: 1 : USJ IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.807 OF 1992 UCO Bank, a Banking Company constituted under the banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and having its Head Office at 10 B.T.M. Sarani, Calcutta 700 001 and a Branch Office at Mafatlal Centre, 1st floor, Nariman Point, Bombay 400 021 .. Plaintiffs V/s. 1. Hersh K. Pancholi of Bombay Indian Inhabitant carrying on business in the firm name and style of Messrs Panache Plastics & Allied Industries as the Sole Proprietor thereof at Kalyan Niwas, 3rd Floor, Khar, Bombay 400 052 2. Sanjeev Verma also of Bombay Indian Inhabitant, residing at Shivling, Plot No.2, 10th North South Road, Juhu, Scheme, Ville Parle(W), Bombay 400 056. .. Respondents ......... Mr. Parineet Saratkar with Mr. Bhushan Walimbe i/by S.S.P. Legal for the plaintiffs None for defendant no.1 (Decree passed on 18.02.1998) Mr. G.B. Kedia for defendant no.2. ......... : 2 : CORAM : R.Y.GANOO, JJ. DATE : 22nd MARCH, 2010. JUDGMENT : 1. The plaintiffs is a nationalized bank carrying on business of banking. Defendant no.1 is a proprietor of M/s. Panache Plastic and Allied Industries. Defendant no.2 is a guarantor to the transaction of grant of package credit facility to defendant no.1. The plaintiffs have instituted this suit against defendant nos.1 and 2. Decree came to be passed by this Court on 18th February, 1988 against defendant no.1. This suit was required to be decided against defendant no.2 as defendant no.2 had contested the same. 2. Plaintiffs had filed the suit against both the defendants for recovery of Rs.1,50,000/- along with interest at the rate of 26% per annum towards the package credit liability incurred by defendant no.1. Plaintiffs had also filed the suit for recovery of Rs.1,58,725/- along with interest at the rate of 30% per annum towards the temporary overdraft facility enjoyed by defendant no.1. Plaintiffs had sought appropriate reliefs so as to secure enforcing the securities provided by defendant no.1. 3. After the writ of summons was served upon defendant no.2, : 3 : defendant no.2 had filed written statement contesting the claim of the plaintiffs on the ground that the plaint does not disclose proper statement of account. It was also the stand of the defendant no.2 that the defendant no.2 was not aware of execution of various documents of disbursement of loan facility in favour of defendant no.1. According to defendant no.2, the deed of guarantee purported to be executed by defendant no.2 was blank at the time when he signed it and the details therein came to be filled in subsequently. On this ground, defendant no.2 contested his liability qua the bank. It was also the stand of defendant no.2 that text of letter dated 8th May, 1990 does not constitute admission on the part of defendant no.2. These defendant no.2 prayed for dismissal of the suit. 4. On 21st July 2008, on the basis of the pleadings, issues came to be framed. They are as follows. My answer to each of the issue is as mentioned against the respective issue. ISSUES 1. Do the plaintiffs prove that a loan of Rs. 3,08,725/- is payable by defendant no.1 towards the outstanding loan amount and, consequently, payable by the defendant no.2 as the guarantor ? The plaintiffs bank is not entitled to recover any amount from defendant no.2 as a guarantor. 2. Do the plaintiffs prove that they are properly secured by hypothecated stocks of the defendant no.1 ? In the affirmative. : 4 : 3. Do the plaintiffs prove that they have given credit of payment to defendant no. 1 made by him as per Banking Regulation Act ? Does not survive. 4. Do the defendant no.2 proves that Deed of Guarantee purported to be dated 17.02.1989 was infact, blank i.e. dated undated at the relevant time ? In the negative. 5. Do the plaintiffs are entitled to interest as charged and in accordance with R.B.I. guide-lines ? Does not survive. 6. What orders and reliefs are plaintiffs entitled to ? The plaintiffs’ suit against defendant no.2 is required to be dismissed. However, there shall be no order as to costs. 5. At trial, the plaintiffs bank examined their officer by name R.K. Barman, Assistant Manager as PW-1. No other witness was examined on behalf of the plaintiffs. On behalf of defendant no.2, no witness was examined. 6. In the course of trial, Bank had produced following documents which came to be marked as exhibits. Promissory note dated 17th February, 1989 as Exh. P-1, letter requesting the bank to extend package credit limit at Exh.P-3, letter signed by defendant no.1 regarding package credit form at Exh.P-4, Deed of Hypothecation to secure demand cash credit at Exh.P-5, Deed of Guarantee signed by defendant no.2 dated 17th : 5 : February, 1989 at Exh.P-6, letters addressed by the plaintiffs to defendant no.1 dated 25th April, 1989, 13th May, 1989, 6th June, 1989, 31st July, 1989 being letters at Exh.P-8, P-9, P-10 and P-11. Defendant no.1 had addressed a letter dated 20th March, 1990 to the plaintiffs clarifying their difficulties about nonpayment of loan, said letter is at Exh.P-13. Letter dated 9th May, 1990 sent by defendant no.2 to the plaintiffs admitting their liability is at Exh.P-14. The demand notice addressed to defendant no.1 dated 25th January, 1992 is at Exh.P-17. The demand notice dated 25th January, 1992 addressed to defendant no.2 is at Exh.P-18. Statement of accounts is at Exh.P-19. 