ORDER
K.S. Kumaran, J. (Chairperson)
1. First respondent-Oriented Bank of Commerce (hereinafter referred to as ‘the Respondent – Bank’) filed Suit No. 1098/2001 on the file of the Hon’ble High Court of Delhi on 5.4.2001 against seven defendants, namely, (1) M/s. Geetanjali Motors Pvt. Ltd., (2) Mr. S.S. Bedi, (3) Mrs. Moksh Bedi, (4) Col. K.S. Malik (one of the appellants herein) (5) Mr. Asha Ram, (6) Mrs. H. Malik (the other appellant herein), and (7) M/s. Richer Motors Ltd. for (1) the recovery of Rs. 4,50,395.72 with future interest till realisation against defendants 1 to 5 jointly and severally under the Cash Credit Hypothecation/Deferred Payment Guarantee/Co-acceptance Bills account; for a decree for the sale of two hypothecated Eicher Center vehicles mentioned in the plaint for realising the said amount; (2) for a decree for Rs. 11,28,613.02 with future interest jointly and severally against defendants 1 to 4, 6 and 7 under the cash-credit pledge account; (3) to direct the defendants 1 and 7 not to sell the 10 Eicher Mitsubishi vehicles and for the sale of ten Eicher Mitsubishi vehicles; and also (4) a decree respectively under these two loans against the respective defendants if the amounts are not realised by the sale of the vehicles.
2. The case of the respondent-Bank is as follows:
On the request of the 1st defendant-Company, offering guarantee by defendants 1 to 5, to sanction Cash Credit Hypothecation facility and Deferred Payment Guarantee/Co-acceptance of Bills facility for purchase of two Eicher Canter trucks, the respondent Bank sanctioned Cash Credit Hypothecation facility of Rs. 2.50 lakhs, and Deferred Payment Guarantee/Co-acceptance of Bills facilities to the extent of Rs. 4.50 lakhs in favour of 1st defendant in April, 1988 against the hypothecation of two Eicher Canter trucks (hereinafter referred to as ‘the I loan’). The 2nd defendant was authorised to execute the documents relating to this facility, and accordingly, the documents as enumerated in the plaint were executed. The defendants 2 to 5 stood as guarantors for the due repayment of the above said amount with interest, and executed a letter of continuing guarantee on 8.4.1988 for Rs. 7 lakhs. But, the defendants 1 to 5 failed to repay the amount in spite of repeated requests. The respondent-Bank made the payment of the IDBI bills discounted and drawn on the 1st defendant, and co-accepted by the respondent-Bank to the extent mentioned in the plaint. The 1st defendant hypothecated two Canter vehicles in favour of the respondent-Bank. The defendants 1 to 5 are liable to pay Rs. 4,16,326.66 including interest up to 30.9.1990 under this head.
3. The 1st defendant requested the respondent-Bank for sanction of Cash Credit Pledge facility to the extent of Rs. 15 lakhs in March 1989 for purchase of ten Eicher Mitsubishi vehicles against the pledge of the said vehicles (hereinafter referred to as the II loan). The said facility was sanctioned in favour of 1st defendant, repayable with interest. The 2nd defendant as the authorided signatory executed the loan documents.
4. It was agreed by the 1st defendant at the time of sanction of the II loan of Rs. 15 lakhs for the purchase of the ten Eicher Mitsubishi vehicles from the 7th defendant, that as soon as the vehicles are ready for delivery by the 7th defendant, the 1st defendant shall intimate the respondent-Bank, and not to take delivery of the vehicles directly from the 7th defendant without prior permission in writing from the respondent-Bank.
5. The defendants 2, 3, 4 and 6 executed and delivered a letter of continuing guarantee on 1.3.89 guaranteeing the repayment of the II loan of Rs. 15 lakhs with interest and other charges.
6. The 1st defendant did not create a pledge of the ten Eicher Mitsubishi vehicles with the respondent-Bank, but took delivery in connivance with the 7th defendant, directly, in violation of the agreement and undertaking given by the 1st defendant. The respondent-Bank wrote to the 7th defendant and asked it to send the vehicles as also the original money receipts/invoices in the name of the respondent-Bank to the account of M/s. Geetanjali Motors. The said letter was duly acknowledged by the 7th defendant. The Assistant Marketing Manager of the 7th defendant issued the receipt, dated 2.3.89 in favour of the respondent-Bank, and received Rs. 15 lakhs towards full and final payment of the ten vehicles sold to the 1st defendant under the pledge arrangement with respondent-Bank.
