1989 (2) TMI 422 - HC - Indian Laws

Summary

Issues Involved
1. Whether the liability of the plaintiffs as sureties had been extinguished for the reasons set out in the plaint (C.S. No. 31 of 1974).
2. Whether the plaintiff is entitled to the declaration asked for (C.S. No. 33 of 1974).
3. Whether the plaintiff is entitled to claim return of the shares standing in the plaintiff's name (C.S. No. 33 of 1974).

Detailed Analysis

Issue 1: Whether the liability of the plaintiffs as sureties had been extinguished for the reasons set out in the plaint (C.S. No. 31 of 1974).

The court examined the relationship between the appellant bank and the respondents, who acted as sureties for Shree Bharathy Mills Limited. The respondents had provided various securities, including documents of title to immovable property, life insurance policies, and shares. The original agreement was altered without the respondents' knowledge when the appellant bank entered into new arrangements with the principal debtor on 7-1-1967 and 23-1-1967. The court found that the respondents were discharged from their liabilities due to the bank's negligence in losing Rs. 19-1/2 lakhs worth of goods and the subsequent fresh arrangement between the bank and the principal debtor, to which the respondents were neither parties nor were they informed. The court cited Section 62 of the Contract Act and relevant case law to conclude that the original contract need not be performed if a new contract is substituted. The court also noted that under Section 153 of the Contract Act, any variance made without the surety's consent discharges the surety.

Issue 2: Whether the plaintiff is entitled to the declaration asked for (C.S. No. 33 of 1974).

The court considered the claim that the appellant bank had no right to retain the shares pledged by the respondents after the overdraft account was settled. The respondents had sent Rs. 10,000/- specifically for the return of the shares, as instructed by the appellant's agent. The court found that the bank's refusal to return the shares and its claim of a lien over the shares for other liabilities of the partners was not supported by law. The court referred to Tannan's Banking Law and Practice and relevant case law, which state that a banker cannot set off a partnership account's credit balance against individual partners' liabilities. The court also noted that the bank failed to provide evidence that the partners owed money in any other capacity.

Issue 3: Whether the plaintiff is entitled to claim return of the shares standing in the plaintiff's name (C.S. No. 33 of 1974).

The court reiterated that the appellant bank had no legal right to retain the shares after the overdraft account was settled. The court found that the bank's agent had called upon the respondents to adjust the amounts due and take back the shares, and the respondents complied by sending Rs. 10,000/-. The court held that the bank's claim of a lien over the shares for other liabilities was not valid, as the credit and liability must exist in the same rights. The court dismissed the appellant's argument that there were no pleadings under O. VI, R. 4, C.P.C., finding that the plaints were elaborately pleaded and the bank's evidence was lacking.

Conclusion

The court agreed with the learned single judge's decision and dismissed both appeals with costs. The respondents were discharged from their liabilities as sureties due to the bank's negligence and the fresh arrangement with the principal debtor. The bank had no right to retain the shares pledged by the respondents after the overdraft account was settled. The appeals were dismissed, and the respondents were entitled to the return of their shares and other securities.