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TMI Blog2016 (11) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 1976 (7) TMI 174 - KARNATAKA HIGH COURT] held that mere passive inactivity or passive negligence on the part of the creditor by failing to realise the debt from the collateral security is not sufficient in itself to discharge the surety, because the surety can himself avoid consequences of such passivity by himself paying the debt and becoming subrogated to the rights of the creditor and because in the absence of a contract to the contrary, the creditor is under no obligation of active diligence for the protection of the security, so long as the surety himself remains inactive. The action / inaction of the plaintiff on account of which the defendant No.2 claims to have been discharged do not fall within the ambit of Section 141 of the Contract Act and are within the ambit of Section 137 of the Contract Act. As far as the contention of the counsel for the defendant No.2, of Section 446 of the Companies Act is concerned, on 26th October, 2016 it is already prima facie observed that once permission under Section 22(1) of SICA has been granted and the order of winding up is in pursuance to the order of BIFR, Section 446 of the Companies Act would not be applicable. The plaintiff is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant no.1; (ix) the said lease has also expired on 26th September, 1999 and the defendant became liable to pay the entire lease rentals along with interest; (x) that both the supplementary agreements dated 21st August, 1991 and 27th September, 1991 were to form part and parcel of the Agreement dated 12th December, 1990; (xi) that the defendant no.2 Shri Harbhajan Singh stood as guarantor, to the said transaction, to secure the re-payment of the amounts and executed Guarantee Deed dated 15th March, 1996 in favour of the plaintiff; (xii) that the defendant no.2 is thus jointly and severally liable with the defendant no.1 to pay the outstanding amount; (xiii) that the defendants failed to maintain financial discipline and were never regular in making payments of lease rentals inspite of repeated requests and reminders of the plaintiff and acknowledgment of the defendants; (xiv) on 6th December, 1996, the defendants admitted and acknowledged liability of Rs. 61,34,897.45p as on 31st August, 1996; (xv) however till the date of institution of the suit, payment had not been made inspite of legal notice; (xvi) the defendant no.1 on 6th May, 1999 approached the Board for Industrial Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll assets comprising of land, building, plant, machinery and equipment of the defendant no.1 for a sum of Rs. 4.91 crores and the sale stood confirmed; that the defendant no.2 even otherwise stood discharged as a guarantor because (a) the plaintiff had given up its right to enforce its charge as against all the securities plant and machinery equipment financed under the alleged Lease Agreement; (b) of the conduct of the plaintiff in not taking appropriate steps for preservation of securities/plant/machinery/leased equipment governed by the contract inspite of the defendant no.1 failing to adhere to financial discipline; and, (c) the plaintiff having not taken any remedial or legal steps against the securities and the same amounting to novation/modification of the terms of contract; (iii) that the liability of a guarantor is subject to existing securities of the principal borrower and which securities are to be made available to the guarantor when the guarantee is put to enforcement; (iv) the plaintiff has not pleaded the details of securities or nature of securities; (v) the plaintiff has therefore failed to enforce its rights as against securities of principal borrower and resulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant no.2 had then sought adjournment to place on record the latest report of the OL. 14. The defendant no.2 has filed an affidavit dated 3rd November, 2016 to the effect (i) that the OL in his report filed in these proceedings had disclosed as many as five secured creditors of the defendant no.1 Company; (ii) that in the said report the plaintiff was shown as debenture holder secured by floating charge of Rs. 10,00,000/-; (iii) that no charge had however been registered over plant, machinery and equipment in favour of the plaintiff in terms of Sections 125/126 of the Companies Act; (iv) that the amount of Rs. 4.91 crores realised by the OL from sale of assets of defendant no.1 was payable first to the secured creditors and thereafter to the unsecured creditors; (v) that the plaintiff is an unsecured creditor; (vi) that the plaintiff consented to the sale by the OL without securing its rights; and, (vii) that the said action of the plaintiff is detrimental to the interest of the defendant no.2 warranting discharge of the defendant no.2 from liabilities. 15. It would thus be seen that the only defence of the defendant no.2 to the claim of the plaintiff is that though the plaintiff, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in consideration of the plaintiff having agreed to grant lease to the defendant no.1, had agreed (a) to indemnify the plaintiff against all losses and to pay to the plaintiff on demand the balance due to the plaintiff not exceeding a sum of Rs. 109.75 lacs; (b) that his liability to the plaintiff shall be construed as joint and several with the plaintiff; (c) that he as guarantor shall not be discharged from his liability by the plaintiff releasing the defendant No.1 or by any act or omission of the plaintiff; (d) that if the defendant no.1 became insolvent, his liability shall continue; and, (e) that his guarantee shall be in addition to and shall not in any manner be prejudiced or affected by any collateral or other security or guarantee which the plaintiff may have. 19. It would thus be seen that the entire argument made by the counsel for the defendant no.2 is de hors the facts. For this reason only perhaps, the counsel for the defendant no.2 instead of referring to the documents chose to refer to the judgments and argue therefrom. The question of the proposition of law emerging from the said judgments applying would depend upon the facts of the case and the judgments cited are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. is to be read along with Section 137 thereof which is as under: 137. Creditor s forbearance to sue does not discharge surety Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety. 23. The plaintiff, for removing the leased equipment incorporated in the plant and machinery at the factory of the defendant No.1, would have been required to take legal proceedings. The question which arises is, whether the choice exercised by the plaintiff of not taking such action would be mere forbearance within the meaning of Section 137 or an act on the part of the plaintiff of losing or parting with such security within the meaning of Section 141. 24. In my view, considering the facts and circumstances of the present case i.e. the agreement between the parties, the practicality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter is put beyond any pale of controversy by the Supreme Court in Industrial Finance Corporation of India Ltd. Vs. Cannanore Spinning and Weaving Mills Ltd. (2002) 5 SCC 54. It was held that the intent of the law makers is apparent from use in Section 141 of the words or without the consent of the surety and parts with such security and that a definite violation is required to come within the ambit of Section 141. 28. No merit is thus found in the plea of the defendant No.2 on the basis of Section 141 of the Contract Act. The action / inaction of the plaintiff on account of which the defendant No.2 claims to have been discharged do not fall within the ambit of Section 141 of the Contract Act and are within the ambit of Section 137 of the Contract Act. 29. As far as the contention of the counsel for the defendant No.2, of Section 446 of the Companies Act is concerned, I have on 26th October, 2016 already prima facie observed that once permission under Section 22(1) of SICA has been granted and the order of winding up is in pursuance to the order of BIFR, Section 446 of the Companies Act would not be applicable. I find support for the said view from the dicta of Justice R.M. Lodh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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