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2005 DIGILAW 142 (JK)

J&K Bank Ltd. v. Ch. Parkash Chand

2005-05-19

NIRMAL SINGH

body2005
Bachan Singh defendant No. 1 approached the plaintiff/appellant bank for advancement of loan of Rs. 64,560/- on May 30,1981 for the purchase of Mini Bus bearing Engine No. SD- 13300 Chassis No. 18355-DI and Registration No. JKQ 3123. The loan was advanced by the plaintiff bank to defendant No. 1 against hypothecation of the said vehicle and defendant No. 1, in consideration of also executed a promissory note for Rs. 64,560/- and agreed to pay interest at the rate of 4 1/2 % above the Reserve Bank of India rate subject to minimum rate of 13 1/2 % per annum. Defendants No. 2 and 3 Choudhary Parkash Chand and Om Parkash Kohli stood sureties for re-payment of the loan. After the advancement of loan, certain payments were made by the defendant No. 1, but subsequently he failed to repay the loan. The plaintiff-bank filed suit for recovery of Rs. 1,24,464.42 as it was outstanding as on 27.5.1985. 2. On notice defendant No. 1 appeared but during the pendency of the suit he died. His legal heirs were brought on record. They contested the suit and pleaded that deceased Bachan Singh had not purchased any vehicle nor it was financed by the plaintiff-bank. The other averments in the plaint were also controverted. Defendant No. 2 was proceeded against exparte. Defendant No. 3 filed a separate written statement and while contesting the suit raised a preliminary objection that Jawahar Lal Bhan who was the Chief Manager of the Bank was not authorized to sign and verify the plaint. It was admitted that vehicle was hypothecated with the plaintiff-bank and the bank was holding a general power of attorney to sell and dispose of said vehicle which was placed on trust with defendant No. 1, but the plaintiff has failed to take possession and to sell the same. The plaintiff has failed to take steps to secure the possession of the hypothecated vehicle when defendant No. 1 became defaulter. Plaintiff-bank has not taken possession of the vehicle from defendant No. 1 and sold the same to recover the loan amount. Defendant No. 3 denied to have executed any surety bond. It was also pleaded that plaintiff has not intimated to defendant No. 3 that any amount was due under the security as alleged nor any notice was served. 3. On the pleadings of the parties, the following issues were framed:- 1. Defendant No. 3 denied to have executed any surety bond. It was also pleaded that plaintiff has not intimated to defendant No. 3 that any amount was due under the security as alleged nor any notice was served. 3. On the pleadings of the parties, the following issues were framed:- 1. Whether Jawahar Lal Bhan who was the Chief Manager of the plaintiff-bank and was duly authorized to sign and verify the plaint? OPP 2. Whether defendant No. 1 took demand loan of Rs. 64560/- on 30th May 1981 and executed a promissory note in favour of plaintiff? OPP 3. Whether plaintiff is entitled to charge from defendant No. 1 interest at the rate of 13 1/2 per cent per annum from 30.5.1981? OPP 4. Whether plaintiff has failed to take necessary steps to secure the security of the hypothecated vehicle by selling the vehicle when defendant No. 1 had become defaulter? If so, whether this fact discharge the defendant No. 3 from any obligation, if any? OPD3 5. Whether the amount of Rs. 1,24,466.42 paisa is due to the plaintiff bank from defendants up to 27.5.1987.OPP 6. Whether defendant No. 2 and 3 are liable to pay the above amount being the sureties? OPP 7. Relief? OPP" 4. Learned trial court after recording the evidence of the parties, decided issue Nos. 1 to 3 and 5 in favour of plaintiff/appellant bank. Issue Nos. 4 and 6 were decided against the plaintiff/appellant bank. The Ist. Additional District Judge decreed the suit against the legal representatives of defendant No. 1 with interest @ 13 1/2% per annum from the date of filing of suit till realization. However, the suit qua defendants No. 2 and 3 was dismissed, aggrieved by which the present appeal has been preferred. 5. Mr. K.R. Gupta, learned counsel appearing for the appellant bank has submitted that the findings recorded by the learned trial court on issues No. 4 and 6 are palpably erroneous as the learned Ist. Additional District Judge has not appreciated the facts that respondent No. 3 has admitted his signatures on the surety bond. He contended that once the signatures are admitted, then it is for the respondent No. 3 to prove that his signatures were obtained by misrepresentation or fraud. Additional District Judge has not appreciated the facts that respondent No. 3 has admitted his signatures on the surety bond. He contended that once the signatures are admitted, then it is for the respondent No. 3 to prove that his signatures were obtained by misrepresentation or fraud. He contended that respondent No. 3 has taken the ground that his signatures on the guarantee deed were obtained under misrepresentation though he has to sign as a witness. He pointed out that respondent No. 3 has failed to prove that his signatures were obtained by misrepresentation or fraud. He further contended that the learned trial court has erroneously relied upon AIR 1980 SC page 1528. He pointed out that since the vehicle was hypothecated