RADHA THIAGARAJAN Vs. SOUTH INDIAN BANK LTD

JUDGEMENT

(1.) The second defendant in a suit for recovery of money is the appellant. The plaintiff is the South Indian Bank Ltd. (also referred to herein as the "Bank" or the "creditor" as the context may require). The fust defendant (also referred to herein as the "owner" or the "principal debtor") is a limited company which owned a textile mill, the management of which had been taken over by the Central Government under the Industries (Development and Regulation) Act, 1951 (the "1951 Act") and which has been subsequently nationalised under the Sick Textile Undertakings (Nationalisation) Act, 1974 (Act 57/1974) (the "Nationalisation Act"). Defendants 2 and 3 (also referred to as the "sureties") executed in favour of the Bank a continuing guarantee in respect of the overdraft account which the first defendant had with the Bank and under which the plaint amount is alleged to be still outstanding from the first defendant as the principal debtor and defendants 2 and 3 as the sureties. The 3rd defendant died during the pendency of the suit and additional defendants 4 to 16 were impleaded as the legal representatives of the 3rd defendant. The second defendant is also one of his legal representatives. The suit against the first defendant was dismissed in view of the alternative remedy available to the plaintiff under the Nationalisation Act, but it was decreed against defendants 2 and 3 in the sum of Rs. 84,514.32 together with interest, subject to the direction that the liability of the legal representatives of the third defendant should be decided at the stage of execution.

(2.) The management of the textile mill (hereinafter referred to as the "undertaking") was assumed by the Central Government under S.18-A of the 1951 Act with effect from 14th July 1972. Subsequently, as from 18th August 1972, it was declared as a relief undertaking in terms of the Kerala Relief Undertakings (Special Provisions) Act, 1961 (Act 6 of 1962) (the "1961 Act"). During the pendency of the suit, the Nationalisation Act which received the assent of the President of India on 21st December 1974 came into force as from 1st April 1974, The first schedule to that Act contains the names of the undertakings and the owners as well as the amounts awarded to them in compensation. The undertaking of the first defendant is mentioned as item No. 78 and the compensation awarded to it is Rs. 26,05,000.

(3.) The suit has been instituted by the Bank for realisation of the amount due to it from the first defendant under the overdraft account which was granted on the strength of the guarantees executed by defendants 2 and 3. Exts. A-1 and A-2 respectively are the demand promissory note and the overdraft agreement for a sum Rs. ,1,00,000 executed by the first defendant on 11th October 1969. Exts. A-3 and A-4 are the guarantees, dated 11th October 1969 and 18th April 1970 executed by defendants 2 and 3 in favour of the Bank in respect of the said overdraft account. It is specifically provided in Ext. A-3 that it is a continuing guarantee up to a maximum of Rs. 4,25,000 with interest thereon at the rate of 11 per cent per annum. It contains the necessary reservation of remedies against the sureties. Clauses 3 to 5 provide that the liability of the sureties will remain unaffected, notwithstanding any time, indulgence or other release granted by the Bank to the principal debtor or the bankruptcy or insolvency of the principal debtor of any arrangement or composition made between them. These provisions have been reaffirmed in Ext. A-4.