TaxTMI 
TaxTMI 
1986 (3) TMI 348
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....ount. The amount of Rs. 5,000/- was secured by the first defendant by executing a promissory note on 20-4-1970 in favour of the second defendant as the guarantor for the loan and the latter duly endorsed the said promissory note to and in favour of the plaintiff-Bank on the same day. The first defendant also hypothecated his stock of mercantile in ready-made cloths, hosiery, etc. in favour of plaintiff-Bank by executing a hypothecation agreement on the very same day, i.e., on 20-4-1970, which was duly confirmed by the second defendant as the guarantor agreeing, inter alia, that the whole of the stock of the ready-made cloths, hosiery, etc. brought into and stored in the shop or godown of defendant 1 would stand hypothecated to the plaintiff-Bank by way of first charge as security for repayment of all moneys payable by the defendant 1 to the plaintiff-Bank in respect of the said cash credit account. A separate letter of guarantee was also executed by the second defendant in favour of the plaintiff-Bank on the same day. The plaintiff-Bank opened an account in favour of defendant 1 in accordance with the terms and conditions of the agreement with the defendants with a credit of Rs. 5,....
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....ir dues, if any, from defendant No. 1. It was also indicated that unless immediate steps are taken in that behalf, he (defendant 2) would no longer stand as a surety. Similar intimation was again sent to the plaintiff-bank by defendant 2 in Oct. 1972, but the bank deliberately kept quiet being in collusion with defendant 1 giving him enough time to dispose of all his articles and ultimately to move away from the said locality. Under these circumstances, it has been urged by defendant 2 that his liability, if any, under the alleged agreement stood discharged and he is no more liable as a guarantor of defendant 1. A plea was also taken that the limit of cash credit transaction was originally fixed at Rs. 3,000/- and any advancement of loan beyond the said limit is unenforceable against defendant 2. On these grounds, it was claimed that the suit was liable to be dismissed as against defendant 2. 4. The learned Subordinate Judge of Berhampur after recording the evidence offered by the parties decreed the suit ex parte against defendant 1 and on contest against defendant 2 (the present appellant) with costs together with pendente lite and future interest. The present appellant in thi....
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....e were executed. The aforesaid conclusion is further strengthened by the fact that neither in Ext. B nor in Ext. 11 the defendant 2 had breathed a word about his ignorance of the contents of the documents nor did he dispute his liability as a guarantor. 6. The only contention raised by the appellant in this appeal is that he has been absolved from the liability, if any, as a guarantor with effect from 8-8-1972, the date of Ext. 11, when he had intimated the Bank that defendant 1, the borrower, is making brisk attempts to sell away the entire stock of goods in order to escape his liability and that the Bank should waste no time to take all possible steps for recovery of the dues from him. According to him, the Bank was guilty of taking no action against defendant 1 which, he alleges to be, in pursuance of a connivance between the Bank and defendant No. 1. 7. In support of the aforesaid contention the learned counsel appearing for the appellant relies upon various provisions, of the Contract Act relating to the discharge of the surety. In this connection Sections 133 to 141 of the Contract Act must be read together. Section 133 of the Contract Act provides that any variance mad....
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....al debtor or to enforce any other remedy against him would discharge the surety. We have closely gone through the recital of Ext. 2 which in our opinion does not contain any such provision. The sixth paragraph of the said agreement which was brought to our notice in this connection merely enumerates the circumstances under which the bank could proceed against the borrower by sale of the hypothecated goods or otherwise. There is no stipulation whatsoever that the creditor's forbearance to sue would have the effect of discharging the surety. The learned counsel for the respondent also relied on the said section and contends that mere forbearance on the part of the creditor to sue the principal debtor or failure to enforce any other remedy against him does (not) per se discharge the surety in order to meet the arguments advanced on behalf of the appellant that the conduct of the creditor bank in not taking any action pursuant to the letters of the surety (the present appellant) would discharge him. In view of the unambiguous language of Section 137 of the Contract Act, there can be no doubt that the surety is not discharged by the mere passive conduct of the creditor in not suing ....
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....rom the defendant No. 1 by taking possession of the goods and other moveables belonging to defendant No. 1, the principal debtor, as by that time the latter was preparing to sell away the entire stock of goods with a view to escape his liability. Assuming that the Bank did not take any action in spite of the letters (Exts. B and 11), we are unable to reach a conclusion that in the facts and circumstances of this case, the plaintiff-Bank has done any act which is inconsistent with the rights of the surety or has omitted to do any act which his duty to the surety requires him to do. Besides, as already stated, in order to attract Section 139 there must not only be an act inconsistent with the rights of the surety or any omission to do any act which his duty to the surety requires him to do, but also the impairment of the eventual remedy of the surety against the principal debtor. We are unable to find the last requirement of the Section, which according to us is the crucial factor, has been satisfied, even if the other ingredients of the Section are assumed to exist. 9A. The learned counsel for the appellant relied upon a decision of their Lordships of the Supreme Court (State Ban....
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....uch a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor. It is thus, apparent that the Supreme Court in the aforesaid case declared the surety to have been discharged on the basis of a finding that the bank lost the pledged goods on account of its own negligence, which is not the case here. 11. Mr. Sinha appearing, for the respondent urged that the decision of the Supreme Court (supra) is distinguishable from the present case inasmuch as in that case their Lordships were dealing with the rights of the pawnee with regard to the pledged goods whereas in this case the goods were hypothecated and not pledged. The distinction between hypothecation of goods and pledge of goods is well known. In case of pledged goods, the goods are stored in the godown under the lock and key of the Bank under the Bank's supervision. Thus, the pledged goods remain under the physical possession of the Bank and no withdrawals or additions of the stocks in the godown are permissible without the Bank's permission. The position with regard to the hypothecated goods is, however, different bec....