7. Learned advocate Mr. Saratkar appearing on behalf of the plaintiffs had taken me through the record including the evidence of Mr. Barman PW-1 and the various exhibits and had submitted that plaintiffs have made out a case against defendant no.2 because defendant no.2 had executed deed of guarantee at Exh. P-6. He had also submitted that defendant no.2 had participated in the discussion along with Mr. Mammen of Export Credit Guarantee Corporation and had admitted to pay every month a sum of Rs.25,000/- towards the liability of defendant no.1 upto Rs.3,50,000/-. According to him, this admission is contained in Exh.P-14 and is a complete answer to the defence raised by defendant no.2. He had : 6 : submitted that the defence put up by defendant no.2 cannot sustain and that the defendant no.2 is liable to pay the dues towards the liability arising out of packing credit limit granted to defendant no.1 as prayed for in prayer clause (a). He had also submitted that defendant no.2 was liable to plaintiffs regarding the loan transactions of defendant no.1 qua plaintiffs in view of deed of guarantee at Exh.P-6. Learned Counsel for plaintiffs prayed for decree in terms of prayer clause (b) and (c) also. 8. Learned advocate for plaintiffs had submitted that plaintiffs have charged interest at the rate of 26% so far as liability set out in prayer clause (a) and at the rate of 30% so far as liability set out in prayer clause (b), on the basis of rate of interest agreed by and between the parties. 9. He pressed for a decree in terms of the reliefs sought in the plaint. Learned advocate Mr. Kedia appearing on behalf of defendant no.2 had drawn my attention to the order dated 18th January, 1995 on Notice of Motion No.785 of 1992, by which Receiver was appointed in regard to the goods which were hypothecated by defendant no.1 to plaintiffs bank. He had drawn my attention to prayer clause (a) of the said motion and had submitted that the plaintiffs bank had a power to sell the goods and realize the dues towards the bank. Learned advocate Mr. Kedia had also drawn my : 7 : attention to clause 11 of the Deed of Hypothecation of goods at Exh.5 to secure the package credit limit arrangement. Learned advocate Mr. Kedia had submitted that the bank has not exercised their right to receive monies by selling the hypothecated goods and that is how bank has lost its security. Learned advocate Mr. Kedia had, therefore, submitted that on account of loss of security by the bank, the guarantor i.e. defendant no.2 came to be discharged in accordance with the provisions of Section 139 of the Indian Contract Act (herein after referred to as the said Act). He had, therefore, submitted that the conduct on the part of the plaintiffs has the effect of discharging defendant no.2 as a guarantor. He had, therefore, submitted that defendant no.2 is not at all liable to pay to plaintiffs. 10. Learned advocate Mr. Kedia had drawn my attention to the cross- examination of Mr. Barman, PW-1 in which Mr. Barman had stated that he was not present when the deed of guarantee at Exh.P-6 was signed. Learned advocate Mr. Kedia had also drawn my attention to the evidence of Mr. Barman PW-1 and had submitted that Mr. Barman PW-1 had to admit that at the time when the deed of guarantee at Exh.P-6 was executed, he was not present and that he was not in a position to say whether the deed of guarantee was signed after it was duly filled in or blank. According to learned advocate Mr. Kedia, this evidence on the part : 8 : of Mr. Barman PW-1 goes to suggest that the deed of guarantee at Exh.P-6 was simply signed by defendant no.2 and the details therein were filled in subsequently. He, therefore submitted that defendant no.2 is not liable to pay to plaintiffs. 11. Learned advocate Mr. Kedia had also drawn my attention to the text of the plaint, the various notices sent by the plaintiffs to defendant nos.1 and 2. Learned advocate Mr. Kedia had submitted that no where in the demand notice, plaintiffs had demanded monies from defendant no.2 towards the temporary overdraft facility. According to Mr. Kedia defendant no.2 had not agreed to stand as guarantor for the temporary overdraft facility. According to him, the claim filed by the plaintiffs towards temporary overdraft facility was out of the purview of the contract between plaintiffs and defendant no.2 and the claim put up by the plaintiffs bank to that extent and as set out in prayer clause (b) cannot be granted. 