NADAR BANK LTD Vs. CANARA BANK LTD

JUDGEMENT

(1.) This appeal is instituted by the third defendant in the court below, The Nadar Bank Limited, Madurai, against the judgment and decree of the learned Subordinate Judge of Madurai in O. S. No. 155 of 1952, which was a suit instituted by the Canara Bank Ltd. (plaintiff) for recovery of a sum of Rs. 21017-6-0, from two merchants, first and second defendants, which was decreed with costs. As the appeal involves certain interesting questions of law and fact relating to the priority of what are known in mercantile and banking practice as loans upon the security of goods under the "open credit" system, as against similar advances under the "key loans" system, we shall first set forth the broad and indisputable facts, before formulating the points that arise for our determination.

(2.) The facts are that defendants 1 and 2 are members of an undivided Hindu family canying on business in grains and cereals under the name and style of "V. M. Sankarapandia Nadar" at Madurai. The Madurai branch of the Nadar Bank Ltd. (hereinafter termed the appellant bank) was giving credit facilities to defendants 1 and 2, as regular customers, for the past nearly 15 years. The accounts show that the last cash credit transactions of defendants 1 and 2 with the appellant Bank were closed on 22-2-1952. From about 1949, defendants 1 and 2 were also having a current account with the Canara Bank Ltd, (hereinafter termed the plaintiff bank). They took "key loans" from the plaintiff bank of Rs. 19500 on 4-1-1952 and Rs. 14500 on 20-2-1952. While matters stood thus, the appellant bank gave cash credit accommodation to the limit of Rs. 40000 to defendants 1 and 2 for the year commencing from 1-3-1952. Under Ex. B.7, which is a vital document in the case, the cash credit was obtained upon security of goods under the "open credit system" in the following four godowns, namely 31 Chintamani Road 5 Gurusadi Lane, 11 Panthadi 7th lane, and 9 Panthadi first lane and also upon the security of certain immovable property (2 Ponnammal Road), on 20-31952, the appellant bank split the credit facilities of defendants 1 and 2 into two categories, namely, Rs. 20,000 on "open credit" and Rs. 20000 upon "key loan" (Ex. B. 15).

(3.) On 27-3-1952, the defendants 1 and 2 also approached the plaintiff bank for a "key loan" of Rs. 6600 on pledge of their goods in door No. 9 Panthadi 1st lane (Ex. A. 4). On 4-4-1952, defendants 1 and 2 took a "key loan" of Rs. 14, 350 from the plaintiff bank on pledge of goods in Godown 11, Pandhadi 7th lane and another godown. Under the "open credit" system and the terms of the agreement Ex. B. 7, the defendants 1 and 2 were bound to submit returns of stock periodically, by the week, and they did not do so after Ex. B. 17 dated 24-1952. On 15-4-1952 a godown clerk of the appellant bank is said to have demanded the statement from defendants 1 and 2 who promised to send it the next day. As they did not do so, the clerk (D.W. 1) went and inspected the godowns and found the doors of Nos. 9 and 11 locked with the locks of the plaintiff bank. Subsequently, disputes for priority arose between the two banks, and the appellant bank also filed a criminal complaint against the first defendant (C. C. No. 1101 of 1952 Sub Magistrate, Madurai). After the plaintiff liled the present suit, a receiver was appointed by the Court for sale of the goods in the three godowns, and certain realisations have been made, admittedly far below the value of the goods as originally shown.