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2001 DIGILAW 560 (KAR)

M. v. SHANTANARASIMHAIAH VS DENA BANK, MYSORE

2001-07-19

K.L.MANJUNATH

body2001
JUDGMENT K.L. MANJUNATH, J. - This appeal is by the 4th defendant. The plaintiff-Bank instituted a suit for the recovery of Rs. 4,40,847.50 together with Court cost and current interest at 12.5% p.a., from the date of suit till the date of realisation. Accordingly to the plaint averments, the 1st defendant M/s. Karnataka Paper Converters is a partnership firm and that the defendants 2 and 3 are its partners. Defendant 3 is the wife of the 4th defendant. The 1st defendant represented by the defendants 2 and 3 have applied for loan facilities under various categories with the plaintiff-Bank. Accordingly, a sum of Rs. 60,000 was sanctioned by way of cash credit pledge loan on 22.12.1978 and the said loan was sanctioned in favour of defendant I and the defendants 1 to 3 have agreed to repay the said amount together with interest at the rate of 3.5% over and above RBI with a minimum of 12.5% with quarterly rest. On the same date, the plaintiff has also sanctioned the cash credit hypothecation goods loan of Rs. 50,000 and accordingly the defendants 1 to 3 have signed the on-demand promissory note and the defendant 4 who is the husband of the defendant 3 has stood as a guarantor for these two loans and that the defendant 4 has also executed the agreement of guarantee. Subsequently, the limit of Rs. 60,000 has been enhanced to Rs. 1,90,000, the request of the defendant 1 and the said loan was sanctioned on 6.2.1979. On the request of the defendant 1, a term loan of Rs. 19,000 was also sanctioned on 22.12.1978. Since the defendant did not repay the amount, the plaintiff filed the suit for the recovery of the amount. The defendants 1 and 2 filed a common written statement. The defendants 1 and 2 have not disputed the loan availed by them from time to time. The defendants 1 and 2 have requested the plaintiff to redraw the account and also adjust the amount that may be payable by the insurance company towards this loan amount. The defendant 3 filed a separate statement. Accordingly, she became the partner of the firm and she effected the entire transaction. However, it is admitted that her signature has been taken by the 2nd defendant to various papers and therefore she has denied her responsibility to one of the claims made by the plaintiff-Bank. The defendant 3 filed a separate statement. Accordingly, she became the partner of the firm and she effected the entire transaction. However, it is admitted that her signature has been taken by the 2nd defendant to various papers and therefore she has denied her responsibility to one of the claims made by the plaintiff-Bank. The defendant 4 filed a written statement separately. According to him he has admitted the two transactions, namely, the loan sanctioned in favour of the 1st defendant for Rs. 50,000 and Rs. 60,000 respectively and he has also admitted that he stood as a guarantor. But what has been contended by the defendant 4 is that he has never stood as a guarantor for the subsequent enhancement from Rs. 60,000 to Rs. 1,90,000 on 6.2.1979 and for a term loan of Rs. 19,000. He also contends that since there is a variation of contract between the plaintiff and the defendants 1 and 2, his surety has been discharged. Therefore, he is not liable to pay any amount to the plaintiff-Bank. Based on the above said pleadings, the following issues have been raised by the trial Court : (1) Whether the defendants 1 and 2 prove that they are not liable to pay the compound interest ? (2) Do they further prove that on account of electrical short-circuit, fire accident took place in the godown causing loss to defendant 1-firm? (3) Whether defendants 1 and 2 prove that plaintiff is entitled to recover amount from defendant 5 and it should be adjusted towards suit loan ? (4) Whether defendants 3 proves that she is not liable for the amount borrowed prior to her becoming partner ? (5) Whether defendants 3 and 4 prove that their signature was obtained on blank forms by the plaintiff-Bank ? (6) Whether defendant 4 is only a surety and that he has not taken loan ? (7) Whether defendant 4 proves that loan facility was increased without his knowledge and as such he is not liable to pay the suit loan ? (8) Whether plaintiff proves that defendant 5 is liable to pay insurance amount to plaintiff? (9) Whether defendant 5 proves that