JUDGMENT P. Unnikrishna Kurup, J. 1. Unnikrishna Kurup J. The plaintiff in O.S. No. 11 of 1961 on the file of the Sub Court of Trivandrum, a bank in liquidation, is the appellant. The Bank filed the suit out of which this appeal arises for recovery of Rs. 54,362/- with interest at 6% from defendants 1 to 5 and the assets of one deceased Arumugham Asari whose legal representatives are defendants 6 to 9. The first defendant was the cashier of the plaintiff bank, the second defendant the agent and the third defendant the assistant cashier, during the relevant period. The 4th defendant was the teller of the bank and deceased Arumugham Asari was the jewel appraiser. The 5th defendant was a long standing customer of the plaintiff bank and he was operating a gold re-pledge cash credit account with the bank having a sanctioned credit limit of Rs. 75,000/-. The plaintiff's case was that defendants 1 and 5 with the active connivance and cooperation of defendants 2 to 4 and deceased Arumugham Asari defrauded the bank and made illegal gains for themselves. It would appear that defendants 1 and 5 with the knowledge of the other officers of the bank systematically overvalued the jewels brought by the 5th defendant for pledging and made excess advances for the benefit of the 5th defendant. The first defendant was running a medicine shop and a stationery shop and he had also other business and he was also utilising the monies unlawfully appropriated from the bank for the purposes of the said business. In August 1959 the bank was inspected by an inspector and he noticed serious irregularities in respect of repledge accounts. On suspicion being thus roused, the inspector examined all the bags relating to the repledge accounts of the 5th defendant and it was found that out of 477 items outstanding on 29-8-1959 there were serious irregularities and fraud in respect of 158 items. Explanations were called from defendants 1 to 3 and the jewel appraiser, Argumugham Asari. From the explanation filed, it became clear that they had been grossly negligent in the discharge of their duties and that these large number of transactions could not have been made unless they had the deliberate dishonest intention of defrauding the bank. The first defendant was found liable for Rs. From the explanation filed, it became clear that they had been grossly negligent in the discharge of their duties and that these large number of transactions could not have been made unless they had the deliberate dishonest intention of defrauding the bank. The first defendant was found liable for Rs. 63,210, which was admitted by him and he executed a promissory note for the amount on 7-11-1959. Similarly the 5th defendant admitted his liability for a sum of Rs. 55,230/- and he also executed a promissory note for the said amount. Subsequently defendants 1 and 5 paid various amounts and the balance is now claimed in this suit with 6% interest. The lower court decreed the suit as prayed for with costs against defendants 1 and 5 but dismissed the suit as against the other defendants with costs. The plaintiff challenges the dismissal of the suit against defendants 2 to 4 and 6 to 9. Defendants 1 and 5 have not filed any appeal. 2. The second defendant was the agent of the bank during the relevant period. The duties of the second defendant in his capacity as the agent of the bank have been detailed in the plaint and it seems to us unnecessary to reproduce them here. As agent of the bank he had overall control over the entire transactions, and he had to exercise due diligence, proper care and caution in the due performance of his duties as an agent. In the matter of advance on the pledge of jewels he was bound to exercise an effective control at various stages of the transaction and the ultimate sanction for the loan had to be given by him. The bag containing the jewel had to be examined by the agent and he had to verify the details with the pledge notes. The jewels had thereafter to be kept in the safe of the bank which was operated by two sets of keys, one set to be kept by the agent and the other by the cashier. The safe could be opened only by using the keys kept in the custody of both the agent and the cashier. According to the plaintiff bank, under the circulars, Ex. The safe could be opened only by using the keys kept in the custody of both the agent and the cashier. According to the plaintiff bank, under the circulars, Ex. P-44 and P-45, issued by the bank, the agent had to regularly and systematically hold periodical verifications of the securities and he should check and verify the contents of at least 10% of the total number of items every month. The fact of checking was to be noted in the particulars or remarks column of each ledger account and this system assured all the items being checked and verified in the course of the year. The definite case of the bank was that the second defendant in the matter of pledge accounts had not complied with the directions in the circulars and by his gross negligence he had allowed defendants 1 and 5 to defraud the bank. A decree against the second defendant was, therefore, sought on the basis that the second defendant was responsible for the loss sustained by the bank and, therefore, liable for damages. 