IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH RSA No.2210 of 1983 (O&M) Date of decision: 07.11.2011 Mohinder Singh Dua (deceased) through his LRs. ...Appellant versus Bank of Baroda having its Head Officer at Mandvi, Baroda, and one of its Branch Office at Partap Nagar, Industrial Area 'B' Ludhiana, and others. ....Respondents CORAM: HON’BLE MR. JUSTICE K. KANNAN ---- Present: Mr. Sudhir Mittal, Advocate, for the appellant. Mr. Navdeep Sukhna, DAG, Punjab. Mr. C.B. Goel, Advocate, for respondent No.5. ---- 1. Whether reporters of local papers may be allowed to see the judgment ? No. 2. To be referred to the reporters or not ? No. 3. Whether the judgment should be reported in the digest ? No. ---- K.Kannan, J. 1. The appeal is at the instance of the 5th defendant in suit challenging the money decree passed against defendants 1 to 5. The 1st defendant was a partnership firm and defendants 2 to 4 were the partners in the 1st defendant-firm. The firm had availed of a cash credit limit of Rs.80,000/- with the plaintiff Bank and to a limit of Rs.50,000/- for bills purchased. The transactions were further RSA No.2210 of 1983 (O&M) - 2 - secured by execution of a promissory note by the defendants 1 to 4 for which the 5th defendant had stood a personal guarantee. 2. The Bank filed a suit for recovery of Rs.1,58,889/- on the ground that the amounts availed of by the partnership firm had not been paid and sought for enforcement of the loan. There had been several contentions raised by the respective defendants denying liability in toto, but the only point that is urged before me by the learned counsel for the 5th defendant/appellant is whether the debt was enforceable against the guarantor when the plaintiff/Bank had committed a negligent act of denying the benefit of the value of the goods hypothecated as security for the loan advanced. The learned counsel would rely on the judgment of the Hon'ble Supreme Court in The State Bank of Saurashtra Versus Chitranjan Rangnath Raja and another-AIR 1980 Supreme Court 1528 that held that the surety would be discharged under the combined operation of Sections 139 and 141 of the Contract Act. The Court said that if the creditor had impaired the security by any action or inaction implying negligence as appearing from lack of supervision undertaken in the contract, the Hon'ble Supreme Court held that if the creditor loses or without the consent of the surety parts with the security, the surety would be discharged to the extent of the security lost as provided under Section 141. 3. In order to apply the law enunciated by the Hon'ble Supreme Court while interpretation Sections 139 and 141 of the RSA No.2210 of 1983 (O&M) - 3 - Contract Act, it has to be seen whether the defendant had established through pleadings and his evidence that the plaintiff had done any act that constituted a violation of a contractual term with the debtor entitling the surety to be discharged from liability. In the written statement filed by the 5th defendant, the contention is that the Bank had knowingly made advance against insufficient stock in connivance with the principal debtor. As an alternative plea, it was contended that the stocks had to remain under effective control of the Bank but the Bank allowed the stocks to remain in control of the principal debtor. The defendant would plead that plaintiff's omission would absolve a guarantor of any liability against the Bank because the Bank ought to take the blame for incurring loss by its negligent conduct. The Bank itself offered no oral evidence except filing of the documents and the 5th defendant also did not give any evidence. He examined only his power of attorney. Unless it is shown that the plaintiff had forsaken the security and made it unavailable for a surety to proceed against the secured goods by resort to Section 141 of the Contract Act, a guarantor cannot plead discharge. The law stated by the Hon'ble Supreme Court does not extend to making any presumption in favour of the guarantor that wherever a debt is secured by hypothecation of goods, the creditor must show that he did not forsake the security. In this case, there is no proof by any evidence or pleadings that the Bank had given up the security by allowing the principal debtor to remove the RSA No.2210 of 1983 (O&M) - 4 - hypothecated goods to the detriment of the creditor or the surety by its enforcement. What should have been really established by evidence is significantly absent in this case. I find no material to show that there had been any negligent act on the part of the Bank in giving up the security. On the other hand, I have already paraphrased the contentions raised in the written statement by the 5th defendant that the Bank was advancing amounts without adequate security. It was not the plea that the Bank had done any act to give up the security. 4. There is no merit in the appeal and the appeal is dismissed. The appellant has died and his LRs have been added. The right of enforcement for the Bank shall be only against the estate of the deceased in the hands of the LRs. (K. KANNAN) JUDGE 07.11.2011 sanjeev