Mohanlal Agarwal v. Bank Of Baroda — 1986 DIGILAW 296 (PAT)

Judgment P.K.Deb, J. 1. en preferred by the abovenamed defendant No. 3-appellant against the judgment and decree dated 11.8.1986 and 26.8.1986 respectively passed by the then 3rd Additional Subordinate Judge, Jamshedpur in Money Suit No. 72 of 1983/3 of 1986, by which the plaintiffs suit for recovery of Rs. 25,350.70 ps. together with interest thereof at the rate of 17 per cent per annum from 26.3.1983 to 10.8.1986 with future interest at the rate of 17 per cent per annum till the date of realisation alongwith cost of the suit has been decreed. 2. The plaintiff-respondent is a Banking company having its head office at Mandri, Baroda (Gujrat) and branch office at Golmuri, P.S. Golmuri, town Jamshedpur, District-Singhbhum East. The defendant No. 2 is the sole proprietor of defendant No. 1 carrying on business of cloth at 79, Jhanda Chowk, Sakchi Market, Jamshedpur in the name and style of M/s : Sri Niwas Textiles. The defendant No. 2 for pecuniary assistance in the business applied in 1972 to the plaintiff-bank for cash credit facility to the extent of Rs. 10,000.00 . The plaintiff bank acceded to the request of defendant No. 2 and allowed him the said facility. It was further agreed that the defendant No. 2 would pay interest on the amount withdrawn from the said account at the rate of 5% O.B.B. with minimum of 11% per annum with quarterly rest. The defendant Nos. 1 and 2 for security for re-payment executed a demand promissory note for Rs. 10,000 in favour of the plaintiff-Bank. On 9.1.1973 the defendant Nos. 1 and 2 again made a request to the plaintiff-bank to increase the limit of cash credit facility to Rs. 15,000.00 . To that also the plaintiff-Bank acceded and enhanced the cash credit facility. On 18.2.1974 the defendant No. 2 for himself and on behalf of defendant No. 1 again executed a fresh Demand Promissory Note for Rs. 15,000.00 and also executed letter of hypothecation by which the stock of clothes in the business was hypothecated as security for the re-payment of the outstanding dues of the plaintiff-Bank. The same term of O.R.B. with quarterly rest had been agreed upon. The defendant No. 3 became a guarantor for due repayment of the bank dues in the aforesaid cash credit account in case of failure to pay on the part of the defendant Nos. The same term of O.R.B. with quarterly rest had been agreed upon. The defendant No. 3 became a guarantor for due repayment of the bank dues in the aforesaid cash credit account in case of failure to pay on the part of the defendant Nos. 1 and 2 to the plaintiff-Bank and accordingly on 18.2.1974 executed an agreement of Company security making him liable to pay to the bank in case of failure of defendant Nos. 1 and 2 of the outstanding dues. The defendant Nos. 1 and 2, according to the plaintiffs, availed all the facilities and on 1.1.1977 the defendants jointly executed a letter of acknowledgment by which they confirmed and acknowledged the indebtedness of the defendants as on 30.12.1976 to the tune of Rs. 14,920.03 ps. on that date i.e. 11.4.1977 against the defendant Nos. 1 and 2 executed a fresh promissory bond of Rs. 15,000.00 for the consideration received as aforesaid and also fresh agreement of hypothecation for the consideration received. Again on 30.10.1979 the defendant Nos. 1 and 2 again executed a demand promissory note for Rs. 16,250.50 ps. which was due on that date to the plaintiff-bank and they also executed fresh hypothecation deed etc. On 7.1.1978 the defendant No. 2 executed a letter of acknowledgment of debt upto 31.12.1977 to the tuneof Rs. 16,667.88 ps. But, when the defendant filed to pay the banks dues, the present suit has been filed for a decree of Rs. 25.350.70 ps. as dues on the date of the filing of the suit alongwith interest at the rate of 17 per cent both pendentilite and future together with costs. Other prayers had also been made regarding injunction, receiver etc. 3. Only the defendant No. 3 contested the suit by filing a written statement. Usual pleas such as no cause of action for the suit, that the suit is not maintainable, that the same is barred by limitation, that the suit is bad for mis-joinder of the defendant No. 3 etc. etc. has been contended. 4. It has not been specifically denied regarding execution of guarantee bond by the defendant No. 3 on 18.2.1974 as alleged from the side of the plaintiff-Bank. etc. has been contended. 4. It has not been specifically denied regarding execution of guarantee bond by the defendant No. 3 on 18.2.1974 as alleged from the side of the plaintiff-Bank. In para-16 of the written statement, averment was made in the following manner: That the guarantee bond (five pages) executed on 18.2.1974 could be executed for the facility granted by the documents executed on 18.2.1974 and when fresh documents have been executed on 30.10.1979 by defendant Nos. 1 and 2 the former documents will have a natural death. Again in para-19 of the written statement, the form if guarantee alleged to be executed by the defendant No. 3 has been said to be a forged and fabricated documents and it was contended that the said guarantee cannot cover cash credit facilities which has been granted to defendant Nos. 1 and 2 on 30.10.1979. 5. For and on behalf of the plaintiff, three witnesses have been examined. Plaintiff Nos. 1 and 2 are the vital witnesses being the bank employees and they have proved the ledger accounts of the defendant Nos. 1 and 2 and also the various documents for the cash credit loan executed by the defendants had been proved. 