AUSTRALISIA BANK LIMITED Versus FARUQUI HOUSE BUILDING CORPORATION LTD

I. MAHMUD J .‑This suit is for a preliminary decree for sale of mortgaged property and, in the alternative, for recovery of a sum of Rs. 28,984.39' as the balance amount due and payable to the plaintiff on an overdrawn account.

2. The Defendant No. 1, Farooqui House Building Corporation Limited, had a current account with the Australasia Bank Ltd., Nazimabad Branch Karachi. The defendant No. 2, Shakil Farooqui is its Managing Director. The defendant No. 3, Mustaqeem Ahmed Sherwani (who will be referred to as "Sherwani") was, at the relevant time, the Manager of the plaintiff's said Nazimabad Branch.

3. The case of the plaintiff as set out in the plaint, is that on 1‑6‑1966 Sherwani allowed an overdraft to a limit of Rs. 30,000 to the defendants Nos. 1 and 2 in the said account without authority from the plaintiff's Head Office and in breach of duty, which sum the defendants Nos. 1 and 2 withdrew and utilized from the said account. That in order to secure the said overdraft. Sherwani obtained a promissory note from the defendant No. 1 on 1‑6‑1966 and on 2‑8‑1966 he got the defendant No. 2 to mortgage by deposit of title deeds, a plot of land No. P‑284 Block‑L, North Nazimabad, Karachi, and on 11‑8‑1966 he got him to execute an irrevocable general power of attorney. That on the date of the suit, a sum of Rs. 28,984.39 was due and payable to the plaintiff in the said account by the defendant No. 1. The prayer of the plaintiff is for a preliminary decree for sale of the mortgaged property under Order XXXIV, rule 4, C. P. C. and, in the alternative, for a personal decree. The plaintiff's case against Sherwani is that he is personally liable to pay the sum claimed in suit on the ground that he had caused loss to the plaintiff by .granting the overdraft without authority and in breach of trust and in mis feasance.

4. In their joint written statement the first two defendants pleaded that the overdraft was allowed to the defendant No. 1 by Sherwani in the ordinary .course in the exercise of his powers as Manager of the Branch and denied the ,allegation of conspiracy any collusion. They also denied that any mortgage of the plot and the property thereon, was created in favour of the plaintiff .as the said plot belonged to one Mohammad Bashir Farooqui (the brother of .defendant No. 2), who had cancelled the agreement of sale and that the suit .against the defendant No. 2 was not maintainable. In his written statement Sherwani denied that he did not have authority from the plaintiff to allow the ,overdraft in question and denied that he granted the overdraft in collusion with the other defendants or in breach of trust or misfeasance as alleged. That the plaintiff was aware of the overdraft at all times but it had never .objected to it ; that therefore, the plaintiff was estopped from questioning his .authority to allow the overdraft and by its conduct had acquiesced and ,ratified the same.

5. The Court framed the following issues :‑

(1) Whether no mortgage over the property, subject‑matter of the suit, has been created?

(2) Whether the defendant No. 2 is the guarantor?

(3) Whether the defendant No. 3 did not have authority and powers to grant loan to the defendant No. 1 in normal course of his employment or otherwise?

(4) Whether the plaintiffs are estopped from questioning the authority of the defendant No. 3 regarding the grant of the loan ?

(5) Whether the plaintiffs were at all times a party to the grant of the lean by the defendant No. 3 to the Defendant No. 1 ?

(6) Whether the claim against defendant No. 3 is barred by time.

6. The plaintiff examined Ihsan Waheed (P. W. 1) who had succeeded Sherwani as the Manager, after the latter was dismissed from service, on 26‑8‑1966. On behalf of the defendants. the defendant No. 2 Shakil Farooqui (D. W. 1), and Sherwani (D. W. 3), the defendant No. 3, examined themselves. The third witness was Ihsan Waheed, the plaintiff's witness who was called to produce the weekly and monthly statements which were sent ‑to the Head Office by the Branch containing entries pertaining to the overdraft.

