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India Cements Capital & Finance Ltd. v/s Magnum News Publications Ltd. & Others

    Original Petition Nos. 465 & 466 of 1999

    Decided On, 12 August 2015

    At, High Court of Judicature at Madras

    By, THE HONOURABLE CHIEF JUSTICE MR. SANJAY KISHAN KAUL

    For the Petitioner: M. Arvind Subramanian, Advocate. For the Respondents: K. Bijai Sundar, Advocate.



Judgment Text

(Prayer: Petitions filed under Section 11(4) of the Arbitration and Conciliation Act, 1996, for appointment of an Arbitrator to adjudicate the disputes between the parties arising out of the Lease agreement Nos.258 dated 07.01.1995 and Lease Agreement No. 263 dated 07.02.1995.)

1. The present petitions filed under Section 11(4) of the Arbitration and Conciliation Act, 1996, have been dusted out and dug out from the archives. None appears to have appeared for the parties. Listing took place only in the year 2000 and 2001 and thereafter, even the counsel seems to have lost interest in the matter and even the counter affidavits were not filed till it came up before this Court after a long hiatus, on 6th March, 2015. It is thereafter, the parties sought time to complete the pleadings, while the first respondent has chosen not to enter appearance, despite service through publication.

2. The petitioner, a public limited company, is engaged inter alia in the business of extending finance facilities to prospective customers under Lease, Hire Purchase and other schemes. Petitioner states that at the time of the transactions inter se the parties, it was known as 'M/s.Aruna Sugars and Finance Ltd.' was subsequently changed to the present name, for which the certificate of registration evidencing change of name has been filed. The claim of the petitioner is that the second respondent introduced the first respondent for providing finance for various office equipments and agreed to stand guarantee for the finance provided by the petitioner. In the absence of availability of 'equipments', initially Lease Agreement No.258 was executed on 07.01.1995 between the petitioner and the first respondent for a total value of Rs.16,87,574.88, under which lease rentals are payable at the rate of 44,637/- per month for a primary period of 60 months and at Rs.16,876/- per month during the subsequent secondary period of 6 months, aggregating to Rs.27,79,476/-. Again second Lease Agreement No.263 was executed on 07.02.1995 between the petitioner and the first respondent for a total value of Rs.7,18,764/-, under which lease rentals are payable at the rate of Rs.11,543/- per month for a primary period of 60 months and at R.4,364/- per month during sthe subsequent secondary period of 6 months, aggregating to Rs.7,18,764/-. The second respondent is stated to have executed a personal guarantee on 07.01.1995 amd executed a personal bond as a guarantor in respect of all the equipments financed by the petitioner, including those to secure the payments due under the lease agreements in L.A.No.258 dated 07.01.1995 and L.A.No.263 dated 07.02.1995.

3. The learned counsel for petitioner on instructions, has pleaded that there were defaults on the part of the first respondent in making payments, which position was not remedied even after legal notices were served on 08.11.1996 and 15.06.1998. An amount of Rs.32,69,259/- in respect of L.A.No.258 dated 07.01.1995 and an amount of Rs.8,27,098/- in respect of L.A.No.263 dated 07.02.1995 is stated to have been payable as on 27.04.1999, after giving credit for the amounts received.

4. The petitioner claims that the lease agreements provide for a mechanism of settlement of disputes through Arbitration, being Clause-33 which reads as under:

'33. All disputes, differences, claims and questions, which may arise during the subsistance of this Agreement between the Lesor and the Lessee touching the matter covered by this Agreement shall be referred to the Arbitration of two Arbitrators one to be appointed by each party to the dispute in accordance with the provisions of the Arbitration Act, 1940.'

5. The Jurisdiction Clause -34 reads as under:

'34. Subject to the provisions of Clause-33 above, as a part of cause of action arises in Madras, it is agreed between the parties that in respect of any suit touching any matter, claims or disputes arising out of or in any way relating to this Agreement Madras City Courts alone shall have exclusive jurisdiction.'

6. The personal guarantee stated to be executed by the second respondent is dated 07.01.1995. This guarantee has referred to the predecessor-in-interest of the petitioner having purchased euipments and offering the same on lease to the first respondent for a primary period of five years and a secondary period of 6 months subject to the terms and conditions mentioned in the lease agreement dated 07.02.1995, giving the option to the petitioner to enforce the guarantor's contractual liability in respect of the use under the lease agreement. The schedule to this document contains the list of 9 equipments which reads as under:

7. A perusal of the aforesaid would show that while Serial Nos.1 to 8 relate to various equipments, Serial No.9 relates to three vehicles. Serial No.9 is not exactly in the same placement, and the signature of the guarantor under Serial No.9 overlap. As to the effect of this, it will be discussed later in view of the plea of the second respondent.

