400 021 ] ...Appellant
Versus
1) M/s. Mohan Gandhi & Company ]
A Partnership Firm having its registered ]
office at 7/2, Gopalpuram First Street, ]
Coimbatore - 600 018 ]
Tamil Nadu, and branch office at 14, ]
Judge Jabuling Street, Mylapore, ]
Madras - 600 004 ] ...Respondent
Counsel Shanay Shah a/w Adv. Hamza Lakhani, Mr. Rohit Iyengar, Mr. Anuj
Loya i/b Shardul Amarchand Mangaldas & Co., for the Appellant.
Mr. Prasad Pathare, for the Respondent.
CORAM : SHARMILA U. DESHMUKH
RESERVED ON : AUGUST 7, 2026
PRONOUNCED ON : SEPTEMBER 29, 2026
(Through Video Conferencing)
--------------
JUDGMENT:
1. Both these Appeals filed at the instance of original Plaintiff in Suit
No 17 of 1989 and Defendant in Suit No 219 of 1988 challenge the
common judgment and order dated 6 th January, 2023 passed by the
Bombay City Civil Court in Suit No. 17 of 1989 (High Court Suit No. 423
of 1989) and Suit No. 219 of 1988 (High Court Suit No. 2589 of 1988)
decreeing Suit No 219 of 1988 and dismissing Suit No 17 of 1989.
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2. Common submissions were advanced and the Appeals are
disposed of by this common judgment.
3. Suit No. 219 of 1988 was filed by Mohan Gandhi and Company, a
partnership firm, against Punjab National Bank (erstwhile New Bank of
India) inter alia, for a declaration that the agreement for sale dated 5 th
July, 1982 executed between Mohan Gandhi and Company and New
Bank of India is null and void and not binding upon the Plaintiff as it was
executed only as security and not an agreement for sale. Suit No. 17 of
1989 was filed by the Punjab National Bank seeking specific
performance of the agreement for sale dated 5 th July, 1982 in respect of
flat bearing no. A/1 in Cuffe Castle Co-operative Housing Society
Limited, Cuffe Parade, Colaba.
4. For the sake of clarity Punjab National Bank is referred to as
“PNB” and Mohan Gandhi and Company is referred to as “Mohan
Gandhi firm.”
5. The case as initially set up by Mohan Gandhi firm is that it is the
owner of the suit flat, that one of their partners, Mr. G.
Balasubramaniam had taken a loan of Rs. 14 lakhs from PNB without
knowledge and consent of the other partners and by representing to be
the owner of the flat and garage. PNB approached Mohan Gandhi firm
for executing the agreement for sale, which was executed in Madras
late in the night as security in respect of the loan taken by Mr. G.
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Balasubramaniam. On the date of execution of the agreement, PNB also
drew pay order in favor of the Mohan Gandhi firm and had it re-
endorsed in favor of PNB and accordingly entries are reflected in the
account of PNB. It was represented under the said agreement that PNB
be allowed to use of the flat for occupation of the bank officials and
compensation/mesne profit for such occupation would be the interest
payable on the said loan. Alongwith the purported agreement for sale,
certain documents were executed without permitting Mohan Gandhi
firm to examine the documents, which are in possession of PNB.
6. The plaint came to be amended on 29th August, 2009 and the
amended pleading was that one Argee Textiles Private Limited (‘Argee
Textiles”) had taken business loan from PNB, which it had failed to
repay. Mr. G. Balasubramaniam, who was one of the partners of Mohan
Gandhi firm was the Managing Director of Argee Textiles, and though,
had no authority, offered the suit premises as collateral security for the
loan availed. There was no memorandum of deposit of title deeds.
Realizing the defect in creation of the collateral security, PNB got the
suit agreement unilaterally prepared and obtained the signatures of the
executing parties on 5th July, 1982 at Madras at midnight without giving
an opportunity to the parties to obtain any legal advice. The bank
manager had assured Mohan Gandhi firm that the possession of the suit
premises would be returned within five years upon repayment of loan
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of Rs. 14 lakhs obtained by Argee Textiles against collateral security of
the suit premises. The plaint pleads about Suit No 441 of 1982 filed by
PNB against Argee Textiles for recovery of their unpaid dues wherein,
Mohan Gandhi firm was sued as mortgagors of suit premises for the
loan facility granted to Argee Textiles. In Suit No 441 of 1982, Court
Receiver was appointed and formal possession of the suit premises was
taken by the Court Receiver on 20th March, 1982 and despite the suit
premises being custodia legis, the agreement came to be executed on 5th
July, 1982 under pressure as security for repayment of the loan
advanced.
7. At the time of execution of sale dated 5 th July, 1982, two partners
of Mohan Gandhi firm were minors and neither of them have signed the
agreement nor their guardian has signed the agreement on their behalf.
The agreement was also signed by Mr. G.Muruganthaswami, who was
never partner of Mohan Gandhi firm. It is pleaded that no consideration
was paid by PNB. In the month of November 1986, Mohan Gandhi firm
raised sufficient funds to repay the sum of Rs. 14 lakhs and approached
PNB to release the suit premises by accepting payment, which was
refused falsely claiming that the agreement dated 5 th July, 1982 was an
agreement for sale. There was exchange of correspondence between
the parties, and as possession of suit premises were not handed over,
the suit came to be filed on 29th August, 1988.
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8. The defense of PNB was that the suit was barred by limitation. It
was pleaded that the agreement for sale was executed by all three
partners of Mohan Gandhi firm for consideration of Rs. 15 lakhs, out of
which substantial amount of Rs 14 lakhs was paid leaving a sum of Rs. 1
lakh. PNB was put in possession of the suit flat and as substantial
consideration was paid, there is no question of payment of rent or
mesne profit for use and occupation of the subject flat. As there was
failure to complete the sale transaction before 30 th June, 1987, the suit
is filed seeking specific performance of the agreement for sale.
9. The case of PNB in its Suit No. 17 of 1989 (High Court Suit No. 423
of 1989) is reiteration of its defense in the suit filed by Mohan Gandhi
firm. The defense of Mohan Gandhi firm in PNB’s suit is reproduction of
its pleading in Suit No 219 of 1988.
10. The Trial Court framed and answered the following issues in Suit
No. 219 of 1988 of Mohan Gandhi firm :
Sr. Issues Findings
No.
1. Whether the plaintiffs prove that the suit as Yes
framed is maintainable?
2. Whether the plaintiffs prove that the suit is Yes
within limitation?
3. Whether the plaintiffs prove that one of their Yes
partners had taken loan of Rs.14 lakhs from the
defendants without knowledge or consent of all
the partners?
3A. Whether the plaintiffs proves that when the Partly Yes
Agreement dated 5th July 1982 was entered into
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by both the parties, M.Mohan Gandhi and his
sister were minors and neither of them or their
guardians have signed the said agreement?
4. Whether the plaintiffs prove that said agreement Yes
has been executed for the purpose and/or as
security and not as an Agreement for Sale?
5. Whether the plaintiffs prove that the Agreement Yes
for Sale as shown in Exhibit "A" is null and void,
ineffective and in-operative and not binding upon
the plaintiffs and is liable to be
cancelled/rescinded?
6. Whether the plaintiffs prove that the Agreement Yes
for Sale of flat and garage cannot be specifically
performed to effect the transfer of the said flat
and garage in favour of the defendants?
7. Whether the plaintiffs are entitled for a decree Yes
against the defendants to hand over vacant and
peaceful possession of the flat and garage upon
payment of Rs.14 lakh to the defendants?
8. Whether the defendants proves that they were No
ready and willing to perform their part of the
contract and the plaintiffs were not ready and
willing to perform their part of the contract?
8A. Whether the plaintiffs prove that the defendants No
are liable to pay mesne profit from 29th
November 1986 till the time the defendants hand
over possession to the plaintiffs and if so, at what
rate?
9. Whether suit filed by M/s. Mohan Gandhi & Co. is No
barred by the law of limitation?
10. What decree and order? As per final
order.
11. The issues framed in Suit No. 17 of 1989 of PNB are as under :
Sr. Issues Findings
No.
1. Whether the defendants prove that suit is not No
maintainable as alleged?
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2. Whether the plaintiffs prove that under No
Agreement for Sale dated 5th July 1982
defendants have agreed to sell and transfer their
right, title and interest in the suit flat together
with fixtures, fittings and furnitures to the
plaintiffs for sum of Rs.15 lakhs?
3. Whether the plaintiffs prove that defendants No
have received a sum of Rs. 14,00,000/-against the
execution of the said Agreement for Sale on 5th
July 1982 and the balance of Rs.1,00,000/- was to
be paid on completion of all formalities for sake
as provided in the said Agreement?
4. Whether the plaintiffs prove that defendants No
breached the Agreement?
5. Whether the plaintiffs prove that they are No
entitled to claim damages of Rs.20,000/-p.m.
from 30.06.1987 for non compliance of
Agreement dated 6th July 1982?
6. Whether the plaintiffs prove that they were No
ready and willing to comply with and perform
their part of the contract and the defendants
were not ready and willing to perform their part
of the contract?
7. Whether the plaintiffs prove that they are No
entitled for an order and decree against
defendants to specifically perform said
Agreement for Sale dated 5th July, 1982 in
respect of suit flat?
8. Whether the plaintiffs prove that they are No
entitled for an order and decree against the
defendants to pay to the plaintiffs sum of
Rs.40,00,000/- for damages and breach of the
contract over and above the damages to the
extent of Rs.20,000/- per month from 20 th June
1987 i.e. from the date of filing of the suit till
payment and/or realisation?
9. What decree and order? As per final
order
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12. Evidence was led by the parties and on behalf of Mohan Gandhi
firm, its partner M. Mohan Gandhi was examined and on behalf of PNB,
its manager Madhav Waman Naik was examined. The witnesses
produced oral and documentary evidence.
