LexPUN.JAB NATIONAL BANK LIMITED versus BIKRAM COTTON MILLS & ANR.
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462
PUN.JAB NATIONAL BANK LIMITED
v.
BIKRAM COTTON MILLS & ANR.
September 17, 1969
[J. C. SHAH AND A, N. GROVER, JJ.]
Contract Act 1872, s. 126-Coinpany director executing bond to repay
'u'timate
balance'
found due frofn
co1npany to Bank on cash~credit
account--Sinn1ltaneously other docun1ents
executed by conzpany under-
taking repayment-If bond inde11znity or co111rac/, of guarantee-Whether
suit by Bank prior to deterniination of ultinulfc balance was ·pre)nature.
Companies Act, 1956, s. 39!-Sclzeme of composition between con1-
pany and creditors-If binding on dissenting creditors.
The ti:rst respondent company openeQ a cash~credit account with
the
appellant bank and on June 7, 1953 to secure repayment of the balance
due at the foot df the account the first respondent company executed three
documents through its managing agents i.e. a promissory note, a deed of
hypothecation and a letter assuring the appellant bank that the CO!Qpany
would remain solely responsible for all loss, damage O( deter\crration of the
stocks hypothecated with the bank. On the same clay R a Director of the
managing agents executed a bond called "agreement of guarantee" agree-
ing to pay on demand all monies which may be due as the "ultimate
balance" from the company to the bank. Jn December, 1953 the com-
pany closed its business. The stocks pl- dged were disposed of by the
bank anct the amount realised was credited in the company's account. A
balance of approximately R•. 2.56 lakhs remained due at the 'foot of the
account.
Some creditors of the company in the meantime filed a petition for
winding up the company.
On February 22, 1956 a scheme of composi-
tion was settled among the creditors and was later sanctioned by the High
CGurt on May 21, 1956 under section 391 of the Companies Act, 1956
after rejecting the opposition of the appellant bank. The bank then filed
a suit against the company and R for a declaration that on the date of the
suit a sum df over Rs. 2.56 lakhs was due against the company and for a
decree for payment of the amount against R.
The trial court dismissed
the suit and on appeals filed by both the parties the High Court held that
the scheme having been cqnfirmed ·by the court, had statutory operation
and was binding on all creditors including the bank; the bank ha,t become
an unsecured credito·r for the amount remaining due after sale of the pledg-
ed ~oods and it \Vas for the board of trustees under the scheme to deter-
mine the amount for apyment to the bank. The co11rt also held that the
suit against the company withour obtaining leave Clf the court was
not
majntainable. It further held that R had executed an
inden1nitv
bond
and that even assumin~ he was a suretv under the terms of the bond he
was only responsible for ensuring payment of the "ultimate balance" which
still had to be determined.
The Hi_gh Court accordingly confirmed thl'
decree of the trial court and held that the suir against R was premature.
On appeal to this Court,
HELD: (i) The suit must be remanded to the trial court to detern1ine
4'the ultimate balance" and for disposal according to la\\·.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
- P. ~'. BANK v. BIKRAM COTTON MILLS (Shah, J.)
463
The appellant b•nk was entitled to claim at any time the money due
{rom the company as well as from R under the promissory note and the
bond.
The suit could not therefore be said w be premature. The High
Court instead of dismissing the suit should have stayed it till ''the ultimate
balance" due to the bank from the company was determined. [471 E-F]
(ii) The binding obligation created under a composition under s. 391
of the Companies Act, 1956, between the company and its creditors does
not affect the liability of the surety unless the contract of suretyship other-
wise provides. [471 F-G]
Ha/sbury's Lall's of England, Vol. 63 rd. Edn., Art. 1555 at p.
771;
Re. Garner's Motors Ltd. [1937] Ch. 594~ referred to.
(iii) The bond executed by R was one ot the four documents executed
on the same day and was part of the schen1e to ensure payn1ent of the
amount found due to the Bank.
Although the bond was not also execut-
ed by the company, the 'fact that it was executed simultaneously with the
other documents and the conduct of R as \Vell as the company indicated
that R agreed to guarantee payment of the debt due by the company. It
must be held, therefore that the Bank, the company and R were partiesExcerpt shown. Read the full judgment & AI analysis in Lexace.