Guarantee liability and territorial jurisdiction upheld; no charge was created and interest remained recoverable against the surety.

In a guarantee dispute, territorial jurisdiction lay where the guarantee was completed and performed, so the objection under Clause XII failed. Non-presentment of the promissory note did not defeat liability because the claim was founded on the guarantee, not on the note as a negotiable instrument, and the statutory defence was inapplicable. The connected documents, read as a whole, created only a personal covenant that assets would remain unencumbered; they did not create a charge, hypothecation, or floating charge, so the surety was not discharged on that basis. Interest also remained recoverable against the surety despite the winding-up order, as the surety's liability was coextensive with that of the principal debtor unless the contract provided otherwise.

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Issues: (i) whether the suit was within territorial jurisdiction under Clause XII of the Letters Patent; (ii) whether omission to present the promissory note for payment defeated liability under Section 69 of the Negotiable Instruments Act; (iii) whether the resolution and connected documents created a charge, hypothecation, floating charge, or other enforceable security over the company's assets so as to discharge the surety; and (iv) whether interest was recoverable against the surety after the winding-up order.

Issue (i): whether the suit was within territorial jurisdiction under Clause XII of the Letters Patent

Analysis: The claim was treated as one founded on the contract of guarantee rather than as a suit on the promissory note simpliciter. The guarantee was completed in Bombay when the relevant documents were handed over to the bank there, and the place of performance was also Bombay. On that footing, the part of the cause of action relied upon by the bank arose within jurisdiction.

Conclusion: The objection to territorial jurisdiction failed.

Issue (ii): whether omission to present the promissory note for payment defeated liability under Section 69 of the Negotiable Instruments Act

Analysis: The words in the instrument were treated as indicating a specified place, but the note was not sued upon as a negotiable instrument against the maker. The operative claim was on the guarantee, and the evidence showed that presentment could not in any event have been made to the defendant at the specified place. The statutory rule was therefore not attracted so as to bar the claim.

Conclusion: The defence based on non-presentment failed.

Issue (iii): whether the resolution and connected documents created a charge, hypothecation, floating charge, or other enforceable security over the company's assets so as to discharge the surety

Analysis: The documents were construed by their substance and surrounding circumstances. The expressions used, including "negative lien", amounted only to a personal covenant that the assets would remain unencumbered and did not evince a clear intention to create a right to proceed against the assets by sale. No floating charge or hypothecation was created, and later statements by the company or silence of the bank could not alter the construction of the original transaction or create a new security by implication.

Conclusion: No charge, hypothecation, or floating charge was created, and the surety was not discharged on that basis.

Issue (iv): whether interest was recoverable against the surety after the winding-up order

Analysis: The liability of the surety was treated as coextensive with that of the principal debtor unless the contract provided otherwise. The cessation of interest against the principal debtor by operation of liquidation law did not, by itself, extinguish the surety's contractual liability for interest.

Conclusion: Interest remained recoverable against the surety.

Final Conclusion: The bank succeeded on the substantive defences raised, and the decree was affirmed in its favour for the principal sum, interest, and costs.

Ratio Decidendi: In a guarantee transaction, jurisdiction and liability are determined by the place where the guarantee is made and performed; a charge or hypothecation over property arises only when the instrument, read as a whole and in context, clearly evinces an intention to create a right of recourse against the property itself, and mere negative covenants or silence do not suffice.

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