# M.C.CHACKO v. STATE BANK OF TRAVANCORE, TRIVANDRUM

- **Citation:** [1970] 1 S.C.R. 658
- **Court:** Supreme Court of India
- **Decided:** 1969-07-23
- **Bench:** J. C. Shah, Acting C.J. Ano G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-c-chacko-v-state-bank-of-travancore-trivandrum-4674
- **Pages:** 7

## Headnote

Charge--Guaranree-Father guaranteeing payment of overdraft account
of Bank of which son was manager-Deed b.v father giving his properties
to son and fanJily 1nembers-Recital in deed that /ether's liability if an)'
tv be satisfied by the son and the properties c..Ilotred to him-If sufficient
to creare
charge-Right if can be
enforced by person not pllrly to
contract.
A bank, of which the appellant was the Manager, had •n ovcrdrah
account with anotbcr bank \\'hich later merged with 1he respondent. The
appellant's father had executed from time to time letters of guarantee
holding him.c;elf liable for the ~mount under the O\'t.'fdraft arr;inb>cn1ents.
"fhe •ppellant's father executed a deed giving a\\.'ay his properties 10 th!!
appelta:it, and orher n1embcrs of the family.
·rhe
deed
re\."itc<l
that
he had c:c:ecuted the letters of guarantee at the request of rhe app!.!tlant,
and tbl'lt the amount due to the Bank wits 10 be paid by the app~llant; but
if any amount had to be paid l-y him (father) as per the letlcr of guara .. tcc,
the appellant and the μropcrtic~ allotted to him were to he an'\wcrable
tor that amount. ·rrc creditor bank tiled a suit against the debtor bank
and also against the appcUant and his father's other heirs and legal rcprescntartV'ei for the amount due under the overdraft arrangement; and claimed
that a charge wa~ created on the properties to "'hich the deed t:X:!CUted
by the father of the appellant related.
The trial court decreed the suit
against the debtor hank and al<;o -again.st the appellant limited to the
property received by him from his father under the deed hut held that the
claim to enforce the personal Jia.bility of the father against his legal repn:-
sentatives was barred by the law of limitation. The High Court con.firmed
tile decree.
On the questions (i) v.1hether under the deed a charge was
created in favour of the creditor bank to satis'fy the debt arising under the
Jetter of guarantee, and (ii) whether lhe charge, assuming that a charge
arose, was enforceable by the creditor bank when it v.·as not a party to the
deed,
HELD : (i) In order that a charge may be created, there n1u;t be
evidence of intention disclosed by the deed that a specified
property or
fund belonging to a person wao; intended to be made liable to satisfy the
deed,
In the present ca~e the recitals in the deed did not evidence any in1entioa. of the donor to create a charge in favour of the creditor bank; Ibey
merely set out an arrangement between the donor and the members of
his family that the liability under the letter of guarantee if and when it
aro•e. will be satisfied by the appellant out of the property allotted tn
him under the deed.
The letter of guarantee created merely a personal
·obligation and an intention to convert a personal debt into a secured debt
·in favour of the Bank, a third person, could not be inferred from the
rccit!ls in the deed.
Akal/a Suryanalayana Rao & Ors. v. Dwarapudi Basivirtddi &: Ors.,
:1.L.R. 55 Mad. 436. referred to
A
B
c
D
E
F
G
H
M, C. CHACKO v. STATE BANK (Shah, Ag. C.J.)
659
A
(ii) Even if it be granted that there was an intention to create a
B
c
D
E
F
G
H
charge the creditor-bank, n.ot being a party to the deed could not enforce
its covenants.
It must be taken as well settled that except in the case
of a beneficiary under a t!rust created by a contract or in the case of a
family arrangement to right may be enforced by a person who is not a
party lo a contract. [662 H]
Krishna Lal Sadhu v. Pramila
Bala
Dasi. I.L.R.
55 Cal.
!315,
referred to.
'
CIVIL APPELLATE JuRJSDICTION:
Civil Appeal No. 652 of
1966.
Appeal by special leave from the judgment and order dated
Noveir.tcr 23, 1964 of the Kerala High Court in A. S. No. 502 of
1961.
S. V. Gupte, Anantha Krishna Iyer, S. Balakrishnan and
R. Thiagarajan, for the appellant.
H. R. Gokhale, J. S. Arora and K. Baldev Mehta, for the
respondent.

## Text

M.C.CHACKO
v.
STATE BANK OF TRAVANCORE, TRIVANDRUM
July 23, 1969
[J. C. SHAH, ACTING C.J. ANO G. K. MITTER, J.]
Charge--Guaranree-Father guaranteeing payment of overdraft account
of Bank of which son was manager-Deed b.v father giving his properties
to son and fanJily 1nembers-Recital in deed that /ether's liability if an)'
tv be satisfied by the son and the properties c..Ilotred to him-If sufficient
to creare
charge-Right if can be
enforced by person not pllrly to
contract.
A bank, of which the appellant was the Manager, had •n ovcrdrah
account with anotbcr bank \\'hich later merged with 1he respondent. The
appellant's father had executed from time to time letters of guarantee
holding him.c;elf liable for the ~mount under the O\'t.'fdraft arr;inb>cn1ents.
"fhe •ppellant's father executed a deed giving a\\.'ay his properties 10 th!!
appelta:it, and orher n1embcrs of the family.
·rhe
deed
re\."itc<l
that
he had c:c:ecuted the letters of guarantee at the request of rhe app!.!tlant,
and tbl'lt the amount due to the Bank wits 10 be paid by the app~llant; but
if any amount had to be paid l-y him (father) as per the letlcr of guara .. tcc,
the appellant and the μropcrtic~ allotted to him were to he an'\wcrable
tor that amount. ·rrc creditor bank tiled a suit against the debtor bank
and also against the appcUant and his father's other heirs and legal rcprescntartV'ei for the amount due under the overdraft arrangement; and claimed
that a charge wa~ created on the properties to "'hich the deed t:X:!CUted
by the father of the appellant related.
The trial court decreed the suit
against the debtor hank and al<;o -again.st the appellant limited to the
property received by him from his father under the deed hut held that the
claim to enforce the personal Jia.bility of the father against his legal repn:-
sentatives was barred by the law of limitation. The High Court con.firmed
tile decree.
On the questions (i) v.1hether under the deed a charge was
created in favour of the creditor bank to satis'fy the debt arising under the
Jetter of guarantee, and (ii) whether lhe charge, assuming that a charge
arose, was enforceable by the creditor bank when it v.·as not a party to the
deed,
HELD : (i) In order that a charge may be created, there n1u;t be
evidence of intention disclosed by the deed that a specified
property or
fund belonging to a person wao; intended to be made liable to satisfy the
deed,
In the present ca~e the recitals in the deed did not evidence any in1entioa. of the donor to create a charge in favour of the creditor bank; Ibey
merely set out an arrangement between the donor and the members of
his family that the liability under the letter of guarantee if and when it
aro•e. will be satisfied by the appellant out of the property allotted tn
him under the deed.
The letter of guarantee created merely a personal
·obligation and an intention to convert a personal debt into a secured debt
·in favour of the Bank, a third person, could not be inferred from the
rccit!ls in the deed.
Akal/a Suryanalayana Rao & Ors. v. Dwarapudi Basivirtddi &: Ors.,
:1.L.R. 55 Mad. 436. referred to
A
B
c
D
E
F
G
H
M, C. CHACKO v. STATE BANK (Shah, Ag. C.J.)
659
A
(ii) Even if it be granted that there was an intention to create a
B
c
D
E
F
G
H
charge the creditor-bank, n.ot being a party to the deed could not enforce
its covenants.
It must be taken as well settled that except in the case
of a beneficiary under a t!rust created by a contract or in the case of a
family arrangement to right may be enforced by a person who is not a
party lo a contract. [662 H]
Krishna Lal Sadhu v. Pramila
Bala
Dasi. I.L.R.
55 Cal.
!315,
referred to.
'
CIVIL APPELLATE JuRJSDICTION:
Civil Appeal No. 652 of
1966.
Appeal by special leave from the judgment and order dated
Noveir.tcr 23, 1964 of the Kerala High Court in A. S. No. 502 of
1961.
S. V. Gupte, Anantha Krishna Iyer, S. Balakrishnan and
R. Thiagarajan, for the appellant.
H. R. Gokhale, J. S. Arora and K. Baldev Mehta, for the
respondent.
The Judgment of the Court was delivered by
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 representatives.
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 enforceable 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.
A
B
c
D
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 Schedule 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 Managing 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
H
-.
A
B
c
D
E
F
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 properties 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 schedule 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
H
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 disclosed 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 intention 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 properties 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 personally 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
A
B
c
D
E
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 beneficiaries 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
A
B
c
D
E
F
H
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 Pneumatic Tyre Co. v. Selfridge & Co. (2 ). It has however been recognised 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 contract his rights are equitable and not cQlltractual. The Judicial
Committee applied that rule to an Indian case Khwaja Muhammad Khan v. Husaini Begam(8 ). In a later case /aman Das v.
Ram A utar ( 4 ) the Judi<:ial Committee pointed out that the purchaser'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 enforce 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