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Mr. G.A.Mansoor Alam Khan, Son of G.Abdul Gafoor Khan. Vs. State Bank of Mysore and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 11122 of 2008 (GM-DRT)
Judge
ActsIndian Contract Act, 1872. - Sections 139, 141,
AppellantMr. G.A.Mansoor Alam Khan, Son of G.Abdul Gafoor Khan
RespondentState Bank of Mysore and ors.
Advocates:Sri P.M.Hegde, Adv.
Excerpt:
[mr. j.s.khehar.; h.g.ramesh, jj.] this writ petition is tiled under articles 226 ynd 227 of the constitution of india praying to quash the order at annexure-a dated 06.06.2008 passed by the debt recovery appellate tribunal at chennai in r.a.no.75/2007......of the bank that the principal debtor was offering another security, namely, pledge of goods. the surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor (see sanderson v. aston (1873)8 ex.73 at p. 76). 10. if the two promissory notes exts.81 and 30 coupled with the letter of guarantee ext.31 executed by the surety and the bond ext.83 executed by the principal debtor at one sitting on september 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety. the surety in good faith contracted to offer.....
Judgment:

ORDER

J.S.Khehar, C.J (Oral)

1. The petitioner has approached this Court, so as to assail the order passed by the Debt Recovery Appellate Tribunal, Chennai, dated 06.06.2008. The issue agitated at the hands of the learned counsel for the petitioner emerges out of the following observations recorded by the tribunal:

"Agreement of guarantee executed by respondent is a continuing one and it col the 2nd respondent is a continuing one and it contains the stipulation that the Appellant Bank is entitled to enforce all or any of its remedies against the collateral security held by the Bank and any forbearance on the part of the Bank shall not release him from the liability. The relevant Clause in the Agreement reads as under: -

"We/I further agree that in the case of the Borrower being a Firm, our/my Guarantee and obligations hereunder shall not be affected by any change in the constitution or style of such Firm, whether consisting of or reduced to one individual at any time and in the case of our being a Firm, our Firm and all members from time to time thereof shall be bound hereby notwithstanding any change in the constitution or style of our Firm whether consisting of or reduced to one individual at any time and being more than one individual all of us shall be bound hereby jointly and severally."

Similarly, the Agreement also contains a covenant that the Appellant Bank is entitled to enforce the security irrespective of the action initiated against the principal borrower Similarly, it is pointed out by the learned Counsel for the Appellant that the 2nd respondent had executed two separate Guarantee Agreements, one for Rs. 12 lakhs and the other one for Rs.3 lakhs totally for Rs. 15 lakhs and therefore the contention putforth by the 2nd respondent that his Agreement is limited to Rs.3 lakhs is untenable. A careful perusal of the said Agreements would go to show and prove that the above contentions of Appellant's Counsel are acceptable. It is also evident from the said Agreements executed by the 2nd respondent that the contract of surety shall not be affected by any change in the constitution of the 1sl respondent firm and in these circumstances, I am of the view that the contentions put forth by the 2nd respondent as regards discharge of the surety is not convincing."

2. The petitioner's contentions before this Court are twofold. Firstly, it is asserted at the hands of the petitioner, that the State Bank of Mysore, i.e., respondent no.1 herein, having not carried out its obligations, was disentitled to effect any recovery from the petitioner.

Secondly, it is the contention of the learned counsel for the petitioner, that recovery in the first instance should be made from the principal debtor and not from the petitioner who was merely a surety for the principal debtor.

3. In order to substantiate the first contention noticed in the foregoing paragraph, learned counsel for the petitioner has placed reliance on Sections 139 and 141 of the Indian Contract Act, 1872. The aforesaid provisions are being extracted hereunder.

"139. Discharge of surety by creditors act or omission impairing surety's eventual remedy._ If the creditor does any act which is inconsistent 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: and 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."

In conjunction with the aforesaid statutory provisions, learned counsel for the petitioner has invited our pointed attention to the decision of the Supreme Court in State Bank of Saurashtra vs Chitranjan Rangnath Raja and another. AIR 1980 SC 1528, wherefrom he placed reliance on the following observations:

"8. Only contention canvassed in this appeal i;: that in view of clauses 5, 7 and 13 of letter of guarantee Ext.31. even if it is found as a fact that negligence of the creditor Bank was responsible for the loss of security of pledged oil tins, yet the surety would not. be discharged. Before we refer to clauses 5. 7 and 13, it is necessary to notice Section 141 of the Indian Contract Act under which the surety claims the relief of discharge. Section 141 reads as under:

"141. 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; and 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."

9. In order to attract S.141, it must be shown that the creditor had taken more than one security from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the consent of the surety parts with the other security the surety would be discharged to the extent cf the value of the security. In the instant case as found by the High Court and not controverted, the principal debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the surety. Verily, the General Manager of the Bank accepted the proposal for cash credit facility on the specific condition that the principal debtor shall offer two securities, one the pledge of goods to be kept under the lock and key of the Bank to be supervised by the Bank's employee, and secondly, the personal guarantee of the surety. The surety himself agreed to and with the full knowledge of the Bank that the principal debtor was offering another security, namely, pledge of goods. The surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor (see Sanderson v. Aston (1873)8 Ex.73 at p. 76).

