Partners are liable for acknowledged loans after reconstitution of partnership, and the court has discretion to reduce interest rate based on the circumstances of the case.

R.SUBBIAH, J.

This Appeal is directed against the judgment and decree of District Judge of the Nilgiris at Udhagamandalam in O.S.No.405 of 1994 (dated 14.02.2006).

2. Appellants are defendants 3, 4, 6, 11 and 12 and respondents, numbering 6, are plaintiff and defendants 1 and 7 to 10. For convenience, parties would be referred as in their original rank in the suit.

3. Brief facts of Plaintiff Bank are as follows:

(a) Originally the suit was filed only as against D1 to D6. Since D2-K.J.Bheeman died during pendency of suit, D7 to D9 (respondents 3 to 5 in the appeal) were brought on record. Similarly, D5-Nataraj died during trial stage and his legal representatives were brought on record as D-10 to D-12 (6th respondent and appellants 4 and 5). D-10 Baby also died.

(b) Case of Plaintiff Bank is that D1 Firm is carrying on business in manufacture and sale of paper bags at Nilgiris. D1 firm was originally constituted by D2 and one S.Bhojan as its partners on 19.08.1985. D1 and its partners approached the plaintiff bank for credit facilities for purchase of new machinery for making paper bags and also a deluxe printing machine. Plaintiff bank sanctioned a Medium Term Loan to the limit of Rs.96,000/- on 04.12.1986 and on that day, they had executed an Agreement for Medium Term Loan, agreeing to repay the said amount with interest at 1% below SBI Advance rate rising and falling therewith with a minimum of 12.5% with quarterly rests and other bank charges. D1 had also agreed to hypothecate the machineries to be purchased as security for the due repayment of the loan. Apart from that, D2 and the said S.Bhojan executed a Guarantee Agreement dated 04.12.1986 undertaking the due repayment and the guarantee shall remain in force until the entire claim of the plaintiff bank has been fully satisfied.

(c)While so, D1-firm was reconstituted under the Deed of Partnership dated 16.07.1987 introducing D3 to D6 as partners on the retirement of one of the partners S.Bhojan on the same date and they desired to continue the said facility with the plaintiff bank and the bank had also agreed to accept the reconstituted D1 firm and its partners as its debtors and to discharge S.Bhojan, the retired partner from the liability. Thereafter, on 21.08.1987, at the request of D1 and its partners, D2 to D6, plaintiff bank had granted a Cash Credit Loan of Rs.50,000/-for the purpose of continuing its business. For which, they had executed a Promissory Note on the same day, agreeing to repay the same with interest at 2.5% below SBI Advance rate with a minimum of 14% per annum with quarterly rest. On the same day, D1 to D6 had executed a Letter of Continuity in favour of the plaintiff bank. In respect of the said loan, D1 to D6 had executed an Agreement for Cash Credit as well as Guarantee agreement. To secure the repayment of Cash Credit Loan, D1, who had already hypothecated the machineries to the plaintiff Bank, had agreed to cover the hypothecation to the Cash Credit Loan also.

(d) Ledger accounts were opened separately with the plaintiff Bank in the name of D1 firm and payments made were duly credited in the account. Contrary to the Agreements, D1 to D6 did not honour the terms of payment. D1 by its separate Revival Letters dated 20.10.1989 and 04.12.1989 had acknowledged the liability of debt. Because of the irregular in repayment of the loan amounts, Plaintiff sent a legal notice to D1 to D6 calling upon them to settle the bank's account; but they did not do so. Plaintiff is entitled to bring the hypothecated machineries for sale described in the schedule. Therefore, plaintiff filed the suit for recovery of (i) Rs.5,51,285/- with interest on Rs.2,51,937/- at 15.5% per annum and on Rs.2,99,348/-at 14.5% per annum with quarterly rests from D1 firm and its partners. Pending suit, D2 and D5 died and their legal representatives were brought on record as parties.

4. Denying averments in the plaint, D3 (Meera Raju) filed the written statement contend