N.A. Britto, J.

The appellant/State Bank of India has filed the present appeal against the judgment/decree in special civil suit No. 81/1981 passed by the learned First Additional Civil Judge, Senior Division, Mapusa by which the suit filed by the Bank against the defendant No. 3 has been dismissed.

2. The said suit filed by the said Bank was earlier decreed against all the defendants by Judgment dated 16.07.1988, but only defendant No.3 (respondent No.1) preferred an appeal to this Court, being First Appeal No. 111/1988, and the Division Bench of this Court by Judgment dated 26.11.1996 allowed the appeal and set aside the said Judgment/Decree dated 16.7.1988 only to the extent it related to the defendant No. 3 and directed the learned Civil Judge Senior Division to frame fresh issues in the light of the pleadings of the defendant No.3 and decide the matter afresh according to law.

3. Accordingly the learned First Additional Civil Judge Senior Division framed as many as eight issues and after the parties represented before him that they did not wish to lead any further evidence, proceeded to decide the suit based on the evidence earlier recorded.

4. The case of the appellant/Bank, briefly stated was that the defendant No. 1 (respondent No.2) was a company carrying on business of manufacturing agricultural implements, ..... etc. having its registered office at Gosalia Building, Margao and its manufacturing premises at B-3-3, St. Jose de Areal Industrial Estate, Margao, Goa of which defendant No. 2 (respondent No.3) was the Managing Director, defendant No. 3 (respondent No.1) was the Executive Director and defendant No. 4 (respondent No.4) was the Director. Further it was the case of the Bank that in the year 1976 the said defendant company was granted by the plaintiff at their request cash credit limit of Rs.1 lakh which was secured by stocks for working capital purposes and that the said cash credit facility was irregulary being operated due to financial crisis by the said defendant company and, as such, the said defendant company requested the Bank to put their account under the Bank's Rehabilitation Programme to enable the company to carry out the operations on profitable lines and so the said defendants in November, 1978 approached the Bank and requested the Bank to grant to them a Demand Cash Credit limit of Rs.2 lakhs i.e. Rs.1 lakh for Ghamellas Division and Rs.1 lakh for Stainless Division agreeing to pay to the plaintiff interest on the amount so advanced at the rate of 3.55% p.a. Below State Bank Advance Rate with a minimum of Rs.12.95% p.a. Further agreeing to hypothecate with the Bank movables, goods, book debts and other assets belonging to them. The Bank also stated that the defendants also requested the Bank to grant to them a Clear Term Loan to the extent of Rs.70,000/- agreeing to pay to the plaintiff interest on the amount so advanced at the rate of 5.50% p.a. below State Bank Advance Rate with a minimum of 11% p.a. And that the Bank accepted the said proposals/requests against the terms and conditions laid down in their letter dated 8.2.1979 and offered to grant to the defendants the said credit facilities.

5. It was the case of the Bank that the defendants in its Board meeting on 9.2.1979 passed a resolution in order to obtain an advance to the tune of Rs.2 lakhs by way of cash credit, secured by hypothecation pledging of the company's assets and guarantee of its Directors in their individual capacity, and also a Term Loan of Rs.70,000/- on terms and conditions laid down by the plaintiff and accordingly the defendants in respect of the said Demand Cash-Credit limit of Rs.2 lakhs, executed on 1.3.1979 an agreement for the grant of Small Industrial Advances and Hypothecation of movables, book debts and other assets and a supplemental agreement and defendant Nos. 2 to 4 signed a Guarantee Agreement on the same date (1.3.1979) guaranteeing the payment in their individual capacity and jointly and severally. It