7. I have considered the evidence and have heard counsel. My findings .on the issues are as follows :‑

8. Issue No. 1.‑My finding on this issue is that no mortgage over the property, the subject‑matter of the suit. has been created. The only title‑deed accompanying the memorandum of deposit of title‑deeds (Exh. 14) dated 2,‑8‑1966 is a sale agreement (Exh. 18) between Muhammad Bashir Farooqui. ,in favour of the defendant No. 2 his brother. The agreement recites that the Plot of land B‑284‑L was allotted to Muhammad Bashir by the Karachi Improvement Trust on 3‑10‑1956 and that he had agreed to sell the said plot to his brother the defendant No. 2 in suit, earlier by an oral agreement and that he had allowed him to construct a building thereon. The sale price of the plot wds Rs. 5,000 which had been received by him in full and, possession has been delivered to the second defendant. On the face of it, it is clear that the sale agreement does not show any title to the property in the depositor the defendant No. 2. It is not mentioned in the sale agreement and there is no evidence, that a lease of the plot has been executed in favour of the depositor by the K. D. A. Moreover, it is the case of the depositor in his written statement, that this sale agreement has been cancelled by Mohammad Bashir as the consideration could not be paid to him within tie time although, the agreement stated that it had been paid in full. As held in Y. F. R. M. A. R. Cnettyar Firm v. Ma Joo Teen and others (AIR 1933 Ran. 299), "a document of title to immovable property mentioned in section 58 (f ) of the Transfer of property Act, 1882, must disclose an apparent title to the property in the mortgagor or to some interest therein". In the circumstances, no valid mortgage by Deposit of Title Deeds has .been created and the plaintiff's prayer for a declaration and for a preliminary decree under Order XXXIV, rule 4, C. P. C. cannot be granted.

9. Issue No. 2.‑No documentary evidence has been produced to prove that the defendant No. 2 had guaranteed the overdraft. This issue is accord ingly decided in the negative.

10. Issue No. 3.‑Sherwani has admitted in his testimony that in his capacity as Manager of the plaintiff's Nazimabad Branch, he had granted overdrafts to some 30 parties since April 1965, which fact is also corroborated by Ihsan Waheed (P W. 1) who succeeded him as Branch Manager in August 1966. Ihsan Waheed produced a list (Exh. 25) showing the names of the customers to whom advances had been made, the aggregate of which reached the figure of over rupees twenty‑two lakhs in the middle of 1965. It appears that the Controller of Advances at the Head Office became alarmed at this position and therefore he demanded an explanation from Sherwani by his letter dated 18‑11‑1965 (Fxh. 9) for allowing fresh advances‑these were not substantial‑to certain 5 named parties without permission, despite his assurance that he would not do so in future. Sherwani's reply (Exh. 8) was that he was allowing only small advances of purely temporarily nature either against effects (cheques in clearing etc.) or adjustable in a day or two to good customers. He expressed the hope that his action would be confirmed and requested the Controller of Advances "to kindly revive our Discretionary Powers and oblige". The Controller of Advances did not appear to be satisfied with his reply. Accordingly, he issued a letter dated 19‑2‑1966 (Exh. 10) declining to release the discretionary powers of the Manager (to quote) "as the aggregate of the temporary advances allowed by you at your branch is already in excess of the sanctioned aggregate of your Branch" and directing the Manager to get the old advances adjusted at the earliest. This was followed by another circular letter dated 12‑5‑66 (Exh. 11) by which all further advances were frozen, which read :

"It has therefore been decided that managers will not make any further advances in their discretionary powers until further notice.

Please ensure that these instructions are complied with."

It is therefore, clear that by allowing the overdraft of Rs. 30,000 to the defendant No. I on 1‑6‑1966 Sherwani had deliberately disobeyed the express instructions of his employer not to make any further advance under his discretionary powers until they were revived. The overdraft in question was therefore clearly unauthorized. Sherwani's denial in his testimony that he has not given the advances without the permission of the plaintiff is palpably false. Equally futile is his reliance on clause (1) of the General Power of Attorney (Exh. 26) dated 19‑4‑1963 which the plaintiff had executed and registered in his favour authorizing him to act as the lawful attorney of the Bank. Neither clause (i) nor the residuary clause lx) of the Power of Attorney authorized him to grant loans to customers on behalf of the Bank. My finding on this issue, accordingly, is in favour of the plaintiff and it is that Sherwani did not have any power to grant the loan to defendant No. 1 in exercise of his discretionary powers in the normal course of his employment as Manager or otherwise.

11 On the above finding the submission of Mr. Mansoorul Arfin, learned counsel for the plaintiff is that the plaintiff would be entitled to a personal' decree against Sherwani for the loss caused to it by allowing the overdraft to the defendant No. 1 without authority and in disobedience to the plaintiff's instructions to the contrary. That Sherwani committed breach of his contractual duty to obey the lawful instructions of his master and is therefore, personally liable for the direct loss sustained by the plaintiff: In support of his submission Mr. Arfin cited Halsbury's Laws of England, Third Edition, Vol. 25, Article 894 at page 462 which defines the nature of duties of a servant during his employment according to English Common Law, which has been applied in this country. It is stated therein :‑

"Art. 894.‑It is the duty of the servant to obey the master's lawful orders and to serve him faithfully . . . . . .It is also the servant's duty to take proper care of such property of the master as is entrusted to his charge.

