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Issues Involved:
1. Validity and enforceability of guarantee bonds (consideration and agreement). 2. Agreement between the plaintiff and defendant No. 3 regarding the execution of guarantee bonds by all directors. 3. Agreement to levy penal interest and compound interest with quarterly rests. 4. Compliance with Reserve Bank of India (RBI) circulars regarding interest rates. 5. Calculation of interest rates and amounts due under various loan accounts. Detailed Analysis: Point No. 1: Validity and Enforceability of Guarantee Bonds The third defendant contended that the guarantee bonds were not supported by consideration as they were executed after the loan was sanctioned. The court referred to Section 127 of the Indian Contract Act, 1872, which states that past consideration is valid consideration. The court cited several precedents, including *Kali Charan v. Abdul Rahman* and *Chakanlal v. Kanhaiyalal*, to affirm that past benefits to the principal debtor constitute sufficient consideration for a guarantee. The court concluded that the guarantee bonds executed by the third defendant were valid and enforceable as they were executed pursuant to the terms of the loan sanction order and the resolution of the Board of Directors. Therefore, Point No. 1 was answered in the negative, affirming the validity of the guarantee bonds. Point No. 2: Agreement Regarding Execution of Guarantee Bonds by All Directors The third defendant claimed there was an agreement that the guarantee bonds would not be enforceable unless all directors executed them. The court examined the evidence and found inconsistencies between the written statement and the evidence provided by D.W.1. The court also considered the improbability of such an agreement given the bank's requirement for all directors to stand as sureties. The court concluded that no such agreement was proved by the third defendant. Thus, Point No. 2 was answered in the negative. Point No. 2A: Liability of Defendant No. 3 if Agreement Proved Since Point No. 2 was answered in the negative, Point No. 2A did not arise. Point No. 2B: Extent of Liability of Defendants 3(A) and 3(B) The court noted that the liability of the legal representatives of the deceased third defendant (defendants 3A and 3B) is limited to the extent of the estate that devolved upon them. The trial court's decree was modified to reflect this limitation. Point No. 2B was answered accordingly. Point No. 3: Agreement to Levy Penal Interest and Compound Interest with Quarterly Rests The court examined the loan documents and found clear agreements to pay compound interest and penal interest on overdue amounts. For the OSL loan, the court interpreted the terms to mean that interest was payable with quarterly rests, thus allowing for compounding. For the SODH and PCL loans, the documents explicitly stated the agreement to compound interest quarterly. Therefore, the court concluded that the plaintiff had proved the agreement to levy penal interest and compound interest with quarterly rests. Point No. 3 was answered affirmatively. Points No. 4 & 5: Compliance with RBI Circulars and Calculation of Interest Rates The court reviewed the relevant RBI circulars and determined that the interest rates charged by the plaintiff bank were in compliance with these circulars. For the OSL loan, the interest was recalculated to align with the RBI-prescribed rates, resulting in a reduction of the amount due. For the SODH loan, the interest charged did not exceed the RBI limits, and any excess interest had been credited back. For the PCL loan, the court found that the interest charged was within the permissible limits. Therefore, the court concluded that the interest rates were compliant with RBI circulars, and the amounts due were correctly calculated, subject to the modification for the OSL loan. Points No. 4 and 5 were answered accordingly. Miscellaneous Contentions: The court addressed additional contentions, including the proof of account entries and the calculation of future interest. The court rejected the contention that the account entries were not proved, as there was no specific challenge to any entry. The court also declined to modify the decree to allow compounding of future interest due to the absence of a cross-objection or appeal by the plaintiff. Conclusion: The appeals were allowed in part, modifying the trial court's decree to dismiss the suit against defendants 4 and 5 and reduce the amount due under the OSL loan. The decree was affirmed in all other respects, with the liability of defendants 3A and 3B limited to the estate of the third defendant. The parties were directed to bear costs proportionate to their success.
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