13. The Trial Court appreciated the evidence on record to decree the
suit of Mohan Gandhi firm and dismissed the suit of PNB by the
impugned judgment dated 6th January, 2023. On the issue of limitation,
by taking into consideration the fact that Mohan Gandhi attained
majority on 29th January, 1987, the Trial Court held that the suit of
Mohan Gandhi firm was within limitation. The Trial Court examined the
clauses in the agreement for sale and in particular, Clauses 7 and 8, to
opine that the clauses create a doubt about the transaction being an
outright agreement for sale. It further noted Suit No. 441 of 1982 filed
by PNB against Argee Textiles, which was subsequently transferred to
the Debt Recovery Tribunal (“DRT”) in which Mohan Gandhi firm was
impleaded as mortgagors and the Original Application (“OA”) came to
be disallowed against Mohan Gandhi firm.
14. The Trial Court answered the issue no. 3A as regards the
execution of the sale deed by the guardian of minors, partly in the
affirmative by noting that there was signature of M. Mohan Gandhi and
Chamundi’s mother i.e. Sushila Devi. The Trial Court was of the opinion
that upon payment of substantial amount of Rs. 14 lakhs, there is no
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justification for waiting for period of five years for execution of the
registered sale deed, and from 1982 to 1987, not a single letter was
issued on behalf of PNB to Mohan Gandhi firm to execute registered
sale deed. It noted that the loan was obtained by Mr. G.
Balasubramaniam, who was the Managing Director of Argee Textiles,
and no material has been placed to show connection of the Company
with Mohan Gandhi firm. It observed that no consent was obtained by G.
Balasubramaniam from Mohan Gandhi firm while availing loan and in
any event as two partners were minors, there was no question of
obtaining consent. It opined that the credit of sum of Rs. 14 lakhs to
loan account of Argee Textiles indicates that the agreement was
security for loan advanced to Mr. G. Balasubramaniam.
15. Mr. Shah, learned counsel for the Appellant- PNB, would point out
that the partners of Mohan Gandhi firm as per partnership deed dated
4th September, 1970 were Mr. G. SethuRamalingam, Mr. G.
Balasubramaniam, and the minors i.e. M. Mohan Gandhi and Chamundi
Bhubaneshwari, who were the children of Mr. G. Muruganthaswami and
M. Sushila Devi, through their guardian, Smt. M. Sushila Devi and
admitted to the benefits of partnership. He submits that the agreement
for sale was executed on 5th July, 1982 by Mohan Gandhi firm with PNB
for consideration of Rs. 15 lakhs. Drawing attention to the various
clauses of the agreement, he would submit that the agreement uses the
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expression “sell/sold/sale”, and that Clause 2 states about possession
being handed over, which are all indicia of sale transaction. He submits
that the Trial Court read Clauses 7 and 8 in isolation to treat the
transaction as security for loan. He submits that the Trial Court has held
the period of five years for completion of sale against PNB, whereas it is
open for the parties to agree upon the time period within which the sale
was to be completed. He further points out that the agreement for sale
was signed on behalf of the minors by their mother, and therefore, the
agreement was validly executed. He submits that Argee Textiles was
the borrower of PNB and the sale consideration of Rs. 14 lakhs paid by
PNB on 6th July, 1982, was adjusted against loan obtained by Argee
Textiles in view of the endorsement by Mohan Gandhi firm in favour of
PNB and points out the voucher-Exhibit 19.
16. He submits that due to breach in completion of sale within the
prescribed period, communication was addressed to Mohan Gandhi firm
to transfer the suit flat to PNB, to which Mohan Gandhi firm responded
admitting about the loan availed by G. Balasubramaniam, who was one
of the partners of Mohan Gandhi firm. He submits it was falsely claimed
that the agreement was a security for repayment of loan and the use
and occupation was interest. He submits that the pre-suit
correspondence unequivocally accepts that Mr. G. Balasubramaniam was
partner of Mohan Gandhi firm, however, in its written statement, it is
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falsely contended that Mr. G. Balasubramaniam was not a partner of
Mohan Gandhi firm. He submits that the pleading of availing of loan by
G. Balasubramaniam without consent and knowledge of Mohan Gandhi
firm is unacceptable as no notice was issued to G. Balasubramaniam,
much less any action.
17. He would submit that if the agreement for sale was not to be
acted upon,the firm has not given any explanation as to why it did not
seek cancellation of the agreement prior to 30 th June, 1987, and the suit
also came to be filed only after the bank called upon the firm to
specifically perform its obligation under the agreement.
18. He has taken this Court through the evidence of Mohan Gandhi,
who admits that he has not given instructions to draft the plaint in 1988.
He would further point out that the Bank’s witness has deposed about
the working capital facility obtained by Argee Textiles for Rs. 20 lakhs,
guaranteed by guarantors including Mr. G. Balasubramaniam, who was
the partner of Mohan Gandhi firm. He would submit that, as there was a
default in repayment by Argee Textiles, Suit No. 441 of 1982 was filed
by PNB in the High Court against the directors and guarantors for
recovery of loan to an extent of Rs. 24,67,486/-, which suit was then
transferred to DRT. He submits that pursuant to negotiations, Mohan
Gandhi firm entered into an agreement for sale for consideration of Rs.
15 lakhs, an amount of Rs. 14 lakhs paid by PNB, which was endorsed by
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the firm in name of Argee Textiles. He submits that on 14 th July, 2005,
OA No. 330 of 2001 was finally decided, as against which Defendant No.
3 therein has filed an Appeal.
19. He would submit that all outgoings in respect of the said flat are
being paid by PNB, however the bills are being issued in name of the
firm and since 2007, the electricity bill is issued in name of PNB.
20. He would further submit that Mohan Gandhi, in his additional
affidavit, for the first time put up a case of unilateral preparation of
agreement by bank manager,signatures being obtained at Madras and
that alleged assurances given by the bank. He submits that there is no
deposition regarding which clauses were not acceptable to the firm and
what changes were proposed, etc. He submits that the said deposition is
not to the personal knowledge of Mohan Gandhi as he was a minor and
has admitted in cross examination that he was not present in Madras on
5th July, 1982 and became aware of the agreement only on 5 th July,
1988. He would further point out the admission of Mohan Gandhi that
he has not personally approached PNB Bank for repayment of Rs. 14
lakhs.
21. He would further submit that it is Mohan Gandhi's own case that
the transaction was not a mortgage by deposit of title deeds and points
out to the additional affidavit of evidence of Mohan Gandhi. He would
submit that the Trial Court erred in questioning the waiting period of
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five years when the agreement for sale is itself admitted to have been
executed. He submits that the agreement for sale contains stipulations
as regards passing of consideration, lawful title of the firm, conveyance
of the right, title and interest, possession of the property, which are
sufficient indicia for accepting that the document was an agreement for
sale.
22. He would submit that the Trial Court erred in failing to consider
Sections 91 and 92 of the Indian Evidence Act, 1872 (for short “Evidence
Act”) and no oral evidence can be given contrary to the written
contract. He would further submit that the Trial Court has failed to
appreciate that Mohan Gandhi has not established that his mother
Sushila Devi did not sign the agreement for sale, and that issue no. 3A
could not have been partly answered in view of the finding in paragraph
72 of the impugned judgment. He would submit that the agreement for
sale was not only signed by Mohan Gandhi's mother but also by his
father. He submits that the finding of the Trial Court that the firm had
not connection with the transaction between Mr. G. Balasubramaniam
and PNB and therefore, the agreement for sale is null and void and
inoperative is based on no evidence. He would point out the finding in
paragraph 73 of the impugned judgment that Mohan Gandhi firm is
liable to pay loan amount of Rs. 14 lakhs and has thereby created a
contract which does not exist between the parties under the agreement
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for sale. In support he relies upon the following decisions :-
(i) Vimal Chand Ghevarchand Jain And Others vs Ramakant
Eknath Jadoo1
(ii) Maharaj Singh And Others vs Karan Singh (Dead) through
legal representatives2
23. Per contra, Mr. Pathare, learned counsel for the Mohan Gandhi
firm-Respondent, would submit that Mr. G. Balasubramanian was the
Managing Director in Argee Textiles and partner in Mohan Gandhi firm.
He submits that Argee Textiles had borrowed from PNB and due to
defect in security sought more security, which was offered by the firm,
who stood guarantor for the loan. He submits that the bank had filed
suit against Argee Textiles where amongst other reliefs, the bank had
sought a declaration that the flat is mortgaged as equitable security for
payment of sum of Rs. 24,67,486.46/-. He would point out the pleadings
in Suit No. 441 of 1982 to contend that the Bank had admitted in the
suit that the flat was given as security by Mohan Gandhi firm. He
submits that the Bank had suppressed the proceedings of Suit No. 441
of 1982 as well as about the loan taken by Argee Textiles, as against
which part consideration was claimed to have been adjusted.
24. He would submit that the firm had addressed a communication
dated 29th November, 1986 specifically stating that the flat was given as
1 (2009) 5 SCC 713
2 (2024) 8 SCC 83
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collateral security and the agreement was obtained fraudulently, and
calling upon the bank to hand over the possession of the flat, which is
sought to be disputed by the Bank. He would point out that from 5 th
July, 1982 till 26th August, 1987, there was no notice from the Bank
seeking completion of sale transaction.
25. He would submit that the Trial Court by order dated 7 th June,
2017 did not mark the Agreement for Sale dated 5 th July, 1982 as exhibit
on the ground of being insufficiently stamped and thereafter by order
dated 17th December, 2018 marked the agreement as Exhibit “6”.
26. He would point out the cross examination of Bank’s witness
admitting about Suit No. 441 of 1982 filed in the High Court and the
appointment of Official Liquidator. He would submit that Court Receiver
was appointed in those proceedings and suit flat being custodia legis
could not have been sold by Mohan Gandhi firm. He submits that before
the DRT, the Bank did not disclose about the agreement of sale and only
at the final hearing, the agreement for sale was brought to the notice of
DRT.
27. He would point out the Official Liquidator’s Affidavit tendered
before DRT reserving the right to claim right title and interest in the suit
flat. He submits that in view of the said proceedings, the sale could have
been conducted only with leave of the Court and the agreement was
kept under wraps by both parties.