7. The 1st defendant is under an obligation not to part with the security of the respondent-Bank without making full and final payment to the respondent-Bank, and not to part with ten Eicher Mitsubishi vehicles, the details of which are not known to the respondent-Bank, but which are the prime security of the respondent-Bank. The 7th defendant is also under an obligation to disclose the full particulars, and send the original invoices, receipts in the name of the respondent-Bank to the account of M/s. Geetanjali Motors. The 1st defendant did not create the pledge, but took delivery of the vehicles without informing the respondent-Bank.
8. A sum of Rs. 10,10,319.90 including the interest up to 30.9.90 was due from the defendants 1 to 4, 6 and 7 to the respondent-Bank.
9. The defendants 1 to 3 did not file any written statement. Therefore, the Hon’ ble Delhi High Court, by order dated 17.11.93, pronounced a judgment against the defendants 1 to 3 in terms of Order VII Rules 10, CPC directing them to pay Rs. 2,00,395/- (less Rs. 2.50 lakhs received after suit) with interest from the date of suit till realisation with regard to the I loan. The Hon’ble High Court also passed a decree for Rs. 11,28,613.28 with interest till the date of realisation under the II loan. The respondent-Bank was also given liberty to sell the hypothecated Eicher Canter vehicles, and also other vehicles hypothecated.
10. With regard to the other defendants, the proceedings continued before the Hon’ble High Court for some time. The defendants 4 and 6, who are the appellants herein, filed separate written statements, but containing similar allegations. Among others, they mainly pleaded that they were not aware of the hypothecation of the two vehicles in favour of the respondent-Bank, but, however, it was the duty of the respondent-Bank to ensure not only of the charge, but also to have its name mentioned in the RC book to preserve the security, and to avoid detriment to the Bank as also the guarantee. They also urged that when the amount was advanced against the pledge of the vehicles, it was the duty of the respondent-Bank to ensure that the pledged vehicles are duly kept in custody, when especially the 7th defendant was instructed to intimate the respondent-Bank about the vehicles being ready for delivery to the 1st defendant. According to these appellants/defendants, if, in spite of the undertaking and directions, the vehicles were taken delivery of by the 1st defendant from the 7th defendant, the guarantee allegedly given by these appellants/defendants stands discharged. They have further alleged that if the 1st defendant took delivery of the vehicle from the 7th defendant, and did not create a pledge of the ten vehicles in favour of the plaintiff, the guarantee stands discharged because of either collusion or utter negligence of the respondent-Bank.
11. After the Act of 1993 came into force, the suit was transferred from the Hon’ble High Court to the DRT. The DRT took the suit on its file as O.A. 473/96 on 10.1.96. The learned Presiding Officer of the DRT passed the final order dated 27.7.2001, found that no negligence was attributable to the respondent-Bank and, therefore, the appellants/defendants 4 and 6 cannot be absolved from their liability to pay the amount as guarantors to the respondent-Bank. But, he found that there was no privity of contract between the respondent-Bank and the 7th defendant to pay the debts due and payable by the principal borrower, namely, the 1st defendant and, therefore, the 7th defendant is not liable to pay the amount claimed in the O.A. The learned Presiding Officer of the DRT held that the respondent- Bank has proved its clam fully against the appellants/defendants 4 and 6 and the 5th defendant, and directed them to pay jointly and severally Rs. 2,00,395/- with interest at 16.5% per annum on the 1 loan and Rs. 11,28,613.28 with interest at 16.5.% per annum under the II loan. The learned Presiding Officer of the DRT ordered that the respondent-Bank will be entitled to recover the same by selling the hypothecated/pledged vehicles, and personal properties of the defendants 4 to 6.
12. Aggrieved, the 4th defendant filed the appeal initially, and had impleaded the 6th defendant also as a respondent to this appeal. Subsequently, the 6th defendant was also transposed as an appellant.
13. I have heard the Counsels for both the sides, and perused the records in the appeal and also the records of the DRT.
14. Ist defendant is M/s. Geetanjali Motors of which defendants 2 and 3 are the Directors. The respondent-Bank advanced moneys to the 1st defendant and defendants 2 and 3 have also guaranteed the repayment of the same. Defendants 4 to 6 are also guarantors. The 7th defendant is the firm from which the 1st defendant purchased motor vehicles.
