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2023 DIGILAW 376 (JK)

Rajinder Parshad Bakshi v. State Bank of India

2023-08-10

RAJNESH OSWAL

body2023
JUDGMENT : 1. This appeal is directed against the judgment and decree dated 27.04.2010 passed by the learned Additional District Judge (Bank Cases), Jammu (hereinafter to be referred as ‘the trial court’), whereby the suit for recovery for an amount of Rs. 5,53,336.58/- (Rupees Five Lacs Fifty Three Thousand Three Hundred Thirty Six Fifty Eight Paisa Only) filed by the respondent No. 1 has been decreed in favour of the respondent No. 1 and against the appellant as well as respondent Nos. 2 and 3 along with interest at the rate of 2% above SBAR with a minimum of 14% per annum with quarterly rests along with costs. 2. This appeal has been filed by the appellant on the ground that the judgment and decree dated 27.04.2010 passed by the trial court is not sustainable in law, as the learned trial court while dealing with the issue No. 2 has concluded on facts that it was incumbent on the part of the respondent No. 1 to get its lien marked over the mortgaged property in the revenue record and there was no denial that the respondent No. 2 took an advantage of this omission on part of the bank and thus, created third party interest by selling the mortgaged property. Thereafter, the learned trial court arrived at the conclusion that the appellant was not entitled to be discharged but no reason whatsoever has been assigned by the trial court to come to the conclusion in respect of lapse on the part of the bank to secure the mortgaged property by getting the lien marked in its favour and allowing the sale of the mortgaged property by the borrower to third person, held the appellant liable to pay the loan. While arriving at this finding, the learned trial court has shown complete ignorance of the settled provisions of law and the provisions contained in the Contract Act, more particularly, the provisions of Section 139 read with Section 140 of the Contract Act. While arriving at this finding, the learned trial court has shown complete ignorance of the settled provisions of law and the provisions contained in the Contract Act, more particularly, the provisions of Section 139 read with Section 140 of the Contract Act. It is also stated that the finding on the facts and law returned by the learned trial court that the Guarantee Deed nowhere reflected that the liability of the guarantor would arise only after the failure on the part of the respondent to recover its amount by sale of hypothetic stocks and mortgaged property, as such, the appellant was not entitled to claim discharge from the surety, is totally erroneous. 3. Mr. Rahul Pant, learned senior counsel for the appellant submitted that once the learned trial court had come to the conclusion that respondent No. 1-bank failed to secure the mortgaged property by getting the lien marked in its favour in the revenue record, the learned trial court was required to discharge the appellant from its liability arising out of the guarantee in terms of Section 139 of the Jammu and Kashmir Contract Act, 1977. 4. Ms. Monika Kohli, learned counsel for respondent No. 1-bank submitted that as per guarantee, even if there was default on part of the bank in securing the mortgaged asset, still the liability of the appellant was not impaired and continued thereafter. 5. Heard and perused the record. 6. Brief facts necessary for the disposal of this appeal are that the respondent No. 1 filed a suit for recovery against the appellant and the respondent Nos. 2 and 3 on the ground that the respondent No. 1 on the request of respondent No. 2, sanctioned the cash credit limit for an amount of Rs. 5,00,000/- (Rupees Five Lacs Only) in favour of the respondent No. 2 with interest @2% above SBAR with a minimum of 14% per annum with quarterly or other rests according to the practice of the respondent No. 1. The respondent No. 2 executed an arrangement letter dated 30.03.2001, promissory note dated 30.03.2001, DP note, delivery letter dated 30.03.2001 and agreement for hypothecation dated 30.03.2001. The respondent No. 2 executed an arrangement letter dated 30.03.2001, promissory note dated 30.03.2001, DP note, delivery letter dated 30.03.2001 and agreement for hypothecation dated 30.03.2001. In addition, the respondent No. 2 also mortgage a plot of land measuring 09 marlas comprising Khasra No. 697 min, Khewat No. 25 and Khata No. 122 min situated at Channi Himmat and executed a mortgaged deed dated 28.03.2001 in favour of the respondent No. 1. The appellant and respondent No. 3 stood as guarantors for the respondent No. 2 for repayment of the loan and executed an agreement of guarantee in favour of the respondent No. 1. The appellant and the respondent No. 3 further agreed that their liability under the agreement shall be continuing one for all sums whatsoever, which may at any time be or become payable by the respondent No. 2 to the