( 1 ) THIS is a suit for recovery of Rs. 5,40,191. 80 on account of term loan of Rs. 2,50,000/- and cash credit hypothecation limit of Rs. 25,000/ -. Plaintiff is a bank constituted under the Banking Companies (Acquisition and Transfer of Undertaking) Act 5 of 1970. The case of the plaintiff in brief is as under:-

( 2 ) DEFENDANT no. 1 is a proprietorship firm engaged in the business of laser type setting, word processing and computer service. Defendant no. 2 who is the sole proprietor of defendant no. 1 approached the plaintiff at its Janpath Branch and requested the plaintiff bank vide his loan application dated 21. 10. 1988 to grant credit facilities of Rs. 2. 58 lacs (Rs. two lacs fifty eight thousand) under the term loan and of Rs. 23,000/- (Rs. Twenty three thousand eight hundred) under cash credit hypothecating head, as financial assistance for purchase of computers, air conditioner, furniture and fixture and to instal desk top publishing work station and also as working capital for the smooth running and development of his business. The defendant no. 2 also forwarded with his loan application the project report and other various documents and gave assurances of bright future of their product in the market. Vide his letter dated 3. 3. 1989 defendant no. 2 reminded the plaintiff bank to grant credit facilities as early as possible. He also offered the surety and guarantee of Sh. K. N. Khanna and Sh. K. C. Singhal. Plaintiff sanctioned and granted term loan of Rs. 2,50,000 and cash credit limit of Rs. 25,000/- in respect of articles of agreement, letters of hypothecation, demand promissory note, letter of continuity, agreement of hypothecation to secure demand cash credit were executed by defendant no. 2 on behalf of defendant no. 1. Defendant nos. 3 and 4 in consideration of credit facility granted to defendant no. 1 signed, executed and submitted a form of guarantee for a sum of Rs. 2,75,000/- plus interest, charges and other expenses as personal surety and guarantee in their individual capacity for the repayment of the outstanding dues of the plaintiff bank, standing in the name of defendant no. 1.

( 3 ) THE defendants did not adhere to the terms and conditions of the agreement and failed to keep up their commitments and deliberately failed to remit/repay/adjust the debit balance/outstanding dues of the plaintiff bank. The plaintiff made repeated requests, sent reminder after reminder and its staff contacted the defendants personally for payment/adjustments/remitting of outstanding dues of the plaintiff bank but the defendants continuously defaulted and failed to liquidate the outstanding dues of the plaintiff bank. Vide letter dated 12. 3. 1990 defendants made promises and commitments to liquidate the outstanding dues of the plaintiff bank in a short time but to no avail. Defendant no. 2 as proprietor of defendant no. 1 signed, executed and handed over a letter of balance confirmation under the Term Loan Account on 30. 9. 1991 admitting the liability payable to the plaintiff bank to the tune of Rs. 3,02,936. 80 as on 30. 9. 1991 and a sum of Rs. 7565. 50 under the Cash Credit Account as on 30. 9. 1991 and again admitted the liability to the tune of Rs. 3,98,654. 80 and Rs. 10,455. 50 respectively under two respective heads as on 31. 3. 1993 by signing and executing a letter of balance confirmation. Despite assurance and execution of the fresh documents defendants failed to liquidate the outstanding dues of the plaintiff bank and constrained the plaintiff bank to serve a legal notice dated 14. 1. 1994 upon the defendants. Despite service of legal notice, defendants failed to liquidate the outstanding dues. Hence this suit.

( 4 ) DEFENDANTS were duly served with summons of the suit. Defendant no. 2 appeared in person on his behalf as well as defendant no. 1. On 24th August, 1995, defendant no. 2 made a statement that he be permitted to liquidate the outstanding amount of the plaintiff bank in installment