15. As pointed out already, the Hon’ble High Court of Delhi passed a decree against the defendants 1 to 3 under Order VIII Rule 10, CPC. The suit against defendants 4 to 6 continued but was transferred to the DRT and the impugned final order was passed against defendants 4 to 6 by DRT. Defendants 4 and 6 who claim that they are discharged from the liability to pay the amount have filed this appeal.
16. The learned Counsel for the appellants/defendants apart from the contention that the guarantors are discharged due to the negligence/inaction on the part of the respondent-Bank contends that even according to the respondent-Bank the 1st defendant was advanced the first loan in the year 1988 the payment of which was guaranteed only by defendants 2 to 5 and not by 6th defendant. He contends that the 6th defendant is not at all concerned with the I loan and yet the learned Presiding Officer of the DRT has granted a decree against the 6th defendant also in respect of the I loan, which is not sustainable at all. I agree with the learned Counsel for the appellants/defendants in this respect. From the narration of facts mentioned above it is clear that it is only the defendants 2 to 5 who have guaranteed the repayment of the first loan. It is not alleged that the appellant/6th defendant has undertaken the liability in any form. Even the respondent-Bank has prayed for a decree against defendants 1 to 5 only respect of the I loan. Therefore, with regard to the first loan the appellant/6th defendant cannot be made liable on any account, and so, the impugned final order insofar as the first loan as against appellant/6th defendant has to be and is accordingly set aside.
17. The learned Counsel for the appellants/defendants also points out that in March, 1989 the 1st defendant availed the II loan of Rs. 15 lakh for the purchase of 10 Eicher Mitsubishi vehicles from the 7th defendant. He further points out even as per the averments made in the plaint even at the time of sanction of the II loan the 1st defendant agreed not to take delivery of the vehicles from the 7th defendant (the seller) without the prior permission in writing from the respondent-Bank. He further points out that according to the respondent-Bank the 7th defendant was instructed to send the vehicle along with the receipt for having received the money and also the invoices, to the respondent-Bank, but yet defendants 1 and 7 connived with each other and the 1st defendant took delivery of the vehicles from the 7th defendant.
18. He also points out the averments in the plaint that the 1st defendant had requested for the sanction of the II loan of Rs. 15 lakhs against the pledge of 10 Eicher Mitsubishi vehicles, but the 1st defendant did not create the pledge of these vehicles, in violation of the undertaking given by the 1st defendant as also the agreed terms and conditions. The learned Counsel for the appellants/defendants also points out that as per the averments in the plaint the defendants 2 to 4 and 6 only have guaranteed the repayment of the II loan. The learned Counsel for the appellants/defendants further points out the averments in the plaint that though the 1st defendant was under an obligation not to part with the security without making the full and final payment to the respondent-Bank, and that these vehicles are the prime security of the respondent-Bank, still it has also been averred that the respondent-Bank is not aware of the details of these vehicles.
19. The learned Counsel for the appellants/defendants contends that respondent-Bank has been negligent from day one and has failed to take steps to secure the prime security, namely, the vehicles and keep the same intact. The learned Counsel for the appellants/ defendants also contends that the respondent-Bank failed to have the hypothecation/pledge noted in the RC books through the Regional Transport Office, that the prime security has thus been lost due to the negligence or omission on the part of the respondent-Bank and, therefore, the appellants/defendants are discharged from their liability.
20. In this connection, the learned Counsel for the appellants/defendants refers to the evidence on the side of the respondent-Bank, namely, that of Mr. Sachdeva. During the course of cross-examination, Mr. Sachdeva stated that he did not remember whether the lien has been recorded in the RC books, and that if the lien is noted in the RC book of the vehicles, then the borrower cannot dispose of the vehicles without the permission of the Bank and that non-registration of the lien in the RC book by the Bank may be considered as negligence. He has also admitted that sometimes it is omitted. Mr. Sachdeva also stated that within a month of March/April, 1989 (in March 1989 the II loan was availed by the 1st defendant) the Bank made inquiries on telephone from the 7th defendant regarding the delivery of the vehicles and that they said that the vehicles would be delivered when they are ready, but no subsequent letter was written regarding the delivery of the vehicles. He also admitted that after the letter Exhibit P-37 there is no letter by the Bank to the 7th defendant regarding the delivery of ten pledged vehicles, and that they were trusting the 7th defendant and their assurances. He also admitted that he does not know if any letter was thereafter written to defendants 4 to 6 regarding the non-delivery of vehicles by the 7th defendant, and that he cannot say if he wrote any such letter. He categorically admitted that the Bank does not have any vehicle in its custody under pledge.
