Even if the agreement was executed merely as collateral security for the loan, the loan would have to be repaid. Only if the loan is repaid can the agreement be cancelled. If the loan is not repaid the agreement would have to be enforced. If the agreement also cannot be enforced it could not have constituted any security, collateral or otherwise. Collateral security means and includes a security which the purchaser can rely upon, if the loan liability is not discharged. 'Collateral' is defined in Concise Oxford English Dictionary XI revised Edition containing at page 280 is:
"Something pledged as security for repayment of a loan".
24. Hence repayment of the loan is a condition precedent for the security not to be enforced. Black's Law Dictionary Eighth Edition at page 1385 defines collateral security, as "A security, subordinate to and given in addition to a primary security, that is intended to guarantee the validity or convertibility of the primary security".
25. Hence for the property to be a security, the repayment of a loan is a must. In the absence of repayment of the loan the security would have to be enforced by the enforcement of the agreement which would be by its specific performance.
Bombay High Court
Subodh Lallubhai Bhansali & Anr vs Pandarinath Moreshwar Dahanukar ... on 19 June, 2012
Bench: R. S. Dalvi
1. This Suit is filed for specific performance and in the alternative for damages of Rs.1,46,000/- with interest at the rate of 18% p.a thereon, as per the particulars of Exhibit-D to the plaint admittedly executed by and between the Plaintiffs and Defendants 1 to 5 who are shown as owners of the suit property in the record of rights. Defendants 6 to 8 have been joined as party Defendants later, since they are the married sisters of Defendants 1 to 5, but who are not shown as owners in the record of rights. The execution of the agreement is admitted. The receipt of earnest amount of Rs.40000/- under the agreement is also admitted by Defendants 4 and 5 who have sought to defend the Suit.
2. Defendants 1 and 2 have expired. The Plaintiff contends that the other Defendants are their only heirs. The Defendants contend that they have left behind their own issues. No other heirs have been brought on record.
3. After the execution of the agreement on 19 th November 1987 the Plaintiffs called upon the Defendants by the letter of Plaintiff No.1 2 S.502.1988(Judgment).sxw
addressed to the original Defendant No.2 to execute the conveyance at the date and place suitable to all of the Defendants. The original Defendant No.2 by his letter dated 12 th January 1988 to the Plaintiff No.1 informed him that the Defendants do not wish to sell the property but would return the deposit amount as soon as possible. Upon such refusal the Plaintiff filed this Suit.
4. Defendants 2, 4 and 5 initially filed their written statement. Defendants 6, 7 and 8 have filed their written statement thereafter, but not contested the Suit.
5. The Defendants have challenged territorial jurisdiction of this Court. The Defendants admit the receipt of the earnest amount of Rs.40,000/- and admit execution of the agreement for sale. They contend that the agreement was executed under undue influence and coercion. They have stated that the Defendants were in need of money for their dairy business which was running in loss. The Defendants took a loan on interest in the year 1982 and executed promissory notes. This was to be returned upon exorbitant interest of 18% to 20% p.a. They could not repay when demanded. They required further finance. The money lender, one Bachhubhai Bhansali introduced them to Plaintiff No.1. Plaintiff No.1 gave them the requisite finance upon execution of the agreement as collateral security. The Defendants have admitted receipt of the amounts from Plaintiff No.1. The Defendants have also claimed that earlier loans were also taken for which promissory notes were executed. The Defendants have admittedly not repaid the loan amount with or without interest. The Defendant has not also not offered to repay any amount of the loan stated to have been taken by them in the evidence recorded in the Suit.
6. Based upon the pleadings between the parties Justice S.C. 3 S.502.1988(Judgment).sxw
Dharmadhikari framed following issues on 21st March 2009 which are answered as follows:
I S S U E S
1 Whether this Court has jurisdiction to entertain and Yes try the above suit as the property is situated at Golwad, Taluka Dahanu, District: Thane.
2 Whether the Plaintiffs prove that they are entitled to Yes specific performance of agreement dated
08/03/1987.
3 Whether the Plaintiffs are entitled to mesne profits As per from 01/01/1988 till possession. final order
4 In the alternative whether Plaintiffs are entitled to As per refund of their amount and damages in the sum of final order Rs.1,46,000/- with interest.