respondent No.1. As the respondent No. 2 violated the terms and conditions of the loan documents and did not observe financial discipline of the bank and maintained the account properly, the respondent No. 2 was orally as well as in writing was asked by the respondent No. 1 for liquidating the outstanding loan amount. As the loan amount was not paid back by the respondent No. 2, the respondent No. 1 filed a suit. The respondent Nos. 2 and 3 were set ex-parte by the trial court vide order dated 05.08.2005. The appellant caused his appearance before the trial court and filed the written statement, thereby stating that the respondent No. 1 was itself negligent in securing the repayment of loan in time as the respondent No. 1 did not make any effort to proceed against the securities including property mortgaged and the stocks hypothecated with the respondent No.1. The wilful default on the part of the respondent No.1 to proceed against the respondent No. 1 as such, absolves the appellant of his liability to repay the loan, if any incurred by him under any agreement. It was also stated that the respondent No. 1 in an application filed along with suit has clearly stated that the immovable property mortgaged with the respondent No. 1 as security had been sold by the respondent No. 2. It was also stated that the respondent No. 1 in an application filed along with suit has clearly stated that the immovable property mortgaged with the respondent No. 1 as security had been sold by the respondent No. 2. That being so, the property mortgaged to the respondent No. 1 by way of security of the loan has been destroyed by the respondent No. 2 by fraudulent means and the same has been facilitated by the respondent No. 1. Otherwise also, the property mortgaged to the respondent No.1 was not capable of being sold by the respondent No.2 and transaction of the same, if any, entered into by the respondent No. 2 with any other third person is per se a nullity and illegal in the eyes of law. It was also stated by the appellant that he did sign some documents by way of secondary security and it was only in case of failure of the respondent No. 2 to make the payment and the failure of the bank to realize their loan by selling mortgaged property and the hypothecated stocks, the appellant could be made answerable for the default, if any committed by the respondent No. 2. 7. Out of the pleadings of the parties, the learned trial court has framed the following issues :- 1. Whether the suit is not maintainable in the present form? OPD-3 2. Whether there is wilful default on the part of the plaintiff bank to recover the amount from defendant No. 1 as such the defendant No. 3 is absolved of his liability to make the payment to the plaintiff bank? OPD-3. 3. Whether the plaintiff bank is a corporate body constituted under State Bank of India Act 1955? OPP 4. Whether Sh. S. K. Gaddoo was the branch manager and principal officer State Bank of India branch Karan Nagar, Jammu and was competent to file the present suit? OPP. 5. Whether cash credit (working capital) hypothecation limit in the sum of Rs. 5 lacs was granted in favour of defendant No. 1 by the plaintiff bank at the rate of interest 14% p.a. with quarterly rests, subject to change in rate of interest? OPP. 6. Whether the defendants have executed arrangement letter dated 30.03.2001, promissory note dated 30.03.2001, D.P. Note, delivery letter dated 30.03.2001 and agreement for hypothecation of goods dated 30.03.2001 in favour of the plaintiff bank? OPP. 7. OPP. 6. Whether the defendants have executed arrangement letter dated 30.03.2001, promissory note dated 30.03.2001, D.P. Note, delivery letter dated 30.03.2001 and agreement for hypothecation of goods dated 30.03.2001 in favour of the plaintiff bank? OPP. 7. Whether the defendant No. 2 & 3 have executed the guarantee agreement dated 30.03.2001 in favour of the plaintiff bank? OPP. 8. Whether a sum of Rs. 5,55,336.50 is due against the defendants and their liability towards the plaintiff bank is joint and several and co-extensive with each other? OPP. 8. The respondent No. 1 examined PW-S.K. Gaddoo and PW-M.K. Bhatt in support, whereas the appellant has examined himself in support of his defence. The learned trial court vide judgment and decree dated 27.04.2010, decreed the suit in favour of the respondent No. 1 and against the appellant and the respondent Nos. 2 and 3. 