21. Pointing out these admissions made by Mr. Sachdeva who was examined on the side of the Bank, the learned Counsel for the appellants/defendants contends that it has been established that the negligence of the respondent-Bank in not keeping the prime security intact resulted in the loss of the prime security. He further contends that when the prime security is lost due to the negligence or omission on the part of the respondent-Bank, the appellants/defendants 4 and 6 who are the guarantors are discharged. The learned Counsel for the appellants/defendants points out that the suit was filed in April, 1991 while the cross-examination of the Bank’s witness took place in 1997, and in spite of the fact that more than 5 years had lapsed, the evidence on the side of the Bank does not indicate that the respondent-Bank had taken any serious steps to get at the prime security i.e. the vehicles. He also contends that the respondent-Bank had not taken any criminal action against the defendants 1 and 7, though, in the plaint it has been specifically averred by the respondent-Bank that the 1st defendant in connivance with the 7th defendant had taken delivery of the vehicles without even informing the respondent-Bank, and that the 7th defendant had connived with the 1st defendant and delivered the vehicles contrary to the instructions given to it by the respondent-Bank.
22. The learned Counsel for the appellants/defendants refers to the provisions of Sections 133, 139 and 141 of the Indian Contract Act which are as follows:
“133. Discharge of surety by variance in terms of contract.–Any variance, made without the surety’s consent, in the terms of the contract between the principal (debtor) and the creditor, discharges the surety as to transactions subsequent to the variance.
139. Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy.–If the creditor does any act which is in consistent with the rights of the surety, or 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, the surety is discharged.
141. 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, 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.”
The learned Counsel for the appellants/defendants also relies upon the decision of the Panaji
Bench of the Hon’ble Bombay High Court in Jose Inacio Laurence v. Syndicate Bank,
(1989) 65 Company Cases 698, wherein it has been held that since the Bank has parted with
the security within the meaning of Section 141 of the Contract Act, the surety is discharged
to the extent of the value of the security, that the failure in not registering the charge is also
an act which is inconsistent with the rights of the surety within the meaning of Section 139
of the Contract Act and the eventual remedy which the surety may have against the borrower
or the purchaser of the vehicles from the borrower is impaired resulting in the discharge of
the surety.
23. The learned Counsel for the appellants/defendants also relies upon the decision of Hon’ble Supreme Court in State Bank of Saurashtra v. Chittaranjan Ranganath, AIR 1980 Supreme Court 1528, wherein it has been held that once the right of the surety against the principal debtor is impaired by any action or inaction, which implies negligence appearing from lack of supervision undertaken in the contract, the surety would be discharged under the combined operation of Sections 139 and 141 of the Act. It has also been held that if the creditor loses or without the consent of the surety parts with the security, the surety is discharged to the extent of the security lost, as provided by Section 141.
24. The learned Counsel for the appellants/defendants relies upon the decision in State Bank of India v. Quality Bread Factory, Batala, AIR 1983 Punjab and Haryana 244, wherein reference has been made to the Hon’ble Supreme Court’s decision referred to supra, and it was held that it is expected from the creditor that he should keep requisite vigilance on the debtor in order to protect himself and the surety against the illegal actions of the debtor, and that the negligence or inaction on his part by which he looses the security absolves a surety from his liability.
25. As against this, the learned Counsel for the respondent-Bank contends that the appellants have failed to prove that the Bank was negligent in not keeping the security intact, and that no witness was examined and no affidavit was filed to prove the same. He, therefore, contends that it cannot be held that the respondent-Bank was negligent. The learned Counsel for the respondent-Bank contends that the respondent-Bank had got executed several documents to secure the loan and had written the letter (Exhibit P-37) dated 1.3.89 to the 7th defendant informing that they were enclosing the Bank Draft for Rs. 15 lakhs towards the price of the 10 vehicles against pledge arrangement, and that they should send the vehicles comprehensively insured, and also the money receipt/invoices in the names of the respondent-Bank to the account of the 1st defendant. He also points out that such a receipt dated 2.3.89 (Exhibit P-38) was also sent by the 7th defendant to the Bank. The learned Counsel for the respondent-Bank, therefore, contends that the appellants have not established that the respondent-Bank was negligent, whereas, it was the duty of the appellants/defendants 4 and 6 to have kept track as to where the vehicles are. He also contends that the defendants 4 to 6 are also related to the principal borrowers.
