Case: S. Chattanatha Karayalar Vs. The Central Bank Of India And Others

2. By a resolution Ex. BD dated November 25, 1946 the Board of Directors of the 1st defendant Company authorised the 2nd defendant to obtain financial accommodation from the plaintiff-bank to the extent of Rs. 15 lakhs under different kinds of loans. Pursuant to this resolution the Company by its letter Ex. DE dated November 26, 1946 asked for accommodation for Rs. 1 lakh under clean overdraft, for Rs. 4 lakhs under open loan and for S. 10 lakhs under out agency and key loans. On November 26, 1946 all the three defendants executed a promissory note Ex. B in favour of the plaintiff-bank for a sum of Rs. 4 lakhs. The promissory note was sent to the plaintiff-bank along with a letter Ex. A styled letter of continuity dated November 26, 1946. Ex. A reads as follows :"Alleppey, 26th November, 1946The Central Bank of India Limited, AlleppeyWe beg to enclose an on demand pro note p. Rs. 4,00,000/ - (Rupees Four lacs only) singed by us which is given to you as security for the repayment of any overdraft which is at present outstanding in our name and also for the repayment of any overdraft to the extent of Rs. 4,00,000 / - (Rupees four lacs only) which we may avail of hereafter and the said Pro-Note is to be a security to you for the repayment of the ultimate balance of sum remaining unpaid on the overdraft and we are to remain liable to the Pro-Note notwithstanding the fact that by payments made into the account of the over-draft from time to time the overdraft may from time to time be reduced or extinguished or even that the balance of the said accounts may be at creditfor CASHEW Products Corporation LtdFor General Agencies Ltd., (Respondent 2)Sd/- P. S. GeorgeExhibit B, states :"Br. Rs. 4,00,000Alleppey, 26th November 1946On Demand we, the Cashew Products Corporation Ltd., S. Chattanatha Karayalar and P. S. George jointly and severally promise to pay The Central Bank of India Limited or order the sum of British Rs. Four Lacs only together with interest on such sum from this date at the rate of two per cent over the Reserve Bank of India rate with a minimum of Five per cent per annum with quarterly rests for value receivedFor Cashew Products Corporation Ltd.,For General Agencies LtdSd/- P. S. George(Respondent 2)Sd/- P. S. George(Respondent No. 3)Sd / - S. Chattanatha Karayalar (Appellant)."On the same day, defendant No. 1 as "Borrower" executed in favour of the plaintiff - Bank Ex.G, a deed of hypothecation of its stocks of goods for securing the Demand Cash credit. Ex. G is to the following effect :Amount No. 4,00,000/Name. The Cashew Products Corporation, Limited, QuilonThe Central Bank of India, Limited (hereinafter called the Bank) having at the request of the Cashew Products Corporation Ltd., Quilon, (hereinafter called the Borrowers) opened or agreed to open in the Books of the Bank at Alleppey a Cash Credit account to the extent of Rs. Four lacs only with the Borrowers to remain in force until closed by the Bank and to be secured by goods to be hypothecated with the Bank it is hereby agreed between the Bank and the Borrowers (the Borrowers agreeing jointly and severally) as follows14. The Borrowers agree to accept as conclusive proof of the correctness of any sum claimed to be due from them to the Bank under this agreement a statement of account made out from the books of the Bank and signed by the Accountant or other duly authorised officer of the Bank without the production of any other voucher, document or paper15. That this Agreement is to operate as a security for the balance from time to time due to the Bank and also for the ultimate balance to become due to on the said Cash Credit Account and the said account is not to be considered to be closed for the purpose of this security and the security of hypothecated goods is not to be considered exhausted by reason of the said Cash Credit Account being brought to credit at any time or from time to time or of its being drawn upon to the full extent of said sum of Rs. 4,00,000/- if afterwards re-opened by a payment to creditIn witness whereof the Borrowers have hereunto set their hands this Twenty sixth day of November the Christian Year one thousand nine hundred and fortysixFor Cashew Products Corporation Ltd.,Schedule of goods referred to in the foregoing Instrument, Stocks of cashewnuts, cashew kernals, tin plates, Hoop Iron and other packing materials stored and or to be stored in the factories at Kochuplamood, Chathanoor, Ithikara, Kythakuzhi, Paripalli, Palayamkunnu and any other factories in which we may be storing from time to time and at Cochin awaiting shipmentFor Cashew Products Corporation Ltd;On the basis of these documents the plaintiff-bank opened an overdraft account in the name of the defendant No. 1. On December 21, 1949, the three documents-Exs. A, B and G were renewed in identical terms by Exs. C, D and F. On January 1, 1950 a sum of Rs. 3,24,645 /12/2 became due to the plaintiff-bank and on that date a demand notice-Ex. O was sent by the plaintiff-bank for repayment of the amount. A second notice-Ex. L was sent by the plaintiff-bank on April 26, 1950. On September 8, 1950 the plaintiff-Bank brought a suit for the recovery of Rs. 2,86,292/11/11 from all the three defendants. The suit was contested by all the defendants. The case of defendant No. 1 was that it had sustained loss on account of sudden termination of credit facilities by the plaintiff-bank and the amount of loss sustained should be set off against the claim of the plaintiff-bank. Defendants Nos. 2 and 3 pleaded that they had executed the promissory notes only as a surety for the 1st defendant and that they are not co-obligants. It was further alleged that the plaintiff-bank had granted loan to the 1st defendant in other form such as Out Agency loans against goods which were security for the open loan. It was said that the plaintiff-bank had made adjustments in the open loan account and in the clean over-draft account