5 Whether the Defendants prove that the agreement No dated 08/03/1987 was executed by Defendant Nos.1
to 5 only for the purposes of taking monies from the Plaintiffs for milk business and the agreement was collateral security.
6 Whether the Plaintiffs were entitled to specific No performance of the agreement dated 08/03/1987 when the Defendant Nos. 6, 7 and 8 are not signatories to the said agreement.
7 What order ? As per final order
7. The Plaintiff No.2 has examined himself. Defendants 4 and 5 have been examined themselves. The admissions of the parties in the oral evidence would have to be read alongside the agreement executed by them and the correspondence entered into by and between them. Issue Nos.2,3 and 4 relate to the reliefs in the suit to be granted to the Plaintiff. Issue No.5 would have to be decided before Issue Nos.2,3 and 4 are decided.
4 S.502.1988(Judgment).sxw
8. ISSUE NO.1: It is the Plaintiffs' case that the agreement was executed in Mumbai and the amounts were paid in Mumbai, though the property agreed to be sold by the Defendants and purchased by the Plaintiffs is in Gholvad and the Plaintiffs were residing in Gholwad, Taluka: Dahanu. The Plaintiffs, therefore, have applied for and have been granted leave under clause 12 of the Letters Patent by Justice Suresh, as he then was, on 1 st March 1988. An endorsement to that effect has been made in the usual course of the conduct and procedure of the Court at the relevant time in 1988.
9. The Defendants have contended in their written statement that the Court has no territorial jurisdiction. However they have not taken any steps for revocation of leave granted under the Letters Patent. Upon leave, the Court would have jurisdiction.
10. In fact in the cross examination of Defendant No.4 he has admitted that all the Defendants came to Bombay to meet Plaintiff No.1 when he gave them the money. The earnest amount is stated to be given at the time of the execution of the agreement which is recited in the agreement itself.
11. Similarly Defendant No.2 has admitted that he had been to the Plaintiffs' house in Lamington Road at Mumbai in 1987 at the time of receiving the money. This evidence shows that the contract was executed in Mumbai. That is the material part of the cause of action. Hence the Court's territorial jurisdiction is not barred. Hence, issue No.1 is answered in the affirmative.
12. ISSUE NO.5: The admitted receipt of consideration of Rs.40,000/-, which is shown as earnest amount in the agreement dated 5 S.502.1988(Judgment).sxw
8th March 1987, is claimed to have been received by all the Defendants on behalf of Defendant No.2. Defendant No.2 was stated to have been in milk business. There is no evidence of any milk business of Defendant No.2 brought on record. He was in financial difficulties. He is stated to have raised loans from time to time. No evidence of earlier loan is produced. He claims to have run up debts to repay. Hence he required a further loan. If that was so why Defendant No.2 alone did not take the money or executed any security is not made clear.
13. Mr. Bhatt on behalf of the Plaintiff drew my specific attention to the fact that Defendants 1 to 5 have admittedly received amounts in equal shares as co-owners of the suit property and that there is no suggestion to the Plaintiff No.2 in the cross examination that the amount was not paid to any of them. This fact is wholly inconsistent with the Defendants' case that Defendant No.2 needed finance for his business.
14. The evidence of Defendants 4 and 5 that Defendant No.2 needed money for his business is, therefore, not substantiated. Since the business itself is not shown and the earlier loans are also not shown, their case that fresh loan was required by Defendant No.2 for which collateral security has to be executed is also not substantiated.
15. The cross examination of Defendant No.4 shows that he was not concerned with the dairy business of Defendant No.2, his brother. He was only informed about the need of his brother by Defendant No.2 himself who casually told him so. Since one Bachhubhai Bhansali, the moneylender, was then not having money he told Defendant No.2 to approach Plaintiff No.1. He was not present when this was told to Defendant No.2. He deposed that Bachhubhai Bhansali told him so, but he has not examined Bachhubhai Bhansali. When he came to Mumbai, without any talks Plaintiff No.1 gave them Rs.40,000/-. He has admitted 6 S.502.1988(Judgment).sxw
in the cross examination that four Defendants were given by cheques and one was given in cash Rs.8000/- each. He has thereafter stated that it was a bearer cheque which he gave to Defendant No.2 directly. That is a matter between the brothers. Yet he has stated that the repayment was to be done by Defendant No.2 alone.