defendants 1 to 4 are not entitled to claim any insurance amount as contended in para 3 of the written statement ? (10) Whether defendant 5 is not necessary party to suit ? (8) Whether plaintiff proves that defendant 5 is liable to pay insurance amount to plaintiff? (9) Whether defendant 5 proves that defendants 1 to 4 are not entitled to claim any insurance amount as contended in para 3 of the written statement ? (10) Whether defendant 5 is not necessary party to suit ? (11) To what relief is plaintiff entitled and from which defendants ? (12) What order? What decree? Additional issue runs as hereunder : Whether 4th defendant proves that his liability is discharged to the extent of the value of the security as contended at para 9-A of his written statement ? Thereafter, the parties have let in evidence. On behalf of the plaintiff-Bank three witnesses have been examined. The defendant 3 has been examined as D.W.1. The 2nd defendant has been examined as D.W.2 and the 4th defendant has been examined as D.W.4. In addition to that four more witnesses have been examined on behalf of the defendants. After appreciating the oral and documentary evidence, the trial Court has held that the defendants 1 to 3 are liable to pay the suit claim. However, the liability of the defendant 4 has been limited to Rs. 60,000 and Rs. 50,000 respectively with interest accrued thereon as per the terms and conditions of the agreement. Being aggrieved by the said judgment and decree, the 4th defendant has filed this appeal. The learned counsel for the appellant Sri G.V. Visveswara contends that in view of Sections 133 and 139 of the Indian Contract Act of 1872 and as the plaintiff-Bank without his consent or knowledge has varied the terms in respect of cash credit pledge loan of Rs. 60,000 raising the limit from Rs. 60,000 to Rs. 1,90,000, the 4th defendant cannot be made liable to pay the said amount, as the surety has been discharged automatically. He also contends that the 2nd defendant had deposited the title deeds in respect of his property situated in Kotwal Ramaiah Road, Mysore and that the plaintiff-Bank allowed the 2nd defendant to sell the said property and out of the sale proceeds, the plaintiff-Bank has adjusted towards the other account namely, the loan advanced by the plaintiff-bank in favour of Cauvery Mines. Applying the principles of Sections 139 and 141, the learned counsel for the appellant contends that the appellant herein is not answerable to the claim made by the Bank and that the surety has been discharged due to the act of the creditor. To support his arguments, he has relied upon two judgments : Seth Pratapsingh Moholalbhai and another vs. Keshavlal Harilal Setalwad and another (AIR 1935 PC 21) and State Bank of Saurashtra vs. Chitranjan Rangnath Raja and another ( AIR 1980 SC 1528 = (1980) 4 SCC 561). Per contra, the learned counsel for the Bank Sri G.V. Thimmappa supporting the judgment of the trial Court contends that these two decisions or the points urged by the learned counsel for the appellant will not come to the aid of the appellant in view of the Exhibit P. 10, which is a deed of guarantee executed by the appellant-4th defendant. According to him as per Clause 3 of Exhibit P. 10, the 4th defendant-appellant herein has agreed to all the terms and conditions of the clause of the said deed of guarantee. Therefore, in view of the said document, either the provisions of Sections 133, 139 and 141 of the Indian Contract Act cannot be made applicable to the facts and circumstances of the case. To support this argument, he has relied upon two judgments, one is T. Raju Setty vs. Bank of Baroda (AIR 1992 Kant 108 = 1991 (4) Kar. LJ 475 = ILR 1991 Kar. 3303) and Smt. R. Lilavati vs. Bank of Baroda (AIR 1987 Kant 2 = 1987 (2) Kar. LJ (Sh. N) 292 = ILR 1987 Kar. 964). Relying upon these two decisions, the learned Advocate for the respondent-Bank requested this Court to dismiss this appeal. After hearing the arguments of both the Advocates, the point that arises for determination in this appeal is, in view of the variation of contract between the defendants 1 and 2 with the plaintiff by enhancing cash credit limit from Rs. 60,000 to Rs. 1,90,000 whether the defendant 4-appellant has been discharged from the suretyship and whether due to the act of the Bank, the appellant is discharged from the suretyship of cash credit hypothecation loan of Rs. 50,000. The appellant herein has admitted the execution of