26. The question in these circumstances is whether the respondent-Bank had been negligent in not keeping the security intact and in not making it available for the surety for appropriate action?
27. If the respondent-Bank had been negligent and responsible for the loss of the prime security then, the further question is whether the sureties, namely, the appellants/defendants 4 and 6 are discharged from their liability to answer the claim of the respondent-Bank?
28. As the learned Counsel for the appellants/defendants rightly points out, the negligence of the respondent-Bank is evident from the fact that it had not taken any action to keep the security intact. The respondent-Bank had allowed the 1st defendant to take possession of the vehicles, and the 7th defendant to deliver those vehicles to the 1st defendant without taking the precautionary steps that are expected of the respondent-Bank. The respondent-Bank ought to have seen to it that the vehicles are delivered to it as per agreement between it (the respondent-Bank) and the 1st defendant. But, it has not exercised any supervision with regard to the delivery of the vehicles, but, had allowed the 1st defendant to take delivery of those vehicles, The respondent-Bank also did not see to it that the R.C. Books contain the endorsement regarding the pledge/hypothecation of the vehicles in favour of the respondent-Bank. As pointed out already, Mr. Sachdeva, the witness examined on the side of the Bank, categorically admitted that it is negligence on the part of the respondent-Bank. The fact that the respondent-Bank was thoroughly negligent, and was not exercising any supervision in this regard is also apparent from the fact that it did not even know about the details of the vehicles as is admitted in the plaint itself. Apparently, the respondent-Bank has allowed the 1st defendant to part with the vehicles.
29. However, even according to the respondent-Bank, the 7th defendant had not only to send the vehicles, but also the receipt for having received the money as also the invoices. According to the respondent-Bank as sum of Rs. 15 lakhs was paid towards the price of the vehicles on 1.3.89, and the 7th defendant and issued a receipt dated 2.3.89 itself. Therefore, when the 7th defendant did not send the vehicles also, the respondent-Bank should have immediately taken action against defendants 1 and 7 for having violated the agreement/ instructions. Till the suit was filed it does not appear that the respondent-Bank had taken any action against the defendants 1 and 7 for securing the vehicles. No criminal complaint had also been given against the 1st defendant for having taken the delivery of the vehicles in violation of the agreement. Therefore, if we take into consideration all these aspects in the light of the provisions of Sections 139 and 141 of the Indian Contract Act and the decisions referred to (supra), it will be clear that the respondent-Bank has been negligent, and that it had not taken any action to have the prime security intact. It is evident that it is because of the negligence of the respondent-Bank that the prime security, namely, the vehicles have been lost, and the sureties have, consequently, lost their effective remedy as against the principal borrower.
30. But, the learned Counsel for the respondent-Bank, on the other hand, refers to the guarantee deeds executed by the defendants 4 and 6 (Exhibits P-35 and P-36, dated 1.3.89), especially to the following clause in the said guarantee deeds:
“I/We hereby consent to your making any variance that you may think fit in the terms of your contract with the principal debtor to your determining, enlarging or varying any credit to them, to your making any composition with them or promising to give them or not to sue them and to your parting with any security you may hold for the guaranteed debt. I/We also agree that I/we shall not be discharged from my/our liability by your releasing the principal debtor, or by any act or omission of yours the legal consequences of which may be to discharge the principal debtor or by any act of your which would, but for this present provision be inconsistent with my/our rights as sureties or by your omission to do any act which, but for this present provision, your duty to me/us would have required you to do. Though as between the principal debtor and myself/ourselves, I/we are sureties only I/we agree that as between yourself and myself, I/we are principal debtors jointly with them and accordingly I/we shall not be entitled to any of the rights conferred on the sureties by Sections 133, 134, 135, 139 and 141 of the Contract Act.”
By relying upon this provision, the learned Counsel for the respondent-Bank contends that the appellants/defendants have agreed that they will not be entitled to the benefit of Sections 139 and 141 even if the respondent-Bank parts with the security and, therefore, the appellants/defendants cannot contend that they are discharged of their liability in the circumstances of the case.