16. It can be seen from his cross examination that the loss of the business or the loans, previous or present, is not shown. The receipt of amount is admitted. Though he has stated that he has not executed any written agreement, the agreement itself shows his signature which is not disputed. In fact the case in the written statement is that the agreement was executed under duress and coercion which has remained at that. There is absolutely no evidence of duress or coercion led by the Defendants.
17. Upon the similar affidavit of examination-in-chief of Defendant No.5 she has been cross examined. She has stated that she had been to the house of Plaintiff in Lamington Road, Mumbai in 1987 at the time of receiving the money. She received the cheque and gave it to her brother Defendant No.2. Hence her case is much the same.
18. From the evidence of Defendants 4 and 5 it cannot be seen that the agreement for sale was executed by them only for the purpose of taking monies from the Plaintiff for the milk business of Defendant No.2 as cumulative security. Hence issue No.5 is answered in the negative.
19.
ISSUE NOS. 2, 3 & 4 All the Defendants have signed the :
agreement. Interestingly all the Defendants have been made payment separately. Four of the Defendants have been made payment by cheques. One Defendant being Defendant No.3 has been made payment in cash. That aspect has been averred by the Plaintiff No.2 in his evidence. She 7 S.502.1988(Judgment).sxw
has produced substantiating documents in that behalf. That part of the evidence is not challenged. Receipt of Defendant No.3 for Rs.8000/- is produced. It has been signed by Defendant No.3 whose signature is identified by the Plaintiff No.2. It has been given to Plaintiff No.2 and produced from her custody. The Plaintiff has also produced two pass books of Bank of India bearing Account Nos. 20467 and 20249. The pass books shows four debit entries of Rs. 8000/- each in the names of Defendant Nos. 1, 2, 4 and 5 dated 10 th March 1987, 25th March 1987, 9th March 1987 and 12th March 1987 under cheque Nos.8636, 8635, 3737 and 3736 respectively.
20. The amount of Rs.40,000/- is, therefore, paid to the five owners of the suit property in five equal shares of Rs.8000/- each.
21. The balance amount of Rs.1,95,000/- under the agreement of sale dated 8th March 1987 was to be paid at the time of execution and registration of the Deed of Conveyance and completing the same by 31 st December 1987. Well within that time Plaintiff No.1 wrote to Defendant No.2 calling upon them to execute the Conveyance at the time and place suitable to all the Defendants. Defendant No.2 replied that "We" (the Defendants) do not wish to sell the property, but to return the deposit amount. Defendant No.2 or any of the Defendants made no efforts to return the amount. They have not shown how they have sought to return the amount as per the letter of Defendant No.2 himself.
22. Consequently, the Plaintiff would be entitled to have at least the return of the amount with interest chargeable on such loans for business purpose taken from private individuals and entirely remaining unpaid since its receipt failing which to obtain specific performance of the agreement itself.
8 S.502.1988(Judgment).sxw
23. Even if the agreement was executed merely as collateral security for the loan, the loan would have to be repaid. Only if the loan is repaid can the agreement be cancelled. If the loan is not repaid the agreement would have to be enforced. If the agreement also cannot be enforced it could not have constituted any security, collateral or otherwise. Collateral security means and includes a security which the purchaser can rely upon, if the loan liability is not discharged. 'Collateral' is defined in Concise Oxford English Dictionary XI revised Edition containing at page 280 is:
"Something pledged as security for repayment of a loan".
24. Hence repayment of the loan is a condition precedent for the security not to be enforced. Black's Law Dictionary Eighth Edition at page 1385 defines collateral security, as "A security, subordinate to and given in addition to a primary security, that is intended to guarantee the validity or convertibility of the primary security".
25. Hence for the property to be a security, the repayment of a loan is a must. In the absence of repayment of the loan the security would have to be enforced by the enforcement of the agreement which would be by its specific performance.
