STATE BANK OF SAURASHTRA versus CHITRANJAN RANGNATH RAJA AND ANR.

Citation: [1980] 3 S.C.R. 915 · Decided: 30-04-1980 · Supreme Court of India · Bench: A.C. GUPTA · Disposal: Dismissed

Cited by 1 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

915 
STATE BANK OF SAURASHTRA 
v . 
.. ~/ 
CHITRANJAN RANGNATH RAJA AND ANR. 
April 30, 1980 
[A. C. GUPTA, D. A. DESAI AND E. S. VENKATARAMIAH, JJ.] 
B· 
Indian Contract Act, Section 141, scope of-Discharge of surety-Conditions 
under which surety can be discharged under sections 139-141 of the Act,-Secu-
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rity of pledged goods was lost on account of the negligence of the Creditor-
Wheiher "the Surety would not be discharged in the instant case on ti proper con-
,-_ struction of clauses 5, 7 and 13 of, the letter of guarantee. 
c· 
Civil Procedure Code, 1908-Sect~on 144 as amended by Amendment Act of 
1976, scope o/-Re.stitution-Dir'ections by the SUpreme Courl) in the instant 
case, whether could be made-"Court of first instance", meaning of. 
· The appellant bank allowed a cash credit facility limited to Rs. 75,000/- to 
the principal debtor Harilal Parmananddas Adatia on his pledging 5,000 tins of 
groundnut oil under the lock and key of the Bank and on personal guarantee of 
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the surety, respondent No. ·2. The principal debtor executed a demand promis-
sory note Ext. 81 in fayour of the Bank on Sept'ernber 16, 1957, and on the same 
day the principal debtor also executed a. demand promissory note, Ext. 30, in 
favour of the surety which the surety endorsed in favour of the Bank. 
Along 
with the rwo demand promissory notes, simultan'eously the surety executed a letter 
of guar.:intee F...xt. 31 in favour of the Bank and the principal debtor executed· a 
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bond Ext. 83 in favour of the Bank. The principal debtor also passed letter of 
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continuity of the bond and the promissory note Ext. 82. Thereafter the principal 
debtor enjoyed the cash credit facility by borrowing various amounts. 
By the 
end of February 1959 the principal debtor owed Rs. 76,368.04 P in this account 
to the Bank. Principal debtor died in November 1959. The Bank wrofe to the 
surety letter Ext. 32 dated December 24, 1959, calling upon him to pay the 
outstanding balance of Rs. 70,879/- in cash credit account of principal debtor as 
in the circumsta.nces mentioned in the letter the balance was required to be r'e-
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~vered from the surety. Some correspondence ensued thereafter between the 
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Bank and the surety and ultimately the Bank filed the suit for recovery of 
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Rs. 76,368.04 P . .;;:.gainst defendant 1, the legal representative of princi:Pal debtor 
and defendant. 2, the surety. 
The trial· court found tb2.t there was negligence on the part of th'e Bank with 
regard to the safe custody of the pledged oil tins but as the contract of guarantee 
enfered into by the surety with the Bank was 
independent of the pledge of 
goods given by the principal debtor, the sur'ety is not discharged from his 
liability under the guarantee. 
So oOOerving the trial court decreed the suit. 
The .surety pai<l the entire amount demanded and appealed to t'he High Court. 
The High Court held that the two promissory notes, on'e executed 
by the 
principal debtor in favour of the Bank Ext. 81, and another by the principal 
debtor in favour of the surety· and· endorsed by the surety to the Bank, Ext. 30, 
and the letter of guarantee Ext. 31 executed by the surety in favour of the Bank 
as also the bond executed by the principal debtor in favoor Qf the Bank Ext. 83 
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H 
916 
SUPREME COURT REPORTS 
[1980] 3 S.C.R, 
A 
and the letter of conlinuity Ext. 82 executed by the principal debtor in favour of 
the Bank, all on September 16, 1957, constituted one composite transaction and 
they evidenced that the principal debtor bad offered two securities, one the 
pledge of oil !ins and another personal guarantee of the surety. The High Court 
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further held th~t the Bank was utterly negligent and had not exercised. such care 
as a prudent man would in the circumstances of th'e case which resulted in the 
loss of security, namely, pledged oil tins and, therefore, in view of combined 
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operation of sections 139' and 141 of the Indian Contract Act, the surety is d.i£.. 
charged. Accordingly, the appeal of th'e surety was allowed and the suit against 
him wlis dismissed. Hence this appeal by plaintiff Bank. 
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Dismissing the appeal by certificate, the Court, 
HELD : 1. In order to attract section 141 of the Contract Act, it must be 
shown that the creditor had' ta.ken more than one security from the principal 
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debtor at the time when the contract of guarantee was enfered into and irrespec-
tive of the fact whether the sur'ety knew of suc

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