8. The Hire purchase agreement was admittedly entered into on 07.02.1995 i.e., one month subsequent to the lease agreement and the guarantee agreement. At the time of execution of the personal gurantee on 07.01.1995, the vehicles had not been purchased by the second respondent and hence, the vehicle for which finance was given on 07.02.1995 could not have been included in the schedule to the agreement dated 07.01.1995. The petitioner claims to have appointed his nominee arbitrator by letter dated 19.07.1998, but the respondent failed to respond and this resulted in filing of the present petitions.

9. The aforesaid petitions are contested only by the second respondent through their counter affidavit. They have primarily taken the plea that though the personal guarantee is executed by them, the same is dated 07.01.1995 and this secures only the amount advanced against the lease agreement of that date with the schedule of items from Serial Nos.1 to 8. Item No.9 is stated to have been inserted subsequently in order to enable the petitioner to draw an unfair advantage. In fact, in sum and substance, the acceptance of guarantee is only towards such of the equipments as is mentioned in the agreement dated 07.01.1995.

10. As far as the second lease agreement dated 07.02.1995 is concerned, it cannot be presumed that the 2nd respondent has given a guarantee for the said lease agreement, that too one month prior to the date of its execution and it can be concluded that the second lease agreement is in no way connected with the personal guarantee dated 07.01.1995.

11. The aforesaid facts set out would show that the case of the first respondent is that there were two lease agreements viz., L.A.No.258 dated 07.01.1995 and L.A.No.263 dated 07.02.1995. Apart from this, there is a third transaction being L.No.1684, being the Hire Purchase Agreement dated 07.02.1995, and the seond respondent stood guarantee for all these agreeements through the personal guarantee bond dated 07.01.1995.

12. On the other hand, the case of the second respondent is that he is not a signatory to any of the agreements and the personal guarantee dated 07.01.1995 is only in respect of the first lease agreement, L.A.No.258 dated 07.01.1995. The other lease agreement ie., L.A.No.263 dated 07.02.1995 and for that matter, the Hire Purchase agreement dated 07.02.1995 are in no manner connected with the personal guarantee. In this context, it is alleged that there could have been no occasion to sign the personal guarantee even prior to the date of execution of the principal agreement, apart from the fact that the guarantee has been interpolated and is thus null and void and unenforceable.

13. The proceedings which took place in respect of the enforcement of the Hire Purchase agreement have been referred to by the second respondent, whereby the award made by Mr.N.C.Vijayaraghavan dated 12.07.1999 in respect of Hire Purchase Agreement L.No.1684 dated 07.02.1995 has been set aside in O.P.No.816 of 1999, which in turn has been confirmed in O.S.A.No.180 of 2004 and that has become final.

14. The other aspect which has been urged on behalf of the second respondent is that the arbitration clause even in L.A.No.263 dated 07.01.1995 is not binding on the second respondent as he is not a signatory to the same. Clause-33, it is urged, contemplates only appointment of an arbitrator by the petitioner and the first respondent, to which the second respondent is not a party, while the personal guarantee executed by the second respondent does not contain any Arbitration Clause. Being fully aware of the terms and conditions of the lease agreement, it was urged, it did not imply that the terms and conditions of the lease agreement formed part and parcel of the personal guarantee or that the second respondent was bound by the Arbitration Clause.

15. The other aspect pointed out is that the petitioner appointed Mr.N.C.Vijayaraghavan as the sole arbitrator vide letter dated 07.12.1998 in respect of the three agreements and he had accepted the appointment as a 'Sole arbitrator', but took only one case relating to Hire Purchase Agreement No.1684 dated 07.02.1995, as the Arbitrator and did not inform the second respondent about the fate of the case.

16. Much emphasis had been laid on the findings rendered in O.P.No.816 of 1999 as well as in O.S.A.No.180 of 2004.

17. In O.P.No.816 of 1999, there is a categorical finding that the second respondent herein was not a party to the Hire Purchase Agreement L.1684 dated 07.02.1995 and inclusion of these two motor vehicles in S.No.9 in the personal guarantee dated 07.01.1995 is a clear interpolation of the said document, and thus the second respondent has been absolved of his liability. In O.S.A.No.180 of 2004, it is once again stated that the vehicle for which finance was given on 07.02.1995 could not have been included in the schedule to the agreement dated 07.01.1995 and that Item No.9 even from a naked eye appears to be interpolated. Not only that, it has been observed that after taking note of the interpolation in the schedule, there is suspicion that even the second part of the agreement itself cannot be relied upon, and that the personal guarantee agreement dated 07.01.1995 may be pertaining to the two agreements dated 07.01.1995 and not pertaining to the Hire Purchase Agreement dated 07.02.1995.

