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2004 DIGILAW 2598 (ALL)

CANARA BANK v. ABDUL WAHID

2004-12-22

P.K.DEB

body2004
P. K. DEB, J. This appeal has been preferred by the above named appellant-bank against a part of the judgment and order passed by the then Presiding Officer, D. R. T. , Jabalpur in Original Application No. 207/2000 dated 18th June, 2002, whereby and whereunder the claim of the appellant-bank against defendant- respondent No. 2 Smt. Shahjehan Begum has been dismissed on the ground of discharge of liability as contemplated under Section 139 of the Contract Act, 1872. 2. The brief facts of the case are as follows: The defendant-respondent No. 1 - Abdul Wahid was engaged in the business of passenger Transport. At his request the appellant- bank sanctioned Rs. 6. 50 lacs to defendant-respondent No. 1 for purchase of Chasis of Tata Bus and for its body building. In consideration of such sanction of loan, defendant- respondent No. 1 executed banking documents and also agreed to pay interest as per prevailing rate. Defendant-respondent Nos. 2 and 3 executed guarantee agreement to secure the term loan sanctioned to the defendant-respondent No. 1. They also created equitable mortgage over their respective immovable properties, details of which were given in the plaint submitted by the appellant-bank. After availing of term loan the defendant-respondent No. 1 did not satisfactorily maintain the accounts. When the defendant failed to liquidate the loan account despite legal notice on 27th August, 1999, the applicant-bank filed recovery application claiming Rs. 10,11,800/- with future and pendente lite interest mentioning that all the defendants-respondents were liable jointly and severally to pay the claimed amounts. On notices being served, only the defendant No. 2 had filed reply and contested by adducing evidence. The defendant-respondent No. 2 Shahjehan Begum in her reply raised the defence that due to negligence of the bank, the applicant-bank has lost the hypothecated property. Thus the failure of the applicant-bank to take appropriate steps at appropriate stage to take possession of the hypothecated property or to sell it caused impairment of the eventual right of the guarantor-defendant No. 2. According to her, when wrote a letter on 12th March, 1998 (Annexure R-1) addressed to the Branch Manager of the applicant-bank that the defendant No. 1 was making mischievous attempts to transfer the hypothecated bus. According to her, when wrote a letter on 12th March, 1998 (Annexure R-1) addressed to the Branch Manager of the applicant-bank that the defendant No. 1 was making mischievous attempts to transfer the hypothecated bus. She also wrote the similar letters on 7th May, 1998 (Annexure R-2) and 2nd July, 1998 (Annexure R-3), but when no action was taken, then she wrote a letter to the General Manager (Personnel), Banking Division of Canara Bank, Head Office, Bangalore and that due to such delay in taking action by the appellant-bank, defendant-respondent No. 1 had managed to dispose of the hypothecated property and as such she remained not liable for the outstanding dues of the defendant- respondent No. 1 towards the applicant-bank. In reply to such averments being made by the defendant-respondent No. 2, the applicant bank had filed rejoinder in the form of counter-affidavit to the effect that in the month of September i. e. on 8th September, 1998 the seizure agent of the bank tried to trace out the bus, but was informed that the said bus was shifted to Ajmer and defendant No. 1 had also left the place and remained un traceable. On the basis of the pleadings and the evidence both oral and by way of affidavit and documentary, learned D. R. T. decreed the claim of the appellant-bank against the defendant-respondent Nos. 1 and 3, but dismissed the claim against defendant No. 2 holding that her liability as surety have been discharged because of the inaction/negligence on the party of the appellant-bank. Against this part of the dismissal of the claim against the defendant- respondent No. 2, the present appeal has been preferred. 3. Only point for determination in this appeal is; whether the learned Tribunal i. e. D. R. T. , Jabalpur had committed error in dismissing the claim of the appellant-bank against defendant- respondent No. 2 is erroneous or not. 4. Mr. V. D. Chauhan, Advocate appearing for and on behalf of the appellant-bank has submitted that in the facts and circumstances of the present case, the learned Tribunal has erroneously relied on the provisions of Section 139 of the Contract Act in dismissing the claim against the defendant-respondent No. 2. In support of his contention, he has referred to a judgment of Orissa High Court as Bhabani Shankar Patra v. State Bank of India, AIR 1986 Orissa 247. On other hand Mr. In support of his contention, he has referred to a judgment of Orissa High Court as Bhabani Shankar Patra v. State Bank of India, AIR 1986 Orissa 247. On other hand Mr. Tabassum Hasmi, Advocate appearing for the respondent-defendant No. 2 has relied on the provisions of Section 139 of the Contract Act and supported the impugned judgment to the effect that the provisions of the law had been properly sifted in the impugned judgment while dismissing the claim against defendant- respondent No. 2. 