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High Court Of Calcutta
D. K. SEN, AJIT KUMAR SENGUPTA
PRADEEP CHAND LALL - Appellant
Versus
GRINDLAYS BANK LTD. - Respondent
Appeal Nil Of 1986
Decided On : 04/04/1986
BANKING - GUARANTEE - EXHAUSTION OF REMEDIES AGAINST PRINCIPAL DEBTOR - WHETHER NECESSARY BEFORE SUING GUARANTOR - TRANSFER OF PROPERTY ACT, 1882, S. 68.
Fact of the Case:
The plaintiff bank granted an overdraft facility to the second respondent (first defendant) and obtained a promissory note and agreements of guarantee from the appellants (defendants 3 and 4) as security. The second respondent failed to repay the loan, and the bank instituted a suit against the second respondent and the appellants for recovery of the outstanding amount and enforcement of the guarantee.
Finding of the Court:
The court held that the suit was not a mortgage suit and that Section 68 of the Transfer of Property Act, 1882 did not apply. The court reasoned that the promissory note and agreements of guarantee were independent causes of action and that the bank was not required to exhaust its remedies against the principal debtor before suing the guarantors.
Issues: Whether the suit was a mortgage suit and whether Section 68 of the Transfer of Property Act, 1882 applied.
Ratio Decidendi: The court held that the suit was not a mortgage suit because the bank was not suing qua mortgagee for mortgage money. The court also held that Section 68 of the Transfer of Property Act, 1882 did not apply because the personal liability of the appellants arose not on the mortgage but by independent transactions like the execution of the deeds of hypothecation, Promissory Notes, acknowledgments of liability and also by giving personal guarantee which are not connected with the mortgage.
Final Decision: The court dismissed the appeal and held that the bank was entitled to proceed against the guarantors without exhausting its remedies against the principal debtor.
( 1 ) THIS appeal by two of the defendants is directed against the order dated 2nd May, 1983 allowing the application made by the plaintiff-first respondent, Grindlays Bank Ltd. (hereinafter referred to as 'the Bank') for a final judgement under Chap. XIIIA of the Original Side Rules. The facts are in a narrow compass which are stated briefly hereafter.
( 2 ) ON or about 6th Nov. 1973, Cresswell Breweries Ltd. the second respondent (first defendant in the suit) made an application to the Bank for financial assistance by way of inter alia, a Term Loan of Rs. 75,00,000/- for the purpose of financing the setting up of a brewery project at Chowk Bansberia in the District of Hooghly. The Bank by its letter dt. 21st Aug. 1974 informed the second respondent that the said application for a Term Loan of Rs. 75,00,000/- for the said project had been sanctioned by the Bank subject, inter alia, to the approval of the Reserve Bank of India to whom the application was being, submitted by the Bank. In or about 1974 pending the consideration by the Reserve Bank of India of the said application for Term Loan, the Bank at the request of the second respondent and/or the defendants in the suit agreed to grant and granted to the second respondent an overdraft facility up to the limit of Rs. 5,00,000/- in the current account of the second respondent repayable on demand, The Reserve Bank of India by its letter dt. 28th Nov. 1974 sanctioned the Term Loan of Rs. 25,00,000/- only as against Rs. 75,00,000/- applied for by the second respondent. On or about 3rd Nov. 1976 the Bank at the request of the second respondent agreed to increase the said limit of overdraft facility by a further sum of Rs. 3,66,000/ -. The Reserve Bank of India by its letter dated 19th August, 1976 informed the Bank regarding sanction by the Reserve Bank of India of a further Term Loan amounting to a total sum of Rs. 45,00,000/- to be disbursed by Allahabad Bank, Punjab and Sind Bank Ltd. and United Industrial Bank Ltd. The Bank by its letter dt. 9th Dec. 1976 informed the second respondent that a Term Loan of Rs. 25,00,000/- had been sanctioned to the second respondent subject to the terms and conditions mentioned in the said letter.
( 3 ) THE case of the Bank is that the second respondent failed and neglected to comply with the conditions contained in the said letter dt. 19th Aug. 1976 of the Reserve Bank of India as well as the said letter dt. 9th Dec. 1976 written by the Bank. The Bank advanced diverse sums of money to the second respondent in the said current account. The Bank, it is stated, after negotiations with the second respondent and after due consideration of the matter informed the second respondent by its letter dt. 11th Jan. 1978 about its inability to finance the said project and requested the second respondent to send proposal for a programme of repayment of the outstandings in the said current account. Although the Bank is said to have reconsidered the position by its letter dt. 12th April, 1978 but the second respondent allegedly did not comply with the requisitions made from time to time. By a letter dt. 2nd May, 1979 the Bank gave the second respondent time till 15th June 1979 for submission of proposal for liquidation of the outstandings in the said current account and also asked the second respondent to make remittance towards payment of accrued interest. The second respondent failed to pay the dues of the Bank and a sum of Rs. 13,08,535. 10 p. inclusive of interest at the agreed rate calculated up to 31st Dec. 1979 became due and payable. The second respondent also created an equitable mortgage of immoveable property owned by the second respondent situate at Bansberia in the District of Hooghly. It may be mentioned that the said equitable mortgage was for securing loan not only of the plaintiff bank but also those other banks i. e. Allahabad Bank, United Industrial Bank Ltd. and Punjab and Sind Bank Ltd. Which had, along with th
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