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TMI Blog1989 (2) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... as sureties or otherwise, and for a direction to the appellant/defendant bank to handover to the respondents plaintiff all the documents of title to property, share certificates and life insurance policy. C.S. No. 33 of 1974 is a suit for a declaration that respondents/plaintiffs' liability to the appellant/defendant on the over draft account on pledge of shares came to an end on 3-8-1967, when the respondents tendered Rs. 10.000/- to the appellant and that the appellant had no right to retain the shares pledged, and for return of all the shares and documents of title to shares namely 120 ordinary Mettur Industries Ltd., shares, 55 ordinary Mettur Industries Ltd., shares, 3396 ordinary Cauvery Spinning and Weaving Mills shares, 32 preference shares in Cauvery Spinning and Weaving Mills Ltd. and 4350 ordinary shares in India Cements Ltd. all belonging to the respondents. 3. It is necessary to set out the facts in C.S. Nos. 31 and 33 of 1974:-- The appellant/defendant bank gave certain financial facilities to Shree Bharathy Mills Limited, Pondicherry such as key loan and open loan, cash credits, F.X. Loan, overdraft facilities, documentary bills purchase and negotiation of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the sale proceeds of the key loan, cash credit account was adjusted to the extent of Rs. 19,68,282/- and the remaining outstanding liabilities viz. Rs. 20,46,154.44 inclusive of interest on the various accounts were to be consolidated and debited to a term account which was to be repaid in five yearly instalments commencing from 2-1-1968. Neither the respondents are parties nor are they made aware of such arrangement. Consequently, the respondents caused a lawyer's notice to be sent to the appellant bank, calling upon it to return the respondents various shares, life insurance policies and documents of title to property, since the loan in respect of which they were sureties, was no longer in existence and was discharged by reason of the fresh loan arrangement between the appellant bank and the Authorised Officer of the principal debtor. Though the appellant was promising to allow inspection of documents, the appellant put off the respondents and their counsel on various pretexts and the documents of which inspection was sought, were not available. The appellant bank had no right to retain the documents of title to the property, insurance policies and shares belonging to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly shares standing in the name of the first respondent are 500 shares of Cauvery Spinning and Weaving Mills Limited. The other shares stand in the name of third parties and as owners of such shares, they had pledged them with the bank by way of collateral securities granted to Shree Bharathy Mills Limited and as such the respondents are not entitled to ask for the return of such securities standing in the name of third parties. The third parties had further agreed that, notwithstanding that the particular debt for which the shares were given as security became discharged, the appellant bank is entitled to hold the said shares for other liabilities of Shree Bharathy Mills Ltd. and that the said shares will continue to remain security. The taking over of Bharathy Mills Ltd., by the Authorised Controller under the Industries (Development and Regulation) Act, 1951 and the agreement entered into by the appellant and the said Authorised Controller in no way affected the continued legal liability of the respondents. The said transaction does not discharge the respondents under the promissory note executed by them and the equitable mortgage created by the second respondent. Such arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the debt for which the shares are specifically pledged as security may at any time become discharged by payment, the shares shall continue to be security for any other liability or indebtedness or outstanding due by them or in any other account and at any office of the appellant whether alone or jointly with another and that the appellant shall have the right to treat the shares as security as if they were pledge to secure such liability, or indebtedness or outstanding, and it was also further agreed that, notwithstanding that the loan account or overdraft account may be discharged at any time or the overdraft account is brought to credit, the shares pledged shall remain as a continuing security till all the liabilities of the firm are fully discharged. In view of the specific agreement above referred to and having regard to the shares being in the names of the individual partners also, the respondents are not entitled to the return of the shares on the adjustment of the overdraft account alone. Mr. S. Krishnaswamy and Mr. P. Suryanarayana, partners of the respondents/plaintiffs firm are personally indebted to the firm in various accounts jointly and severally along with ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot turn around and say that he signed it blindly. The learned counsel further contends that on the ground of lack of pleading and the contents of Ex. D. 1, the respondents cannot plead for any relief in the suit. The learned counsel further submits that under S. 171 of the Contract Act there is an express contract and as such the principle that the security given by the firm cannot be retained for dues by partners in their individual capacity will apply to the facts of this case. The learned counsel vehemently contends that the approach of the learned single Judge is not tenable in law, especially when there is neither a pleading nor such a plea raised according to law. The learned counsel further contends that the learned single Judge ought not to have relied upon the decision in Sayyaparaju Surayya v. Koduri Hondamma 1940 (2) MI.J 682. 