to the appellant-bank, the possession and control over it was with the borrower and the plaintiff-bank had no physical control over the vehicle. He further contended that the learned trial court has also erroneously relied upon J&K Bank v. Chaman Lal, KLJ 1991, 314 and submitted that in that case in the hypothecation deed there was a specific clause that in case of violation of any term of the deed the borrower will handover the possession to the bank and the bank will, at its discretion, sell it to any body by auction or private negotiation and the receipt given by the bank will give a valid discharge and good title to the transferee and the sale proceed will be adjusted towards the loan due to the bank and balance if any will be payable to the borrower but in case of deficiency the borrower will have to make good the same. But there is no such clause in the hypothecation deed in the case in hand. He further submitted that as per the provisions of Sections 139 and 140 of the Contract Act the liability of the surety does not stand discharged. 6. On the other hand, Mr. LK Sharma, learned counsel appearing for respondent No. 3 contended that it has not been proved by the appellant-bank that defendant No. 3 stood as surety for defendant No. 1. He submitted that on the surety deed the defendant No. 3 had signed as a witness. 6. On the other hand, Mr. LK Sharma, learned counsel appearing for respondent No. 3 contended that it has not been proved by the appellant-bank that defendant No. 3 stood as surety for defendant No. 1. He submitted that on the surety deed the defendant No. 3 had signed as a witness. He pointed out that Bachan Singh the principal debtor brought some papers before the defendant No. 3 and asked him to sign the same as a witness and not as a guarantor, but the bank has failed to prove, by cogent and convincing evidence, that defendant No. 3 has signed the deed as a guarantor. He further contended that even if, for the sake of arguments, it is presumed that defendant No. 3 has signed the deed as a guarantor, even then the liability of defendant No. 3 fully stands discharged. He contended that when defendant No. 1 became defaulter, the plaintiff-bank had not taken any action whatsoever against him despite the fact that default was committed by the borrower in the year 1982 and the suit has been filed in the year 1988, one day prior to the expiry of the limitation period. He further pointed out that plaintiff-bank has not brought into the notice of defendant. He also contended that the signatures of defendant No. 3 were obtained by the Bank and Bachan Singh principal debtor under misrepresentation that he has to sign as a witness not as a guarantor. He further contended that even otherwise defendants No. 2 and 3 stand discharged from their liability as the plaintiff bank has failed to take any action whatsoever against the principal debtor. Despite to the fact that defendant No. 1 has failed to repay the loan amount. He further contended that the default in repayment was made in 1982 and the suit has been filed in 1988 one day prior to the expiry of limitation period. He contended that if the appellant-bank has brought into the notice of the defendants No. 2 and 3 that the principal debtor has become a defaulter. If the matter would have been brought to the notice of respondent Nos. He contended that if the appellant-bank has brought into the notice of the defendants No. 2 and 3 that the principal debtor has become a defaulter. If the matter would have been brought to the notice of respondent Nos. 2 and 3, they would have helped the bank to secure the possession of the vehicle which was hypothecated and in case the possession of the vehicle had been taken over by the bank immediately after the default was committed and the vehicle had been sold the liability of the principal debtor would have been discharged. He supported the judgment of the learned trial court. 7. I have given my thoughtful consideration to the submissions made by the learned counsel for the parties and perused the record. The first point which is to be determined in this appeal is as to whether the defendants No. 2 and 3 have executed a guarantee deed in favour of the bank that in case defendant No. 1 makes default in re-payment of the loan amount, they will indemnify the same. Defendant No. 2 has not appeared in the court to deny that he has not executed the guarantee deed. Defendant No. 3 appeared and contested the suit. In the written statement he has denied the execution of the guarantee deed. However, he has admitted his signatures on the guarantee deed but he pleaded that he has signed the document as a witness. It is settled proposition of law that once the signatures are admitted on a document, it is for the party to prove that he has signed the same under mis-representation or fraud has been perpetuated upon him. 8. Appellant/bank has examined Subash Chander Gupta. He has deposed that he has seen the guarantee deed. It was a printed form. He filled up the same. Its contents were read over and explained to Bachan Singh the principal debtor and the guarantors Choudhary Parkash Chand and Om Parkash. He also identified their signatures ion the guarantee deed. 9. Defendant No. 3, Om Parkash, while appearing as his own witness deposed that he knew Bachan Singh. He