26. Defendants 4 and 5 have made a feeble attempt to offer to repay the loan in paragraph 6 of their affidavit of examination-in-chief. They claim to have shuttled between the moneylender Bachhubhai Bhansali and Plaintiff No.1. They have also deposed about their brother Defendant No.2 having shown his willingness to return the loan amount. However, aside from the willingness in the admitted letter of Defendant No.2 dated 12th January 1988 there is no further act of the Defendants to repay. No offer is made by any cheque or otherwise. The security, 9 S.502.1988(Judgment).sxw
therefore, collateral though, would have to be enforced if the repayment is not made.
27. Since the repayment is not made despite written admission and confirmation since January 1988 the Plaintiff has rightly claimed interest upon the amount of earnest paid since 8 th March 1987 @ 18% p.a till the filing of the Suit and thereafter damages of Rs. 1 Lakh in lieu of specific performance with interest thereon at the same rate from the date of the Suit until realisation as alternative relief as per the particulars of the claim Exhibit-D to the claim.
28. The damages claimed by the Plaintiffs is rather reasonable. The real estate value would rise manifold. The Plaintiff must be returned not only earnest amount with interest, but also the damages as on the date of the Suit with interest until repayment.
29. Hence the Plaintiff would be entitled to receive the monetary claim made by the Plaintiff of the return of Rs.40,000/-, with interest @ 18% p.a thereon until the filing of the Suit, damages of Rs. 1 lakh and interest thereon from the date of the suit until payment. If that amount is not paid within a reasonable time the Plaintiff would certainly be entitled to have the agreement specifically performed. Of course, this would be upon the premise that the Plaintiffs are ready and willing to perform their part of the suit agreement. Their part is for making payment of balance consideration of Rs.1,95,000/- which was the amount payable by the Plaintiff representing the real estate value of the suit property on the date of the execution of the agreement. It is common knowledge, and of which judicial notice is required to be taken, that the real estate value has increased manifold. The Plaintiffs would be entitled to obtain specific performance only upon making payment of the said amount of consideration together with interest thereon @ of 24% p.a from 31st 10 S.502.1988(Judgment).sxw
December 1987, the date when the sale was to be completed until the time the Plaintiffs actually make such payment. Issue Nos.2, 3 and 4 are answered accordingly.
30.
ISSUE NO.6 Defendants 6, 7 and 8 are married sisters of :
Defendants 1 to 5. The Plaintiff has produced the certified 7x12 extracts of the suit property bearing survey No.337. The names of Defendants 6, 7 and 8 are not shown in the survey numbers as co-owners. Defendants 6, 7 and 8 have not sought to have their names shown. They have not exercised right of co-ownership. Hence Defendants 6, 7 and 8 though they have filed written statement, they have not led evidence. They are neither liable under the said agreement nor can obtain benefits under the agreement not executed by them. The Suit agreement is executed by the co-owners of the suit property. Defendants 6, 7 and 8 are not even necessary and proper parties, but only joined in the Suit upon an application made in their behalf after the plaint was filed. The Plaintiffs are not entitled to any reliefs against Defendants 6, 7 and 8. Hence, issue No.6 is answered in the negative.
31.
ISSUE NO.7 : The Suit is decreed in terms of prayer (e) and failing which, in terms of prayer (a).
32. The Defendants 3, 4 and 5, who are the co-owners of the suit property, are ordered to pay the Plaintiffs Rs.1,46,000/- with interest thereon at 18% p.a from the date of the filing of the Suit until payment/realisation as per the particulars of claim Exhibit-D to the plaint within 12 weeks from today.
33. If the Defendants fail to make the aforesaid payment the Plaintiffs shall be entitled to have the agreement for sale dated 8 th March 1987 specifically enforced.
11 S.502.1988(Judgment).sxw
34. The Defendants, and failing whom, the Prothonotary and Senior Master of this Court shall execute the Conveyance in favour of the Plaintiffs. This shall be conditional upon the Plaintiffs depositing in Court the amount of consideration of Rs.1,95,000/- together with interest thereon at 24% p.a from 31st December 1987 until the date of deposit.
35. If the amount, if so deposited, the Prothonotary and Senior Master of this Court may invest the same in FDR of any Nationalized Bank until its withdrawal by the Defendants 3, 4 and 5.
36. Defendants 3, 4 and 5 shall be entitled to withdraw the said amount if they hand over vacant possession of the suit property.
(ROSHAN DALVI, J.)
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