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28. He would further point out the pleadings in Suit No. 441 of 1982
filed by PNB against Argee Textiles, where PNB had pleaded about the
suit flat being offered as security. He would submit that while filing the
suit, it was not disclosed that Argee Textiles was ordered to be wound
up, which came to be pleaded subsequently, as also the prayer for sale
of the subject flat to be applied towards the satisfaction of PNB’s claim
by treating the same as mortgage. He submits that therefore at all
points of time, PNB had considered the suit flat as security for the loan
advanced to Argee Texiltes. He submits that the fact about the
mortgage being created as stated in Suit No. 441 of 1982 was
suppressed by PNB in present Suit. He submits that in the background
of such facts, the document dated 5 th July, 1982 cannot be said to be
agreement for sale.
29. Drawing attention of this Court to the evidence of Mohan Gandhi,
he points out the clauses in the Deed of Partnership and in particular
Clause 11 to contend that the deed did not contain any agreement as
regards the property of partnership and therefore the Partnership Act
would prevail.
30. He would further point out that on behalf of the bank, its current
officer had deposed who had no personal knowledge of the facts of the
case. He would point out the deposition of the Bank’s witness deposing
about remittance of Rs 14 Lakhs by way of endorsement by Mohan
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Gandhi and Company for credit to the account of Argee Textiles and
that the witness had produced voucher dated 6 th July, 1982 depositing
the said amount of Rs. 14 lakhs to the account of Argee Textiles. He
would further point out the admission of the witness that the
endorsement behind the pay order was not personally seen by him and
he is not aware as to who has signed the endorsement.
31. He would further point out the affidavit of the official liquidator
filed in High Court Suit No. 441 of 1982, stating that Argee Textiles was
ordered to be wound up and official liquidator was appointed and when
the representative went to take possession of the premises, found the
bank in possession. He would further point out that the liquidator has
stated that it’s right is reserved to claim right, title and interest and take
possession of the suit flat as it is an asset deemed to be in custody of
winding up Court, and that the bank be directed to prove its claim. He
would further point out that the official liquidator has stated that a
Court Receiver was appointed in respect of the subject flat with
directions not to disturb possession of anyone, who might be in
possession thereof, and accordingly, formal possession has been taken
of the subject flat by the Court Receiver on 20th March, 1982. He submits
that in view of the flat being in formal possession of the Court Receiver
and official liquidator having been appointed, the sale, if any, can be
only to be by leave of the court.
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32. He would further point out the cross-examination of Mohan
Gandhi that his father had given instructions to draft the letter dated
29th November, 1986 and that based on the Court's order, he has
deposed about the flat being in custodia legis. He would submit that the
Bank's case is that in cross-examination Mohan Gandhi has admitted
that he was unaware of execution of the document, which has no
relevance, as Mohan Gandhi was a minor at the time of execution of the
agreement. He would further submit that the provisions of the
Partnership Act provides that a partnership property will vest in all the
partners and no partner can deal with any portion of the property as his
own. He submits that it is well settled that even if property is brought
into partnership by one of the partners, he ceases to be the exclusive
owner of the property and would be trading asset of the partnership
firm. He submits that in the present case, as the Partnership Act does
not provide for the manner of dealing with the partnership property, as
per the provisions of the Partnership Act, the property becomes a
trading asset of the partnership, with every partner having interest, and
therefore, Mr. G. Balasubramaniam could not have mortgaged the
property without the consent of the other partners. He would further
point out that Section 30 of the Partnership Act and would submit that
guardian of a minor, who is admitted to partnership firm is empowered
to do all that is necessary to effectuate the conferment and receipt of
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benefits of partnership. He submits that the sale of the suit flat was not
for the benefit of the minors.
33. He would further submit that the agreement for sale was not
properly stamped, as the recitals would show that the document is sale
deed. He has further taken this Court through the clauses of the
agreement to contend that there is no justification for waiting period of
five years to complete the sale. He would further submit that Clauses 7
and 8 deals with the consequences of non-performance, provides for
right to claim damages and that bank is not liable to pay any
compensation or mesne profit for use and occupation of the flat till the
repayment of sum of Rs. 14 lakhs, which are clauses supporting the case
of the agreement being agreement for security of the loan. He submits
that the clauses of the agreement speaks of vacating and handing over
possession and refund of earnest money after five years, which has
been rightly considered by the Trial Court as creating a doubt as to
whether the agreement is outright agreement for sale.
34. He has taken this Court in detail through the findings of the Trial
Court to contend that the Trial Court has rightly dealt with the various
Clauses of the agreement, which casts a doubt about the agreement
being an agreement for sale. He submits that as substantial
consideration was paid and the possession was with the Bank, there was
no requirement of execution of any further deed, and therefore, the
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document was required to be registered and duly stamped, which has
not been done. He submits that the issue of limitation is rightly
answered in favour of Mohan Gandhi firm as within period of three
years of attaining majority, Mohan Gandhi had filed the suit. In support
relies upon the following decisions : -
(i) Duggi Veera Venkata Gopala Satyanaryana vs Sakla
Veera Raghavaiah And Another3
(ii) Hari Chand vs Daulat Ram4
(iii) Allam Gangadhara Rao vs G. Gangarao5
(iv) Addanki Narayanappa And Another vs Bhaskara
Krishnappa, (dead) and thereafter his heirs and Others6
(v) Commissioner of Income Tax, Maysore, Bangalore vs M/s
Shah Mohandas Sadhuram7
(vi) Kanhaiyalal vs Dr. D. R. Banaji8
(vii) Pattu Lal vs Achchey Lal9
(viii) Peyare Lal vs Mt. Misri10
(ix) Fraser vs Krishnaswamy Aiyer11
(x) Shyamsundar Radheshyam Agrawal vs Pushpabai
3 AIR 1987 SC 406
4 AIR 1987 SC 94
5 AIR 1968 AP 201(V 55 C 63)
6 AIR 1966 SC 1300
7 AIR 1966 SC 15
8 AIR 1958 SC 725
9 1956 Vidhiya Pradesh 42 (AIR V 43 C 23 DEC)
10 AIR 1940 Allahabad 453
11 AIR 1923 Madras 144(2)
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Nilkanth Patil12
(xi) Veena Hasmukh Jain And Another vs State of
Maharashtra And Others13
(xii) Balawantgir Ganpatgir Giri vs Manasi Construction And
Developers14
35. In rejoinder, Mr. Shah would submit that the order of 20 th March,
1982 appointing the Court Receiver was ad-interim relief and the
motion was made absolute on 10 th March, 1983, excluding the subject
flat from the order. He points out that the High Court had taken note of
the agreement of sale executed between the parties and the
occupation by the Bank, and therefore, did not appoint the Court
Receiver in respect of the suit flat. He would further submit that the
Court Receiver, if any, was appointed at the instance of the Plaintiff
bank, and therefore, it cannot be said that there was any breach.
36. He would further submit that the submission about suppression in
DRT proceedings about the sale of the flat in the year 1982 is incorrect
and as the affidavit of evidence filed by the witness for the bank
specifically deposed in paragraph 48, that after filing of the suit, the
said flat mortgaged to the bank was sold by Mohan Gandhi by sale
agreement dated 5th July, 1982 for an amount of Rs. 14 lakhs, for which
12 AIR 2024 SC 5074
13 AIR 1999 SC 807
14 2006 AIHC 3715 (BOM)
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credit has been given to the account of Argee Textiles. He would point
out that the photocopy of the agreement was placed before the DRT
and that the DRT in its order dated 14 th July, 2005 has observed that
since the Plaintiff bank had entered into an agreement for sale against
Defendant firm, its claim against the Defendant firm as a mortgagor did
not survive.
37. Insofar as the letter of 1986 is concerned, he submits that the
suit, as initially filed, did not include the letter dated 29 th November,
1986, and it is only after amendment that the letter was made part of
their plaint. He would further point out that the contents of paragraph
5 of the said letter is contrary to paragraph 9(D) of the suit of Mohan
Gandhi firm. He would further point out the evidence of Mohan Gandhi
in respect of the letter dated 29 th November, 1986, that he is not aware
that his father had given instructions for issuance of the letter dated
29th November, 1986, as deposed on 7th April, 2019, and the contrary
deposition on 19th July, 2018 about instructions given by his father. He
would further submit that Mohan Gandhi has admitted in the cross-
examination that he has not personally approached the Defendant bank
in November 1986, which is contrary to paragraph 9(D) and 9(E) of the
amended plaint.
38. He would further submit that initially the agreement for sale was
not exhibited by Trial Court and came to be marked on 17 th December,
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2018, as the document was referred to and relied upon by Mohan
Gandhi firm and was put in cross-examination to the Bank’s witness. He
submits that in view of Section 36 of the Stamp Act, no objection can
be taken once an unstamped document is marked as exhibit. He would
further submit that the agreement for sale specifically provides for
completion of sale by executing the sale deed, and therefore, the deed
being unregistered does not make it inadmissible.
39. He would submit that the principle of law with respect to sale of
immovable property for the benefit of minor would apply if the
immovable property is owned by the minor himself, whereas in the
present case, the immovable property is owned by the partnership firm,
of which Mohan Gandhi is a partner. He submits that the impugned
order gives a finding in favor of the Bank as regards the natural
guardian of minor signing the agreement on their behalf, which has not
been challenged by Mohan Gandhi and has attained finality.
40. The facts of the case gives rise to the following points for
determination:
(i) Whether the indenture dated 5th July, 1982 constitutes a
transaction for sale of suit flat or is executed as security for
the loan taken by Argee Textiles from PNB.
(iii) Whether the credit of the part consideration in the loan
account of Argee Textiles constitutes payment of part
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consideration to Mohan Gandhi firm under the indenture
dated 5th July, 1982.
(iii) In the event, the indenture dated 5 th July, 1982 is held to
be an agreement for sale, whether it is null and void on the
ground that
(a) it was not signed by the then minors or their guardian
(b) the alienation of immovable property cannot be said to be
for the benefit of minors admitted to the benefits of
partnership.