was working as conductor with the vehicle in question. He deposed that Bachan Singh came to him and asked him to sign as witness on some documents and he signed. He also identified their signatures ion the guarantee deed. 9. Defendant No. 3, Om Parkash, while appearing as his own witness deposed that he knew Bachan Singh. He was working as conductor with the vehicle in question. He deposed that Bachan Singh came to him and asked him to sign as witness on some documents and he signed. He did not stand as a surety to defendant No. 1 nor he accompanied defendant No. 1 to any bank. He did not go through those documents, as he was not much educated. He did not knew whether the bank has sent any notice to him to the fact that defendant No. 1 has become defaulter and he should come to the bank to make payment nor he went to the bank to enquire as he had no knowledge about the loan from the bank. Subsequently on enquiry he came to know that defendant No. 1 had taken loan from the bank to purchase Matador. He also came to know that Matador was hypothecated with the bank but when he was cross-examined he admitted that he was middle pass. He knew Choudhary Parkash Chand. He further admitted that he signed documents in good faith. 10. Defendant No. 3, Om Parkash is not illiterate. It is not his case that his signatures were obtained on a blank paper. So, from the evidence on record, it is established that Om Parkash and Choudhary Parkash Chand stood guarantors for re-payment of the loan which was taken by principal debtor Bachan Singh for purchase of the vehicle. The findings recorded by the learned trial court that defendant No. 3 stood guarantee stand affirmed. 11. The next question which is to be considered is whether the liability of the surety stands discharged by the application of provision of Sections 139 and 141 of Contract Act. Sections 139 & 141 are reproduced as under:- "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 his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. 141. Suretys right to benefit of creditors securities. 141. Suretys right to benefit of creditors securities. -- A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security." 12 Perusal of above sections shows that the surety is discharged when creditor does any act, which is inconsistent with the right of the surety, or omits to do any act, which under law he is duty bound to do. 13. In the case in hand, the creditor has not done any act which is not inconsistent with the surety or he has omit to do any act which he was duty bound to do to the surety. The learned trial court has discharged the liability of the surety by observing as under:- "Since all the High Courts have different view with regard to the position of pledged goods and hypothecated goods and loss thereof and the consequential effect of section 139, 141 of Contract Act, the Subordinate Courts within Jammu and Kashmir State have to fallen back to the interpretation and the distinction if any, made by their own Honble Court and as such coming back t the judgment referred as 1991 KLJ 314 wherein the Honble Mr. Justice R.P.Sethi of this High Court while dealing in the matter of hypothecated truck while holding the surety liable having been discharged because of violation of terms of contract by creditor and impairing of the remedy of the surety by the creditor on the grounds which can absolve a surety of his liability as guarantor of the creditor. The Honble High Court of J&K has held the surety discharged on the ground that the vehicle which was hypothecated has not been seized preventing the surety to have resort to the remedy against the principal debtor." 14. The learned trial court has relied erroneously on J&K Bank v. Chaman Lal and ors, 1991, KLJ, 314. I have gone through the said judgment but the facts of the said case are distinguishable. The learned trial court has relied erroneously on J&K Bank v. Chaman Lal and ors, 1991, KLJ, 314. I have gone through the said judgment but the facts of the said case are distinguishable. In that case, in the hypothecation deed there was a specific clause, which reads as under:- "(1) That the borrower will in case of violation of any term of these presents be liable to handover the possession of the vehicle to the bank and the bank will at its discretion sell it to any body by auction or private negotiations and the receipt given by the bank will give a valid discharge and good title to the transferee. (2) In case of sale of the vehicle by the bank the sale proceeds will be adjusted towards the loans due to the bank and the balance, if any will be payable to the borrower but in case of deficiency the borrower will have to make good the same." 15. In the instant case, there is no such clause in the hypothecation deed executed by the principal debtor. 16. The learned trial court has also placed reliance on The State Bank of Saurashtra v. Chitranjan Rangnath Raja and anr, AIR 1980 SC 1528. The ratio of that judgment is also not applicable as in that case their lordships were dealing with the rights of the pawnee with regard to the pledged goods whereas in the instant case the good was hypothecated and not pledged. 