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Madras High Court
Rajagopala Aiyer vs A.N.K. Raman Chettiar And Ors. on 21 September, 1927
Equivalent citations: 108 Ind Cas 754
Bench: Wallace, Thiruvenkatachariar


1. The appellant before us is the 3rd defendant in the suit which was brought to enforce a mortgage bond. Exhibit A, dated the 20th May, 1920, executed in favour of the plaintiffs by the defendants Nos. 1 and 2 and by the 3rd defendant’s mother on his behalf as his guardian, he being then a minor. The plaintiffs who are the mortgagees under Ex. A, are the proprietors of four different firms which have their principal place of business at Madras. Their case is that each of the said firms had dealings with the firms of R. Rangaswami Aiyar & Sons which was carrying on business in Javali or cloths at Madras having also a branch of the same business at Madura. The plaintiffs say that for purposes of the trade of R Rangaswami Aiyar & Sons Hanumantha Aiyar who was the managing proprietor of the said business borrowed moneys from each of them from time to time and also purchased piece-goods from them and that in connection with his Madura branch, the said Hanumantha Aiyar also borrowed moneys from the 1st plaintiff for purchasing a house at Madura and making additions and improvements thereto to make it suitable for the carrying on of the business and also for the residence of his family therein. As a result of the aforesaid dealings the firm was indebted to all the four plaintiffs in the sum of about Rs. 25,000 at the time of Hanumantha Aiyar’s death which took place at Madura about four days prior to the execution of the mortgage bond Ex. A. On hearing of Hanumantha Aiyar’s death the representatives of the four firms went to Madura for the purpose of realising the amounts due to them from the firm of R. Rangaswami Aiyar & Sons. That firm was an ancestral trading firm which was started by the 3rd defendant’s grandfather, Rangaswami Aiyar, along with his two sons Hanumantha Aiyar and Ramaswami Aiyar. The father of the 3rd defendant, Ramaswami Aiyar, died in 1909 and the business was thereafter continued by Rangaswami Aiyar and Hanumantha Aiyar. Rangaswami Aiyar died in 1912 and the business was thence forward conducted by Hanumantha Aiyar on behalf of himself and his minor nephew the 3rd defendant. Hanumantha Aiyar had no son but left a widow who is the 2nd defendant in the suit. The 1st defendant was the sister’s husband of Hanumantha Aiyar and he was managing the affairs of the business during the lifetime of Hanumantha Aiyar. The plaintiffs say that their representatives saw the 1st and 2nd defendants and the mother of the 3rd defendant and pressed them for immediate payment of the amount due to their firms by R. Rangaswami Aiyar & Sons, The latter thereupon expressed their inability to comply with the plaintiffs’ demand for immediate payment and asked for time promising to discharge the debt in instalments out of the earnings of the firm and also offering as security a mortgage of the firm’s properties. Thereupon an agreement for the liquidation of plaintiffs’ debts as per the terms set out in Ex. A, was entered into between the parties and the suit mortgage bond was executed by defendants Nos. 1 and 2 and the 3rd defendant’s mother as his guardian for the re-payment of Rs. 25,000 to all the plaintiffs jointly in the manner and subject to the terms provided therein. The defendants made some payments for interest due on the mortgage-bond but did not pay even a single instalment in respect of the principal amount. The suit was, therefore, brought for the recovery of the amount due on the bond by enforcing the mortgage security and also for a decree against defendants Nos. 1 and 2 personally. The 3rd defendant was practically the only contesting defendant in the suit. Defendants Nos. 1 and 2 did not dispute the plaintiffs’ suit save as to the interest claimed, their plea on that point being that the stipulation in the mortgage bond as to interest was penal and, therefore, unenforceable. On behalf of the 3rd defendant, his guardian for the suit denied the plaintiffs’ claim in toto. His case is, that the business of R Rangaswami Aiyar & Sons was an ancestral trading business of the family and that after the death of the 3rd defendant’s grandfather the only persons interested therein Were, 3rd defendant’s paternal uncle Haunmantha Aiyar and the 3rd defendant and that on the death of Hanumantha Aiyar, the 3rd defendant became exclusively entitled to the business and its assets and that the 2nd defendant had only a right to maintenance out of the assets of the firm. The 1st defendant was only an employee of the firm under Hanumantha Aiyar and had no interest in the partnership but with fraudulent intention of securing to himself an interest in the said business, he took advantage of the unfortunate position in which the 3rd defendant’s mother was then placed and got her to execute the suit bond on the false representation that she was only executing a power-of-attorney in his favour in order to enable him to carry on the business of the firm on, behalf of the minor, 3rd defendant. The mortgage bond contains a false and fraudulant recital that the 1st defendant was also interested in the business of R. Rangaswami Aiyar & Sons and its assets as one of its partners. The plaintiffs for their own purpose colluded with the 1st defendant in the fraud he practised on the 3rd defendant’s guardian. The suit mortgage was, therefore not binding on the 3rd defendant. The 3rd defendant’s guardian also denied that any of the liabilities recited in the mortgage bond were in fact contracted by Hanumantha Aiyar for the purposes of the firm or that there was any necessity for mortgaging the 3rd defendant’s (minor’s) properties, as the debts even if true, and binding could have been discharged out of the liquid assets of the firm. He also pleaded that the rate of interest stipulated in the bond was penal and unenforceable.

