The main legal point established in the judgment is the existence of an agreement allowing the plaintiff to debit the Cash Credit Account with the amount covered by the five dishonored bills of exchange, and the acknowledgment of the defendants' liability under the Cash Credit Account.

VAZIFDAR S.J., J.: - This suit is filed to recover a sum of Rs. 5,67,332.51/- together with interest thereon at the rate of 19.5% p.a. and to enforce the hypothecation and/ or charge created by the defendants in favour of the plaintiffs to secure the repayment thereof. Defendant No.1 is the borrower. Defendant No.2 who is a director of defendant No. 1 is sued as a guarantor. The hypothecation/charge is not pressed.

The plaintiffs case:

2. In or about November 1974 the plaintiff granted defendant No. 1 Demand Cash Credit facility upto a limit of Rs. 2,50,000/-. In respect thereof defendant No.1 executed various documents including a Demand Promissory Note, a Deed of Hypothecation and a letter of Lien and Set off all dated 2811-1974. The same had been tendered and marked in evidence as Exhibits P1, P2 and P3 respectively. The documents were completed in all respects when they were signed by the defendants. In March 1975 the Cash Credit facility was enhanced to Rs. 5 lacs in respect whereof a supplemental deed of hypothecation dated 29-3-1975 was executed by defendant No. 1 extending the hypothecation created under the earlier deed of hypothecation to operate in respect of the increased limit. In September 1975 the Cash Credit facility was enhanced to Rs. 5,50,000/ - and in respect thereof another supplemental deed of hypothecation dated 4.9.1975 (Exhibit P 5) was executed by defendant No. 1 extending the earlier hypothecation to cover the enhanced limit. In July 1977 certain further documents were executed including a demand promissory note (Exhibit P 6) dated 28-7-1977 in the sum of Rs. 5,50,000/- and a Continuing Security Bond dated 28.7.1977 (Exhibit P 7). The Demand Promissory Note stipulated interest at 7% p.a. over the bank rate with a minimum of 13% p.a. with quarterly rests. The continuing security bond stipulated that the promissory note was to operate as a continuing security for repayment of all monies due and payable by defendant No. 1 to the plaintiffs. In consideration of the aforesaid facilities defendant No.

2 executed a deed of guarantee also dated 28.7.1977 (Exhibit P 8) in his personal and individual capacity guaranteeing the repayment by defendant No. 1 of the plaintiffs dues upto a limit of Rs. 5,50,000/- with interest thereon.

3. Prior to the cash credit facilities initially granted in 1974 the plaintiffs had granted to defendant No. 1 a "Foreign Bills Purchase" Facility (FBP facility) in 1969. Under this facility the plaintiffs were to purchase/negotiate bills of exchange drawn by defendant No.1 on various parties to whom defendant No. 1 had sold goods. The plaintiffs would thereupon credit the FBP facility account with the amount of the bills after deducting their charges.

4. The plaintiffs case, which is one of the main disputes between the parties, is that there was an agreement and/ or arrangement between defendant No. 1 and itself that in the event of dishonour of any of the bills of exchange purchased by it from defendant No.1 and negotiated under the FBP facility and or in the event of the plaintiffs not receiving for any reason whatsoever the amounts of any such bills of exchange from the respective drawee and/or acceptor thereof the plaintiffs would debit the first defendants account under the aforesaid Cash Credit facility by the amount which the plaintiffs had credited the first defendants account in respect of the FBP facility at the time of negotiation. This agreement and/or arrangement is seriously disputed by the defendants. The arrangement is deposed to by Ved Prakash Sood on behalf of the plaintiffs in his affidavit in lieu of examination-in-chief as under:

"Apart from the Demand Cash Credit Facility, the plaintiffs had also granted another, facility to defendant No. 1 viz. a Foreign Bills Purchase Facility in or about 1969. Under the said facility the plaintiffs would purchase/ negotiate bills of exchange drawn by defendant No.1 on various parties to whom defendant No. 1 had sold goods. The agr

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