documents in favour of the plaintiff-Bank in respect of two loans, namely, cash credit hypothecation loan of Rs. 50,000. The appellant herein has admitted the execution of documents in favour of the plaintiff-Bank in respect of two loans, namely, cash credit hypothecation loan of Rs. 50,000 and also cash credit pledge loan of Rs. 60,000 and these two loans have been sanctioned by the Bank in favour of the first defendant on 22.12.1978. The 4th defendant has also admitted Exhibit P. 10, which is styled as the Deed of Guarantee. It is also an admitted fact that on the request of the defendant 1, the Bank has subsequently enhanced the cash credit pledge loan from Rs. 60,000 to Rs. 1,90,000 on 6.2.1979. It is also not in dispute that while enhancing the limit from Rs. 60,000 to Rs. 1,90,000, the 4th defendant herein had not stood as a guarantor. The guarantee of the 4th defendant is limited only to the two loan amounts of Rs. 50,000 and Rs. 60,000 respectively. The learned counsel for the appellant has relied upon Section 141 of the Indian Contract Act contending that at the time of availing the loan, the defendant 2 had given the title deeds of his house property situated at K.R. Road as a security for these two loans. According to him the Bank has permitted the 2nd defendant to sell the same by way of private sale and therefore he contends that as per the provisions of Section 141 his client has been discharged from the liability. By looking into the Court records, namely as per the Exhibit P. 31, the second defendant has given a letter subsequent to 21.12.1978. As per this letter he has also requested the Bank to treat it as a security in respect of the present transaction also and in the said letter it is clearly mentioned that the title deeds in respect of the property has been hypothecated in respect of the other loan, namely, the loan advanced in favour of Cauvery Mines. So it is clear that as on the date the 4th defendant stood as a surety for the defendants 1 to 3, the defendant 1 had not given his property as a security for the loan advanced in favour of the defendant 1. In the circumstances. Section 141 cannot be made applicable to the facts and circumstances of this case. So it is clear that as on the date the 4th defendant stood as a surety for the defendants 1 to 3, the defendant 1 had not given his property as a security for the loan advanced in favour of the defendant 1. In the circumstances. Section 141 cannot be made applicable to the facts and circumstances of this case. Therefore, the arguments of the learned counsel for the appellants that the defendant 4 has been discharged from the suretyship in view of the Bank permitting the defendant 2 to sell his house property cannot be accepted or considered. Let me consider whether the appellant has been discharged from the suretyship in view of the variation of the contrary by the plaintiff between the plaintiff and the defendants 1 and 2 subsequent to 22.12.1978. The learned Advocate for the appellant has relied upon Section 133 of the Indian Contract Act of 1872. Section 133 of the Contract Act reads as hereunder : "Discharge of surety by variance in terms of the contract. Any variance, made without the surety's consent, in the terms of the contract between the principal (debtor) and the creditor, discharges the surety as to transactions subsequent to the variance". From looking into the provisions of Section 133 even if the variation is made without the sureties concerned, the surety is discharged as to the transactions subsequent to the variance. In the instant case, the trial Court has not decreed the suit against the defendant 4 in respect of the entire suit claim. The trial Court has restricted the decree against the 4th defendant in respect of the loan amount of Rs. 60,000 and Rs. 50,000 for which he was the guarantor. If the Court had granted a decree in respect of the transactions pursuant to variance made between the creditor and the debtor without the consent of the surety, the arguments of the learned Advocate for the appellant could have been considered by me. But in the instant case, the transaction subsequent to the variance has not been considered by the trial Court and no liability has been fixed on the appellant based on the subsequent variance. Therefore, the said argument is also without any force. In this background, let me examine the decision cited by the learned Advocates for both the parties. But in the instant case, the