J. HARIGOPAL AGARWAL Vs. STATE BANK OF INDIA

JUDGEMENT

(1.) THIS appeal against a decree of N.S. Ramaswami J. is brought by defendants 3 and 4. The first respondent -plaintiff, the State Bank of India, allowed the first defendant, a private limited Company, to draw from it on three accounts at its Pondicherry branch, Lock and Key credit account, Cash credit factory account and overdraft against bills accounts. As on 15 -9 - 1964, the debts on these accounts respectively were Rs. 26,992 -94, Rs. 30,160 and Rs. 61,707 -89. On that date, the appellants became directors of the company and executed fresh documents to continue the accounts. On 9 -12 -1964, the three accounts were transferred to Madras as No. 1 account, as the company's headquarters had been shifted to Ambattur by then. It appears that, on 18 -8 -1965, there was due a sum of Rs. 2,36,762 -89. On that date, a new agreement was executed for Mandy type of account and defendants 2 to 4 executed a guarantee for two lakhs of rupees. On 12 -8 -1966, the appellants resigned their directorship. The transactions of deposits and withdrawals, by the Company continued even thereafter until a suit was instituted. Pendente lite goods worth about Rs. 95,000 were sold with the permission of court. The trial Judge granted a decree for the entire balance due against the first defendant company as also the second defendant. So far as appellants - defendants 3 and 4 were concerned, the decree stated that, since after the filing of the suit, a sum of Rs. 95,000 was said to have been realised by the plaintiff -Bank by selling the securities, whatever amount had been realised should go in partial satisfaction of the decree. On 18 -8 -1965, the appellants executed a surety agreement securing overdrafts account with the State Bank of India to an extent of two lakhs of rupees. It started by saying that, in consideration of the State Bank of India having agreed it their request to grant to the first defendant company accommodation by way of cash credit to the extent of two lakhs of rupees, the account to be operated upon either at the Madras branch of the rank or any other branch of the Bank, the guarantors agreed to guarantee repayment of whatever might be due on the overdraft account. They also agreed that the cash credit account was to be secured by the hypothecation and pledge of goods and documents of title to goods under separate agreements to be taken from time to time. They further agreed that no failure in requiring or obtaining the security or in the observance or performance of any of the stipulations or terms of the said agreement and no default of the plaintiff -Bank in requiring or enforcing he observance or performance of any of the stipulations or terms should have the effect of releasing the guarantors from their liability or of prejudicing the Bank's rights or remedies against them under the promissory note which they had as primary security for repayment of whatever was outstanding on the overdraft account. The document went on to say that the guarantors agreed that they should have no right to the benefit of any other security that might be held by the Bank until the claim of the Bank against the borrower in respect of the cash credit and of all other claims of the Bank against the borrower or any other account whatsoever had been fully satisfied.

(2.) N .S. Ramaswemi J. on a construction of the agreement of guarantee and after considering Sections 140 and 141 he Indian Contract Act, held that each of the defendants was liable to pay the Bank the amount outstanding by way of the first defendant's borrowings upto the date of filing of the suit, with the reservation that the liability of the appellants would be with reference to the outstandings as on the date when they resigned as directors of the company. There was also a further reservation, as we have already noted, that any realisation by way of sale of goods pendente lite should also go in reduction of the decree liability of the appellants.

(3.) SO far as the second question is concerned, we have no doubt that the liability of the appellants as guarantors would arise only with reference to the borrowings or outstandings arising subsequent to the date of their becoming Directors and entering into a guarantee agreement and not anterior to that date. The learned Judge, who tried the suit, construed the guarantee agreement as covering the liability for the borrowings earlier to the date of the guarantee agreement. We are unable to agree with the construction which he has placed upon the document. Ex, P -10 is specific in its recitals, and there is nothing in it to indicate that the guarantors' liability would also cover the liability of the company by way of borrowing on the overdraft account anterior to the date of the guarantee agreement.