Partners' liability continues despite reconstitution of the firm, and the suit is not barred by limitation for the guarantor. The court upheld the plaintiff's interest calculation but modified the decree to specify the interest payable on the principal outstanding amount.

JUDGMENT :

PRAYER: First Appeal filed under Section 96 of Civil Procedure Code to set aside the judgment and decree made in O.S.No.23 of 2005 dated 31.10.2006 on the file of the Additional District and Sessions Judge (Fast Track Court-II, Ranipet), Vellore District.

This Appeal Suit is filed by the defendants 1, 2 and 4 aggrieved by the judgment and decree dated 31.10.2006 in O.S.No.23 of 2005 (originally O.S.No.9 of 2005) passed by the Additional District and Sessions Judge (Fast Track Court-II, Ranipet), Vellore District in and by which the Suit for recovery of money filed by the plaintiff bank was decreed by the Trial Court by passing a preliminary decree directing the defendants to deposit a sum of Rs.18,12,933.99/- with further interest at the rate of 6% per annum till the date of realisation. In this judgment, the parties are referred to in the same ranking as before the Trial Court.

2. The case of the plaintiff/Bank is that the first defendant is a partnership firm and the defendants 2 to 4 are its partners. The firm availed a loan of Rs.50,000/- on 07.06.1989 agreeing to repay the debt with interest at the rate of 16.5% per annum compounded quarterly for the value received. A promissory note duly signed by the second defendant on behalf of the first defendant firm in the capacity of Managing Partner was executed. The debt was followed by two letters of Acknowledgement of Debts dated 02.07.1991 and 20.03.1993. The balance outstanding on account of the said loan was Rs.31,608/- with further interest inclusive of penal interest upto 15.11.1994.

3. The first defendant also availed overdraft facilities to the tune of Rs.2,00,000/- and two promissory notes were executed by the first defendant firm on the same terms and conditions. The two promissory notes are dated 07.06.1989 for Rs.1,00,000/- and another for Rs.2,00,000/- on 20.10.1990. The first defendant firm also executed a Deed of Hypothecation. The loan was also acknowledged by letter on 01.02.1992 and the balance outstanding on the said account as on 31.12.1991 was Rs.3,35,376/-. Thereafter, on 17.02.1993, in respect of the total liability arising out of both the transactions, the second defendant deposited the title deeds in respect of the Suit Schedule Property by duly executing a Memorandum of Deposit of title deeds and created a mortgage of making the suit property as security in respect of the entire loan amount. The defendants defaulted in repayment and therefore as on the date of filing of the Suit, the total outstanding amount was Rs.5,10,773/- along with future interest at the rate of 21.25% and hence the Suit.

4. The first defendant filed a written statement whereunder both the loan transactions were admitted. It is submitted on behalf of the first defendant that when two promissory notes were executed in respect of the second loan transaction, the entire loan transaction was only for a sum of Rs.2,00,000/- and upon execution of the second promissory note for a sum of Rs.2,00,000/-, the first promissory note stood superseded. It is the case of the defendants that a sum of Rs.50,000/- was lying as a deposit with the Bank and therefore during the period from 1989 when the amount was lying as a deposit, no interest was chargeable for a sum of Rs.50,000/- which was promised to be kept in the account for grant of Bank Guarantee. But, however, since the overdraft facility was sanctioned, there was no need for a Bank Guarantee and the interest of the said sum of Rs.50,000/- was never paid. Therefore, counter interest has to be calculated and adjusted towards the balance amount due.

5. An additional written statement was also filed on behalf of the first defendant denying the execution of the letter of acknowledgment of debts and raising a plea of limitation and also claiming that the Bank had no right to adjust the sum of Rs.50,000/- which was lying in deposit. The third defendant separately filed a written statement whereunder it was contended that except for the debts