Y VENKATACHALAPATHI REDDY Vs. BANK OF INDIA

JUDGEMENT

(1.) In this L.P.A. we are called upon to decide a ticklish issue i.e. whether the respondent-plaintiff (bank) can be unsuited by relying upon illustration (c) to Section 127 of the Indian Contract Act (for short "the Act"). In other words, whether the surety (guarantee) bond executed by the appellant- second defendant also applies to past consideration or whether the Court has to hold that as the consideration did not pass contemporaneously the surety bond executed by the appellant-second defendant at a later point of time is to be declared as void.

(2.) The facts of the case are as follows: The first defendant who was not party in this appeal, approached the respondent- plaintiff (bank) and made application, dated 2-9-1976, for sanction of term loan for the purchase of a diesel metador (mini-bus) to eke out his livelihood by giving the mini-bus on hire. He agreed to discharge the loan amount with interest within three years as per clause 17 of that application; and as per clause 19 of that application the appellant- second defendant would stand as surety for repayment of the loan amount in regular monthly instalments. The respondent- plaintiff (bank) having processed the application agreed to advance to the first defendant the money required for the purpose of mini-van. Accordingly the respondent-plaintiff (bank) sanctioned a sum of Rs. 43,000/- to the first defendant for the purchase of mini-bus. Unfortunately the letter of sanction did not see the light in this suit though other documents were filed.

(3.) Be that as it may, after the first defendant completed all the formalities, the respondent-plaintiff (bank) disbursed the amount to the first defendant on 28-10-1976. The appellant-second defendant executed the surety bond on the next day i.e., 29-10-1976. From the pleadings it is seen that the first defendant was paying the monthly instalments intermittently, that both himself and the appellant-second defendant acknowledged the debt on 27-7-1978 and that an amount of Rs. 45,054-39 ps. was due to the respondent-plaintiff (bank) as on 26-7-1978. Since the first defendant failed to repay the loan amount, the respondent- plaintiff (bank) issued legal notice, the copy of which is Ex. A-11, to the appellant-second defendant. The appellant-second defendant acknowledged that legal notice under Ex. A-14 and did not choose to give any reply to the respondent-plaintiff (bank). As far as the first defendant is concerned he remained ex parte throughout the proceedings. The plea of the appellant- second defendant in the written statement is that of a total denial except to the extent of execution of Ex. A-7 surety bond. On the basis of the pleadings of the respective parties, the Additional Subordinate Judge, Tirupati (trial Court) framed the following issues for trial: