- (1.) SUDHIR Narain, J. This is the plaintiff's appeal against the judgment and decree dated 31-5-1993 dismissing the suit against the defendant Nos. 3 to 5 with the direction that plaintiff shall be liable to adjust the amount of the goods which were pledged with it.
(2.) BRIEFLY stated the facts are that the plaintiff-appellant (hereinafter referred to as the Bank) filed suit for recovery of Rs. 57,27,575. 44 with the allegations that defendant-respondent No. 1 was a private limited company incorporated under the provisions of Companies Act, 1956 and defendant-respondent No. 2 was a unit of defendant-respondent No. 1. In May 1977 defendant No. 1 company approached the Bank for grant of various credit (banking facilities) and the Bank agreed to grant to the defendant No. 1, inter alia, three facilities i. e. (i) cash credit limit of Rs. 10,00,000/-, (ii) cash credit hypothecation limit of Rs. 4,00,000/- and (iii) a documentary D. D. limit of Rs. 5,00,000/ -. The respondent-company opened Cash Credit Pledged and Cash Credit Hypothecation Accounts with the Bank on 1st August, 1977. In the middle of the year 1978 the Bank agreed to enhance the aforementioned limits with effect from 7th August, 1978. In consideration of the aforesaid credit facilities, defendant No. 3 Kishori Lal Seth and defendant No. 4 Sri Nand Kishor Seth agreed to and became guarantors of defendant No. 1 for repayment of the entire borrowings of defendant No. 1 together with interest etc. to the Bank with their liability being joint and several and co-extensive with defendant No. 1. These guarantors executed agreement of guarantee and indemnity on 1st August, 1977 and a supplementary agreement on 7th August, 1978. Defendant No. 1 pledged certain goods with the Bank. The defendants, however, failed to pay the amount and the total sum due on the date of filing the suit was Rs. 57,27,575. 44. During the pendency of the suit defendant No. 2 died and his heirs were substituted. It was claimed that the liability of guarantors were joint and several. 2a. The defendants Nos. 1 and 2 filed a joint written statement and denied their liability. It was alleged that the appellant had colluded with defendant-respondent Nos. 3 and 4. The defendant No. 1 had pledged the goods with the Bank and had offered that the pledged goods be purchased by the Bank but it refused to do so. The defendant Nos. 1 and 2, however, did not deny the fact that they had taken loan from the Bank. The defendant Nos. 3 and 4 filed written statement. The Management of the Company was changed since 31-1-1982 when its management was taken over by Sri R. N. Agarwal, a resident of 75 Rajmahal Vikas Extension, Bangalore and he after taking over management of the Company opened new account with the Bank. It was pleaded that after the change of the management their liability as guarantors stood discharged. The Bank got removed the pledged goods and unless the pledged goods are accounted for, they could not be made liable to pay the amount alleged to be due against defendant Nos. 1 and 2. During the pendency of the suit the appellant applied to the Court for appointment of Receiver of the property of the defendant Nos. 1 and 2. The trial Court appointed the Receiver on 7-10-1983. The Receiver, on taking charge of the factory, auctioned certain goods which were alleged to be already pledged with the Bank. The parties led oral and documentary evidence in this case. The trial Court found that the defendant No. 1 had taken loan and it was liable to pay the loan amount with interest to the Bank. The suit against the defendant Nos. 3 and 4 were dismissed on the ground that they stood discharged on the change of management of the Company in the year 1982. In the operative portion it was directed that the appellant shall adjust the amount of the pledged goods.
(3.) THERE are two main questions in this appeal. Firstly, as to whether the Court was legally justified in dismissing the suit against defendant Nos. 3 and 4 and secondly, what is the extent of the amount which is to be adjusted in respect of the goods pledged with the Bank by the defendant No. 1. Admittedly the defendant Nos. 3 and 4 had executed agreement of guarantee on 1-8-1977 and the supplementary agreement of guarantee on 7-8-1978. Some of the terms of the agreement dated 1-8- 1977 are relevant which are as under:- "whereas at the request of the guarantors the Bank has agreed to allow an accommodation by way of C. C. Pledge limit Rs. 10,00,000/-, C. C. Hypothecation Rs. 4,00,000 and D. D. Limits Rs. 5,00,000/- to M/s. Laxmi Industrial and Trading Company (P) Ltd. Najibabad (Bijnor) U. P. (hereinafter called the Borrowers) on the terms and conditions contained in the documents executed by the Borrowers. AND whereas the Guarantors have agreed to guarantee due payment of the amount due to the Bank in respect of the said limits of Rs. 19,00,000/- NOW THIS INDENTURE WITNESSETH AS UNDER:- That a consideration of the Bank allowing at the request of the guarantors an accommodation by way of Cash Credit and DI cy D. D. Limit the Borrowers at its Najibabad Branch on terms and conditions contained Cash Credit Agreement, the Guarantors hereby agree with the Bank as under:- 2. The Guarantors hereby guarantee jointly and severally to pay the Bank on demand all principal, interest, costs, charges and expenses due and which may at any time become due to the Bank from the Borrowers, on the accounts opened in respect of the said limits (hereinafter called the "said accounts") down to the date of payment and also all loss and damages costs charges and expenses and in the case of legal costs, costs as between attorney and client occasioned to the Bank by reason of omission, failure or default temporary or otherwise in such payment by the Borrowers or by the Guarantors or any of them including costs (as aforesaid) of enforcement or attempted enforcement of payment by suit or otherwise or by sale or realisation or attempted sale of realisation of any security for the said indebtedness or otherwise howsoever or any costs (which costs to be as aforesaid charge or expenses which the Bank may incur by being joint in any proceeding to which the Bank may be made or may make itself party either with or without others in connection with any such securities or any proceeds thereof. 3. The Guarantors hereby declare that this guarantee shall be a continuing guarantee and shall not be considered as cancelled or in any way affected by the fact that at any time the said accounts may show no liability against the Borrowers or may even show a credit in his favour but shall continue to be a guarantee and remain in operation in respect of all subsequent transactions. 4. The Guarantors hereby consent to the Bank making any variance that it may think fit in the terms of the contract with the Borrowers, to the Bank accepting additional of collateral security of any kind determining enlarging or varying any credit to him or making any competition with him or promising to give him time or not to sue him and to the Bank parting with any security it may hold for the guaranteed debt. The guarantors also agree that they shall not be discharged from their liability by the Bank releasing the Borrower or by any act or omission of the Bank the legal consequence of which may be to discharge the Borrower or by any setoff the Bank which would, but for this present provision, be inconsistent with their rights a guarantors or by the Bank's omission to do any act which but for this present provision, the Bank's duty to the guarantors would have required the Bank to do. Though as between the Borrower and the Guarantors they are guarantors only, the guarantors agree that as between the Bank and the Guarantors they are debtors jointly with the Borrower and accordingly they shall not be entitled to claim the benefit or legal consequences of any variation in the terms of the contract and to any of the rights conferred on a guarantor by Ss. 133, 134, 135, 139 and 141 of the Indian Contract Act. " (Emphasis supplied);