Case: Srinivas Gupta Vs. Hindustan Commercial Bank Limited

The mere fact that two mortgage deeds were executed for the entire amount due on April 1, 1947, does not in our opinion amount to payment of money due to the bank. All that the transaction amounted to was that, in place of the tins of ghee, the two mortgages were given as security; but the liability under clause 13 having accrued because the tins of ghee were found to be not of the kind and quality which they were stated to be, the execution of mortagage deeds by itself cannot be said to have made up the loss to the bank. The responsibility of the appellant under clause 13 was to make good the loss to the bank, and mere execution of the mortgage deeds does not make good the loss which can only be made good after the money secured by the mortgages has been realised. The view taken by the High Court that the security money was refundable only when there was no claim of the bank for any loss under the terms of the agreement and that there being such a claim in the present case, the security money could not be ordered to be refunded till the entire sum due was actually realised is therefore correct. The mere execution of two mortgage deeds as security does not amount to realisation of the sum due and would not show that there was no loss to the bank on account of the fact that the security of tins of ghee was not of the kind and quality which it was stated to beIt has, however, been urged on behalf of the appellant that, since the judgment of the High Court, certain circumstances have intervened which show that the liability of the appellant has come to end. It appears that two suits were filed by the bank on the basis of the two mortgages, one against the four brothers, and the other against the father. The suit against the four brothers was decreed but the suit against the father was dismissed. The appeal by the bank against the dismissal of the suit against the father was also dismissed by the High Court and thereafter a petition for leave to appeal to this court was filed in the High Court. As to the decree against the four brother it was put in execution and a compromise was arrived at in 1961 by which Rs. 20, 100 were paid to the bank while the remaining amount due was to be paid in certain instalments. The terms of that compromise relating to instalments, however, were not carried out by the four brothers and in consequence the bank had to file another execution application. Finally, compromise was arrived at in August, 1966, in the second execution application and a sum of Rs. 24, 000 was paid to the bank and this amount together with Rs. 20, 100 was taken in full satisfaction of the decree against the four brothers. It was also agreed that the bank would not prosecute the application for leave to appeal against the father, and the father would not execute his decree for costs4. It is urged that in view of this compromise the entire liability of Messrs. Tailong Brothers is wiped off and in consequence the appellant is now entitled to refund. We are of opinion that this is not the correct interpretation of the compromise arrived at in August, 1966. It is true that by this compromise the decree against the four brothers on the mortgage for Rs. 28, 497-13-8 has been satisfied. It is also true that by this compromise the bank which had already lost in two courts against the father had agreed not to proceed against the father on the basis of the other mortgage for Rs. 35, 000 executed by the father. But that only means that the fathers liability under the mortgage no longer exists. We have already referred to the clause in the mortgage deed executed by the brothers which shows that their joint and several personal liability was not to be affected by the execution of the mortgage-deed by the father. Therefore, it cannot be said that the bank by agreeing not to proceed against the father on the basis of the mortgage deed executed by him had agreed to absolve the brothers also from their personal liability for the sum of Rs. 35, 000. It follows therefore that the liability of Tailong Brothers for the sum of Rs. 35, 000 which had been secured by the second mortgage still remains. As such the appellant is liable under the contract of indemnity contained in clause 13 to make good the loss yet in spite of the compromise in the second execution applicationLearned counsel for the appellant has referred in this connection to a number of cases relating to contracts of guarantee. We think it unnecessary to refer to them because a contract of indemnity is very different from a contract of guarantee. Reference is also made to section 126 to section 147 in Chapter VIII of the Indian Contract Act, No. 9 of 1872. We do not think it necessary to refer to these sections because they refer to contract of guarantee and not to contracts of indemnity, which clause 13 is. There is a clear distinction between a contract of indemnity on the one hand and a contract a guarantee or suretyship on the other. The present is clearly a case of contract of indemnity and clause 13 of the agreement being applicable, the appellant is under the contract of indemnity bound to indemnity the bank for the loss caused to it. Further it is clear in this case that, even after the compromise, the bank has not yet recovered Rs. 63, 497-13-8, and, in that sense there has been loss to the bank and so clause 13 applies and therefore, by virtue of clause 26 the appellant is not entitled yet to refund of the security money

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]3. We are of opinion that there is no force in this appeal. Clause 13 of the agreement is clearly a contract of indemnity by which the bank is indemnified in connection with certain matters mentioned therein. It has not been and cannot be disputed that when it was found that the tins of ghee contained rotten ghee or water, the appellant became liable under the contract of indemnity contained in clause 13 of the agreement. Under the clause it was his duty to see that goods pledged to the bank as security were not only genuine but of the same kind and quality which they were said to be when advance was made. Clearly the advance was made by the bank on the assurance of the appellant that the tins of ghee given as security were genuine and of standard quality. When however they were found later on to be full of either rotten ghee or water, the appellant became liable under clause 13 for the loss caused to the bank by the security being found to be not of the kind and quality which it was stated to beThe only question then is whether the liability of the appellant which arose under clause 13 on the discovery that the tins contained either rotten stuff or water can be said to have been discharged by the execution of two mortgage deeds on April 1, 1947, which the appellant arranged. We agree with the High Court that that is notmere fact that two mortgage deeds were executed for the entire amount due on April 1, 1947, does not in our opinion amount to payment of money due to the bank. All that the transaction amounted to was that, in place of the tins of ghee, the two mortgages were given as security; but the liability under clause 13 having accrued because the tins of ghee were found to be not of the kind and quality which they were stated to be, the execution of mortagage deeds by itself cannot be said to have made up the loss to theare of opinion that this is not the correct interpretation of the compromise arrived at in August, 1966. It is true that by this compromise the decree against the four brothers on the mortgage for Rs. 28,has been satisfied. It is also true that by this compromise the bank which had already lost in two courts against the father had agreed not to proceed against the father on the basis of the other mortgage for Rs. 35, 000 executed by the father. But that only means that the fathers liability under the mortgage no longer exists. We have already referred to the clause in the mortgage deed executed by the brothers which shows that their joint and several personal liability was not to be affected by the execution of theby the father. Therefore, it cannot be said that the bank by agreeing not to proceed against the father on the basis of the mortgage deed executed by him had agreed to absolve the brothers also from their personal liability for the sum of Rs. 35, 000. It follows therefore that the liability of Tailong Brothers for the sum of Rs. 35, 000 which had been secured by the second mortgage still remains. As such the appellant is liable under the contract of indemnity contained in clause 13 to make good the loss yet in spite of the compromise in the second execution applicationLearned counsel for the appellant has referred in this connection to a number of cases relating to contracts of guarantee. We think it unnecessary to refer to them because a contract of indemnity is very different from a contract of guarantee. Reference is also made to section 126 to section 147 in Chapter VIII of the Indian Contract Act, No. 9 of 1872. We do not think it necessary to refer to these sections because they refer to contract of guarantee and not to contracts of indemnity, which clause 13 is. There is a clear distinction between a contract of indemnity on the one hand and a contract a guarantee or suretyship on the other. The present is clearly a case of contract of indemnity and clause 13 of the agreement being applicable, the appellant is under the contract of indemnity bound to indemnity the bank for the loss caused to it. Further it is clear in this case that, even after the compromise, the bank has not yet recovered Rs. 63,and, in that sense there has been loss to the bank and so clause 13 applies and therefore, by virtue of clause 26 the appellant is not entitled yet to refund of the security money