B S PATRA Vs. STATE BANK OF INDIA

JUDGEMENT

(1.) This appeal arises out of a suit for recovery of money said to have been advanced by the State Bank of India (Respondent 1) under a cash credit agreement from the present appellant (Defendant 2) and the present respondent 2 (defendant. 1).

(2.) The plaintiffs case in short is that the first defendant was carrying on the business in ready-made clothes, hosiery goods etc. in Berhampur town and had approached the plaintiff-Bank for a loan accommodation under a cash credit account for the purposes of his business. The second defendant (the present appellant) offered to stand as a guarantor for repayment of the loan by defendant 1. On 20-4-1970 the plaintiff-Bank granted a loan accommodation to defendant 1 for a sum of Rs.5,000/- under a cash credit account. 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.5,000/- whereafter the first defendant started withdrawing money from the said account. In due course, a sum of Rs.4,995.61 paise which included interest at the stipulated rate became payable to the plaintiff by defendant 1, for repayment of which the plaintiff-Bank made a demand but without any result. The plaintiff-Bank filed the present suit for recovery of the aforesaid amount together with pendente lite and future interest a detailed account of which has been incorporated in the plaint.

(3.) Defendant 1 did not choose to appear and contest the suit in spite of summons duly served on him. Defendant 2 (the present appellant) alone contested the suit. His plea was that he was not aware of any loan granted by the plaintiff-Bank to defendant No.1. It has been stated that the officials of the plaintiff-Bank along with defendant No. 1 once approached him (defendant No.2) and persuaded him to follow them to the bank premises where he was required to sign some printed papers the contents of which were not known to him nor he was made aware of the same. It was represented to him at that time, that the said papers were necessary to be signed for the purposes of defendant No.1 under which defendant No.2 would not incur any liability. Similar representation was made by the bank authorities in respect of the promissory note which defendant No.2 was made to endorse in favour of the Bank. Defendant No. 2 characterised the transaction as a collusive one. He further alleged that the promissory note was not backed by consideration and the endorsement made by him in the promissory note does not amount to transfer of negotiable instrument, under which, he cannot have any liability whatsoever. It was also pleaded by defendant No.2 that the plaintiff-Bank was required to have a constant check over defendant No.1 and his goods which were made the first charge against the loan. The indifference of the plaintiff-bank and its acts and omissions contrary to the terms of the agreement would amount to waiver of the rights of the Bank as against defendant No.2, if any, the effect of which would be that defendant No.2 shall stand released of any liability under the said agreement. Defendant No.2 had intimated the plaintiff-bank in August, 1972 about the clandestine conduct of defendant No. 1 and further urged that the plaintiff-bank should take immediate steps to realise their 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 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.