STATE BANK OF SAURASHTRA v. CHITRANJAN RANGNATH RAJA AND ANR

Citation: [1980] 3 S.C.R. 915

Court: Supreme Court of India

Bench: A.C. GUPTA, D.A. DESAI, E.S. VENKATARAMIAH

Case summary

The High Court further held that the Bank was ·utterly negligent and had not exercised such care as a prudent man would in the circumstances of the case which resulted in the loss of security, namely, pledged oil tins and,)herefore, in view of combined operation of sections...

Judgment text

STATE BANK OF SAURASHTRA v. CHITRANJAN RANGNATH RAJA AND ANR. .. ~/ April 30, 1980 [A. C. GUPTA, D. A. DESAI AND E. S. VENKATARAMIAH, JJ. ] B· Indian Contract Act, Section 141, scope of-Discharge of surety-Conditions under which surety can be discharged under sections 139-141 of the Act,-Secu- 1 rity of pledged goods was lost on account of the negligence of the Creditor- Wheiher "the Surety would not be discharged in the instant case on ti proper con- ,-_ struction of clauses 5, 7 and 13 of, the letter of guarantee. c· Civil Procedure Code, 1908-Sect~on 144 as amended by Amendment Act of 1976, scope o/-Re. stitution-Dir'ections by the SUpreme Courl) in the instant case, whether could be made-"Court of first instance", meaning of. · The appellant bank allowed a cash credit facility limited to Rs.

75,000/- to the principal debtor Harilal Parmananddas Adatia on his pledging 5,000 tins of groundnut oil under the lock and key of the Bank and on personal guarantee of D' the surety, respondent No. ·2. The principal debtor executed a demand promissory note Ext. 81 in fayour of the Bank on Sept'ernber 16, 1957, and on the same day the principal debtor also executed a. demand promissory note, Ext. 30, in favour of the surety which the surety endorsed in favour of the Bank. Along with the rwo demand promissory notes, simultan'eously the surety executed a letter of guar. :intee F... xt. 31 in favour of the Bank and the principal debtor executed· --. J.. bond Ext. 83 in favour of the Bank. The principal debtor also passed letter of continuity of the bond and the promissory note Ext. 82. Thereafter the principal debtor enjoyed the cash credit facility by borrowing various amounts. By the end of February 1959 the principal debtor owed Rs. 76,368. 04 P in this account to the Bank.

Principal debtor died in November 1959. The Bank wrofe to the surety letter Ext. 32 dated December 24, 1959, calling upon him to pay the outstanding balance of Rs. 70,879/- in cash credit account of principal debtor as in the circumsta. nces mentioned in the letter the balance was required to be r'e- ~vered from the surety. Some correspondence ensued thereafter between the · Bank and the surety and ultimately the Bank filed the suit for recovery of ii \ Rs. 76,368. 04 P. . ;;:. gainst defendant 1, the legal representative of princi:Pal debtor and defendant. 2, the surety. The trial·court found tb2. t there was negligence on the part of th'e Bank with regard to the safe custody of the pledged oil tins but as the contract of guarantee enfered into by the surety with the Bank was independent of the pledge of goods given by the principal debtor, the sur'ety is not discharged from his liability under the guarantee. So oOOerving the trial court decreed the suit. The .

surety pai 26 G-H, \ 927 A-Bl 4. Accepting a contention that section 141 would not be attracted· and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of whiph ad'vance was mad'e and the surety gave pelllonal guaranteei on the good faith of other security being offered by the prlnci- • plli debtor which itself may be a consideration for th'e surety offering his personal guarantee and the creditor by its own negligence lost one of the securities, would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a 'preferred debtor'. A Q>urt shonld not by its construction of such letter of guarantee enabre the creditor to · act negligently and yet be not in any manner accountable. [927 B-E] 5. By section 144 of Civil PrO\Xl . - Contract Act. We are unable to aceept the argument put forward by the Attorney General on behalf of the reSpondent Bank.

In our opinion, the expression "any security,. in cl. 5 of Ex. P-4 should be prowly construed as "any security other than the pledge of goods mentioned in the primary agreement, Ex. P-1 between the Bank and the . firm''. We consider that there is nothing in cl. 5 ofEx. P-4-e( to indicate that the appellant is not entitled to invoke the J \ provisions of s. 141 of the Indian Contract Act. " . ). Therefore, cl. 7 is of no assistance to the Bank. A bare perusal ofclause 13 would show that it provides for continuing the guarantee where the principal debtor is an association ofpersons. and for continuance of the guarantee in the event ofdeath, retirement, etc. of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespectiv~ of some defect II arising from the internal . management ofsuch association of persons. We faitto see how it can render any·assistance to the Bank. - (I) [i968J 3 SCR724_at 731. STATE BANK v. C. R. RA.

