M.C. Chacko v. State Bank of Travancore, Trivandrum

Shah, Ag. C.J. The High Land Bank Kottayam of which the appellant M. C. Chacko was the Manager, had an overdraft account with the Kottayam Bank. K. C. Chacko, father of the appellant, had executed from time to time letters of guarantee in favour of the Kpttayam Bank agreeing to pay the amounts due by the High Latld Bank under the overdraft arrangement. By the last Jetter of guarantee dated 22nd January 1953 K. C. Chacko agreed to hold himself liable for the amounts due by the High Land Bank to the Kottayam Bank on the overdraft arrangement subject to a limit of Rs. 20,000. ' The Kottayaln Bank Ltd. filed a suit in the court of the Subordinate Judge of Kottayam against the High Land Bank for a decree for the, amount due in the account. To this suit were also impleaded K. C, Chacko the guarantor, M. C. Chacko-Manager of the High Land Bank, and M. C. Joseph, Kuriakose Annamma and Chinnamina, the last three being the son, daughter and wife respectively of K. C. Chacko. Against the High Land Bank the claim was ma<je on. the footing of the overdraft account: against K. C. Chacko on the letter of guarantee and against. M. C. Chacko, his brother, !tis sister and his mother as universal donees of the property of K. C. Chacko under a deed dated June 21, 1951 under. w,hich, it was claimed, a charge 'was created on }he properties to which the deed related and· against M. C. Ch&eko; also on the claim that he had personally agreed to pay the amoilnt due by the Jiigh Land Bank. During the pendency of the . suit, K. C. Chacko <lied and the suit was prosecuted against his widow; 660 SUPREME COURT REPORTS [ 1970) 1 S.C.R. daughter and sons who were described also as his legal repre­ sentatives. The trial court decreed the suit against the High Land Bank and also against M. C. Chacko, limited to the property received by him from his father under the deed dated June 21, 1951. The claim of the Kottayam Bank to enforce the liability under the letter of guarantee personally against K. C. Chacko was held barred by the law of limitation and on that account not enforce­ able against his heirs and legal representatives. The Court also rejected the claim that :\1. C. Chacko had personally agreed to pay the amount due under the overdraft arrangement. In appeal to the High Court by M. C. Chacko the decree passed by the trial court was confirmed and the cross-objections filed by the State Bank of Travancore with which the Kottayam Bank was merged claiming that M. C. Chacko was personally liable were dismissed. This appeal with special leave is preferred by M. C. Chacko against the decree of the High Court. Two questions arise in this appeal : ( l) whether under Ex. D-1 a charge is created in favour of the Kottayam Bank to satisfy the debt arising under the letter of guarantee and (2) whether the charge assuming that a charge arises-is e,nforceable by the Bank when it was not a party to the deed Ex.D-1. Ex.D-1 is called a deed of partition : in truth it is a deed E whereby K. C. Chacko gave the properties described in the Sche­ dule A to M. C. Chacko and other properties described in Scis. B to F to M. C. Chackc : M. C. Joseph, Annamma and Chinnamma. In paragraph 17 it is recited : "! have no debts whatsoever. If in pursuance of the letter given by me to the Kottayam Bank at the request F of my eldest son, Chacko,, for the purpose of the High Land Bank Ltd., Kottayam, of which he is the Manag- ing Director, any amount is due and payable to the Kottayam Bank, that amount is to be paid from the High Land Bank by my son, Chacko. If the same is not so done and any amount becomes payable (by me) as G per my letter, for that my eldest son, Chacko and the properties in Schedule A alone will be answerable for that ·amount."' The other paragraphs which deal with the properties in Schedule A may also be referred to. Paragraph I 0 of the deed recited ; "The donees of the properties included in A, B and C schedules are, as from this date, to be in possession of their respective properties and to get mutation of -. M, C. CHACKO v. STATE BANK (Shah, Ag. C.J.) 661 registry in their names, pay land revenue and enjoy the mcome save that from cocoanut trees." By para~raph 12 it was declared that notwithstanding the deed of partJUon, K. C. Chacko will take the income from the cocoanut trees standin:g on the properties included in Schedules A B C and F ?JI his d.eatb, and that the donees of the properties wili titlce a,nd en1oy the mc~me from ·the cocoanut trees in their respective pro­ perties after his death. In paragraph 13 it was recited that : "As it is decided that Chinnamma ........ should receive and have for her maintenance the rent of the building in item 7 in the A schedule, as well as the rent of the building in item 18 of the B schedule, she is to be 1n possession of these buildings as from this date and is to let them out and enjoy the rent. The respective donees will have possession and enjoyment after her death. Chinnamma is to have full rights and liberty to reside in any of the houses included in A, B or C sche­ dule and so Jong as she so resides in any of the houses, the donees of the respective houses is to meet all her expenses. The r~nt collected by Chinnamrna from the buildings given Possession of to her is to be utilised by her for her private expenses as she pleases." In our judgment the various covenants in the deed were intended to incorporate an arrangement binding between the members of the family for satisfaction of the debt, if any, arising under the letter of guarantee. We are unable to agree with the High Court that by cl. 17 of the deed it was intended to create a charge in favour of the Kottayam Bank for .the amount which may fall due under the letter of guarantee. The letter of guarantee created merely a personal obligation. The deed Ex. D-1 was executed before the last letter of guarantee dated January 22, 1953. By cl. 17 of Ex. D-1 it is merely directed that the liability if any ansmg under tb,e letter of guarantee, sha!J be satisfied by M. C. Chacko and not by the donor, his son M. C. Joseph, his daughter G · Annamma and his wife Chinnamma. The reason for the provision: in the deed is