(c) the alienation was at the sole instance of G.
Balasubramaniam.
41. The pleaded case of PNB is that the agreement for sale was
executed on 5th July, 1982 for total consideration of Rs 15 lakhs out of
which Rs 14 lakhs was paid as earnest money by cheque/pay order No
280363/352/82 dated 5th July, 1982 and balance Rs 1 lakh was to be paid
on completion of sale. As there was breach on part of Mohan Gandhi
firm, the suit is filed for specific performance.
42. The contention of Mr. Pathare is that of suppression of filing of
Suit No. 441 of 1982 and loan advanced to Argee Textiles. The cause of
action in present case was breach of agreement for sale by Mohan
Gandhi Firm. Considering the relief sought, PNB pleaded about
execution of the agreement and the alleged breach.
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43. The decision in the case of Duggi Veera Venkata Gopala
Satyanaryana vs Sakla Veera Raghavaiah And Another (supra),
pressed into service by Mr. Pathare in support of his contention that the
suit of PNB is liable to be dismissed as there is suppression of facts, is
misplaced. In that case, the Hon'ble Apex Court was considering the
issue of eviction of the Appellant and in that context has observed that
all the ingredients of the statutory provision therein was required to be
pleaded in the Petition, and as the same was not pleaded and was only
raised during arguments, the Hon'ble Apex Court refused to interfere
with the order of eviction. The decision is rendered in a different factual
scenario and does not assist the case of Mohan Gandhi Firm.
44. In so far as the decision in the case of Hari Chand vs Daulat Ram
(supra) is concerned, the suit was filed for recovery of possession of the
disputed land on the ground that the Plaintiff had become the owner of
the said land. There was no pleading by the Plaintiff that the disputed
property fell within the allotment of the Plaintiff on the basis of the
deed of partnership and that the disputed property was in possession of
his vendor before the sale of the said land. In that case, the facts which
were essential in order to prove the encroachment were not pleaded,
and in that context the Hon'ble Apex Court held that the Plaintiff had
failed to prove his case. In present case, PNB seeks the relief of specific
performance and has pleaded and proved the execution and payment of
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sale consideration.
45. The decision in the case of Allam Gangadhara Rao vs G.
Gangarao (supra) reiterates the well-settled principle about variance
between pleading and proof and that no relief can be granted on facts
and documents not disclosed in the plaint. Pertinently, the Court
considered that the suit based on one cause of action cannot be
decreed on another cause of action. The decision being clearly
distinguishable does not apply to the facts of present case.
46. The suit by Mohan Gandhi firm was filed on 29 th August, 1988 and
initially the pleaded case of Mohan Gandhi firm was that one of their
partners G. Balasubramaniam had taken loan of Rs 14 lakhs from PNB
without knowledge or consent of other partners and the agreement
dated 5th July, 1982 was executed as security for repayment of loan. It
was pleaded that on date of execution of agreement, PNB drew pay
order in favour of Mohan Gandhi firm and had it re-endorsed in favour
of PNB on the reverse and pay order has been retained and entries
reflected in account with PNB. It was pleaded that it was represented
that in lieu of occupation of the flat by officials of PNB, the
compensation for such occupation would be the interest payable on the
said loan. It was pleaded that Mohan Gandhi firm called upon the PNB to
hand over vacant possession of the flat upon making payment of Rs 14
lakhs, which was not complied by PNB.
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47. After the amendment in the year 2009, the case put up by Mohan
Gandhi firm was that the loan was taken by Argee Textiles and to cure
the defect in creation of collateral security, the agreement for sale
dated 5th July, 1982 was executed. By way of amendment, the pleading
about Suit No 441 of 1982 filed by PNB against Argee Textiles was
incorporated. Pertinently, though the amendment was carried out by
Mohan Gandhi firm to plead about the loan taken by Argee Textiles and
the suit flat offered as security for the loan of Argee Textiles, the initial
paragraphs about loan taken by G Balasubramaniam as partner of
Mohan Gandhi firm was not deleted.
48. Though the case of Mohan Gandhi firm was that PNB was liable to
hand over possession of suit flat upon receipt of Rs. 14 lakhs, which was
offered in November, 1986, there is no prayer sought by Mohan Gandhi
firm for direction to PNB to receive Rs 14 lakhs offered by Mohan
Gandhi firm and to hand over possession of suit flat or for redemption
of mortgage or handing over of original title deeds in view of the
amended pleadings.
49. The Trial Court clubbed both suits and permitted the parties to
lead common evidence. On behalf of Mohan Gandhi firm, its partner
Mohan Gandhi deposed and on behalf of PNB, its Manager was
examined.
50. The roznama indicates that the witness for PNB filed his Affidavit
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of evidence and list of documents on 28 th April, 2015 as Exhibit “3” and
“4” respectively. Exhibit “4” listed four documents and particulars of
claim. The agreement for sale was listed as Serial No 1, letter dated 26 th
August, 1987 was listed at Serial No 2, letter dated 17 th September,
1987 was listed at Serial No 3, letter dated 11 th November, 1987 was
listed at Serial No 4 and Particulars of claim listed at Serial No 5. The
proceedings came to be adjourned for say of Mohan Gandhi firm to 10 th
June, 2015. The roznama of 7 th June, 2017 records that order was
passed on Exhibit “4” and document at Sr No 2 which was letter dated
26th August, 1987 was marked as Exhibit “5”. The hand written
endorsement behind Exhibit “4” is that there was no admission or denial
by the Defendant and document at Serial No 1 is insufficiently stamped.
Document at Serial No 3 and 4 are not original. The document at Serial
No 2 is taken on record and marked as Exhibit. The roznama of 17 th
December, 2018 records that admission denial not given by Defendant.
The agreement for sale was marked as Exhibit “6”, the letter dated 26 th
August, 1987 was marked as Exhibit “7”, letter dated 17 th September,
1987 was marked as Exhibit “8”, letter dated 11 th November, 1987 was
marked as Exhibit “9” and particulars of claim was marked as Exhibit
“10.”.
51. The witness for PNB has deposed that pursuant to negotiations
held on 5th July, 1982, Mohan Gandhi firm entered into the agreement
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to sell the suit flat for consideration of Rs 15 Lakhs out of which Rs 14
lakhs was paid on execution of the agreement and possession was
handed over to the Bank. The witness has tendered the original
Agreement for Sale and identified the signature of the then Area
Manager of the Bank. The Trial Court initially did not mark the
Agreement for Sale as exhibit on the ground of being insufficiently
stamped, though there was no objection raised by the Mohan Gandhi
firm. Under Section 33 of the Stamp Act, the document was required to
be impounded and the stamp duty and penalty paid before the
document could be exhibited. The Trial Court neither impounded the
agreement nor marked the document as exhibit. Subsequently, the Trial
Court marked the agreement for sale as exhibit. Section 36 of the Stamp
Act provides that where an instrument has been admitted in evidence,
such admission shall not be called in question at any stage of the same
suit or proceedings on the ground that the instrument has not been
duly stamped. Further, the cross examination of PNB’s witness in
paragraph 5 indicates that he was questioned on the Agreement for
sale. As the agreement for sale came to be marked as exhibit by Trial
Court, it is not open for Mohan Gandhi Firm to question the admissibility
of the agreement for sale in appellate proceedings in view of the
embargo placed by Section 36 of Stamp Act.
52. In Shyamsundar Radheshyam Agrawal vs Pushpabai Nilkanth
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Patil (supra), the Hon'ble Apex Court has considered the provisions of
the Stamp Act to uphold the action of impounding of documents. There
is no quarrel with the said proposition.
53. In Veena Hasmukh Jain And Another vs State of Maharashtra
And Others (supra), the Hon'ble Apex Court has held that if there is an
agreement to sale immovable property and possession of such property
is transferred without executing any conveyance in respect thereof,
such agreement is deemed to be a conveyance. The issue before the
Court was as regards the duty payable under the Bombay Stamp Act,
1958 on an agreement for sale of flat covered by Maharashtra
Ownership Flats (Regulation of the Promotion of Construction, Sale,
Management and Transfer) Act, 1963 and Maharashtra Apartment
Ownership Act, 1970. The issue arose in the context of considering
stamp duty leviable on such agreement for sale, and in the present case,
the issue is as regards the admissibility of an unstamped document. In
view of Section 36 of Stamp Act, as the document has been admitted in
evidence, no objection can be taken as regards its admissibility at
appellate stage.
54. In the case of Balawantgir Ganpatgir Giri vs Manasi
Construction And Developers (supra), Trial Court therein had disallowed
the document in evidence on the ground of being insufficiently
stamped. The order of the Trial Court was challenged by way of Writ
Petition and came to be allowed. In that case, as the agreement
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contemplated delivery of possession only on execution of sale deed, the
Court held that the document was liable to be admitted in evidence. The
relevancy of the said decision to the facts of the present case is not
demonstrated and would not assist the case of the Appellant.
55. The witness for PNB has admitted that he was not personally
present at the time of execution of the agreement. The witness is the
manager of PNB and has deposed that he has perused the records of
the Bank and the Affidavit of evidence is based on information
therefrom.
56. The witness for Mohan Gandhi firm has deposed in paragraph 6 as
under:
“6. I say that despite the suit premises being custodia legis, the officials of
the defendants got the Agreement dated 5/7/82 executed at Madras late in
the night as and by way of security towards repayment of loan amount given
to the said Co. I say that the said Agreement dated 5/7/82 is a camouflage
and has been executed only as a security and the same is not a genuine
Agreement for sale as falsely contended by defendants.”
57. The witness for Mohan Gandhi has admitted the execution of the
agreement dated 5th July, 1982 and the factum of execution of the
agreement dated 5th July, 1982 has been duly established.