31. But, the learned Counsel for the appellants/defendants, on the other hand, contends that the rights conferred upon the surety under Sections 139 and 141 of the Indian Contract Act are absolute and are not subject to a contract to the contrary. He points out that these sections do not stipulate that the right of the surety to get discharged in the circumstances mentioned therein is subject to or in the absence of a contract to the contrary. He contends that if only the rights conferred under Sections 139 and 141 are subject to any contract to the contrary, then the respondent-Bank would have been entitled to put forward the contention that there is an agreement in the deed of guarantee itself that the surety would not be discharged even if the respondent-Bank parts with the security. In this connection, the learned Counsel for the appellants/defendants relies upon the decision in Union of India v. Pearl Hosiery Mills, AIR 1961 Punjab 281, wherein also a contention was put forward that in the peculiar nature of the contract between the parties the ordinary principles of surety would not apply to that case. The Hon’ble High Court of Punjab while considering the provisions of Section 133 of the Indian Contract Act held as follows:
“Moreover, I am of the opinion that the provisions of Section 133 of the Indian Contract Act are not subject to a contract to the contrary between the parties to the contract. This section is in unqualified terms. It was not necessary to put in the words Notwithstanding any contract to the contrary’ in this section, because wherever the legislature wanted that the terms of the contract between the parties should take precedence over the provisions of any section, the words ‘in the absence of any contract to the contrary’ or ‘in the absence of any special contract’ have been inserted in that particular section as has been done in Sections 152 and 163 of this Act.”
Of course, in this decision Their Lordships were considering the provisions of Section 133 of the Indian Contract Act. I have already reproduced (supra) Sections 133, 139 and 141. As in Section 133 of the Indian Contract Act, there is no provision in Sections 139 and 141 of the said Act also that the rights conferred thereunder on the surety are subject to or in the absence of a contract to the contrary. Therefore, the principles laid down in this decision are applicable to Sections 139 and 141 of the Indian Contract Act also. Therefore, the contention of the learned Counsel for the respondent-Bank that there is a contract to the contrary, i.e. the appellants/defendants have agreed that they will not be entitled to the benefits of the provisions of Sections 139 and 141 of the Contract Act even if the respondent-Bank parts with the security, and, therefore, the appellants/defendants cannot claim to have been discharged, even if it is assumed that the respondent-Bank has been negligent in not keeping this security intact, cannot be accepted. If the respondent-Bank is liable to answer the claim of a party to a contract under some provision of law, it may be open to the respondent-Bank to enter into a contract with the said party absolving the Bank of its liability for breach or violation of the terms of the contract between them, or arising from its negligence. But, it is clear that there cannot be a contract between the respondent-Bank and the surety to take away the rights of the surety conferred by the statute, i.e., Sections 139 and 141.
32. In this connection, the learned Counsel for the appellants/defendants also relies upon the following observations of the Hon’ble Supreme Court in the decision in State Bank of Saurashtra v. Chitranjan Rangnath, AIR 1980 Supreme Court 1528:
“It is difficult to entertain a contention that Section 141 would not be attracted and the 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 referred 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 is 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?
I agree with the learned Counsel for the appellants/defendants. In my view, the respondent-Bank cannot be allowed to take such a plea to defeat the right of the surety conferred on him by the provisions of Sections 139 and 141 of the Indian Contract Act.
33. The learned Counsel for the respondent-Bank next contends that the defendants, including the appellants/defendants, agreed before the Hon’ble High Court of Delhi to pay the amount in instalments, and, therefore, the appellants/defendants are not entitled to put forward the plea that they are discharged from their liability. In this connection, the learned Counsel for the respondent-Bank refers to the order passed by the Hon’ble High Court of Delhi on 5.11.92. The order dated 5.11.92 reads as follows:
“Present: Mr. R.K. Dhawan for the Plaintiff
Mr. D.S. Narulla for defendant Nos. 1 to 6
Mr. R.S. Suri for defendant No. 7.
S. No. 1098/91,1A 3700-3702 and 3744/91
Counsel for the plaintiff says, on instructions, that the proposal given on behalf of defendant Nos. 1 to 6 that the defendants are ready and willing to pay the amount of suit by instalments of Rs. 50,000/- per month provided a simple interest at the rate of 12% on the diminishing balances is charged is acceptable to the plaintiff-Bank. I am of the view that it would be expedient to direct the said defendants to start making payment of the instalment of Rs. 50,000/- per month without passing a final decree at this stage. Accordingly, let defendant Nos. 1 to 6 start making payment of monthly instalment of Rs. 50,000/-. The first instalment of Rs. 50,000/- will be payable on or before 30th November, 1992 and the second instalment on or before 15th December, 1992. Therefore, the instalments will be paid on or before 10th of each calendar month. List the suit before Court for further directions on 15th April, 1993.”