3. The lower court in Para.27 of its judgment observed as follows: "As regards the 1st defendant cashier I have come to hold that he is one of the master brains in the wrongs caused and the 2nd defendant the agent is either a silent spectator or a willing collaborator.". The second defendant, as an agent, was fully responsible for the loans advanced by the bank, and if he had followed the directions contained in the circulars, Exs. P-44 and P-45, which as the agent he was bound to do, he would have certainly been able to detect the defalcations in the beginning itself, and it would have been possible to prevent further transactions of the same nature. That he had been grossly negligent in the discharge of his duties is practically admitted by the second defendant although he would pretend that he was not aware of the illegal activities of the cashier, the first defendant, in collusion with the 5th defendant. We have no hesitation in holding that the second defendant was either a participator in the fraud or he allowed the first defendant to defraud the bank and failed to discharge the functions which were entrusted to him in his capacity as the agent of the bank. We have no hesitation in holding that the second defendant was either a participator in the fraud or he allowed the first defendant to defraud the bank and failed to discharge the functions which were entrusted to him in his capacity as the agent of the bank. In J. E. Taylor v. United Africa Co., Ltd. reported in AIR 1937 P.C. 78 the principle has been laid down that where an agent has failed in his duties and enabled his subordinates to commit frauds and defalcations, the agent is liable for the negligence and breach of contract and frauds and defalcations resulting therefrom. In that case, under the terms of contract between an agent and a company, the agent was required to keep proper books of account and he was to be liable to the company for any deficiency in money in his charge, due to his act, neglect or default. Every month he used to send trial balance to the head office with his remark that they were checked and found correct while in fact it was not so. He simply used to sign such balances. It was held that the agent had behaved contrary to the instructions given to him and he did not exercise proper scrutiny, examination, check or precaution and he trusted his subordinates implicitly with the result that they took advantage of the slack supervision and control of the agent and committed gross frauds on the company. The agent was held liable for the whole amount in respect of which defalcation had been committed. The learned counsel for the second defendant feebly attempted to show that the second defendant was unaware of the real happenings, that he believed the first defendant and cashier and that, therefore, he could not be held liable for the loss sustained by the bank. This contention cannot for a moment be accepted, since the second defendant, by virtue of his office, was in duty bound to examine personally each transaction of loan and satisfy himself that money could be sanctioned on the security of the jewel. His subsequent failure to check the items having been definitely proved, it is clearly established that he had been guilty of gross negligence and dereliction of duty. He is, therefore, liable for the loss sustained by the bank. 4. His subsequent failure to check the items having been definitely proved, it is clearly established that he had been guilty of gross negligence and dereliction of duty. He is, therefore, liable for the loss sustained by the bank. 4. The lower court, however, after holding that the second defendant was also liable for damages, exonerated him on the ground that under S.62 of the Indian Contract Act there had been a novation and the second defendant as well as defendants 3, 4 and deceased Arumughan Asari had been absolved from responsibility. We must at the outset say that in our opinion S.62 of the Indian Contract Act has no application to the facts of this case. The plea of the second defendant now is that, since the bank had taken promissory notes from the first defendant and 5th defendant in respect of the amount covered by the defalcation, the second defendant and defendants 3, 4 and 6 to 9 stood discharged from liability and the lower court was therefore justified in dismissing the suit as against them. S.62 of the Indian Contract Act runs as follows: "62. If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed". We are unable to understand how there had been a substitution of a new contract or an agreement to rescind or alter an existing contract in which case alone S.62 will have any application. Defendants 1 and 5 have become liable for the damages sustained by the bank as it has been proved that they defrauded the bank and made unlawful gains for themselves. The liability of defendants 2, 3, 4 and deceased Arumugham Asari arises by reason of their gross negligence and that liability has in no way been altered or rescinded by reason of pronotes having been taken from defendants 1 and 5. The position of law is that defendants 1 to 5 and deceased Arumugham Asari are jointly and severally liable for the whole amount. The liability of each of the defendants will stand discharged only when the amount is paid. Merely by reason of the fact that the bank had taken pronotes from defendants 1 and 5 the liability of the remaining defendants does not cease. The liability of each of the defendants will stand discharged only when the amount is paid. Merely by reason of the fact that the bank had taken pronotes from defendants 1 and 5 the liability of the remaining defendants does not cease. All that they can contend is that amounts recovered from defendants 1 and 5 cannot thereafter be recovered from them, since the liability is the same and payment by any one of the joint debtors would amount to a payment by all. The theory of novation cannot apply to the facts of this case and it is futile for defendants 2 to 4 to contend that they had been absolved from the liability by reason of the bank's acceptance of the promissory notes from defendants 1 and 5. 