58. On the aspect of payment of consideration, the witness for PNB
has deposed that sum of Rs. 14 lakhs was paid on execution of the said
agreement. He has deposed in his additional affidavit of evidence in
paragraph 6 as under:
“6.. The amount of Rs. 14 lakhs paid by the Bank to Mohan Gandhi & Co. by
way of pay order for purpose of suit flat was endorsed by Mohan Gandhi &
Co in the name of ATPL and accordingly credited to the account of ATPL on
6th July, 1982. I am tendering a certified copy of relevant entry in the same in
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the records of Plaintiff bank and the same may be taken on record.”
59. In the additional affidavit in lieu of examination in chief, the
witness for PNB has deposed as under:
“4. I say that Rs 14,00,000/- was received by Mandvi Branch of the Plaintiff
from Mount Road, Madras Branch on 06.07.1982. The said amount of Rs
14,00,000/ was remitted by way of endorsement by M/s Mohan Gandhi & Co.
The amount of Rs 14,00,000/ was remitted for credit to the account of
Argee Textiles Pvt Ltd.
5. Voucher dated 06.07.1982 was generated depositing the said amount of
Rs 14,00,000/- transferring the said amount from Mount Road Branch,
Chennai of the Plaintiff to account of Argee Textiles Pvt Ltd. The voucher
has been signed by the Accountant and Manager of the Mandvi Branch.
Hereto annexed and marked as Exhibit “A” is a copy of the voucher dated
06.07.1982.
8. I say that M/s Mohan Gandhi & Co received consideration of Rs 14,00,000/
by Pay order No. 280363/352/82 dated 05.07.1982 and M/s Mohan Gandhi
& Co. re-endorsed the said Pay order in favour of Punjab National Bank (New
Bank of India as it was then) at Mount Road Branch for credit of account of
Argee Textile Pvt Ltd. Pursuant to the said endorsement, Mount Road
Branch, Chennai by way of telegraphic transfer remitted Rs 14,00,000/- at
the behest of Mohan Gandhi & Co to Mandvi Branch in favour of Argee
Textiels Pvt Ltd. The said amount was credited to the Account No 49 of M/s
Argee Textiles Pvt Ltd with Mandvi Branch.”
60. In the cross examination, the witness for PNB has stated that the
pay orders were credited to the account of M/s Argee Textiles which is
reflected in the entry in account statement. Even though the witness
for PNB has admitted that he is not aware about who had signed the
endorsement on behalf of Mohan Gandhi & Co, it needs to be noted that
the bank’s witness was deposing on basis of official records and was not
personally acquainted with the endorsed signatures. There is no specific
deposition by witness of Mohan Gandhi firm denying any such
endorsement on behalf of Mohan Gandhi firm. The witness for PNB has
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stated that his deposition is based on the voucher dated 6 th July, 1982
and the deposition is that the voucher was generated depositing the
said amount of Rs. 14,00,00,000/- transferring the said amount from
Mount Road Branch, Chennai of the Bank to the account of Argee
Textiles.
61. The statement of account-Exhibit 13 of Argee Textiles maintained
by the Bank reflects deposit entry of Rs 14,00,000/- on 6 th July, 1982
with narration as “By Trf (Proceeds of flat sold Dep by party)”. The
voucher dated 6th July, 1982 is the voucher of the Bank with the
narration of remitter being Mohan Gandhi & Co kept in sundry deposits
in favour of Argee Texiles Pvt Ltd.
62. In O.A No. 320 of 2001, which was transferred Suit No 441 of
1982 from High Court to DRT, the DRT has noted that after filing of
O.A., the flat was sold and sale proceeds of Rs. 14 lakhs are credited.
Suit No 441 of 1982 was filed by PNB against Argee Textiles seeking
recovery of Rs 24,67,486.46 alongwith interest. In these proceedings,
after transfer of the suit to DRT, the judgment of DRT notes about sale
proceeds of Rs 14 Lakhs being credited to Argee Textiles account and
disallows the claim of PNB against Mohan Gandhi firm. The statement
of account produced by PNB in DRT proceedings shows credit given to
Argee Textiles for sum of Rs 14 lakhs on 6th July, 1982.
63. It is nobody’s case that the sum of Rs. 14 lakhs for which due
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credit was given in the loan account of Argee Textiles, was payment by
Argee Textiles. The credit was given in the account of Argee Textiles of
sum of Rs 14 lakhs on 6 th July, 1982 after the execution of the
agreement of sale on 5th July, 1982. There is not even a suggestion
given to the witness for PNB that Mohan Gandhi firm had not endorsed
the pay order in favour of Argee Textiles.
64. The written arguments of Mohan Gandhi firm before DRT states
in paragraph 26 as under:
“26. As per the balance of dues indicated as on 3 rd August, 1983 is Rs
5,10,632.35 paise on account of realisation of a sum of Rs 5,56,854.11 paise
by sale of hypothecated goods and the bank having adjusted a payment of
Rs 14 lakhs due to M/s Mohan Gandhi & Co (Defendant No 6) in the alleged
purchase of flat situated at A1 Cuffe Castle, Cuffe Parade, Mumbai 400
005. The Agreement for sale was made under duress from the officials of
the lender, New Bank of India. No part of the Earnest Money was paid to
M/s Mohan Gandhi & Co and the said amount was adjusted against the
debts of the Company…”
65. The written submissions of Mohan Gandhi firm constitutes an
admission about the adjustment of Rs. 14 lakhs against debt of Argee
Textiles. In the present suit filed by Mohan Gandhi firm, it is pleaded in
paragraph 14 as under:
“14. The Plaintiffs, therefore, state that they are entitled to a declaration
that the agreement of sale shown in Exhibit “A” is null and void and the same
is ineffective, inoperative and not binding upon the plaintiff upon the
plaintiffs paying a sum of Rs 14,00,000/ and, therefore, the agreement is
liable to be cancelled and/or rescinded by an order of this Honourable
court….”
66. In the event, there was no flow of consideration of Rs. 14,00,000/-
from PNB to Mohan Gandhi firm, there is no justification for Mohan
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Gandhi firm to then offer to pay Rs. 14 lakhs for seeking possession of
the suit flat. The acceptance of adjustment of sum of Rs. 14 lakhs
against debt of Argee Textiles and offer of repayment of Rs. 14 lakhs
constitutes an admission by Mohan Gandhi firm that there was flow of
part consideration from PNB to Mohan Gandhi firm under the
agreement for sale dated 5th July, 1982, which was re-endorsed in
favour of Argee Textiles and accordingly there was reduction in loan
account of Argee Textiles. The net effect of the transaction is payment
by PNB of Rs. 14 lakhs by way of crediting the loan account of Argee
Textiles. In view of the evidence on record, it is difficult to accept the
contention that no consideration was paid by PNB to Mohan Gandhi
firm.
67. There is no pleading and no deposition by the witness for Mohan
Gandhi firm that the adjustment of Rs 14 lakhs by PNB towards the loan
of Argee Textiles was not authorised by Mohan Gandhi firm and there
was no endorsement by Mohan Gandhi firm on the pay order issued by
PNB. It is specifically pleaded by PNB that PNB drew a pay order in
favour of Mohan Gandhi firm and had it re-endorsed in favour of PNB on
the reverse. There was no objection taken by Mohan Gandhi firm to the
endorsement in favour of PNB and even in the pre suit communication
dated 29th November, 1986, there is no grievance raised that the
endorsement or the adjustment of Rs. 14 Lakhs was not at the instance
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of Mohan Gandhi firm.
68. The suit of Mohan Gandhi firm was amended in the year 2009, by
which time the judgment of DRT was passed and the specific case of
PNB about endorsement of the pay order in favour of Argee Textiles,
the adjustment of loan account of Argee Textiles with the part sale
consideration of Rs. 14 lakhs was to the knowledge of Mohan Gandhi
firm. As such, the suit should have pleaded about unilateral act of PNB
in adjusting the amount against loan of Argee Textiles or that the
endorsement, if any, being forged and fabricated or not being
authorised by Mohan Gandhi firm. The witness for Mohan Gandhi firm
admits that the pay order drawn by the bank was endorsed in favour of
the bank and retained by the bank. This lends credence to the case of
PNB that the endorsement was by Mohan Gandhi firm in favour of
Argee Textiles, which came to be retained by PNB after giving due credit
for Rs. 14 lakhs in loan account of Argee Textiles. The testimony of
PNB’s witness as regards the endorsement of sum of Rs. 14 lakhs in
favor of Argee Textiles by Mohan Gandhi firm has not been shaken in
the cross-examination. It is admitted position that the partner of Mohan
Gandhi firm was the Managing Director of Argee Textiles. There can be
no explanation for the reduction of Rs 14 lakhs of loan account of Argee
Textiles than the adjustment of part consideration to be paid by PNB to
Mohan Gandhi firm in the loan account at the instance of Mohan Gandhi
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firm.
69. The case of Mohan Gandhi firm that the assurance was given that
upon repayment of loan of Rs. 14 lakhs, the possession of suit flat would
be handed back to Mohan Gandhi firm is unacceptable. If the said
contention is accepted, it would mean that in addition to the loan
amount of about Rs. 24 lakhs for which suit for recovery was already
filed, the Bank advanced further Rs. 14 lakhs as it reduced the loan
account of Argee Textiles. The offer of repayment of Rs 14 lakhs by
Mohan Gandhi would only set off the additional advance keeping the
original outstanding of about Rs. 24 lakhs intact. As per judgment of
DRT, the decree was reduced to the extent of sale consideration of Rs.
14 lakhs paid by PNB. Such a transaction would mean the Bank has paid
Rs. 14 lakhs out of its own pocket, which is improbable. A financial
institution seeking to recover its outstanding amount by resorting to
legal remedy would not enter into a transaction which would result in
failure to recover its outstanding amount. If the suit flat was only
security for loan already advanced, there was no requirement for the
Bank to set off Rs. 14 lakhs against the outstanding loan amount.
70. Mr. Pathare would seek to rely on the pleadings in Suit No. 441 of
1982 filed by PNB against Argee Textiles to substantiate the case of suit
flat being offered for security. Suit No. 441 of 1982 was filed by PNB
against Argee Textiles, Mr. R. C. Govinda Swami, Mr. G. C.