But, the learned Counsel for the appellants/defendants rightly points out that while the defendants 1 to 3 did not even contest the case by filing the written statement, the defendants 4 and 6 were represented by a different Counsel, filed written statements and contested the case. He, therefore, contends that it is not as if the defendants 4 and 6 agreed to pay the amounts. This apart, I also find from the order dated 28.5.91 of the Hon’ble High Court of Delhi, that Mr. D.S. Narulla had appeared for defendants 1 to 3, and had stated that the defendants will be paying the suit amount in instalments of Rs. 50,000/-, and had even handed over two cheques without prejudice to the pleas which may be raised. The order dated 23.9.91 passed by the Hon’ble High Court also shows that Mr. D.S. Narulla had stated that the defendants are ready to pay Rs. 50,000/- per mensem without prejudice to their rights. The order dated 16.4.93 passed by the Hon’ble High Court also shows that on that day Mr. D.S. Narulla had appeared for defendants 1 to 3 and that Mr. M.S. Dewan, Advocate who had put in appearance for the 4th defendant had stated that no summons or notices had even been issued to defendants 4 to 6. The Hon’ble High Court had called for a complete report in that behalf. On 3.5.93, the Hon’ble High Court had even directed summons/notices to be issued to defendants 5 and 6. Therefore, in these circumstances, the contention of the respondent-Bank that the appellants/defendants had undertaken to pay the amount in instalments and, therefore, they cannot put forward the plea of discharge, cannot at all be accepted.
34. The learned Counsel for the respondent-Bank next contends that the respondent-Bank had filed two suits, namely, Suit No. 1098/91 (which was transferred to the DRT, and taken up on its file as O.A. 473/96 from which the present appeal has arisen), and Suit No. 2797/91 (transferred to the District Court, Delhi) against the same set of defendants, and that the latter suit has been decreed on 26.3.99 by the District Court. He also contends that the appellants/defendants have not filed any appeal against the decree in Suit No. 2797/91 though the defence in both the cases is the same. He, therefore, contends that the present contentions put forward by the appellants/defendants cannot be accepted.
35. But, I am of the view that even if the appellants/defendants had not filed any appeal against the decree stated to have been passed in the other suit, it does not mean that the appellants/defendants are debarred from contesting O.A. 473/96 or from prosecuting this appeal. Therefore, this contention of the respondent-Bank cannot be accepted.
36. The learned Counsel for the respondent-Bank also contends that since the appellants (defendants 4 and 6), who are the guarantors, are related to the principal borrowers, it is their duty to keep track of the vehicles, and since they have not done so, they cannot put forward the plea of discharge. But as pointed out already, it is the duty of the respondent-Bank, in terms of the provisions of Sections 139 and 141 of the Indian Contract Act, to keep the security intact and to make it available to the surety for appropriate remedy. This burden cast upon the respondent-Bank by the provisions of Sections 139 and 141 cannot be shifted to the appellants/defendants, who are the guarantors, on the ground that they are related to some of the defendants who are stated to be the directors of the company. Therefore, this contention of the respondent-Bank cannot be accepted.
37. The learned Counsel for the appellants/defendants also points out that though the respondent-Bank had contended before the DRT that defendants 4 and 6 colluded with the defendants 1 and 7, there is no such averment in the plaint, and there is also no material to support the same. I agree with the learned Counsel for the appellants/defendants in this respect. I am of the view that in the absence of any averment to the effect that the appellants/ defendants 4 and 6 also colluded with the defendants 1 and 7, the contention of the respondent-Bank to that effect cannot be sustained.
38. Therefore, taking into consideration all these aspects, I am of the view that in view of the negligence/inaction on the part of the respondent-Bank to keep the security intact and make it available for being proceeded against by the appellants/defendants, and in view of the fact that prime security having been lost, the appellants/defendants are discharged from their liability as sureties. Therefore, the appeal has to be allowed.
39. Accordingly, the appeal is allowed setting aside the impugned final order dated 27.7.2001 passed in O.A. 473/96 (DRT-I, Delhi) insofar as it relates to the appellants (defendants 4 and 6). The O.A. 473/96 will stand dismissed insofar as appellants (defendants 4 and 6) are concerned.
40. Copy of this order be given to the appellants/defendants and the respondent-Bank.