9. With regard to O.S.A. No; 240 of 1986 Mr. Dolia, the learned counsel for appellant contends that there was no ground specifically alleging that the appellant bank has lost goods worth Rs. 19-1/2 lakhs which was in their custody and hence the surety is discharged. The learned counsel draws our attention to Ex. D.3, dt. 22-5-1965 in which the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , wherein it has been held that marking of documents by consent only dispenses with the formal proof of the documents but the contents are to be proved in the manner known to law. The learned counsel relies upon the decision in Karuppanna Thevar (Died) v. Rajagopala Thevar, AIR1975Mad257 , in which it has been observed as follows: "But agreeing to documents being marked by consent did not mean that the plaintiff accepted the correctness of every statement made by the doctor in those two documents. The correctness of the allegations contained in the certificate given by the Doctor and in his reply would have to be proved only in the recognised ways as contained in the Evidence Act. Merely putting the documents to the witness will not amount to proof of the documents." As such, the learned counsel contends that in the instant case there is no novation of the original contract. The learned counsel further contends that the respondents have accepted in their deposition that the appellant took permission to sell the goods and adjust the same towards the dues. Mr. Dolia, the learned counsel for the appellant, refers to two passages in Rowlatt on Principal and Surety (Fourth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands unchallenged as found by the learned single Judge, and there is no proof by the appellant bank that monies are owed by the partners in any other capacity also and as such the bank cannot rely upon a defunct document of lien. The learned counsel further contends that the clause cited in the decision relied upon by the learned counsel for appellant bank, is only an enabling clause which gives a right to set off but not in any other capacity whatsoever. 11. Mr. Vedantham Srinivasan, the learned counsel for respondents, submits, in so far as O.S.A. No. 240 of 1986 is concerned, that the respondents are only sureties and not principal debtors, that it is settled law, after the pronouncement of the Supreme Court in S. Chattanatha Karayalar v. Central Hank of India, AIR 1965 SC 1856 that the sureties were discharged from their liabilities by the negligence of the appellant bank in losing Rs. 19-1/2 lakhs which was not denied and as such Ss. 141 and 143 of the Contract Act are attracted. It is further submitted by the learned counsel for respondents that the respondents were discharged by virtue of the fresh arrangement between the appellant bank and the principal debtor represente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents are only sureties and not principal debtors, and that the sureties were discharged from their liabilities by the negligence of the bank in losing Rs. 19-1/2 lakhs worth of goods in their custody which was not denied. In Amrit Lal v. State Bank of Travancore,: [1968]3SCR724 , where a creditor lost part of security due to its negligence or for some other reason, it was held that the surety was discharged to that extent. In our view, the respondents were discharged by virtue of the fresh agreement between the appellant bank and the principal debtor represented by Union of India to which the respondents sureties were neither parties nor were they made aware thereof. These two agreements dated; 7-1-1967 and 23-1-1967 were admitted by D.W. 1 in the course of his cross-examination which runs as follows: - "Q: And the Bank said that it will give the term loan of Rs. 35 lacs after converting the existing balance into a fresh loan and after adjusting a shortfall of Rs. 19 lacs of the subsisting amount? A: Yes......... Q : Therefore your statement that the Co-obligants are still liable which you said in your Chief-examination, cannot be correct, because the old loan has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditor even in the case of the creditor's negligence, the appellant-bank cannot take advantage of the covenant in Ex. D.3 to fasten the liability of the respondents as sureties. We are not able to appreciate the arguments of Mr. Dolia, the learned Counsel for appellant, that the sureties bad waived the benefits conferred under Ss. 133, 134, 136, 139 and 140 of the Contract Act. We are of the view that the decision relied upon by the learned Counsel for appellant-bank, mentioned above, will not apply to the facts of this case. 14. We are entirely in agreement with the view of the learned Judge that the appellant-bank is not entitled to hold the respondents liable as principal debtors taking advantage of the covenant contained Ex. D.3, The decision in Chitguppi and Co. v. Vinayak Kashi-nath Khadilkar, ILR 45 Bom 157: AIR1921Bom164 has been rightly relied upon by the learned Judge. In Amrit Lal Goverdhan Lalan v. State Bank of Travancore, [1968]3SCR724 , the Supreme Court has laid down as follows: "Under S. 140 of the Contract Act the surety is, on payment of the amount due by the principal debtor, entitled to be put in the same position in which the creditor stood i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 33 of 1974, it has been clearly pleaded that there is no right of lien over a firm's share in respect of monies due by its partners in their individual names, in capacities other than as partners and that the defendant-bank cannot plead mistake on the part of its agent. It is useful to refer to a passage in Banking Law and Practice in India by M. L. Tannan (Fourteenth Edition-1973) at page 137 which runs as follows .- "Credit and Liability must be in the same Rights:-- No lien arises on the current account balance or the deposit account of a partner in respect of a debt due from the firm, as the credit on the one hand and the liability on the other do not exist in the same rights (Wolstenhokm v. Sheffield Bank, (1886) 54 LT 746Similarly, a banker cannot set-off any credit balance of a partnership account against moneys due from one or more of its partners on their individual accounts." Moreover, under 0. VIII, R. 6 , C.P.C. there is no set-off unless they are in the same capacity and in the same right. (See Official Assignee v. Harikrishnaand Sons, AIR 1935 Rangoon 201. In Krishnaswami v. Travancore National Bank AIR1940Mad436 , it has been held that the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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