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Balasubramaniam, Mrs. Balasubramaniam Kamini Kaushalya, Mr.
Balubhai Prabhubhai Pajawala and in the said suit M/s Mohan Gandhi
and Company was impleaded as Defendant No. 6. The pleading in the
plaint insofar as Defendant No. 6 is concerned, is that on 3 rd September,
1981, the Defendant No. 6 guaranteed to pay the amount due and
payable by Argee Textiles and also offered to give their flat as security,
and accordingly, gave in Bombay to the Plaintiff their title deeds in
respect of Flat no. A/1 as and by way of equitable security for securing
the amount payable by Argee Textiles to the bank.
71. In the evidence filed by G. Balasubramaniam in DRT, he has
deposed that there is no document produced to show that the suit flat
was given as equitable security for loan given to Argee Textiles and
there is no memorandum signed by Mohan Gandhi firm for creating any
equitable mortgage in respect of the suit flat. The common written
arguments filed by the Defendants therein are replete with denial to
the creation of equitable mortgage in respect of suit flat. The stand
taken by Mohan Gandhi firm was that of denial of creation of equitable
mortgage of the suit flat and no reliance can then be placed on the
pleadings of PNB in DRT proceedings to contend that the suit flat was
offered as security.
72. In any event, the pleading by PNB about the suit flat being flat
being offered as security was as of 3 rd September, 1981. In the affidavit
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of evidence filed before the DRT, the witness for PNB has deposed that
after filing of the suit by the bank against Argee Textiles, the flat
mortgaged to the bank was sold by the partnership firm by agreement
for sale dated 5th July, 1982 for sum of Rs. 14 lakhs, for which the bank
has given credit in the account of Argee Textiles and had also produced
the agreement for sale. The case of PNB in the proceedings filed by
them against Argee Textiles was of creation of equitable mortgage by
deposit of title deeds, and thereafter, during the pendency of the suit,
the suit flat came to be sold by the partnership firm to the bank, for
which due credit was given to Argee Textiles.
73. Suit No. 441 of 1982 was filed by PNB against Argee Textiles and
others on 18th March, 1982 and the agreement for sale is executed on
5th July, 1982. It is difficult to accept that after the suit was filed by PNB
for recovery of the amount from Argee Textiles, in which Mohan Gandhi
firm was also impleaded as a party, and the stand of PNB was that
equitable mortgage has been created in respect of the suit flat by
deposit of title deeds, Mohan Gandhi firm, would offer the same flat
again as security during the pendency of the suit.
74. The contention of Mr. Pathare is that the agreement for sale could
not have been executed as the property was custodia legis. During the
pendency of Suit No. 441 of 1982, the Bank moved Notice of Motion
seeking appointment of Court Receiver and by order dated 20 th March,
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1982, ad-interim order was passed by the High Court appointing Court
Receiver in respect of the suit flat with directions not to disturb the
possession of the occupant. By order dated 10 th March, 1983, the High
Court made the Notice of Motion absolute except in respect of the suit
flat and granted liberty to PNB to take out fresh Notice of Motion for
the flat subsequently noticing that the suit flat is in occupation of Bank
at present under an agreement. No objection was taken by Mohan
Gandhi firm at that point of time against the observation of the Court
about the execution of agreement of sale.
75. In Kanhaiyalal vs Dr. D. R. Banaji (supra), the Hon’ble Apex Court
was considering the question as to whether the provisions of Berar Land
Revenue Code, 1928, bar the suit out of which the Appeal arose. In that
case, there was a mortgage and the suit was filed for enforcement of
mortgage and the Court Receiver came to be appointed in respect of
the mortgaged property. The subject plot was sold and auctioned
without giving notice to the Court Receiver in respect of arrears of
revenue payable in respect of the said plot. The contention that was
advanced was that the property in the hands of Court Receiver is
custodia legis and is exempted from all judicial processes except with
leave of the Court. The Hon’ble Apex Court assumed for the purpose of
the case that such a sale is only voidable and not void ab initio. The
Hon’ble Apex Court noted that if Court has exercised its power to
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appoint receiver of a certain property, it has done so with a view to
preserve the property for the benefit of rightful owner and judicially
determined. In the present case, the Court Receiver was appointed at
the instance of PNB and the High Court noted the execution of the
agreement and exempted the flat while appointing the Court Receiver
in respect of the other properties. In the case before the Hon’ble Apex
Court, the property though in custody of the Court Receiver was sold to
a third party for recovery of arrears of land revenue, which is different
from the facts of the present case, where it is PNB, at whose instance
the Court Receiver was appointed, has purchased property.
76. The decision in the case of Pattu Lal vs Achchey Lal (supra),
Peyare Lal vs Mt. Misri (supra) and Fraser vs Krishnaswamy Aiyer
(supra), though forming part of the compilation, was not referred to by
Mr. Pathare.
77. During the pendency of proceedings before the High Court, Argee
Textiles came to be wound up and Official Liquidator was appointed.
The official liquidator filed an affidavit in reply in the O.A before DRT,
stating that Argee Textiles was ordered to be wound up by order dated
22nd June, 1983 in Company Petition No. 407 of 1982, and when the
representative of official liquidator went to take possession of the
subject premises, it was found that the bank was in occupation thereof.
He has further stated that the agreement for sale was executed by
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Defendant No. 6 on 5th July, 1982, i.e. within six months before the date
of commencement of winding up on 23 rd November, 1982. He has
further stated that he reserved his right as liquidator of the first
Defendant company to claim right, title and interest in the said flat and
take possession, as the same is an asset deemed to be in custody of
winding up Court as from the date of winding up order.
78. The said Affidavit does not assist the case of Mohan Gandhi firm
as the official liquidator was appointed as liquidator of the assets of
Argee Textiles. Admittedly, the suit flat was owned by the partnership
firm of M/s Mohan Gandhi & Co, and therefore, in winding up of Argee
Textiles, the official liquidator could not have claimed any right in
respect of the suit flat owned by M/s Mohan Gandhi & Co., as it was
never an asset of Argee Textiles.
79. The material on record, such as the DRT judgment, the bank
statement and the voucher produced on record, would unequivocally
point out that the sum of Rs. 14 lakhs, which was a part consideration
for the agreement for sale, has been routed in the account of Argee
Textiles, thereby reducing its loan amount to that extent. There is
therefore, a flow of consideration from the bank's account which could
not have taken place, if the agreement for sale was only a document of
security. The evidence on record establishes that there was an
agreement for sale dated 5th July, 1982 executed by Mohan Gandhi firm
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in favour of PNB and there was flow of part consideration from PNB to
Mohan Gandhi firm, which was endorsed by Mohan Gandhi firm in favour
of Argee Textiles, and accordingly, credit was given by PNB in the loan
account of Argee Textiles. In the proceedings before High Court
subsequently transferred to DRT, Mohan Gandhi firm was impleaded as
party and was conscious of the specific case of PNB about the
adjustment of Rs. 14 lakhs towards loan account of Argee Textiles.
There is therefore no justification to plead about offer to repay Rs. 14
lakhs by Mohan Gandhi firm.
80. The witness for PNB has specifically deposed about working
capital facility given to ARGEE Textiles to the tune of Rs. 20 lakhs in
1980 and which was enhanced to Rs. 30 Lakhs by 1981. The witness has
deposed that the loan was guaranteed by Ramalingam Govindswami
Chettiar-Chairman and Govindswami Chettiar Balasubramaniam-
Managing Director amongst others. He has further deposed that
Ramalingam Govindswami Chettiar is the father of Govindswami
Chettiar Balasubramaniam (partner of Mohan Gandhi & Co.) and of
G.Muruganthaswamy who is the father of the minors Mohan Gandhi and
Chamundi Bhuvaneshwari. G. Balasubramaniam is therefore the
paternal uncle of the minors. The witness for Mohan Gandhi firm has
admitted in cross examination that the other partner G.
Sethuramalingaim is his uncle. The evidence discloses about the family
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relations and strengthens the probability of the sale transaction having
being executed by Mohan Gandhi firm to help reduction of loan liability
of Argee Textiles. The evidence on record points out to an internal
arrangement between the partnership firm and Argee Textiles pursuant
to which the pay order in favour of Mohan Gandhi firm was endorsed in
favour of Argee Textiles.
81. The suit of Mohan Gandhi firm has been filed by the partnership
firm through its partner Mohan Gandhi, who was a minor at the time of
execution of the agreement dated 5 th July, 1982. He has deposed that
he and his sister Chamundi were minors and admitted to the benefits of
partnership on 4th September, 1970 and apart from them G
Sethuramalingam and G. Balasubramaniam were other partners of the
firm. He has deposed that the minors had not signed the agreement for
sale dated 5th July, 1982 nor their guardian has signed the agreement on
their behalf. Perusal of the agreement for sale discloses four signatures
on behalf of Mohan Gandhi firm. Two signatures are of G.
Balasubramaniam, G Sethuramalingam and on behalf of the minors by
M. Sushila Devi. Mohan Gandhi has deposed that G Muruganthaswamy
who has exeucted the suit agreement was never partner of the firm. The
said G.Muruganthaswamy is the father of the minors as recorded in the
partnership deed and appears to have signed the agreement in his
capacity as guardian of the minors. In cross examination, Mohan Gandhi
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has admitted that Sushila Devi is his mother. The Trial Court has
recorded a finding that the guardian of the minors had signed the
agreement for sale, which finding has attained finality.
82. The witness for Mohan Gandhi firm has deposed in paragraph 4 of
the Affidavit in lieu of examination in chief as under:
“4. I say that the defendant bank realised the defect in creation of co-lateral
security and as a result was pressurising the partners of the plaintiff firm to
create a proper security of the suit premises in favour of the defendant bank.