5. Learned counsel for the second defendant sought to rely on a decision of the Calcutta High Court in New Standard Bank v. Probodh Chandra reported in AIR 1942 Calcutta 87. We are afraid, this decision does not advance the case of the second defendant. The decision only holds that if the parties to a contract agree to substitute a new contract, the original contract is discharged and the question whether all rights and liabilities under the old contract have been extinguished by novation is held to be a question of fact depending on the circumstances of each case. The real question that arose for decision in that case was whether a novation could take place after the breach of contract had been committed. That is not germane to the question at issue before us. All that has happened in this case is that by way of additional safeguard the bank had obtained pronotes from defendants 1 and 5 in respect of the amounts misappropriated. There was obviously no intention on the part of the bank or defendants 1 and 5 to release the liability of defendants 2 to 4 and deceased Arumugham Asari. No question of substituting a new contract in the place of an old one arises and the lower court was clearly in error in holding that there had been a novation. 6. It was next sought to be contended that part of the jewels had been sold by the bank and money realised and, therefore the second defendant should be treated as having been absolved from liability. There is absolutely no merit in this contention. 6. It was next sought to be contended that part of the jewels had been sold by the bank and money realised and, therefore the second defendant should be treated as having been absolved from liability. There is absolutely no merit in this contention. The jewels have been sold at their market value and the amount realised has been credited towards the loss sustained by the bank. The balance remaining alone is now sought to be recovered. One fails to understand how the second defendant can raise a contention that his liability must be deemed to have been discharged. We would, therefore reverse the decision of the court below and hold that the second defendant is liable for the loss sustained by the plaintiff bank. 7. The third defendant is the assistant cashier and the contention of the appellant is that he was equally aware of the fraudulent transactions and was a participant and willing collaborator. The bank claims a decree against the third defendant also. The third defendant was admittedly the assistant cashier during the relevant period and it is also admitted that on the occasions when the cashier was absent the third defendant was officiating as the cashier. It is also seen that when the agent was absent the cashier officiated as the agent, and the assistant cashier then filled the place of the cashier. It follows that the third defendant was performing the duties of the cashier on various occasions during the relevant period. There is also evidence to show that the third defendant himself had taken loans on the pledge of jewels. Exs. P-65, P-66 and P-67 are loan papers relating to the third defendant. Exs. P-87 to P-105 also indicate that the third defendant was connected with the loans. It is therefore futile for the third defendant now to contend that he was not aware of what was taking place and that he was therefore innocent of the charges. PW-1 has given evidence that some of the re-pledges were made by the 5th defendant at times when the cashier was absent on leave and when the third defendant was acting as cashier. It is therefore clear that the third defendant is also equally guilty as the second defendant of gross negligence and grave dereliction of duty. PW-1 has given evidence that some of the re-pledges were made by the 5th defendant at times when the cashier was absent on leave and when the third defendant was acting as cashier. It is therefore clear that the third defendant is also equally guilty as the second defendant of gross negligence and grave dereliction of duty. We are of the opinion that the third defendant has also to be held liable for the loss sustained by the bank and the plaintiff is therefore entitled to a decree against the third defendant also. 8. The claim against the 4th defendant stands on a different footing, as he is only a teller in the bank and his duties are mostly that of a peon. We do not consider that the 4th defendant had any responsibility so far as these pledges are concerned and there is no evidence of his complicity in these defalcations. We would therefore sustain the decision of the lower court so far as the 4th defendant is concerned. 9. So far as deceased Arumugham Asari is concerned, there are clear indications that he was in league with defendants 1 and 5. As the appraiser of jewels attached to the bank it was his duty to correctly weigh the jewels brought as security for advances and it was also part of his duty to indicate the quality and the price of the jewel. He had been an active collaborator with defendants 1 and 5 in the matter of these loans and it is of significance that in the pledge papers he had agreed to indemnify the bank in respect of any deficiency in the jewels. Ex. P-4 is a specimen form of the memorandum of pledge and it shows that there was a contract of indemnity by the jewel appraiser. It is, therefore, clear that Arumugham Asari cannot be absolved from liability, and his legal representatives, defendants 6 to 9, are therefore liable to make good the loss from the assets of deceased Arumugham Asari, if any, in their hands. In the result, in modification of the decision of the lower court the suit is decreed with costs against defendants 2, 3 and also against the assets of deceased Arumugham Asari, if any, in hands of defendants 6 to 9. The appellant will also be entitled to costs in this appeal against defendants 2 and 3. In the result, in modification of the decision of the lower court the suit is decreed with costs against defendants 2, 3 and also against the assets of deceased Arumugham Asari, if any, in hands of defendants 6 to 9. The appellant will also be entitled to costs in this appeal against defendants 2 and 3. The lower court has awarded costs to the 4th defendant. In the circumstances of this case we feel that the proper course is to direct the 4th defendant to suffer his costs. The decree will be modified accordingly. We, however, direct that the assets of Arumugham Asari in the hands of defendants 6 to 9 be proceeded against only after exhausting all the remedies against defendants 1 to 3 and 5.