TaxTMI 
TaxTMI 
1954 (7) TMI 32
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....use XII of the Letters Patent for filing this suit, this Court has no jurisdiction to entertain and try this suit. It was stressed that the promissory note and the continuity letter were signed by the defendant, not in Bombay but at Delhi, and that fact constituted a part of the cause of action of the plaintiffs bank. This argument was on the assumption that the suit was founded simply on these two documents and was a suit to hold the defendant liable simply as the maker of the promissory note. Now, as I have already observed, the suit is to enforce a claim against the defendant as a surety. The contract of guarantee-which is always a tripartite agreement-took place when along with the airline company's letter of June 5, 1947, a copy of the resolution, the promissory note, and the continuity letter were handed over to the plaintiffs bank. This was in Bombay. Moreover, all these documents purport to have been executed or made in Bombay. This is not a suit on a promissory note simpliciter. The position, in my opinion, is different in a transaction of guarantee. IGBP a promissory note and a continuity letter are given as security by way of guarantee for repayment of a loan to a th....
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....awn on behalf of the company was signed by the secretaries and treasurers and dated at Bellary, The note was then sent to Tirumanglam where the agents of the company countersigned it and affixed the seal of the company on the promissory note. From that place it was sent by post to the Official Assignee who received it in Madras. In a suit brought to recover the amount of the promissory note in the Court at Bellary the plea was taken on behalf of the defendants that the promissory note had in fact been made not at Bellary but at Tirumanglam and that no part of the cause of action had arisen in Bellary. In rejecting this plea it was observed by Sir Subramaniam Iyer Offg. CJ. (p. 21): ...nor are the parties precluded from dating the note at a place different from that at winch it is actually made, if for any purpose of theirs, they consider it necessary to do so. Where, therefore, a negotiable note, as in, the present instance, is dated with reference to a specified place and the justice of the case does not necessitate a different conclusion, the parties should be presumed to have agreed to that place being taken to be the place of the contract. 4. Reference was made in t....
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....9;places.' I agree that the words "within the Bank of India Ltd." are sufficiently clear and specific and must, therefore, be held to indicate a specified place within the meaning of Section 69 of the Negotiable Instruments Act. But the first difficulty in the way of Mr. Kolah is that this is not a suit on a promissory note simpliciter. It is not a suit to charge the defendant as the maker of the instrument but to enforce a contract of guarantee. The promissory note is given as a security and is only evidentiary of that contract. The cause of action is the contract of guarantee and not the promissory note. And there are other difficulties in the way of Mr. Kolah. Section 69 in terms lays down that the instrument must be presented for payment at the specified place. Indubitably this assumes that the party to whom the presentment is to be made will be present at the place specified in the instrument. The specified place in case of the maker of the note would sometimes be where he resides or carries on his business. Where, however, the specified place is other than this, before he can resist liability under the provisions of Section 96 of the Act, it must be shown that the present....
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.... such place during usual business hours. In the facts and circumstances of the case before me it is hard to see how the plea of non-presentment of the note for payment is sustainable. 6. Alongside the arguments relating to jurisdiction and non-presentment of the promissory note for payment it was said that whatever way the case was viewed whether as laid on guarantee or otherwise what was sought to be enforced by the plaintiffs bank was the promissory note itself. I have already considered this point. It was said that the defendant was not present at the meeting of the board of directors when the resolution of July 5, 1947, was passed and had no notice of the contents of that resolution. Now, I do not think that any question to be determined by me in this case really turns on the knowledge or absence of knowledge on the part of the defendant of the contents of that resolution. In fact it is the defendant himself who wants to rely on the resolution in support of his case that a floating charge, hypothecation or mortgage on its assets had been created by the airline company in favour of the plaintiffs bank. 7. Then it was said that it was the duty of the plaintiffs bank to get ....
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....t based on the creation of such a charge was that the plaintiffs bank was bound to get that charge registered with the Registrar of Companies but failed to do so, and also failed to take possession of the property to which the charge attached and also abandoned that charge by proving in the liquidation of the airline company as unsecured creditor only, and the defendant was, therefore, absolved and discharged from all liability on the guarantee. Particular reliance was placed on the following words in the resolution which I have already set out in an earlier part of my judgment:- Security: 1. Demand promissory note for Rs. 5 lacs signed by Mr. Rustom F. Cowasji, in favour of the Company and endorsed by the company in favour of the Bank. 2. Negative lien on all fixed and liquid assets of the Company.... The Company hereby declares that all its fixed and liquid assets are now free and unincumbered and undertakes that they will not be charged hypothecated or encumberd in any way while the Company is indebted to the Bank without the previous consent of the Bank in writing. 9. It was stated that there was ample authority for the proposition that it is not necessary ....