clear. M. C. Chacko was the Managing Director of the High Land Ban:k Ltd. and it was at the instance of M. C. Chacko that the letters of guarantee were executed by the donor. For creating a charge on immovable property no particuh1r form of words is nee~d: by adequate words intention may be expressed to make property or a fund belonging to a person charged for payment of a debt mentioned in the deed. But in order that a charge may be created, there must be evidence of intention dis­ closed by the deed that a specified property or fund belonging to 662 SUPREME COURT REPORTS [1970) I S.C.R. a person was intended to be made liable to satisfy the debt due by him. The recitals in cl. 17 of the deed do not evidence any inten­ tion of the donor to create a charge in favour of the Kottayam Bank : they merely set out an arrangement between the donor and the members of bis family that the liability under the letter of guarantee, if and when it arises, will be satisfied by M. C. Chacko out of the property allotted to him under the deed. The debt which M. C. Chacko was directed by the deed to satisfy waS not in any sense a "family debt". It was a debt of K. C. Chacko; and K. C. Chacko was personally liable to pay -that debt. After hi,;. death his sons, his daughter and his widow would be liable to satisfy the debt out of his estate in their hands. From the recitals in the deed Ext. D-1 an intention to convert a personal debt into a secured debt in fa,our of the Bank, a third person, cannot be inferred. In Akal/a Suryanarayana Rao & Others v. Dwarapudi Basivireddi & Others( 1 ) the Madras High Court \n cons)ruing a deed of partition of joint family property pursuant to a compromise decree. held that properties allotted to certain branches to which were also "allotted certain debts" with a stipulation that until the debts were fully discharged the proper­ ties allotted to the shares of the respective persons shall be liable in the first instance, were not subject to a charge in favour of the creditors. The Court held that the covenant in the partition deed resulted in a contract of indellll!lity, and not a charge. In the present case also the covenant that M. C. Chacko will either per­ sonally or out of the properties given to him satisfy the debt is intended to confer a right of indemnity upon other members of the family, if the Kottayam Bank enforced the liability against them. and created no charge in favour of the Balli.:. Clauses 12 and 13 of the deed support that view. By cl. 12 the ri~ht to the coconut trees standing in the properties included in Schs. A, B. C and F is reserved to K. C. Chacko. Similarlv Chinnamma. wife of II K. C. Chacko. is permitted during her· lifetime to occupy the houses in the properties described in the three schedules and to recover the income and to utilise the same for herself. It is clear that K. C. Chacko had no intention to create a charge or to encumber any of the properties for the debt which may become due to the Bank. G The Kottayam Bank not being ~ party to the deal was not bound by the coven3nts in the deed, nor could it enforce the covenants. It is settkd law that a person not a party to a contract cannot subject to certain well recognised exceptions, enforce the terms of the contract : the recognised exceptions are that bene­ ficiaries under the terms of the contract or where the contract is a part of the family arrangement may enforce the covenant. In (t) 1.L.R. 55 Med. 436. II I M. C. CHACKO v. STATE BANK (Shah, Ag. C.l.) 663 Krishna Lal Sadhu v. Pr·1mila Bala Dasi(') Rankin, C.J observed: "Clause ( d) of secuun 2 of the Contract Act widens the definition of 'consideration' so as to enable a party to a contract to enforce the same in India in <:ertain cases in which the English Law would regard the party as the recipient of a purely voluntary promise and would refuse to him a right of action on the ground of nudum pactum. Not only, however, is there nothing in s. 2 to encourage the idea that contracts can be enforced by a person who is not a party to the contract, but this notion is rightly excluded by the definition of 'promisor' and 'promisee'." Under the English Common Law only a person who is a party to a contract can sue on it and that the law knows nothing of a right gained by a third party arising out of a contract : Dunlop Pneu­ matic Tyre Co. v. Selfridge & Co. (2 ). It has however been recog­ nised that where a tmst is created by a contract, a beneficiary may enforce the rights which the trust so created has given him. The basis of that rule is that though he is not a party to the con­ tract his rights are equitable and not cQlltractual. The Judicial Committee applied that rule to an Indian case Khwaja Muham­ mad Khan v. Husaini Begam( 8 ). In a later case /aman Das v. Ram A utar ( 4 ) the Judi<:ial Committee pointed out that the pur­ chaser's contract to pay off a mortgage debt could not be enforced by the mortgagee who was not a party to the contract. It must therefore be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract. Even if it be granted that there was an intention to create a charge, the Kottayam Bank not being a party to the deed could enforce the charge only if it was a beneficiary under the terms of the contract, and it is not claimed that the Bank was a beneficiary under the deed Ex. D-1. The suit agrunst M. C. Chacko must therefore be dismised. The decree passed by the High Court is modified and it is declared that M. C. Chacko is not personally liable for the debt due under the letter of guarantee executed by K. C. Chacko, nor are the properties in schedule A allotted to M. C. Chacko under the deed dated June 21, 1951 liable to satisfy the debt due to the Kottayam Bank under the letter of gnamntee. (I) I.L.R. 55 Cal. 1315. (3) (1910) 37 I.A. 152. 14 Sup CI/69-13 (2) [1915] A.C. 847. (4) [1911] 39 LA:·1. SUPREME COURT REPORTS ( 1970] I S.C.R Having regard to the circumstances of the case and specially A that a concession that persons not parties to a contract may en­ force the benefit reserved to them under the contract was made before the High Court, we direct that the parties to this appeal will bear their respective costs throughout. Y.P. Decree modified. B