10. If the two promissory notes Exts.81 and 30 coupled with the letter of guarantee Ext.31 executed by the surety and the bond Ext.83 executed by the principal debtor at one sitting on September 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety. The surety in good faith contracted to offer personal guarantee on the clear understanding that, the principal debtor has offered security by way of pledge of goods and the goods were to be in the custody of the creditor Bank. On this conclusion S. 141 of the Act will be indubitably attracted. Section 141 comprehends a situation where the debtor has offered more than one security, one of which is the personal guarantee of the surety. Even if the surety of personal guarantee is not aware of any other security offered by the principal debtor yet 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. In any event, 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 S. 141."

We have considered the first contention advanced at the hands of the learned counsel for the petitioner. Insofar as the instant contention is concerned, learned counsel placed reliance on three letters dated 29.10.2001, 22.12.2001 and 31.07.2002 (Annexures-F. G and H respectively), so as to bring home his contention, that the petitioner had been repeatedly informing the State Bank of Mysore about the change of attitude at the hands of the principal debtor, and has been requesting the State Bank of Mysore to effect recoveries from the principal debtor. For the purpose of the present controversy, reference may be made to the factual aspect depicted in the first letter dated 29.10.2001. Relevant extract thereof is accordingly being reproduced hereunder:

"You will please note that right from the availment of the loan, I have been very regular in approaching the concerned branches while enquiring whether the Principal Debtor is maintaining the repayment schedule. Of late I have been informed by your goodself that the said Masrur Ahmed Basheer has not—been mTiniaining the repayment schedule. 1 have been has been concentrating on another nrnjf-ct of his and under such circumstances repayment has come to a standstill.

The information to me couple of days earlier to this date to the effect referred above has sent panic waves inside my spine. I under such circumstances, request you to proceed against the moveable and other property belonging to the principal debtor that have been pledged to your bank towards the recovery of the amount payable by him."

Based on the letters referred to above, it is sought to be canvassed, that the petitioner had warned the State Bank of Mysore about the behaviour of the principal debtor, and had repeatedly requested the bank, to recover the loans advanced to the principal debtor. Having cautioned the bank, and the bank having taken no steps despite repeated letters written by the petitioner, it is submitted, that the bank had lost its right to recover the due of the principal debtor, from the petitioner.

5. Despite the submissions advanced at the hands of the learned counsel for the petitioner, it is not possible for us to accept the proposition canvassed at his hands. A perusal of Section 139 of the Indian Contract Act, 1872 relied upon by the petitioner reveals, that omission at the hands of the creditor will discharge the liability of a surety. The aforesaid omission has been defined as, an omission which constitutes a duty at the hands of a creditor. No such responsibility has been pointed out at the hands of the learned counsel for the petitioner, which came to be avoided, or which remained uncompleted, at the hands of the State Bank of Mysore. Thus viewed, it is not possible for us to accept the contention of the learned counsel for the petitioner, based on Section 139 of the Indian Contract Act, 1872. Likewise, in our considered view, reliance placed at the hands of the learned counsel for the petitioner on Section 141 of the Indian Contract Act, 1872 is misconceived. It is not the case of the petitioner before this Court, that respondent no.1. i.e. the State Bank of Mysore, omitted to execute the security which exisid against the principal debtor, other than the guarantee executed by the petitioner. It is only on such omission, that under the mandate of Section 141 of the Indian Contract Act, 1872, the surety's rights can stand protected. No such foundational facts have been brought to our notice. In the aforesaid view of the matter, we are satisfied, that the contention advanced at the hands of the learned counsel for the petitioner, based on the provisions of the Indian Contract Act. 1872, cannot be of any assistance to the petitioner.

6. Insofar as the reliance on the judgment rendered by the Supreme Court in State Bank of Saurashtras case (supra) is concerned, the factual position that came to be adjudicated in the controversy before the Supreme Court emerges from paragraph 9 of the judgment, which has been extracted hereinabove. Even on a proposition of fact, the judgment rendered by the Supreme Court, referred to by the learned counsel for the petitioner, would be inapplicable to this case. Moreover, the judgment rendered by the Supreme Court in The State Bank of Saurashtra's case (supra) was rendered on the strength of the protection afforded to a surety under Section 141 of the Indian Contract Act, 1872. We have held hereinabove, that the aforesaid provision is inapplicable to the controversy in hand. Keeping in mind the factual position canvassed before us. we are satisfied, that the judgment relied upon by the learned counsel for the petitioner is inapplicable to the case in hand. In this behalf it would be relevant to mention, that it was the bank which had complained to the surety i.e., the petitioner herein, that the principal debtor was not regular in maintaining his payment schedule. It was the bank which also informed the petitioner, that the principal debtor had started some business activities. This is clearly evident from the petitioner's first letter which has been extracted hereinabove. The factual position is therefore, actually converse to the one projected by the learned counsel.

7. Insofar as the second issue is concerned, the same does not require any detailed determination at our hands, in the background of the judgment brought to our notice by the learned counsel for respondent no. 1/bank. namely. Bank of Bihar Ltd., vs Dr.Damodar Prasad and another, AIR 1969 SC 297. wherein, it was inter alia held as under:

"But the solvency of the principal is not a sufficient ground for restraining execution of the decree against the surety. It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case, the creditor is a banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. The impugned direction cannot be justified under Order 20. Rule 11(1). Assuming that apart from Order 20 R. 11 (1) the Court had the inherent power under Section 151 to direct postponement, of execution of the decree, the ends of justice did not require such postponement.”

In view of the aforesaid declared position of law, we are of the view, that it is not open to the petitioner herein, who is a surety, to seek deferment of payment from the State Bank of Mysore, till such time as the bank does not exhaust all remedies available to it, against the principal debtor.

8. For the reasons recorded hereinabove, we find no merit in the instant writ petition and the same is accordingly dismissed.


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