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.... and the relevant circumstances attending the transaction. 10. To turn to the cases relied on by Mr. Kolah. The first case relied on by learned Counsel was W. Martin v. Pursram (1867) 2 Agra H.C.R. 124. In that case a bond commenced by stating that the defendants were residents and zamindars of a mouzah the position of which was described in the writing. The bond then stated that the defendants had borrowed the amount of the bond and had promised to pay it with interest. Then followed a provision by which they bound themselves not to transfer their rights and interest in the mouzah by means of sale or mortgage until the debt had been repaid. It was held that no formal words were necessary and the intention of the parties to create a mortgage was sufficiently expressed and that the words used in the bond under the circumstances of the case indicated the defendants' intention to create a security on the property. In Bolakee Lal v. Chowdhry Bungsee Singh (1867) 7 W.R. 309 the agreement was that until the amount of the debt covered by the bond shall be paid in full the debtor could not alienate by sale, mortgage or gift the three properties mentioned in the writing. That agreeme....
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....ain persons and then proceeded to refer to a certain share in a property, and finally there was a clause by which the executant undertook that until repayment of the amount he would not transfer the property by sale, mortgage, gift or in any other way; but there was not in any part of the document any expression such as mortgage, or hypothecation and the deed did not in terms give any right of sale of the property. It was helc1 that the intention of the parties was to make the property mentioned in the writing security for the loan and that the document created a charge on the property. There was a difference of opinion between the learned Chief Justice and the other learned Judge who decided the second appeal but that was on a point which is not material to this case. In Narain Bass v. Murli Dhar A.I.R [1929] Oudh 539 the principle was reiterated that the law does not prescribe any particular form of words which may be necessary to create a charge, and that the determination of the question rests upon the intention to make a particular property the security for repayment of the debt and the intention is to be gathered from the language of the instrument. In that case a suit brough....
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....6 : 10 Bom. L.R. 575 certain bonds were passed in favour of the obligee Prior to the bonds the debtor had already mortgaged certain thikans belonging to him to the obligee. In the bonds he stated, "Our thikans are mortgaged to you. At the time of redemption I shall pay you in full this amount including interest" (mortgage amount of the bond). "Before I pay you this amount I shall not seek redemption." There were four such bonds, three of which were registered. Sir Lawrence Jenkins C.J. in taking the view that the documents created a charge observed (p. 390): ...having regard to all the circumstances of the transaction we feel no doubt that the documents are sufficient and do show an intention to make the land security for the payment of the money mentioned therein.... It was pointed out by the learned Chief Justice that the documents in question were executed in the moffusil and came within the statement of the Privy Council that such deeds and contracts ought to be liberally construed and that the form of expression in the literal sense was not so much to be relied on as the real meaning of the purpose which the transaction disclosed. The learned Chief Justice also obs....
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....e would pay a particular amount every month as maintenance to the obligee and that the obligee had relinquished in his favour certain Immovable properties which were owned by the obligee the executant stated: If I do not pay the maintenance money amicably you will be entitled to realize the same by a regular suit by putting in auction of these properties and, in case the entire amount in arrears is not realized there from, by sale of my other properties moveable or immovable. It was held on a consideration of all the facts of the case that it was not in the contemplation of the parties that the property which the lady relinquished in favour of the executant would remain liable for maintenance and that no charge had been created. 15. There was a good deal of argument founded on the decisions relied on by Mr. Kolah. They were all decided on the construction of the expressions and language used by the parties and the circumstances attaching the transactions. No useful purpose would be served by a more detailed examination of those authorities. Cases, indeed, abound, but they may all be said to show no more than application of the principle that as far as possible such a....
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....d considerable emphasis on this declaration and this assurance and has argued that they must be interpreted as an unmistakable expression of such intention. The greatest stress was laid on what were said to be almost identical expressions in the various decisions cited by learned Counsel, and it was said that those expressions were interpreted as creating charge on property. As to those expressions, it was argued by Mr. Modi, that in all those decisions the borrower had stated that he would not be entitled in any way to transfer or alienate the property either by sale, mortgage, charge or otherwise. There is to my mind ample scope for noting the difference in the expressions used in almost all of these cases which included the promise that the property would not be sold and the, language in which the assurance in the case before me is given. Here the assurance does not extend to any restriction on the' sale of the assets. It has also to be noted that this assurance does not reach to the right to sell any assets of the borrower even though the business of the borrower did not consist of buying and selling goods. The airline company, it was argued by Mr. Modi, could have at any t....
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....them into effect. This is an important surrounding circumstance which I have to bear in mind. Therefore, although the absence of any formal expression in a document cannot be permitted to prevent the true intent of the parties being effectuated, the Court has to give some consideration to relevant surrounding circumstances such as the position of the parties and their probable knowledge or ignorance of words in which to express their intention. 18. No particular formality is required by our law for the creation of a charge on moveable property. But since formality is not insisted upon, it becomes incumbent upon the Court before it can hold that a charge was created to satisfy itself that the intention to make any specified property security for the payment of the money charged thereon, appears in a manner which leaves no doubt that the parties had agreed that in case of default there would be a right of payment out of the property. While the Court does not insist upon, any particular form of words and does not allow defects of expression in this matter to prevent the carrying out of the common intention of the parties, that intention has to be ascertained by the proper construct....