9. The only issue that arises for consideration of this Court is whether the omission on the part of the bank i.e. respondent No. 1 to get the lien marked in the revenue records, resulting into creation of third party interest by the respondent No. 2-Principal Borrower, would absolve the appellant of his liability as guarantor. Though the learned trial court did not properly frame the issue No.2 but nonetheless, the learned trial court has considered the contention raised by the appellant in respect of his discharge of liability arising out of agreement of guarantee relied upon by the respondent-bank. The finding returned by the trial court in respect of issue No. 2 is material so far as present controversy is concerned. The learned trial court has returned a positive finding that it was incumbent on the part of the respondent No. 1-Bank to get its lien marked in the revenue records and further that the respondent No. 2 taking advantage of the laxity on the part of the respondent No 1, succeeded to create third party interest by sale of mortgaged property and this is also an admitted position of law that the sale of the mortgaged land pending lis without leave of the court renders the same as nullity. At the same time, the learned trial court observed that the banks cannot be non-suited due to laxity, lapse or remissness on its part to take immediate appropriate steps to secure hypothecated stocks and mortgaged property. At the same time, the learned trial court observed that the banks cannot be non-suited due to laxity, lapse or remissness on its part to take immediate appropriate steps to secure hypothecated stocks and mortgaged property. The learned trial court has also observed that it is the prerogative of the banks to enter into contract even without execution of mortgaged deed and at times even without soliciting a deed of guarantee. The learned trial court has mentioned the reason for arriving at conclusion in respect of continuing liability of the appellant that perusal of the guarantee nowhere reflects that the liability of the guarantor would arise only after the failure on the part of the respondent No. 1 to recover its amount by selling hypothecated stocks or mortgaged property. 10. Section 139 of the Jammu and Kashmir Contract Act clearly provides that if the creditor does any act inconsistent of the rights of the surety and 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, then the surety will be discharged. Illustration ‘c’ of Section 139 of the Act (supra) is reproduced as under :- “(c) A puts M as apprentice to B and gives a guarantee to B for M’s fidelity. B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to B on his guarantee.” 11. It would also be advantageous to take note of section 141 of the Act (supra) and the same is extracted as under:- “Surety’s right to benefit of creditor’s 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 suretyship is entered into, whether the surety 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. In the instant case, the mortgage deed was executed by the respondent No.2 in respect of the plot mentioned above on 28.02.2001 whereas the agreement of guarantee was executed on 30.03.2001. In the instant case, the mortgage deed was executed by the respondent No.2 in respect of the plot mentioned above on 28.02.2001 whereas the agreement of guarantee was executed on 30.03.2001. It clearly establishes that the bank had the security when the agreement of guarantee was executed by the appellant and the respondent No3. It is also established fact that the bank miserably failed to secure and protect the mortgaged property from its alienation by getting the lien marked in the revenue record and it certainly impaired the remedy available to the appellant against the mortgaged asset owned by respondent No. 2 i.e. Principal Borrower. In this context it is appropriate to take note of the judgment passed by the Hon’ble Apex Court in case titled, ‘State of Madhya Pradesh vs. Kaluram’ reported in 1967 AIR 1105. In this judgment, the forest officers of State of Madhya Pradesh parted with the goods before receiving payments of the amount due by the contractor. In this case, Hon’ble the Supreme Court has held as under:- “The State had as already observed, a first charge over the goods: the State was also entitled to prevent the goods from being removed without payment of the amount of instalments due. The expression "security" in s. 141 is not used in any technical sense: it includes all rights which the creditor had against the property at the date of the contract. The surety is entitled on payment of the debt or performance of all that he is liable for, to the benefit of the rights of the creditor against the principal debtor which arise out of the transaction which gives rise to the right or liability: he is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or has parted with the security without the consent of the surety, the latter is, by the express provision contained in s. 141, discharged to the extent of the value of the security lost or parted with. The State had a charge over the goods sold as well as the right to remain in possession tilt payment of the instalments. The State had a charge over the goods sold as well as the right to remain in possession tilt payment of the instalments. When the goods were removed by Jagatram that security was lost and to the extent of the value of the security lost the surety stood discharged. In the present case the State has not produced the accounts furnished under r. 16 by the contractor relating to the quantity of goods removed by Jagatram. We must in the circumstances hold that the entire quantity contracted to be sold to Jagatram had been removed, and the surety is, because the State has parted with the security which it held, discharged from liability to pay the amount payable under the terms of the contract.” 