UNITED COMMERCIAL BANK Vs. MADAN MOHAN DIDE

JUDGEMENT

(1.) THE defendant was a Director of Artwood Products Private Limited, a company incorporated under the provisions of the Companies Act, 1956 and since wound up by order dated 12th July, 1976 in Company Petition No. 582 of 1975. On 13th January 1971, at the request of the company, the plaintiffs granted to the company a term loan in the sum of Rs. 2,00,000/- on the company agreeing to pay interest thereon at the rate of 5% per annum above the Reserve Bank of India rate subject to minimum 10% per annum with quarterly rests. The company agreed to hypothecate in favour of the plaintiffs all the movable plants, machinery etc. In consideration thereof loan was granted in the sum of Rs. 2,00,000/- and the same was secured by the company, by demand promissory note, a letter of waiver and letter of continuity. On 13th January, 1971, the company had executed a Deed of Hypothecation whereby several articles including moveable plants and machineries were hypothecated and charge has been registered with the Registrar of Companies. On 13th January, 1971, at the request of the company, the plaintiffs granted to the company Cash Credit Facility in the limit of Rs. 2,50,000/- on the terms and conditions and the company agreed to hypothecate in favour of the plaintiffs stock of raw materials such as plywood, timber etc. In consideration of the Cash Credit Facility being granted, the company on 13th January, 1971 executed in favour of the plaintiffs by way of security a Demand Promissory Note with interest as set out therein, letter of waiver and letter of continuity. On 13th January, 1971, the company executed a Deed of Hypothecation. The same has been registered with the Registrar of companies.

(2.) ON the plaintiffs having granted to the company term loan and cash credit facility, the defendant executed in favour of the plaintiffs, Deed of Indemnity and guarantee, thereby guaranteering repayment of the amount that may become due and payable. The liability was restricted to Rs. 8,00,000/- with interest as set out therein. The defendant also agreed that as between plaintiffs and defendant, the defendant would be liable as principal debtor jointly with the company and would not be entitled to claim any rights conferred on the defendant by virtue of sections 133, 134, 135, 139 and 141 of the Indian Contract Act. The said Deed further provided that liability of the defendant would extend to all accounts of the company.

(3.) PURSUANT to the arrangement, the plaintiffs advanced to the Company various amounts from time to time. In August/september 1973, the company requested the plaintiff to increase the cash credit facility to Rs. 4,00,000/-, on companys agreeing to pay interest at the rate of 5% per annum and procuring Deed of Guarantee from the defendant for an increased limit of Rs. 9,50,000/ -. On 8th September, 1973, cash credit facility was increased from Rs. 2,50,000/- to Rs. 4,00,000/-, in consideration whereof various securities were given including Deed of Hypothecation. The defendant also executed Deed of Indemnity and/or guarantee in favour of the plaintiffs whereby liability was raised to Rs. 9,54,000/- and interest thereon. The guarantee contains similar terms and conditions as the guarantee of 1971 being on printed forms.