In the case of hypothecation of goods, the surety is not entitled to the benefit of S.141 of the Contract Act.

J.V.GUPTA, J.

1. The plaintiff-appellant Bank filed the suit for recovery of Rs. 71,500.51 against the principal debtors as well as against the guarantors, i.e., the sureties Yogeshwar Kant Wadhera and Jai Gopal Mehra. The trial Court decreed the plaintiffs suit against both the principal debtors as well as against the sureties. Aggrieved against the judgement and decree of the trial Court, the sureties filed the appeal and the learned District Judge relying upon the Single Bench judgement of this court in State Bank of India V/s. M/s. Quality Bread Factory, Batala, AIR 1983 Punj and Har 244, came to the conclusion that if it was proved that the goods hypothecated by defendants 1 to 3 with the plaintiff were lost due to the negligence of the plaintiff, a finding will have to be recorded that the liability of the guarantors was discharged. Finally, their appeal was accepted and qua them the suit was dismissed.

It would be pertinent to note here, in brief, that in the said Single Bench decision of this Court, it was held that if the loan has been advanced on the basis of security, the surety stands discharged to the extent of the value of the security, if the creditor loses or parts with the security without the consent of surety. Against the said judgement, the parties went to the Supreme Court, wherein their Lordships passed the following orders on Nov. 21, 1983 : "The view taken by the High Court in the present case concerns only the hypothecation, and not that of pledge of goods so as to make the bank the bailee of goods highly debatable. But in view of the fact that the amount involved is very small, we do not think it fit to entertain the S.L.P. and hence it is rejected, but we may make it clear that we must not be deemed to have expressed our approval of the view taken by the High Court."

In view of those observations of the Supreme Court, the correctness of the judgement of the learned single Judge in M/s. Quality Bread Factory s case (supra) was challenged in the present case when it came before me while sitting singly. Since the question was of importance for the Banking Industry and the Single Bench judgement of this Court in M/s. Quality Bread Factory s case (supra) according to me required re-consideration, I referred the case to a larger Bench vide my order dt. April 23, 1986. This is how the case is before us.

2. The plaintiff Bank sanctioned a cash credit limit of Rs. 30,000/- against the hypothecation of stocks, re-payable on demand in favour of M/s. Baij Nath Bhim Sain Wadhera and others, defendants 1 to 3. In pursuance of the sanction of the aforesaid cash credit limit of Rs. 30,000/- by the plaintiff Bank, defendants Nos. 2 and 3 on their own behalf and on behalf of their firm, defendant 1, executed various security documents in favour of the plaintiff-Bank including a particular Joint and several promissory note for Rs. 30,000/- and the deed of hypothecation of stocks. Defendants Nos. 4 and 5 executed a joint and several guarantee deed on May 1, 1976, guaranteeing the due payment of the money advanced by the plaintiff-Bank in consideration of the cash credit limit of Rs. 30,000/-, two days after demand together with interest at the agreed rates. Thereafter, in Oct./Nov. 1977, defendants 2 and 3 again approached the plaintiff-Bank and represented that they were converting their wholesale trade into retail trade and that they required the additional limit of Rs. 18,000/- to enable them to meet their working capital requirements. The plaintiff Bank sanctioned the aggregate cash credit limit of Rs. 40,000/- against hypothecation of stocks and also to assure the repayment of the balance due and outstanding in the cash credit account of defendants 1 to 3. They also executed a joint and several demand promisory note for Rs. 40,000/- bearing interest and also a deed of hypothecation in favour of the plaintiff-Bank of all stocks of crockery and cutlery etc. Likewise, defendants 4 and 5 executed a joint and se