1986 (3) TMI 348 - HC - Indian Laws

Summary

Issues Involved:
1. Recovery of money advanced under a cash credit agreement.
2. Liability of the guarantor (Defendant 2) under the cash credit agreement.
3. Allegations of collusion and misrepresentation by the bank.
4. Discharge of the guarantor's liability under Sections 133 to 141 of the Contract Act.
5. Forbearance and negligence by the bank in enforcing the security.

Detailed Analysis:

1. Recovery of Money Advanced under Cash Credit Agreement:
The plaintiff, State Bank of India, granted a loan of Rs. 5,000/- to Defendant 1 under a cash credit account, with Defendant 2 (the appellant) standing as a guarantor. Defendant 1 executed a promissory note in favor of Defendant 2, who endorsed it to the bank. Defendant 1 also hypothecated his stock as security for the loan. Despite demands, Defendant 1 failed to repay Rs. 4,995.61, leading the bank to file a suit for recovery of the amount with interest.

2. Liability of the Guarantor (Defendant 2) under the Cash Credit Agreement:
Defendant 2 contested the suit, claiming ignorance of the loan details and alleging that he signed documents under misrepresentation. The trial court rejected this plea, noting that Defendant 2 had acknowledged his role as a guarantor in letters (Ext. B and Ext. 11) to the bank, urging it to act against Defendant 1. The appellate court concurred, finding no evidence that Defendant 2 was unaware of his obligations.

3. Allegations of Collusion and Misrepresentation by the Bank:
Defendant 2 alleged that the bank colluded with Defendant 1, allowing him to dispose of his stock and evade liability. He claimed that the bank's inaction, despite his warnings, released him from his guarantor obligations. The court found no merit in these allegations, emphasizing that Defendant 2 had acknowledged his guarantor role and had not disputed the loan's terms in his letters.

4. Discharge of the Guarantor's Liability under Sections 133 to 141 of the Contract Act:
The court examined Sections 133 to 141 of the Contract Act to determine if Defendant 2's liability as a guarantor was discharged. The court found no variance in the contract terms (Section 133), no release of the principal debtor (Section 134), and no composition or promise to give time to the principal debtor (Section 135). The court also noted that mere forbearance by the creditor to sue does not discharge the surety (Section 137).

5. Forbearance and Negligence by the Bank in Enforcing the Security:
Defendant 2 argued that the bank's failure to act on his warnings constituted forbearance, discharging him as a guarantor. The court rejected this, citing Section 137, which states that mere forbearance does not discharge the surety. The court also distinguished the present case from the Supreme Court's decision in State Bank of Saurashtra v. Chitranjan Rangnath Raja, where the bank's negligence in losing pledged goods led to the surety's discharge. In this case, there was no evidence of such negligence or loss of security.

Conclusion:
The appellate court upheld the trial court's judgment, finding no legal justification to release Defendant 2 from his guarantor obligations. The appeal was dismissed, with no order as to costs. The court emphasized that the bank's actions did not impair Defendant 2's eventual remedy against the principal debtor, and the guarantor's liability remained intact.