13. Further the Hon’ble the Supreme Court in case titled, ‘The State Bank of Saurashtra vs. Chitranjan Rangnath Raja’ reported in 1980 AIR (SC) 1528 has held as under:- “19. It is difficult to entertain a contention that Section 141 would not be attracted and surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities. Acceptance of such a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor. Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable? Was the guarantee a guarantee against proper performance of the contract evidencing advance of loan and methods of its repayment, or a guarantee covering Bank's utter disregard of its responsibility or to use the words of the High Court, the Bank's utter negligence in failing to exercise the care of a prudent man which one would expect in management of one's own affairs? 14. 14. The conjoint reading of Sections 139 and 141 of the Jammu and Kashmir Contract Act reveals that if creditor’s act or omission impairs the surety’s eventual remedy against the principal borrower then surety would be discharged to the extent of value of the security. 15. A perusal of the record reveals that in an application for attachment before judgment, the respondent No. 1 had stated that principal borrower had sold the mortgaged property. The said mortgage deed was executed for securing the Cash Credit Limit of Rs. 5,00,000/- along with interest and other charges. The sale deed executed by respondent No. 2, by virtue of which the mortgaged asset was alienated by him, has not been placed on record either by the Bank or by the appellant so as to enable this court to determine the sale consideration of the mortgaged asset. The learned trial court has not gone into this aspect of the case. 16. The contention raised by Ms. Kohli that in the guarantee deed, there is a stipulation that for any default of bank in taking any step in requiring or enforcing observation or performance of any of the stipulation or terms shall not have any effect of releasing the guarantors from their liability, fails in view of the judgment of the Hon’ble Supreme Court in case titled, ‘The State Bank of Saurashtra vs. Chitranjan Rangnath Raja’ reported in 1980 AIR (SC) 1528. 17. Since the sale deed is not on record and in absence of the sale deed, this Court is not in a position to return any finding with respect to the sale consideration of the mortgaged asset, as liability of the surety is discharged only to the extent of value of the surety lost by the creditor. In fact, it is also to be determined as to when the sale deed was executed, what was the amount of loan outstanding in the name of principal borrower i.e. the respondent No. 2 and after determining the amount of outstanding loan and the sale consideration of the mortgaged asset, then the only extent of the surety’s liability i.e. the appellant, can be determined. If the sale consideration of the mortgaged asset exceeds the secured loan amount alongwith outstanding on the date of alienation, then the appellant will be discharged of its liability in its entirety and if the sale consideration of the mortgaged asset is less than the outstanding loan, then the liability of the appellant is discharged only to the extent of sale consideration and the surety shall continue to remain liable for payment of the balance amount alongwith interest for an amount mentioned in the agreement of guarantee. 18. In view of the above, this Court deems it proper to remand the matter back to the trial court and the respondent No.1 shall demonstrate before the trial court about the date of execution of sale deed in respect of mortgaged asset so as to enable the trial court to determine the amount of sale consideration. After determination of the consideration of the sale deed and the loan amount due on the date of alienation, the learned trial court shall examine the matter afresh and determine the liability of the appellant, if so arises, in the manner as mentioned above. 19. Accordingly, the appeal is allowed and the judgment and decree dated 27.04.2010 to the extent of the appellant is set aside and the matter is remanded back to the trial court for determining the liability of the appellant in manner as mentioned hereinabove. The respondent No. 1 shall be at liberty to execute the decree against respondent No. 2 & 3. The learned trial court is expected to dispose of the suit qua the appellant as expeditiously as possible, preferably within a period of six months. 20. Disposed of. 21. The parties are directed to appear before the learned trial court on 28th August, 2023. No order as to costs. 22. Record be sent back forthwith.