I say that the bank manager got the suit agreement unilaterally prepared
and obtained signatures of the executing parties at Madras at midnight on
5/7/1982. I say that the parties executing the said document were not even
given an opportunity to obtain any legal advice. I say that when the parties
executing the document had pointed out certain objectionable clauses, the
bank manager had assured them that the same were only provided by way
of safeguard and that we would be entitled to take back possession of the
suit premises within five years upon repaying the loan of Rs 14,00,000/
obtained by M/s Argee Textiles Pvt Ltd against the co-lateral security of the
suit premises.”
83. In cross examination, the witness has admitted that on 5 th July,
1982 he was staying at Coimbatore. In cross examination he has stated
that the information as regards contentions in para no 4 is given by his
Counsel to him. He has further stated that he does not remember the
name of the said Counsel. The witness was not personally present at the
time of execution of the agreement dated 5 th July, 1982 and did not
have personal knowledge as to how the agreement for sale dated 5 th
July, 1982 was prepared and executed. The witness cannot depose
about the purported assurance given by bank manager that the firm
would be entitled to take back possession after repaying loan of Rs 14
lakhs obtained by Argee Textiles. There is no specific deposition about
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which clauses in the agreement were objectionable.
84. It needs to be noted that the purchaser of suit flat is a financial
institution and no individual has the authority to take decisions on
behalf of the Bank. It is difficult to accept that to cure the defect in
collateral security for loan taken by Argee Textiles, the Bank would
enter into an agreement for sale as security. In the records of the Bank,
the defect in creating the collateral security, if any, would still remain.
There is no reason as to why the partners of Mohan Gandhi firm would
be pressurized by the bank for giving security for the loan of Argee
Textiles. Secondly, there is no reason as to why the loan of Argee
Textiles would be repaid by Mohan Gandhi firm for taking back
possession of suit premises.
85. The witness for Mohan Gandhi firm has deposed that in August,
1988 he was studying in second year of graduation. He has deposed that
he had seen the copy of the plaint in the year 1988 when he signed the
same on 29th August, 1988. He has admitted that the instructions for
drafting affidavit in lieu of examination in chief was on advice of his
father.
86. After the execution of the agreement for sale dated 5 th July,
1982, for the first time notice was issued to the Bank on 29 th November,
1986. The notice states that G. Balasubramaniam has taken credit
facility from the bank for his own personal concerns. Paragraph 5 of the
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notice states as under:
“5. In order to secure the repayment of your dues, he has kept my clients said
ownership flat no A-1 in Cuffe Castle with you as collateral security without
the knowledge, consent and authority of my clients. Your bank officers are
also aware about all the said facts. Your bank officers have colluded
wrongfully with the said G. Balasubramaniam and have presented the
alleged writing so called an agreement for sale 5-7-1982 in respect of the
said flat surreptitiously and in a clandestine manner without the
knowledge and consent of my clients. The said alleged writing/agreement is
obtained fraudulently malafide and to the prejudice of my clients for
swallowing their flats worth Rs 40 lacs. The said writing/agreement is a
sham and bogus document and is not capable of being enforced upon my
clients in view of the said wrongful conduct and action of the said
G.Balasubramaniam. The said transaction of taking loan is also wrongful,
illegal invalid and not binding upon my clients since the said transaction is
colour able and taken place with a view to dupe my clients.”
87. The pre-suit correspondence sets up a case which is at variance
with the pleaded case by Mohan Gandhi firm. The notice claims that the
agreement for sale was executed without the knowledge and consent
of the partnership firm whereas the pleading and evidence in Mohan
Gandhi suit admits of execution of the agreement for sale albeit under
coercion and duress. Despite the allegation that there was a collusion
between the bank officers and Mr. G. Balasubramaniam, no action was
taken against Mr. G. Balasubramaniam for breach of fiduciary capacity.
The notice further calls upon the Bank to give details of the dues of Rs
14 lakhs and interest amount to enable the firm to arrange for its early
payment and thereafter to vacate the flat. The stand taken in the notice
is contrary to the contention of Mohan Gandhi firm that the agreement
for sale dated 5th July, 1982 was executed under duress and coercion
and that the Bank was permitted to occupy the flat and in lieu thereof,
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the Bank would not charge interest. The notice specifically calls upon
the Bank to inform the interest amount so that arrangement can be
made to pay the same. In the cross examination of the Bank’s witness,
there is no case put to him that in lieu of occupation of the suit flat, the
Bank had agreed not to charge interest on the loan amount of Argee
Textiles.
88. The witness for Mohan Gandhi firm has admitted that he did not
personally approach the Bank in November, 1986. He has admitted that
he was not present in the Bank for payment of amount for release of
the suit premises. The evidence establishes that there was no such
arrangement between the Bank and Mohan Gandhi firm that possession
would be handed over after payment of Rs. 14 lakhs.
89. The case of the agreement for sale being executed under duress
and coercion and not binding upon the firm is set up for the first time in
the plaint of Mohan Gandhi firm. The witness has deposed that as per
understanding with the bank, it was to hand over possession of the suit
premises on payment of sum of Rs 14 lakhs and in the meantime, the
bank was allowed to retain possession of the suit premises provided
that no interest was charged on the loan granted to M/s Argee Textiles
Pvt. Ltd. The deposition sets up an oral arrangement contrary to the
terms of the agreement for sale executed with PNB. The law is well
settled. Section 91 of Evidence Act excludes oral evidence of the terms
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of the written document by requiring those terms to be proved by the
document. Section 92 excludes oral evidence for contradicting, varying,
adding to or subtracting to such terms. It is also settled that these two
sections do not prevent the parties from adducing evidence on the issue
of whether the parties had agreed to contract on the terms set forth in
the document, however, in the present case, Mohan Gandhi was
admittedly a minor on the date of execution of the agreement for sale
and was not present at the time of execution of the agreement. He has
no personal knowledge as to the agreement between the parties and
could not depose about the same. The arrangement deposed by the
witness of Mohan Gandhi firm do not appear in the agreement for sale
and neither in the pre-suit correspondence dated 29th November, 1986.
90. Coming to the Agreement for sale dated 5 th July, 1982, the
recitals indicates that the agreement was executed at Madras and the
Vendor i.e. Messers. Mohan Gandhi and Co. had agreed to sell and
transfer to Purchaser i.e. New Bank of India (erstwhile Bank) the suit
flat. Clause 1 of the agreement records that the vendor shall sell and
the purchaser shall purchase from the vendor the said flat for price of
Rs. 15 lakhs out of which Rs. 14 lakhs paid by purchaser as earnest
money before the execution of the agreement and there is
acknowledgment of cheque no. 280363/352/82 dated 5-7-82 for Rs. 14
lakhs and balance on completion of sale. Clause 2 provides that the
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vendor has handed over vacant possession of the said flat and purchaser
will be entitled to continue in absolute possession without any
hindrance from Vendor. It further records that the Vendor will have no
right to claim back the possession of the said flat. Clause 4 of the
agreement records that subject to what is stated hereinafter, the sale
shall be completed on or before 30 th June, 1987 and that the purchaser
shall also then apply for being made member of the Society. Clause 5
speaks of obtaining the necessary “No Objection” letter from the
Society and if applicable under ULC and will also apply and obtain
necessary Income Tax Clearance Certificate. Clause 6 speaks of payment
of charges and outgoings by Bank from date of occupation of the flat.
Clause 7 and 8 reads as under:
“7. If within 30-6-1987, the sale and transfer of the said shares of the said
flat is not completed for any reason whatsoever, it will be the option of the
Bank to claim specific performance of this agreement by offering payment
of the rest of the unpaid consideration money, or to vacate the same against
the sum of Rs 14 Lakhs, received by the Vendor. Further if the Vendor fails
and neglects to complete the sale transaction after fulfilling all formalities
as mentioned above on or before 30-6-1987, the Purchaser will be entitled,
in addition to the right of specific performance, the right to claim damages
of Rs 20000/- per month from 30-6-1987. The right to claim damages will be
over and above and in addition to the right of specific performance.
8. The Bank shall in no case be liable to pay any compensation or mesne
profit for use and occupation of the said flat, so long as the Vendor do not
make payment of the sum of Rs 14 Lakhs and interest due thereon at the
usual banking rate prevailing at that time and the Bank shall be entitled to
enforce recovery of the said amount of Rs 14 Lakhs and interest thereon
against the vendor.”
91. Clause 7 states that if the sale is not completed on or before 30 th
June, 1987, the Bank will have the option to claim specific performance
of the agreement or to vacate the same against the sum of Rs. 14 lakhs
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received by the Vendor and will also be entitled to claim damages over
and above right of specific performance. Clause 8 provides that the
Bank shall not be liable to pay any compensation or mesne profit for
occupation of said flat till payment of sum of Rs. 14 lakhs and interest
due thereon and Bank shall be entitled to enforce recovery of the said
amount of Rs. 14 lakhs and interest thereon against the Vendor. Clause
9 provides that the stamp duty, registration charge and transfer fees on
the agreement and for completion of sale shall be borne and paid by
purchaser alone.
92. The Trial Court has considered Clauses 7 and 8 of the agreement
for sale in isolation to arrive at a finding that such arrangement creates
doubt about the agreement being outright agreement for sale. It
further held doubtful a lapse of period of 5 years for completion of sale
despite payment of substantial amount of consideration. The
agreement has to be read as a whole in order to ascertain the true
intention of the parties. The agreement when read holistically indicates
that the agreement between the parties was a transaction of sale of flat
for total consideration of Rs. 15 lakhs to be completed on or before 30 th
June, 1987. In event of failure to perform, option was given to the bank
either to seek specific performance or to seek refund of earnest money
paid.
93. The agreement discloses reiteration of the transaction of sale
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and purchase of the suit flat, the obtaining of no objection from the
Society and income tax department, completion of the sale transaction
till 30th June, 1987, the right to be admitted as member of the Society
and payment of registration charges and transfer fees by the purchaser.