18. In order to absolve itself of the liability, learned counsel for the second respondent has referred to the following judicial pronouncements:

a) Jayantilal Goel vs. Zubeda Khanum reported in (AIR 1986 AP 120), wherein a learned Single Judge of Andhra Pradesh High court held that insertion also amounts to 'material alteration', as it takes in not only a case where certain thing which is already written has been altered or erased, but also a new insertion, and held that the 'date' has been inserted later and this has not been explained by the plaintiff and hence, the instrument must be held to be void.

b) S.Perumal Reddiar vs. Bank of Baroda reported in (AIR 1981 Madras 180), wherein a learned Single Judge of the Madras High Court observed that if, while the instrument of guarantee is in the hands of the party to whom it was given and is altered in any material particular, without the knowledge or consent of the surety, it will become void and the surety will be discharged.

c) S.B.P & Co., vs. Patel Engineering Ltd., reported in (AIR 2006 SC 450(1), wherein the seven Judges Bench of the Hon'ble Supreme Court has held inter alia that the Chief Justice can examine the issue of existence of a valid arbitration agreement, apart from the existence of a condition for exercise of his power and on the qualifications of the Arbitrator or Arbitrators.

d) National Insurance Co., Ltd., vs. Boghara Polyfab reported in (AIR 2009 SC 170), wherein it was held by the Hon'ble Supreme Court that the Chief Justice can examine whether there is a claim which is 'dead' or 'long barred by time'.

e) New India Assurance Co., Ltd., vs. Kusanchi Kameshwar Rao and another reported in (1997 (9) SCC 179).

f) State of Gurarat (Commissioner of Sales Tax, Ahmedabad) vs. M/s.Variety Body Builders reported in AIR 1976 SC 2108.

g) Florrie Edridge vs. Rustomji Danjibhoy Sethna reported in (AIR 1933 Privy Council 233).

When there is a written contract, the intention of the parties executing the contract has to be gathered only from the terms and conditions agreed upon and the subsequent conduct of the parties is irrelevant for the purpose of construing the agreement. The construction must depend upon the intention of the parties, when it was made, which is to be ascertained from its terms, read in the light of the facts known to both parties, when it was concluded.

19. On examination of the facts of the present two cases which are in a sense interlinked, I am of the view that the fate of the petitioner was sealed with the pronouncement of orders in O.P.No.816 of 1999 and O.S.A.No.180 of 2004. It may be noted that the original agreement is also produced before this Court and has been seen.

20. There is a shadow of doubt over the manner in which the lease agreements and guarantee agreement have been executed. The guarantee agreement is dated 07.01.1995. It is the same date as one of the lease agreements. However, the guarantee agreement as claimed by the petitioner, seek to cover all the three - two lease agreements and one hire purchase agreement. The guarantee agreement itself has a schedule in which Serial Nos.1 and 2 are typed in a particular manner with sufficient spacings. Serial Nos.3 to 8 are thereafter closely typed, while Serial No.9 is typed after leaving a space at the start without synchronisation with the other 8 Serial numbers and it also overlaps the signature at the bottom. This, coupled with the fact that the agreement is dated 07.01.1995 and no personal guarantee was executed on 07.02.1995 throws great doubt arising from the possibilities of interpolation being made. The decision rendered in the arbitration proceedings qua the hire purchase agreement has clearly concluded that Serial No.9 is an interpolation and excluded the liability of the second

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respondent as guarantor. The second respondent's own case is that, what was sought to be covered by the personal guarantee was only the lease agreement dated 07.01.1995. The subsequent lease agreement dated 07.02.1995 could not have been covered by the earlier executed guarantee. 21. No doubt, the aforesaid pronouncements have only excluded the liability of the second respondent qua the Hire Purchase agreement, but once a finding is rendered about the interpolation of a document which has become final and binding, in my view, that document cannot be relied upon for any purpose whatsoever and it becomes void and unenforceable. The observations made in S.Perumal Reddiar's case cited above would squarely apply and with this alteration, the petitioner has lost the right to enforce the surety and the surety therefore stands discharged. It cannot be countenanced that once a document is found to have been altered unauthorisedly by the petitioner, he should be able to take advantage of the same in any manner. This alteration without the knowledge and consent of the second respondent as surety will render the gurantee void thus cannot be looked into. The consequence is that the surety stands discharged. 22. The aforesaid being the finding, the other aspects pale into insignificance and there cannot be any liability on the second respondent as guarantor since the basic document itself has been altered and tampered by the petitioner. 23. For the reasons aforesaid, these two original petitions stand dismissed, leaving the parties to bear their own costs.
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