5. Although the appeal hinges on a very short point regarding the applicability of Section 139 of the Contract Act, 1872 but it has got wide implication in construing the present circumstances of the case. 6. The admitted position remains that the bus for which loan had been granted was hypothecated with the appellant-bank and as per terms and conditions of the agreement of the loan, the principal borrower i. e. defendant-respondent No. 1 was not in a position to transfer such hypothecated goods without express consent of the appellant-bank, lest the borrower would be liable not only for criminal prosecution, but also for other legal consequences. It is also the admitted position during the continuance of the loan transaction that the defendant-respondent No. 2 who stood along the defendant-respondent No. 3 as surety guarantor and also executed equitable mortgage in respect of their respective immovable properties. The principal borrower defendant-respondent No. 1 was making arrangements for disposing of the hypothecated bus and such attempts were brought to the notice of the appellant-bank, but at that moment the bank had not taken proper action in seizing the bus through their seizure agents. But such action of seizure was taken at a belated date, when the bus had already been transferred and the defendant No. 1 became untraceable. This belated action on the part of the bank had come on the records by way of reply/counter-affidavit on the written statement being filed by the defendant-respondent No. 2. Such counter-affidavit had been rejected by the learned Tribunal holding the same to be inadmissible as per Regulation 22 (b) of D. R. T. Regulations of Practice, 1997. This rejection of the reply counter-affidavit under the said regulation is not very proper on the face of it. Such counter-affidavit had been rejected by the learned Tribunal holding the same to be inadmissible as per Regulation 22 (b) of D. R. T. Regulations of Practice, 1997. This rejection of the reply counter-affidavit under the said regulation is not very proper on the face of it. Some sort of allegations have been brought against the appellant-bank by the defendant-respondent No. 2 and to rebut such allegation, the bank has got every right to file counter-affidavit in the form of evidence. In my view the wordings of the working Regulation No. 22 (b) has been misread by the learned Tribunal as adverse party has got every right to counter the allegations by way of evidence on their part and as per the R. D. D. B. F. I. Act, 1993 itself such evidence can be brought by way of affidavit. However, even if such fact as brought by the bank is admissible, then also the position remains that the bank was definitely negligent in not taking proper steps of seizure at the appropriate time, as a result of which consequence came that the bus has been transferred. 7. Now in the above facts and circumstances, it is to be considered, whether Section 139 of the Contract Act, 1872 can be applicable in the present case or not. In the present case the bank has got no direct control on the hypothecated bus. It had not the possession rather the possession remained with the borrower. Section 139 of the Contract Act, 1872 runs as follows: "139. Discharge of surety by creditors act or omission impairing suretys eventual remedy.- If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which is duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is hereby, impaired the surety is discharged. " 8. On a plain reading of the above section, it would be clear that any omission or commission on the part of the creditor inconsistent with the right of the surety makes the surety discharged when the eventual remedy of the surety against the principal debtor is impaired. 9. " 8. On a plain reading of the above section, it would be clear that any omission or commission on the part of the creditor inconsistent with the right of the surety makes the surety discharged when the eventual remedy of the surety against the principal debtor is impaired. 9. According to the learned Counsel for the respondent No. 2 it was incumbent on the part of the creditor bank to take possession of the hypothecated bus, when the immediate attempts of sale of the bus by the principal debtor have been brought to the notice of the creditor-bank. When they failed to do so, or omitted to do so the act which they were required by the agreement to take, then the surety is definitely being discharged. But if the provisions of Section 139 of the Contract Act, 1872 more so on the last part of the section is read in between the lines, then only the commission or omission on the part of the creditor does not discharge the liability of the surety. The consequential impairing of the right of the surety against the principal borrower is a corollary to such provisions of discharge of liability. Again the same is dependent on the terms and conditions on which surety entered himself/herself with the creditor while standing as a surety/guarantor. 