transaction subsequent to the variance has not been considered by the trial Court and no liability has been fixed on the appellant based on the subsequent variance. Therefore, the said argument is also without any force. In this background, let me examine the decision cited by the learned Advocates for both the parties. In the decision in State Bank of Saurashtra's case (supra), the Hon'ble Supreme Court has held as hereunder : "(A) Contract Act (1872), Sections 141 and 139 - Cash credit facility by Bank on pledged goods and surety - Pledged goods lost due to bank's negligence - Surety, held discharged to the extent of security lost." This decision cannot be made applicable to the facts and circumstances of this case, since there was no security offered by the defendants 1 to 3 at the time of availing the two loan facilities for Rs. 60,000 and Rs. 50,000 respectively. Therefore, Section 141 cannot be pressed into service. The other decision relied upon by the learned Advocate is Seth Pratapsingh Moholalbhai's case (supra) : "(b) Contract Act (1872), Section 133 - Promise must show performance before he can hold promisor to his promise." Relying upon this decision, the learned Advocate contends that since there is a variance between the deed of guarantee executed by him and subsequent transaction enhancing the limit from Rs. 60,000 to Rs. 1,90,000 he has been discharged from his liability. But the learned Advocate for the appellant does not dispute the execution of Exhibit P. 10 by his client. 60,000 to Rs. 1,90,000 he has been discharged from his liability. But the learned Advocate for the appellant does not dispute the execution of Exhibit P. 10 by his client. Clause 3 of the said agreement reads as hereunder : "You shall have the fullest liberty without in any way affecting this guarantee and discharging me/us from my/our liability hereunder to postpone for any time or from time to time the exercise of any power or powers conferred on you by the said agreement executed in your favour as aforesaid and to exercise the same at any time and in any manner and either to enforce or forbear to enforce payment of principal or interest or other moneys due to you by the borrower or any of the remedies or securities available to you or to grant any indulgence or facility to the borrower and I/we shall not be released by any exercise by you of your said liberty with reference to the matters aforesaid or any of them or by reason of time being given to the borrower or of any other forbearance, act or omission on your part or any other indulgence by you to the borrower or by any other matter or thing whatsoever which under the law relating to sureties would but for this provision have the effect of releasing me/us and I/we hereby waive all suretyship and other rights which I/we might otherwise be entitled to enforce". In view of this clause, the appellant herein has given go-by to Sections 133, 139 and 62 of the Indian Contract Act. Since, he has given his consent in favour of the Bank to vary the terms and conditions of the agreement even in his absence between the Bank and the defendants 1 and 2, the above said decision cannot be made applicable to the facts and circumstances of the case. In this background, it is useful to mention the judgments referred to by the learned Advocate for the respondent 1. A decision of the Division Bench of this Court in T. Raju Setty's case (supra), has held as herein : "Contract Act (1872), Sections 23, 133, 134, 135, 139 and 141 - Surety bond - Validity - Recital in bond that surety will not be entitled to rights under Sections 133, 134, 135, 139 and 141 - Contract of surety is not rendered void". From the above discussion it is clear that the plaintiff-Bank has not committed any error in enhancing the cash credit limit from Rs. 60,000 to Rs. 1,90,000 without the consent of the appellant herein and by virtue of the same appellant who stood as surety cannot be discharged and the trial Court has rightly held that the appellant herein has not suffered any loss due to enhancing the limit by the bank in favour of defendants 1 and 2 and in view of Ex. P. 10 the appellant herein cannot be discharged from his suretyship. The trial Court after appreciating the evidence properly has fixed the liability of the appellant in terms of the Deed of Guarantee executed by him. Accordingly, there are no merits in the appeal. Appeal is dismissed. Parties to bear their own costs. Appeal dismissed.