TA (Desai, J. ) 927 First•security, namely, the pledged goods are lost to the Bank an~. the concurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank. WhoTe' of the security was lost and, therefore the surety would be discharged in entirety . because it is crystal clear that the principal debtor had agreed and had in fact pledged 5,000 tins of oil which even if sold at the then current market price would have satisfied the Bank's entire claim. Accordingly, the surety would be discharged in entirety. It is difficult to entertain a contention that s. 141 would not.

be attracted and the surety would not be discharged even if it is ,_I found that a creditor has taken more than one Security on the basis ' ofwhich advanee was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideratfon for the surety offering his personal guarantee and the creditor by its own negligence lost lone of the SeCUrities. Aceeptance of such a contention would tantainount to putting a premium on the negligence of the creditor to the detriment ofthe surety who is usually described as a preferred debtor. Should Court by its construction of such letter of guarantee~enable'the'crditor to act negligently and yet be not in any manner accountable ?

Was the guarantee a guarantee against proper performance ofthe contract evidencing advance of loan and methods of its repayment, or guarantee covering Bank's utter disregard of its responsibility or to use the words ofthe High Court, the Bank's utter negligence in failing to eXercise the care;ora prudent man which one would expect in management of one's own affairs ? The appeal accordingly fails and is dismissed with costs. ~ The respondent surety has made an application that in comp 1tanct> I. _ with the decree made by the trial court he had paid the entire amount 11 and he should not be exposed to second round of litigation for resti- 1 tution of the amount and that this Court should give aldirection to the Bank as part of this judgment that the amount be returned with interest at current rate to the respondent surety. Bys.

144 of the Code of Civil Proeedure,il90S as it stooa prior to amendment by the Code of Civil Procedure (Amendment) Act, 1976, the jurisdiction to grant reStitution was conferred upon the 'Court of first instance'. Since the amendment the expressioni'the Court of · first instance' has been substituted by 'the Court which passed the decree or order'. An explanation has been added to s. 144 by the Amendment Act of 1976, the relevant portion of which reads as under: "Explanation-For the purpoSes of sub-section (I) the exprcliion "Court which pasSed the decree or order" shall be deellled to include- (a) where the decree or order has been varied or rcvoned in exerciSe of apJleUate or revisional jurisdictioa, the Court of first instance. '' In the instant caSe the apjlellant was the plaintiff and its suit was decreed by the trial court, i. e. the Court of Civil Judge, Senior Dfvi. sion, Gonda! , on November 18, 1960. The present apjlellant by its letter dated February 14, 196t,.

demanded from the surety a sum of Its. 84,828 ·07P. inclusive of costs and interest on the principal amo11nt decreed. The surety respondent I in this Court paid the apPcllant Rs. 84,828 ·07P. on April 3, 1961. In the apJleal by the ~ty the High Court reVersed the deeree and dismisSed the suit against the surety. Accordingly, the surety is entitled to restitution. The limited question is whether this Court can grant restimtion. Prior . to Amendment Act, 1976, an application for re&titution Wider s. 144 in all caSes had to be made to the Court offirst instanee. EYer since the amendment the substituted eXPreSSion 'the Court whichpa8Scd the decree or order' would as Jler clauSe(a) of the explanation, mean the Court of first instance becauSe the expression 'the Court whichpalled the decree or order' has ·been deemed to include where the decree or order has been varied or reverSed in eXerCiSe of appellate or revisional jurisdiction, the Court of first instance.

The present one is the simplest case where the suit in favour of the appellant and against the surety was decreed by the trial court, i. e. the Court of first instance, and this decree has been reverSed by the High Court in e:tercise · of its apJlellatc jurisdiction. In such a situation clause (a) of the explanation would be attracted and an application for re&titution will have to be made to the Court of first instance, i. e. the Court of CiYil Judge, Senior Division, Gonda!. It is nowhere suggested that au.. m a Court does not exist. Therefore, it would not be proJler for this Court t~ direct restitution. However, there will 6e no justification for the apjlellant Bank to withhold the amount which was collected from the surety on a mere demand. Therefore, an applicat_ion for re&titu&ion made by the surety would not lie to this Court and it would stand disposed of accordingly. l . , -. \ S. R. Appeal dismissed.