12. Learned advocate Mr. Kedia had submitted that document at Exh.P-14 i.e. letter dated 9th May, 1990 cannot be considered as an admission. He submitted that even if, it is considered as an admission on the part of defendant no.2, the conduct on the part of the plaintiffs in as : 9 : much as plaintiffs’ having lost the security in regard to the loan transaction, defendant no.2 is discharged as a guarantor and is not liable to pay the dues. 13. I have considered the rival submissions and perused the documents in question. The stand of defendant no.2 that the deed of guarantee at Exh.P-6 was merely signed by him and the details thereof were filled in subsequently, cannot be accepted. It is true that Mr. Barman, PW-1 has not been able to say that the said deed was duly filled in and then signature of defendant no.2 was obtained. In my view, the burden was on defendant no.2 to prove that the said deed was merely signed by him and the details were filled in subsequently behind his back. Defendant no.2 has not stepped into witness box and considering the entire evidence on this aspect, I am inclined to observe that defendant no.2 has failed to prove that the deed of guarantee at Exh.P-6 was signed blank by defendant no.2 and the details were filled in subsequently. This will mean that defendant no.2 will have to be considered as guarantor for the suit transaction namely loan advanced to defendant no.1 i.e. package credit limit. 14. The plaintiffs have instituted this suit for recovery of amounts under two items namely loan advanced to defendant no.1 under package credit : 10 : limit and loan facility enjoyed by defendant no.1 under temporary overdraft facility. In so far as the claim of the plaintiffs as regards temporary over draft facility is considered, on consideration of the entire record, I am inclined to observe that the plaintiffs have not entered into a contract of guarantee with defendant no.2 so far as temporary over draft facility. This is being stated on the basis of various documents which have been relied upon by the plaintiffs i.e. starting from Promissory note Exh.P-1 upto deed of guarantee at Exh.P-6. No doubt, the deed of guarantee, which has been executed by defendant no.2 does not specifically speak of loan granted to defendant no.2 under package credit limit, still one will have to consider the intention of the parties and to that extent, I am inclined to observe that defendant no.2 was not a guarantor in regard to the temporary overdraft facility enjoyed by defendant no.1. This observation of mine is confirmed if one peruses the demand notice which has been issued by the plaintiffs at Exh.P-18 to defendant no.2 being notice dated 25th January, 1992. The said demand notice in turns refers to the transaction between plaintiffs on one hand and defendant nos.1 and 2 on the other in regard to package credit limit. In view of this, I am inclined to observe that the plaintiffs’ claim in regard to temporary overdraft facility, cannot be granted so far as this suit is concerned and to that extent plaintiffs are not entitled to reliefs in terms of prayer clause (b) of the suit. : 11 : 15. Now, the question is whether defendant no.2 is liable in his capacity as a guarantor for package credit limit. I have considered the conduct on the part of the plaintiffs in not using the security and its effect in discharging defendant no.2 as a guarantor in accordance with the provisions of Section 139 of the Contract Act. 16. I have considered the relevant provisions of Section 139 of the Indian Contract Act and the factual aspects and as rightly argued by learned advocate Mr. Kedia, the plaintiffs by their conduct lost control over the security i.e. the goods which were hypothecated to the plaintiffs and as a result of that defendant no.2 got discharged. If the plaintiffs had either sold the goods or had secured goods for the benefit of defendant no.2, certainly, defendant no.2 could have laid his hands on the said goods for the purposes of protecting his interest as a guarantor. As a result of loss of the security viz. goods hypothecated to the plaintiffs, defendant no.2 stood discharged and, therefore, plaintiffs can not recover any money from defendant no.2 as a guarantor even as regards package credit limit facility granted to the defendant no.1. In the result, I am inclined to observe that plaintiffs will not be able to recover any amount from defendant no.2. : 12 : 17. Keeping in view the aforesaid discussion, my findings on the issues which came to be framed on 21st July 2008 are as follows. Issue No.1 :- The plaintiffs bank is not entitled to recover any amount from defendant no.2 as a guarantor. Issue No 2 :- In the affirmative. Issue No.3 :- Does not survive. Issue No.4 :- In the negative. Issue No.5 :- Does not survive. Issue No.6 :- The plaintiffs’ suit against defendant no.2 is required to be dismissed. However, there shall be no order as to costs. 18. Keeping in view the aforesaid discussion, I pass following decree:- DECREE (i) Plaintiffs’ suit is dismissed as against defendant no.2. (ii) There shall be no order as to costs. [R.Y.GANOO, J.]