Art. 896.‑If a servant commits a breach of his implied duty of care and his master thereby suffers damage, the master is entitled to recover in respect of that damage from the servant, unless it is shown either that the damage is too remote or that there is some other intervening factor which precludes recovery."

On the other hand, Mr. Aziz Munshi, learned counsel for Sherwani, while not disputing this legal principle relating to the liability of a servant, submit ted that no personal liability accrued against his client in this case, if the finding on issues Nos. 4 and 5 are decided in his favour. I will, therefore, take up consideration of issues Nos. 4 and 5.

12. Issues Nos. 4 and 5.‑The burden of proof on these issues falls on the defendant No. 3 t show that the plaintiff is estopped from questioning the authority of Sherw;ni to grant the loan on the ground of acquiescence and ratification. Mr. Munshi's contention is that the plaintiff came to know of the overdraft in question not only from the weekly statement for the week ending 8‑7‑1966 (Exh. 28/37), but also from the monthly statements for the months June, July and August 1966, Exhs. 28/63, 28/64 and 28/65, respectively. It was the practice of the Branch to advise the Head Office through these statements of all overdrafts allowed by the Branch to its customers showing the names, advances made, the balance outstanding against them and the particulars of security taken. When the plaintiff came to learn of the over draft for the first time from the weekly statement dated 8‑7‑1966 (Exh. 28/37) B the plaintiff wrote to Sherwani on 20‑7‑1966 (Exh. 20) asking for his explanation as to the circumstances under which the advance was made by him without obtaining the prior approval of the Head Office. No reply appears to have been sent by Sherwani. However, subsequent acts of the plaintiff show that even after writing the letter dated 20‑7‑1966, the plaintiff permitted the defendant No. 1 to continue to overdraw in its account Exh. 1 and, in fact, debited the account with interest on the overdraft from time to time viz. Rs. 247 for the period ending July 1966, Rs. 247.75 for the month of August 1966 and Rs. 190 for the month of September 1966. At no time did the plaintiff repudiate the loan. It neither recalled the loan nor did i even make a demand for payment on the promissory note (Exh. 13). On th contrary, the plaintiff accepted the security documents (Exhs. 13 to 18) obtained by Sherwani in connection with the loan, as is clear from the fact that after Sherwani was dismissed from service on 26‑8‑1966, the plaintiff tried to perfect the security by obtaining from an architect a certifioate of valuation dated 10‑10‑1966 (Exh. 19) which certified that the estimated cost of the build ing constructed on the mortgaged plot of land was Rs. 1,80,000. In fact, in para. 5 of the plaint, the plaintiff relies on these very security documents. The suit itself asks for sale of the mortgaged property. In this connection Mr. Munshi referred to sections 196 and 197 of the Contract Act, 1872. The former section states that where an act is done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such act. The latter section states that ratification may be implied in the conduct of the person on whose behalf the acts are done. It is Mr. Muashi's submission that the plaintiff after coming to know of the overdraft in question, has elected to ratify the same by conduct and, in C particular, by debiting interest in the account and relying and suing on the security documents. In this connection, illustration (b) to section 197,1 Contract Act, is directly in point, which states that "if A without B's autho rity, lends B's money to C and afterwards B accepts interest on the money from C, B's conduct implies a ratification of the loan". In this connection Mr. Munshi referred to Sultan Mahmed Rowther v. Muhammad Esuf Rowther and others (A I R 1930 Mad. 476), which held that in the absence of any repudiation by the principal of a mortgage effected by an agent in excess of his authority, it must be presumed that there was implied ratification. Mr. Arfin contended that sections 196 and 197, Contract Act did not apply to servants. This submis sion in my opinion has no force. Those sections are not limited to acts of agents but they lay down general principles which are equally applicable to a D servant who is generally his master's agent for some purposes, the extent of the agency depending on the duties and position of the servant. See in this connection Halsbury's Laws of England, Third Edition, Volume 1, Article 350, p. 146.

13. Therefore, in my view the plaintiff had knowledge of the unauthorised overdraft in question and by its conduct had ratified the same.

14. Issue No. 6.‑This issue is not pressed.

15. In the result, there will be a personal decree against the defendant No. 1 in the sum of Rs. 28,984.39 with interest at 9 per cent. per annum with monthly rests from the date of the suit till payment. The suit against the defendants Nos. 2 and 3 is dismissed with no order as to costs.

S. A. H. Suit decreed against first defendant.