Judgment

SHAH, J. - Ranjit Singh was a director of Ranjit Singh and Sons Ltd. - which acted as a Managing Agent of Shri Vikram Cotton Mills Ltd. - Shri Vikram Cotton Mills Ltd. - hereinafter called the Company, - opened a cash-credit account with the Punjab National Bank, and to secure repayment of the balance due at the foot of the account on June 27, 1953 four documents were executed - three by the Managing Agents on behalf of the Company and one by Ranjit Singh. The three documents executed by the Managing Agents were (i) promissory not for Rupees 13,00,000 payable with interest at the rate of 2 1/2 per cent over the Reserve Bank of India rate with a minimum rate of 6 per cent per annum until payment; (ii) a deed of hypothecation of goods described in the Schedule annexed to the document; (iii) a letter to the Bank agreeing that during the continuance of the agreement evidenced by the letter of hypothecation, the Company will remain solely responsible for all loss, damage or deterioration of the securities delivered to the Bank caused by theft, fire, rain, robbery, dacoity or by any other cause whatsoever. Ranjit Singh executed a deed called an "agreement of guarantee" agreeing to pay on demand all monies which may be due as "ultimate balance" from the Company to the Bank.

2. In December 1953 the Company closed its business. The stocks pledged were disposed of by the Bank and the amount realised was created in the account of the Company. The Bank claimed that an amount of Rupees 2,56,877/12/6 remained due at the foot of the account.

3. Some creditors of the Company had in the meantime filed a petition in the High Court of Allahabad for an order winding up the Company. On February 22, 1956, a scheme of composition was settled among the creditors that the total liability of the Company was Rupees 34,45,197-11-2 and the total assets of the Company were Rupees 5,00,000, that the Company was desirous of confirming " a lease agreement" and that in order to safeguard the rights and interests of the Company and its unsecured creditors the Company had entered into an agreement with the lessee. The scheme was sanctioned by order of the High Court of Allahabad dated May 21, 1956 under Section 391 of the Indian Companies Act, 1956 after rejecting the opposition of the Bank.

4. The Bank then filed a suit in the Court of the Civil Judge, Malihabad Lucknow, against the Company and Ranjit Singh for a declaration that on the date of the suit a sum of Rupees 2,56,877/12/6 was due against the Company and for a decree for payment of that amount against Ranjit Singh with costs interest pendent lite. In a joint written statement it was contended, inter alia, that Ranjit Singh was "only a grantor and not a co-debtor" and that he could be made liable only in case of default by the Company, and since the Company had made no default - the suit against Ranjit Singh was not maintainable.

5. Certain preliminary issues were raised by the Trial Judge at the hearing of the suit out of which the following are relevant :

"(1) Whether the plaintiff (Bank) is not entitled to file this suit as against the defendant No. 1 (the Company) without obtaining the leave of the Company Judge as alleged? If so, its effect?

(2) Whether the Court has no jurisdiction to decide on the merits of the plaintiff s claim in view of the facts as alleged in para 12 (A) of the written statement? If so, its effect?

(3) Whether the suit against defendant No. 2 (Ranjit Singh) is not maintainable as pleaded under Paras 7, 13 and 14 of the written statement?"

The Trial Court held that the suit was not maintainable against the Company without obtaining leave of the Company Judge, and also that the Court had no jurisdiction to adjudicate upon the merits of the Bank s claim, for under the scheme the Board of Trustees were to scrutinise the claim and their decision was final. In dealing with the claim against Ranjit Singh the Court held that he had not made any default in payment of the dues and und