2. The issues raised in the case relate to the above contentions put forward on behalf of the 3rd defendant. The learned Subordinate Judge has, after a careful consideration of the evidence, found all the issues in plaintiffs’ favour and given a decree for the plaintiffs as prayed.

3. At the hearing of the appeal before us, Mr. G. Krishnaswami Aiyar, the learned Counsel for the appellant, contested all those findings on the ground that they were erroneous and not supported by the evidence in the case. We were taken through the material evidence bearing on all those questions.

4. As regards the first point raised by him viz., that the signature of the 3rd defendant’s mother to the suit mortgage bond was obtained by fraud, we entirely agree with the findings of the learned trial Judge that she was fully aware of the nature of the document Ex. A when she signed it.

5. [Their Lordships referred to the evidence and continued:]

We agree, therefore, with the learned Sub-ordinate Judge that the plea that the 3rd defendant’s mother signed Ex. A being led to believe that it was only a power-of-attorney in the 1st defendant’s favour is not true.

The next contention urged on behalf of the appellant is that the liability of Hanumantha Aiyar to the plaintiffs has not been satisfactorily proved. On that question also we see no reason for holding that the Subordinate Judge’s conclusion is erroneous.

In support of his contention on this point the learned Counsel for the appellant raised before us a new point which was neither raised in the grounds of appeal, nor so far as we can see, raised in the lower Court. The contention refers to Ex. J series which were relied upon by the 1st plaintiff to prove loans advanced under those documents to Hanumantha Aiyar to the extent of Rs. 7,500. Mr. G. Krishnaswami Aiyar contended that the amounts borrowed under Ex. J series were all discharged by payments made by Hanumantha Aiyar as the endorsements made on the said documents themselves show and also by the fact that they were produced in the suit by the 2nd defendant, the widow of Hanumantha Aiyar.

6. [Their Lordships referred to the evidence on the point and proceeded:]

Upon those facts it seems to us to be futile to contend that the position of J series by the 2nd defendant proved that the loans originally given on those documents have been discharged by actual payments made by Hanumantha Aiyar. Those documents were treated as discharged by the debts themselves being debited in the plaintiffs’ accounts against R. Rangaswami Aiyar & Sons and in no other sense. Apart from this the only other point which was pressed in connection with the liabilities incurred by Hanumantha Aiyar was that after his father’s death he started a trade in English piecegoods whereas till then they were trading only in country made cloths and that the character of the ancestral business was thereby completely altered so as to make it a new business which cannot be binding upon the minor, 3rd defendant. In support of this contention a decision of the Privy Council in Sanyasi Charan Mandal v. Krishnadhan Banerji 67 Ind. Cas. 124; 49 C. 560; 30 M. L. T. 228; 20 A.L.J. 409; 24 Bom L. R. 700; 35 C. L.J. 498; 43 M.L.J. 41; (1922) M. W. N. 364; 26 C. W. N. 954; 16 L. W. 536; A. I. R. 1922 P. C. 237; 49 I. A. 108 (P.C.) was relied on. The Subordinate Judge overruled this contention chiefly on the ground that the business in English piecegoods was not a new business started by Hanumantha Aiyar but was only if at all an extension of the ancestral business. We agree in that view and we are also of opinion that an ancestral business does not lose its character as such and become a new business by a mere extension of the same, by the manager, a distinction which we find is noticed by their Lordships themselves in Sanyasi Charan Mandal v. Krishnadhan Banerji 67 Ind. Cas. 124; 49 C. 560; 30 M. L. T. 228; 20 A.L.J. 409; 24 Bom L. R. 700; 35 C. L.J. 498; 43 M.L.J. 41; (1922) M. W. N. 364; 26 C. W. N. 954; 16 L. W. 536; A, I. R. 1922 P. C. 237; 49 I. A. 108 (P.C.) If then the debts for which the suit mortgage bond was executed had been incurred in connection with the family trade, by Hanumantha Aiyar, the manager, and sole adult male member of the joint family, we are of opinion that such debts must be equally binding on the minor, 3rd defendant, also to the extent of the partnership assets. The 3rd defendant’s family has been admittedly trading family for a long time and it would be extremely difficult for such a trade to be carried on properly and in the interests of the family if the adult members who carry on the business and who are equally interested in it with minor members of the family, cannot in the course of the business borrow moneys for the purposes of such business so as to be binding upon the minor members also. In the case of an ordinary Hindu family any person who lends money to the manager for alleged family purposes and seeks to render the shares of the other members of the family also liable for his debts, has to show as against such other members, especially if they are minors that there was real necessity for the loan or that he made reasonable enquiries and upon the facts represented to him he believed there was necessity for the loan, but in the case of a trading family a less rigorous rule appears to have been laid down. Mr. Mayne in his Hindu Law says as follows:

The manager of a trading family has wider powers than those of the manager of a non trading family. There is no deviation from the fundamental principle that what is done must be for the benefit or necessities of the family but acts as the incurring of the debts and drawing of negotiable instruments are necessities to a trading family while they would not be to a non-trading family. Even when the debts in fact are incurred merely for personal purposes of the manager they will bind the family if they were within the ostensible authority of the manager as conducting the family business. So it is that those who deal with him and to whom he incurs debts are not put upon enquiry as to whether the debts were incurred for the benefit or necessities of the family so long as they are incidental to the family business. (Mayne 9th Edition pages 398 and 399). The authorities relied on by the learned author in support of the above view are Raghunathji Tarachand v. Bank of Bombay 2 Ind. Cas. 173; 34 B 72; 11 Bom. L. R. 255 and Sanka Krishnamurthi v. Bank of Burma Ltd. 11 Ind. Cas. 79; 35 M. 692; (1911) 1 M. W. N. 385; 21 M. L. J. 620: 11 M. L. T. 56. We observe however that there is some conflict of authority on this question of onus as pointed out by Sir John Wallis, Kt., C. J., in Gurusami Nadan v. Gopalaswami Odayar 50 Ind. Cas. 775; 42 M. 629 at p. 631; 36 M. L. J. 568; 9 L. W. 547; (1919) M. W. N. 301 referring to Ganpat Rai v. Munni Lal 13 Ind. Cas 34; 34 A. 135; 9 A. L. J. 54 and Nagendra Chandra Dey v. Amar Chandra Kundu 7 C. W.N. 725 in which a different view is taken, but the learned Chief Justice himself inclined to the view by the Bombay High Court in Raghunathji Tarachand v. Bank of Bombay 2 Ind. Cas. 173; 34 B 72; 11 Bom. L. R. 255 as he observes “that the case of a joint trading family is in many ways exceptional and, it appears open to question whether in such a family the presumption should not be the other way.

7. Viz., that the debt was contracted by the manager for the necessary purposes of the business. The Bombay High Court itself in a later case, in Vithal Yeshwant v. Shivappa Mallappa 72 Ind. Cas. 659; 47 B. 637 at p. 641; 25 Bom. L. R. 323; A. I. R. 1923 Bom. 265 seems to consider the propositions laid down by Chandravarkar, J., in Raghunathji Tarachand v. Bank of Bombay 2 Ind. Cas. 173; 34 B 72; 11 Bom. L. R. 255 as far too wide and that in all cases where the manager of a joint Hindu family mortgages a joint estate, it must still be incumbent on the party supporting the mortgage to prove that the money raised on the mortgage was required for family purposes. But the learned Judge also proceeds to observe as follows:

No doubt if the family is carrying on a trading business, it would be very much easier to prove that the money was required for the purposes of that trade, and so for family purposes, than if the family were mere agriculturists.

8. So far as the present case is concerned we are satisfied that the moneys borrowed by Hanumantha Aiyar were required for the purposes of the family trade and that, therefore, the debts for which the suit mortgage bond was executed were binding upon the 3rd defendant (minor) even according to the stricter view as to the onus taken in Ganpat Rai v. Munni Lal 13 Ind. Cas 34; 34 A. 135; 9 A. L. J. 54 Vithal Yeshwant v. Shivappa Mallappa 72 Ind. Cas. 659; 47 B. 637 at p. 641; 25 Bom. L. R. 323; A. I. R. 1923 Bom. 265 and we consider it unnecessary for us to say in this case which of the two conflicting views as to the onus should in our opinion be accepted especially as this question was not argued before us.

9. We are unable to accept the contention that though the debts due to the plaintiffs may be binding on the minor, the mortgage of his properties under Ex. A is not binding on him as the firm had large liquid assets and the debts could have been discharged without effecting the mortgage. There is absolutely no evidence in support of this plea. If the debts could easily have been discharged by the sale of the stock in-trade of the firm or by the realisation of its outstandings, it may be asked, why no attempt was made after the execution of the suit mortgage to discharge the mortgage debt in that manner or why default was made in the payment of the comparatively small amount of monthly instalment which was fixed under the mortgage. The evidence shows clearly that the mortgage bond was executed by the mother of the 3rd defendant in order to avert the threatened suits by the several creditors of the firm, the launching of which would have not only affected prejudicially the business of the firm but also added considerably to its liabilities. We, therefore, agree with the learned Subordinate Judge that the suit mortgage is binding on the 3rd defendant.

10. The only remaining point which has to be dealt with relates to the question of interest. On that question also we are clearly of opinion that the rate of interest provided in the mortgage bond is not penal and that it is, therefore, enforceable.

11. In the result this appeal is dismissed with costs.

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