The main legal point established in the judgment is the requirement of proving gross neglect for invoking Section 78 of the T.P. Act and the onus of proof on the party invoking the section. The judgment emphasizes the importance of prudence and due diligence in accepting properties as security, and the consequences of undue haste and callousness in such transactions.

BHASKARAN, J. :- The State Bank of India, Cochin, the plaintiff in O. S. No. 4 of 1976 on the file of the III Additional District Judge, Ernakulam, hereinafter referred to as the 'Bank', is the appellant. The suit is one for recovery of a sum of Rs. 12,22,848.13 with interest and costs from defendants 1 to 8 and the plaint schedule properties. The 1st defendant is a partnership firm M/s. Faiz Fisheries, hereinafter referred to as the 'Firm', represented by its partners, defendants 2 and 3. Defendants 4 to 8 are guarantors who had executed mortgages in favour of the Bank in respect of the properties mentioned in the C and D schedules to the plaint. The 9th defendant is the Kerala Financial Corporation, hereinafter referred to as the 'Corporation', claiming charge over item No. 1 in the B Schedule to the plaint.

2. The contest in the Court below was solely between the Bank and the Corporation and the main point for decision was whether Section 78 of the T.P. Act would have application for resolving the conflict of priority of charge between the Bank and the Corporation over Item 1 in the B schedule to the plaint.

3. The plaint proceeded on the footing that the firm having, on 12-3-1969, deposited with it the title deeds of Item I in the B schedule to the plaint with intent to create security by way of mortgage for the advance under "Overdraft Packing Credit Account", with a drawing limit of Rs. Five Lakhs, granted by the Bank in favour of the Firm, it was entitled to a first charge over that property. The Corporation, on the other hand, in its written statement stated that through the gross neglect on the part of the Bank it was induced to lend a sum of Rs. Ten Lakhs on the security of properties included in the very same properties mortgaged to the Bank, under a registered mortgage deed executed in its favour by the firm on 12-1-1971, and, therefore, by the operation of Section 78 of the T.P. Act, the Corporation was entitled to priority in the matter of charge in preference to the Bank. The trial Court decreed the suit as against defendants 1 to 3 and the plaint schedule properties with costs from defendants 1 to 8. In the decree it was also stated that with respect to the plaint B schedule property the Corporation was entitled to get prior charge; and the Bank was also directed to pay the costs of the Corporation. It is aggrieved by that part of the judgment of the trial Court which adversely affected the interest of the Bank that this appeal has been preferred by the Bank against the Corporation.

4. According to the plaintiff, apart from the advances given under the 'Overdraft Packing Credit Account' for which the Firm had furnished security by the deposit of title deeds etc., which included the 75 cents of land in Kumalangi village, described as Item 1 in the B schedule to the plaint, it had also granted a Medium Term Loan to the firm on the security of machinery and also of 16.94 cents of land belonging to defendants 2 and 3 by their executing a deed of mortgage in favour of the Bank on 12-8-1969. The liability under that loan was, however, discharged on 21-1-1971 when the firm paid to the Bank a sum of Rs. 13,952.71 in cash, and the Corporation handed over to the Bank on behalf of the Firm a cheque for Rs. 3.5 lakhs, and thereupon the Bank executed Ext.B-1 release deed on 12-1-1971. The Bank by its letter dated 13-12-1971, a true copy of which is Ext.B-3 had, however, requested the Corporation to examine and advice whether it would be willing to allow a second charge to be created in its favour on the properties, buildings and machineries charged to the Corporation, as the firm owed to the Bank large sums borrowed from it under the Overdraft Packing Credit Account, and to this request the Corporation had respondent favourably. Ext.B-6 is the true copy of the application dated 12-11-1970 submitted by the Firm to the Corporation for a loan of Rs. 10 lakhs. In Col.12(a) of Ext.B-6 application, giving the details of mor