by debiting and correspondingly crediting in other accounts without the consent of defendants 2 and 3. The plaintiff-bank had also allowed defendant No. 1 to over-draw freely in the clean overdraft and open loan accounts far beyond the limited agreed upon. It was alleged that the plaintiff-bank had converted secured loans into simple loans by releasing goods covered by Bills of Lading against trust receipts and had thereby deliberately frittered away such securities. They contended that they were discharged from obligation as sureties to the contract for these reasons. Upon these rival contentions the learned Subordinate Judge of Alleppey took the view that defendants 2 and 3 were not merely sureties but they were co-obligants, because they had executed the promissory notes,-Exs. B and D. In view of this finding the learned Subordinate Judge considered it unnecessary to go into the question whether defendant No. 3 was absolved from his liability "for all or any reasons set forth in para 5 of the Consolidated Written Statement filed by him". Against the judgment and decree of learned Subordinate Judge, Alleppey defendant No. 3 presented an appeal in the High Court of Kerala under A. S. 561 of 1961. Defendants 1 and 2 did not appeal. The appeal was dismissed by the High Court of Kerala on July 12, 1962. It was held by the High Court that defendant No. 3 was a co-obligant and not a surety. On July 16, 1962 defendant No. 3 filed C.M. P. No. 5032 of 1962 praying that the argument of the appellant with regard to his liability as co-obligant may be expressly dealt with in the judgment of the High Court and complaining that the appellant would be seriously prejudiced if the omission was allowed to remain. Thereupon the learned Judges of the High Court wrote a supplementary judgment on July 18, 1962 rejecting the further arguments addressed on behalf of the appellant.

Reasoning: 6. We shall then consider the question whether defendant No. 2 is discharged of his liability as a surety by reason of the alleged conduct of the plaintiff-bank is violating the terms of the agreement - Ex. G or by the alleged fraudulent or negligent conduct of the plaintiff-bank in other ways.It was submitted on behalf of the appellant that the plaintiff-bank had made adjustments in the open loan account and in the clean overdraft account with the 1st defendant by debiting and correspondingly credting in other accounts without the consent of the appellant. It was further alleged that the plaintiff-bank had granted loans to the lst defendant against goods covered by open loan agreement and that it had converted secured loans into simple loans by releasing goods covered by the Bills of Lading against trust receipts and had thereby deliberately frittered away such securities. The question at issue is a mixed question of law and fact and it is unfortunate that the High Court has not properly dealt with this question or given a finding whether the appellant would be discharged from the liability as a surety for the overdraft account because of the alleged conduct of the plaintiff-bank. We consider it necessary that this case should go back on remand to the High Court of Kerala for deciding the issue and to give proper relief to the parties. In this connection, it is necessary to point out that after the High Court delivered its judgment on July 12, 1962, an application was made by the learned Advocate appearing for the appellant that some grounds which had been urged by him before the High Court had not been considered by it. The High Court, therefore, adopted the somewhat unusual course of delivering a supplemental judgment. Mr. Desai contends that even the supplemental judgment has failed to consider the appellants contention that he had been discharged by reason of the fact that adjustments were made by respondent. No. 1 indiscriminately in respect of its dealings in three or four different accounts with respondent No. 2 to the prejudice of the appellant. We have broadly indicated the nature of the contention raised by Mr. Desai7. Ordinarily, we do not permit parties to urge that points raised on their behalf in the High Court had not been considered, unless it is established to our satisfaction that the points in question had in fact been urged before the High Court and the High Court, through inadvertence, has failed to consider them. In the presem case, we are not prepared to take the view that the grievance made by Mr. Desai is not well-founded. It does appear that after the first judgment was delivered, an application was made by the learned Advocate who argued the appeal himself before the High Court in which he set out his complaint that some of the points which he had argued before the High Court had not been considered by it. That is why the High Court delivered a supplemental judgment. Aggrieved by the said judgment, the appellant filed an application for certificate before the High Court, and in this application again he has taken specific grounds, e.g. under paragraph 6(k) and paragraph 8 that even the supplemental judgment has failed to consider some of the points, urged by him. While granting the certificate, the High Court has made no comment on these grounds. It is to be regretted that when these grounds appear to have been urged before the High Court, the High Court should have failed to deal with them even in its supplemental judgment. That is the reason why we think it is necessary that the matter must go back to the High Court for disposal of the appeal in the light of this judgment8. Mr. Pathak, no doubt, seriously contested the validity of Mr. Desais argument. He urged that the adjustments on which Mr. Desai has founded his claim for discharge do not really support his case. We propose to express no opinion on this point. As we have just observed, the contention thus raised amounts to a mixed question of fact and law and we do not think it would be expedient for us to deal with it ourselves when the High Court has omitted to consider it.