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....uch usage or custom would have to be pleaded and strictly proved. Such is not the case before me. Here I am concerned with a lien in favour of a bank, and it is indisputable that the general lien of a banker expressly recognised by Section 171 of the Contract Act (which is a possessory lien) does not confer on the banker any right to bring the property to sale. There is no pleading, and no issue, before me relating to any negative lien of a banker which by usage or custom may be said to confer any such right of bringing the property to sale. It is difficult for me to see that when the positive general lien of a banker does not confer on him any power of bringing the property to sale, how such power can reasonably be implied in case of a negative lien, when the parties have not chosen to state that it was their intention that there was to be such, right and there are no other words from which such intention could be inferred. The words "negative lien" in the resolution, in my judgment, does not in any way add to the effect of the assurance whereby the airline company became bound to keep its assets unincumbered. But as I have already observed the negative lien is given in the form o....
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....e though when the words are ambiguous they may be explained by the previous or contemporaneous conduct of the parties. (Houlder Brothers & Co. Limited v. Public Works Commissioner: Public Works Commissioner v. Houlder Brothers & Co., Limited [1908] A.C. 276 I can understand a case where it is said that the ordinary primary meaning of the words used in an instrument should give way to a secondary meaning because that expresses the real intention of the parties, as for instance, where, any expression has acquired by usage a secondary meaning as its customary meaning quod hoc. But it is hard to see how any subsequent declaration or conduct of one of the parties to a written agreement can be allowed to control its meaning and effect. 21. I am anxious and indeed bound to give full effect to the intention of the parties at the time of the "transaction of loan and recorded in the documents of the resolution of June 5, 1947, and the promissory note and the continuity letter. I have to ascertain that intention from the documents and the relevant circumstances surrounding the transaction. I have considered this question in the light of the principles governing a case of this nature and gi....
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....n the facts of the present case it cannot be said that the equitable floating security was crystallized into a fixed security. 23. It was but faintly urged before me by Mr. Kolah that the documents of June 1947 created a hypothecation of the assets of the airline company. I have already held that no charge was created on the assets of the company. Cadit quaestio no interest in any assets of the company was transferred to the bank and there was no hypothecation. 24. It was next argued that even if initially and originally there was no hypothecation created on the assets of the airline company as security for the loan, the letter dated October 28, 1947, (forwarding a statement of the list of the company's assets) which referred to the assets of the company as hypothecated with the bank had the effect of creating a proper hypothecation of those assets in favour of the bank. It was said that the plaintiffs bank did not send any reply to this letter and must, therefore, be deemed to have agreed to the creation of such hypothecation. The substance of the oral evidence relating to this letter is that on inquiry being made by the defendant, Vijaysingh Gowindji, who was a, directo....
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....at letter being completed by reducing an agreement to writing would have to rest on much surer and stronger ground than a mere averment. The only question, therefore, that arises here for my determination is: Did any agreement creating a charge on the assets of the company in favour of the bank arise in October 1947 by the company addressing this letter to the bank and by the bank not sending any reply to the same denying that it held a charge or hypothecation on those assets? The point that arises for solution is whether when a debtor who has under the contract of loan given a negative lien to the creditor on his assets which were at the time not specifically stated writes to the creditor after over four months without any preliminary discussion between the parties and states that those assets were hypothecated and sends a statement of his assets along with the letter and the debtor sends no reply, it can be said that in not Bending any reply he acted at his own peril and must be held to have tacitly agreed to the existence or creation of such a hypothecation. If originally it was not the common intention and agreement of the parties to create an incumbrance, this can at the highe....
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....o amount to communication of the acceptance, and the person making the offer becomes bound by such tacit acceptance. Here the bank was not asked to do any act or acts by the letter of October 25, 1947, and admittedly it did nothing after the receipt of the letter. There was, in my judgment, no signification of any acceptance of any offer-if indeed there was any offer by the bank, and therefore no agreement as alleged can be said to have resulted. The present contention must, therefore, be negatived. 25. Having stated these conclusions it is, of course, the end of my decision. But I have to refer briefly to a point or two on which some arguments were advanced by learned Counsel for the parties. An argument was advanced on the footing that there was in fact a charge or hypothecation created in favour of the bank. The bank failed to register the same with the result that it lost the security. Therefore, so it was said, the defendant was discharged from his liability as a guarantor. It is common ground that there was no registration with the Registrar of Companies of any charge or hypothecation in favour of the bank in respect of the loan advanced to the airline company. It is indis....