6. For and on behalf of the defendant No. 3 only he himself examined. 7. On the basis of the pleadings of the parties, following issues were framed vide order dated 4-9-1985: (I) Has the plaintiff got any cause of action for the suit; (II) Is the suit, maintainable in its present form for the reliefs claimed; (III) Is the suit barred by limitation; (IV) Is the plaintiff entitled to get a decree, as claimed? (V) To what relief or reliefs, if any, is the plaintiff entitled? 8. Learned Court below after considering the oral and documentary evidence proved in the case decided all the issues in favour of the plaintiff and allowed the claim of the plaintiff as already mentioned. 9. Mr. P. Gangopadhyaya, appearing on behalf of the defendant No. 3-appellant has argued only on the point that when fresh agreement has been arrived at by the defendant Nos. 2 and 3 on 30.10.1979 the defendant No. 3s liability, even if it is construed to the effect that the defendant No. 3 had executed a surety bond or a guarantee bond in the year 1974, the same cannot bind him due to alteration of the contract/agreement. 2 and 3 on 30.10.1979 the defendant No. 3s liability, even if it is construed to the effect that the defendant No. 3 had executed a surety bond or a guarantee bond in the year 1974, the same cannot bind him due to alteration of the contract/agreement. His also contention is that the defendant No. 3 had denied about the execution of the guarantee bond which has been marked as Ext. 2 in the case but the same had never been sent either to the handwriting expert or to any expert to prove that the same was executed by the defendant No. 2. In that view of the matter, learned Court below had approached the case in wrong forum and then decree was granted against the defendant No. 3 also. 10. Mr. S.L. Agrawal, appearing on behalf of the plaintiff-respondent controverted the submission of Mr. Gangopadhyaya and contended that the execution of Ext. A has not been denied specifically in the written statement filed by the defendant No. 3 and now it does not lie in his mouth to deny the execution. His further contention is that Ext. 2 being a continuing guarantee and as per terms of that deed, the defendant No. 3 is liable for the debts of defendant Nos. 1 and 2 so long the same has not been withdrawn by the defendant No. 3. His further contention is that there was no fresh agreement in the year 1979, rather it was only the acknowledgment of the debt by the defendant Nos. 1 and 2 and there was no alteration of agreement or contract by which the surety of the defendant No. 3 can be said to be of no avail. 11. The admitted position remains in the case that defendant Nos. 1 and 2 had entered into a cash credit facility agreement in the year 1972 for a sum of Rs. 10,000.00 and the same has been extended to Rs. 15,000.00 in the year 1974 and defendant No. 3 came into the picture only when the extended facility was granted to the defendant Nos. 1 and 2 by the bank authorities and on 18.2.1974 the defendant No. 3 had executed a guarantee bond in favour of the plaintiff-Bank making him liable for the dues of the defendant Nos. 1 and 2 in that cash credit facility agreement. 1 and 2 by the bank authorities and on 18.2.1974 the defendant No. 3 had executed a guarantee bond in favour of the plaintiff-Bank making him liable for the dues of the defendant Nos. 1 and 2 in that cash credit facility agreement. How far the liability of the defendant No. 3 would be there is dependent on the terms of condition of the guarantee bond, which has been marked as Ext. 2. There is no specific denial regarding the execution of Ext. 2 in the pleadings, Only in course of evidence the same has been denied. The main contest as per the pleadings of the defendant No. 3 was that his guarantee or his standing as a surety was in respect of 1974 agreement and the same cannot be extended to the alteration of the agreement in the year 1979. So, although the execution has been denied at the time of trial regarding Ext. 2 the same was almost admitted in the pleadings so such denial is only an afterthought one. Moreover the defendant No. 3s execution has been proved by the official witness of the plaintiff-Bank. Now, whether it was a continuing guarantee bond or a time bound bond one would only relate to the terms of the said agreement. The terms and condition No. 1 of Ext. 2 is of much relevance on this point. The general form of guarantee of the bank authorities mentions the same to be a continuing guarantee. Now, whether it was a continuing guarantee bond or a time bound bond one would only relate to the terms of the said agreement. The terms and condition No. 1 of Ext. 2 is of much relevance on this point. The general form of guarantee of the bank authorities mentions the same to be a continuing guarantee. Clause No. 1 runs as follows: This guarantee shall be continuing security binding me/us and my/our personal representative until the expiration of three calendar months from the receipt by the Bank of a notice in writing to discontinue in and notwithstanding the discontinuance by or any release or granting of time or indulgence to any one or more of us this Guarantee shall remain a continuing security as to the other or others and if discontinued by notice this Guarantee