17. A Division Bench of Punjab & Haryana High Court in Bank of India v. Yogeshwar Kant Wadhera, AIR 1987 P&H 176, interpreted the distinction between the hypothecated goods and pledged goods by observing as under:- ".....a surety in the case of hypothecation is not entitled to invoke section 141 of the Contract Act for his benefit. Under the said section if the creditor loses or without the consent of the surety, parts with the security pledged the surety is discharged to the extent of the value of the security. Under the said section if the creditor loses or without the consent of the surety, parts with the security pledged the surety is discharged to the extent of the value of the security. Such a question cannot arise in the case of hypothecation of goods for simple reason that when the goods are not in the possession of the hypothecatee, there is no question of his losing or parting with the same." It was further held as under:- "The provision of both the sections came up for consideration before the Supreme Court in Bank of Bihar v. Damadhar Prasad, AIR 1969 SC 297, wherein it was held that under section 128, save as provided in the contract, the liability of the surety is co-extensive with that of the principal debtor. The surety thus becomes liable to pay the entire amount. His liability is immediate. It is not deferred until the creditor exhaust his remedies against the principal debtor. In the absence of some special equity, the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against principal in some proceedings. Like wise where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain the execution against him until the creditor has exhausted his remedies against the principal. There is no gain saying that in this case, the Supreme Court was not addressing itself to Section 141 of the Contract Act, but still on the general principles relating to the surety coupled with the fact that in case of hypothecation, the possession over the security, i.e. the goods, does not remain with the creditor and, therefore, the surety in such a case is not entitled to the benefit of S.141, we hold that the view taken by the learned Single Judge in M/S Quality Bread Factorys (AIR 1983 P&H, 244) (supra) is not correct to the extent it goes in favour of the surety in the case of hypothecated goods also. 18. The Orissa High Court also interpreted the distinction between the hypothecated goods and pledged goods in Bhabani Sankar Patra v. State Bank of India and Anr, AIR 1986 Orissa 247, and observed as under:- "The distinction between hypothecation of goods and pledge of goods is well known. 18. The Orissa High Court also interpreted the distinction between the hypothecated goods and pledged goods in Bhabani Sankar Patra v. State Bank of India and Anr, AIR 1986 Orissa 247, and observed as under:- "The distinction between hypothecation of goods and pledge of goods is well known. In case of pledged goods, the goods are stored in the godown under the lock and key of the bank under the banks supervision. Thus, the pledged goods remain under the physical possession of the Bank and no withdrawals or additions of the stocks in the godown are permissible without the Banks permission. The position with regard to the hypothecated goods is, however, different because these goods are strictly speaking, not under the lock and key of the bank but allowed to be kept at the premises of the borrower without any lock and key of the bank, as such, but are supposed to be under the constructive possession of the bank by virtue of deed of hypothecation under which the borrower is obliged to submit regular returns to the bank indicating the increase and decease of the value of the said goods to enable the bank from time to time to determine the drawing of the borrower with regard to it. In law, however, there is no difference with regard to legal possession of the bank. In both the cases, the goods are under the constructive possession of the bank, while in the case of pledge they are also in the actual physical possession of the bank, but in the case of hypothecated goods they are in the actual possession of the borrower subject to the restrictions mentioned above. It is, therefore, said that hypothecation is only an extended idea of a pledge, the creditor permitting the debtor to retain possession either on behalf of or in trust for himself. We are, therefore, of the view that the decision reported in AIR 1980 SC, 1528 (supra) is not distinguishable because of the distinction between the hypothecation and pledge but because in the said case as already stated it was found as a fact that the goods which form one of the securities was lost as a consequence of the negligence of the Bank." Similar view has been taken by Karnataka High Court in Smt. R. Lilavzati v. Bank of Baroda and Ors, AIR 1987 Karnataka, 2. 19. 19. In the guarantee deed the liability of the guarantor is co-extensive with that of the principal debtor. There is no clause in the guarantee deed which provide contrary to the contract, therefore, the liability of the guarantor is not discharged. 20. In view of the above discussion, the appeal is allowed with costs. The judgment and findings of the learned trial court on issue nos. 4 and 6 are set aside and issues are decided in favour of the appellant. The suit filed by the appellant stands decreed against defendants 2 and 3 also. The appellant-bank is at liberty to recover the loan amount jointly and severely from all the defendants.