10. The two essential factors for discharge of surety are (1) if the creditor does any act which is inconsistent with the right of the surety, (2) if the creditor omits to do any act which is duty to the surety, requires to do, (3) the eventual remedy of the surety himself against the principal debtor is thereby impaired. In the present case besides the first requirement of Section 139 of the Contract Act, 1872, other two requirements are absent or have not been proved from the side of the respondent- defendant No. 2. In the present case besides the first requirement of Section 139 of the Contract Act, 1872, other two requirements are absent or have not been proved from the side of the respondent- defendant No. 2. In the present case, the Deed of Guarantee which the defendant-respondent No. 2 executed clearly inputs the following terms: "the guarantor hereby consents to the banks making any variance that the bank may think fit in the terms of the banks contract with the borrower, to the banks determining, enlarging or varying any credit to the borrower to the banks making any compromise with the borrower or promising to give the borrower time or not to sue him and to the banks parting with any security the bank may hold for the guaranteed debt. The guarantor also agrees that the guarantor shall not be discharged from his liability by the banks releasing the borrower or by any act or omission of the bank, legal consequence of which may be to discharge borrower by any act of the bank which would, but for this present provision, be inconsistent with the guarantors rights as surety or by the banks omission to do any act which, but for this present provision, the banks duty to the guarantor would have required the bank to do. Though as between the borrower and the guarantor, the guarantor is surety only, the guarantor agrees, that as between the bank and the guarantor, the guarantor is the principal debtor, jointly with the borrower and accordingly the guarantor shall not be entitled to any of the rights conferred as surety by Sections 133,134,135, 139 and 141 or any other relevant provision of the Contract Act, 1872". 11. The provisions as mentioned above in the deed of guarantee stipulate that any omission or commission on the part of the bank would not discharge the liability of the guarantor. In that way, it cannot be said that any right of the surety has been taken away by the inaction/omission on the part of the bank. If the guarantee deed is being read as a whole, it does not also bring any condition by which the eventual remedy of the surety have been impaired with. In that way the omission or the delayed action on part of the creditor bank does not make the surety discharged of her liability. If the guarantee deed is being read as a whole, it does not also bring any condition by which the eventual remedy of the surety have been impaired with. In that way the omission or the delayed action on part of the creditor bank does not make the surety discharged of her liability. The guarantee deed has no stipulation whatsoever that the creditors forbearance to sue or to take possession would have the effect of discharging the surety. The judgment of the Orissa High Court that has been referred to totally fit in with the present fact and circumstances of the case. That judgment had also considered the salutary decision of the Supreme Court in State Bank of Saurashtra v. Chitranjan Rangnath Raja, AIR 1980 SC 1528 . It has also distinguished the decision of the Karnataka High Court in Karnataka Bank Ltd. v. Gajanan Sankararao, AIR 1977 Kant. 14. The same is the position in respect of the judgment delivered by the Karnataka High Court in M. R. Chakrapani v. Canara Bank, 1999 I. S. J. (Banking) 520. In both the Karnataka judgment, residuary resulting part of the commission or omission of Section 139 of the Contract Act, 1872 has not been considered. There was also no consideration regarding the terms and conditions on which the surety had entered as per the guarantee documents with the creditor bank. In that way I have already mentioned that the present facts and circumstances do not give the relief of discharge of liability to the defendant-respondent No. 2 as she is bound by her own admission as per the guarantee documents and she has failed to prove as to how her right has been impaired in taking action against the principal borrower. 12. In the impugned judgment learned Tribunal only referred to Section 139 of the Contract Act, 1872 and held that the respondent-defendant No. 2 has been discharged of her liability for not taking action in time by the creditor bank. He has not considered the requirements of Section 139 of the Contract Act, 1872 and as to how such requirements have been fulfilled in the present case. Thus the learned Tribunal has definitely committed error in dismissing the claim against the defendant-respondent No. 2, rather in the facts and circumstances of the present case, the defendant-respondent No. 2 cannot get the benefit of discharge of liability. Thus the learned Tribunal has definitely committed error in dismissing the claim against the defendant-respondent No. 2, rather in the facts and circumstances of the present case, the defendant-respondent No. 2 cannot get the benefit of discharge of liability. Rather she remains liable jointly and severally not only with the co-surety respondent-defendant No. 3 but also with principal debtor defendant-respondent No. 1. 13. In the result the appeal is allowed, the impugned judgment and order is hereby modified to the extent that the claim of the appellant-bank shall stand as allowed as a whole against all the defendants including defendant No. 2. The certificate is issued by the D. R. T. should be modified in the light of the decision as mentioned above. The appeal stands allowed but in the circumstances no order as to cost. Appeal allowed. .