shall nevertheless as to the party or parties giving such notice continue to be available (subject to the aforesaid limit of total amount) for and shall extend for all indebtedness and liabilities of the Principal to you at the date of receipt of such notice whether then certain or contingent and whether then payable forthwith or at some future time or times and also for and to all credits then established by you for the Principal.... You shall be at liberty on receipt of any such notice as contemplated in this clause at any time within the three calendar months to open a fresh account and/or to grant fresh facilities to the Principal and to appropriate thereto all payments subsequently made to you by the Principal and not expressly appropriated to the old account without prejudice to my/or estates liability to the extent aforesaid.... 12. From clear readings of that Clause, it remains that the defendant No. 3 stood as a continuing guarantee for the defendant Nos. 1 and 2 provided with an option clause of notice of withdrawal by the defendant No. 3. It is an admitted case that the defendant No. 3 had never withdrawn his guarantee till date, so his guarantee continues in respect not only to the principal amount but. all dues arisen out of the accounts of the cash credit facility taken by defendant Nos. 1 and 2. Thus, when the plaintiffs suit, is based on the accounts of cash credit facility of 1974 having principal to the extent of Rs. all dues arisen out of the accounts of the cash credit facility taken by defendant Nos. 1 and 2. Thus, when the plaintiffs suit, is based on the accounts of cash credit facility of 1974 having principal to the extent of Rs. 15,000.00 , the defendant No. 3 cannot get immuned from his liability as a surety being a continuing guarantee when he had not given any option as provided under the abovementioned Clause by giving three months notice. 13. In the year 1979, it is true that fresh documents of hypothecation and promissory note have been executed by the defendant Nos. 1 and 2 but the guarantor had not made any fresh document of guarantee. From the 1979 documents, it is clear that only to save the limitation and bind the defendant Nos. 1 and 2 regarding acknowledgment of the dues on the cash credit facility of 1972/1974, those fresh documents have been created but the amount related to the same cash credit account only for which the defendant No. 3 stood as a guarantor. Thus, in no case the defendant No. 3 can get himself absolved from his liability. 14. Mr. P. Gangopadhyaya has referred to various judgment of various High Courts including that of Privy Council to show as to whether the liability of the surety comes to an end. AIR 1930 Allahabad 730, Hasan Ali V/s. Waliullah and Anr., deals with continuing guarantee and it was held that the said guarantee is to be construed by the terms of the instrument and the same can also be determined as per the terms. If there is any variation or alteration in the terms of the loan by the principal then the guarantee even if it remains a continuing one the same becomes disrupted as the new contract comes in. 15. Here, in the present case, there is no alteration or variation in the contract or agreement. So, the continuing guarantee remains in vague. AIR 1938 Madras 422, Gundla Venkamma V/s. Rao Sahib Kotla Sanyasayya, also deals with the variation and alteration in the contract of liability. AIR 1931 Bombay 337, Jagjivandas Jethalalv. King Hamilton & Co., also relates to alteration of the contract. Similarly AIR 1932 Bombay 168 Keshavlal Harilal V/s. Pratapsing Moholalbhai 1935 Privy Council 21; Seth Pratapsingh Moholalbhai and Anr. also relate to alteration and variation in the contractual agreement. 16. -- , Mrs. AIR 1931 Bombay 337, Jagjivandas Jethalalv. King Hamilton & Co., also relates to alteration of the contract. Similarly AIR 1932 Bombay 168 Keshavlal Harilal V/s. Pratapsing Moholalbhai 1935 Privy Council 21; Seth Pratapsingh Moholalbhai and Anr. also relate to alteration and variation in the contractual agreement. 16. -- , Mrs. Margret Lalita Samuel V/s. Indo Commercial Bank Ltd, has been relied much by Mr. S.L. Agrawal, appearing on behalf of the respondent, wherein their Lordships have held that in case of a continuing guarantee and an undertaking by the defendant to pay any amount that may be due by a company to a Bank on the general balance of its account then such surety/guarantee continues till there is refusal on the part of the guarantor to carry out the obligation. 17. In the present case, I have already held that as per Clause I and other terms and conditions of the guarantee bond the defendant No. 3 had never exercised his option to withdraw from the liability then he remains as a continuing guarantor till the amount arising out of the contractual account is being settled or set at rest. The defendant Nos. 1 and 2, in the present case, have not contested the suit and have practically admitted their liabilities and defendant No. 3 while standing as a guarantor is equally responsible as the liabilities are co-extensive. Hence, the learned Court below has rightly decreed the suit against all these three defendants including the contesting defendant No. 3 holding them jointly and severally liable. 18. I do not find any force in the appeal. In the result, the appeal is dismissed with costs and the impugned judgment and decree of the learned Court below is hereby affirmed.