The transfer of possession of suit flat upon receipt of substantial
consideration is strong indicia of sale transaction. The purchaser is a
financial institution and the bank manager does not possess the
authority to agree to an oral arrangement to waive the amount of
interest in lieu of occupation of the suit flat. The clauses in the
agreement for sale are consistent with the terms usually associated
with the sale transaction. In so far as Clause 7 is concerned, the option
given to the Bank to not insist on specific performance and take back
the earnest money cannot be construed as a term of security. It needs
to be noted that Clause 7 also speaks of right of Bank to claim specific
performance of the contract, which could not have been incorporated in
event the transaction was only a security for the loan advanced. The
failure to execute the agreement by the stipulated date giving rise to
claim for damages does not turn the contract into a contract for
security. Clause 8 of the agreement protecting the Bank from payment
of compensation or mesne profits for use and occupation of the said
flat till payment of Rs. 14 lakhs is a condition relatable to option given in
Clause 7, in event Bank chooses not to seek specific performance and
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claims refund of earnest money. The period of five years for completion
of sale cannot be a reason to consider the contract as security for loan
advanced to Argee Textiles. The Bank was put in possession of the suit
premises on execution of the agreement upon parting with substantial
part of consideration and the agreement for completion of sale within a
period of five years did not cause prejudice to the Bank.
94. The Trial Court held the adjustment of Rs. 14 lakhs in account of
Argee Textiles as indicator of the agreement being security for loan
advanced. The Trial Court failed to notice that the loan had to be repaid
by Argee Textiles and the flow of consideration from PNB in favour of
Mohan Gandhi firm to be adjusted against loan amount of Argee
Textiles would result in PNB paying a sum of Rs. 14 lakhs without any
liability on part of PNB to do so.
95. The Trial Court further held against PNB for not issuing any
communication prior to 30th June, 1987. As per the agreement, the sale
was to be completed on or before 30 th June, 1987 and on account of
breach for non completion within the stipulated period, PNB issued the
notice on 26th August, 1987, which is normal course to be adopted.
There was no necessity of issuing any notice particularly when PNB was
put in possession of the suit premises. The Trial Court ignored the
glaring fact that the contention of Mohan Gandhi firm was that the
agreement was executed under duress and coercion and contained
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objectionable clauses. The partners of Mohan Gandhi firm did not issue
even a communication to PNB for about four years since execution of
agreement raising a grievance about the manner in which the
agreement came to be executed and denying the terms of the
agreement. No suit was filed by the partners seeking cancellation of the
contract, which was prejudicial to the firm. Instead the firm waited till
PNB sought specific performance of sale and immediately the suit came
to be filed through Mohan Gandhi upon him attaining majority. The
silence and inaction on part of the other partners of the firm from 1982
till filing of the suit in the year 1988 militates against the case of Mohan
Gandhi firm.
96. The suit flat is admittedly the property of the partnership firm.
The pleading in paragraph 9B of Mohan Gandhi firm’s suit qua the
minors is that neither the minors nor their guardian has signed the said
agreement and other partners did not have any authority to enter into
agreement for sale of suit premises on their behalf. The partners of
Mohan Gandhi firm as per the partnership deed of 1970 were the
minors M. Mohan Gandhi and M. Chamundi Buvaneswari through their
guardian Sushila Devi, G.Balasubramaniam and G.Sethuramalingam. The
partnership deed records that the minors are admitted for benefit of
partnership during their minority. The share of each partner as per the
Schedule annexed to the partnership deed records that 25% share each
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of the minors and no share in the losses of partnership. Section 14 of
Partnership Act provides that subject to contract between the partners,
the property of the firm includes all property originally brought into the
firm or acquired by the firm for purpose and course of business. The
partnership deed on record does not disclose any arrangement between
partners of the firm as regards the property of the firm and the suit flat
would constitute partnership property. During the subsistence of
partnership, no partner can deal with any portion of the property as his
own. [See Narayanappa vs Bhaskara Krishnappa (supra)]. In the
present case, the agreement for sale has been executed by all partners
of the firm including the guardian of the minors and as and by way of
abundant precaution even by the father of the minors. The agreement
for sale would evidence consent of all partners of firm in alienating the
partnership property and not by any partner exclusively dealing with the
partnership asset.
97. Section 30(2) of Partnership Act provides that minors admitted to
the benefits of partnership have a right to such share of the property
and of the profits of the firm as may be agreed upon, and he may have
access to and inspect and copy any of the accounts of the firm. There is
no statutory provision demonstrated which bars the partnership firm
from alienating the property of the firm with the consent of all partners
of the firm including the guardian of the minors. Mr. Pathare would rely
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on the decision of Commissioner of Income Tax, Maysore, Bangalore vs
M/s Shah Mohandas Sadhuram (supra) to contend that sale or
mortgage of the suit flat was not for the benefit of the minors and the
transaction is null and void. The reliance on the said decision is
misplaced as in that case, the issue was as regards the registration to be
granted to the assessee firm under Section 26A of Income Tax Act on
the basis of partnership deed. The registration was initially rejected on
the ground that the minors were debited with share of loss. The Court
observed that whether the partnership deed only confers benefits of
partnership on the minor or is any clause of the deed void. It considered
what is a guardian of a minor competent to do on behalf of a minor to
secure full benefits of partnership to a minor. In that context it
considered the provisions of Section 30 of Partnership Act and the
clauses in the partnership deed. It noted Clause 7 of the deed therein
which provided that capital contribution of each member will be equal
and the accounts to show what each member has not contributed in
personal capital ledger account and the argument that guardian is not
entitled to agree to contribute capital. The Court opined that if it is one
of the terms on which benefits of partnership are being conferred
either the guardian must refuse to accept the benefits or he must
accept this term. In such factual background, the Court held that such an
agreement by a guardian may be avoided by the minor, if it was not
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entered for his benefit and the agreement will remain valid till it is
avoided. The agreement referred to in the said decision is the
agreement by the guardian accepting the term of capital contribution as
the term based on which the benefits of partnership can be conferred.
The observation of the Hon’ble Apex Court as regards the avoidance by
the minor of such an agreement is rendered in different context and
would not assist the case of Mohan Gandhi firm. That apart, there is no
pleading and no evidence on record to establish that the alienation of
the immovable property was not beneficial to the partnership firm or its
partners including the minor partners.
98. There is no evidence led on the claim for damages by PNB and no
arguments advanced on the said relief. There is no material on record to
show that the balance consideration of Rs 1,00,000/- was deposited by
PNB in the Trial Court and the balance sale consideration is required to
be paid alongwith interest.
99. In light of the above discussion, the conclusions are as under:
(i) The indenture dated 5th July, 1982 is a transaction for sale
of the suit flat by Mohan Gandhi firm to PNB. The clauses in
the agreement are consistent with the sale transaction and
the option to PNB to claim refund of the Rs. 14 Lakhs paid by
PNB as part consideration will not characterize the agreement
as security for the loan advanced by PNB to Argee Textiles.
Arya Chavan 58/61
FA-1287-2024 & FA-1288-2024 (2).doc
(ii) Mohan Gandhi firm has failed to establish that the
agreement dated 5th July, 1982 was an agreement for security
of loan taken by Argee Texiles executed under undue
influence and coercion and is null and void.
(iii) The case set up by Mohan Gandhi firm of oral agreement
that upon repayment of Rs 14 lakhs, the possession of the suit
flat would be handed to Mohan Gandhi firm has not been
established and is unacceptable on pre-ponderance of
probabilities. There is no justification for PNB, who had filed
Suit No 441 of 1982 for recovery of about Rs. 24 lakhs against
Argee Textiles, to reduce the loan outstanding by Rs. 14 lakhs
and recover the balance amount and thereafter accept
repayment of Rs. 14 lakhs, keeping the initial outstanding loan
amount intact.
(iv) PNB being a financial institution, there is no authority
vested in the bank manager to agree to waiver of interest in
lieu of occupation of premises by the Bank or enter into an
agreement for sale to cure the defect of collateral security for
loan taken by Argee Textiles. The records of the Bank would
still reflect the defect in creation of collateral security, if any,
in respect of loan taken by Argee Textiles.
(v) The oral agreement set forth by Mohan Gandhi firm that
Arya Chavan 59/61
FA-1287-2024 & FA-1288-2024 (2).doc
upon repayment of Rs. 14 Lakhs, PNB was to hand over
possession of the suit flat cannot be accepted in view of
Section 91 and 92 of Evidence Act. That apart, the purported
oral agreement was not within the personal knowledge of the
witness. The witness has admitted in the cross examination
that he has not personally approached PNB offering
repayment of Rs. 14 lakhs. There is no explanation as to why
Mohan Gandhi firm would offer to repay Rs. 14 lakhs towards
the loan taken by Argee Textiles.
(vi) The DRT judgment, the bank statement and the voucher
produced on record, would unequivocally point out that the
sum of Rs. 14 lakhs, which was part consideration for the
agreement for sale, has been routed in the account of Argee
Textiles, thereby reducing its loan amount to that extent.
There is therefore, a flow of consideration from PNB’s account
which could not have taken place if the agreement for sale
was only a document of security.
(vii) PNB has established that the agreement for sale has been
executed by all the partners of Mohan Gandhi firm and by the
guardian of the minors. The alienation of suit flat in favour of
PNB was with the consent of all the partners of the
partnership firm and there is no statutory provision which
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places an embargo on the alienation of partnership property
with consent of all partners.
100. In light of the above discussion, the following order is passed:
(a) First Appeal No. 1287 of 2024 and First Appeal No. 1288 of
2024 is allowed.
(b) The impugned common judgment dated 6th January, 2023
passed in S.C Suit No. 219 of 1988 and Suit No. 17 of 1989 is
hereby quashed and set aside.
(c) S.C. Suit No. 219 of 1988 is dismissed.
(d) S.C. Suit No. 17 of 1989 is decreed in terms of prayer clause
(a), (b) and (c) with direction to PNB to make the payment of
balance consideration of Rs 1,00,000/- to Mohan Gandhi firm
alongwith interest @ 12% p.a. from 30-6-1987 till date of
payment within a period of four weeks.
101. Interim Applications do not survive for consideration and stand
disposed of.
(SHARMILA U. DESHMUKH, J.)
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