The legal principles of continuing guarantee and bailment under the Indian Contract Act were central to the court's decision.

This is the plaintiffs appeal against the judgment and decree dated 31-5-1993 dismissing the suit against the defendant Nos. 3 to 5 with the direction that plaintiff shall be liable to adjust the amount of the goods which were pledged with it.

2. Briefly stated the facts are that the plaintiff-appellant (hereinafter referred to as the Bank) filed suit for recovery of Rs. 57,27,575. 44 with the allegations that defendant-respondent No. 1 was a private limited company incorporated under the provisions of Companies Act, 1956 and defendant-respondent No. 2 was a unit of defendant-respondent No. 1. In May 1977 defendant No. 1 company approached the Bank for grant of various credit (banking facilities) and the Bank agreed to grant to the defendant No. 1, inter alia, three facilities i. e. (i) cash credit limit of Rs. 10,00,000/-, (ii) cash credit hypothecation limit of Rs. 4,00,000/- and (iii) a documentary D. D. limit of Rs. 5,00,000/ -. The respondent-company opened Cash Credit Pledged and Cash Credit Hypothecation Accounts with the Bank on 1st August, 1977. In the middle of the year 1978 the Bank agreed to enhance the aforementioned limits with effect from 7th August, 1978. In consideration of the aforesaid credit facilities, defendant No. 3 Kishori Lal Seth and defendant No. 4 Sri Nand Kishor Seth agreed to and became guarantors of defendant No. 1 for repayment of the entire borrowings of defendant No. 1 together with interest etc. to the Bank with their liability being joint and several and co-extensive with defendant No. 1. These guarantors executed agreement of guarantee and indemnity on 1st August, 1977 and a supplementary agreement on 7th August, 1978. Defendant No. 1 pledged certain goods with the Bank. The defendants, however, failed to pay the amount and the total sum due on the date of filing the suit was Rs. 57,27,575. 44. During the pendency of the suit defendant No. 2 died and his heirs were substituted. It was claimed that the liability of guarantors were joint and several.

2a. The defendants Nos. 1 and 2 filed a joint written statement and denied their liability. It was alleged that the appellant had colluded with defendant-respondent Nos. 3 and 4. The defendant No. 1 had pledged the goods with the Bank and had offered that the pledged goods be purchased by the Bank but it refused to do so. The defendant Nos. 1 and 2, however, did not deny the fact that they had taken loan from the Bank.

3. The defendant Nos. 3 and 4 filed written statement. The Management of the Company was changed since 31-1-1982 when its management was taken over by Sri R. N. Agarwal, a resident of 75 Rajmahal Vikas Extension, Bangalore and he after taking over management of the Company opened new account with the Bank. It was pleaded that after the change of the management their liability as guarantors stood discharged. The Bank got removed the pledged goods and unless the pledged goods are accounted for, they could not be made liable to pay the amount alleged to be due against defendant Nos. 1 and 2.

4. During the pendency of the suit the appellant applied to the Court for appointment of Receiver of the property of the defendant Nos. 1 and 2. The trial Court appointed the Receiver on 7-10-1983. The Receiver, on taking charge of the factory, auctioned certain goods which were alleged to be already pledged with the Bank. The parties led oral and documentary evidence in this case. The trial Court found that the defendant No. 1 had taken loan and it was liable to pay the loan amount with interest to the Bank. The suit against the defendant Nos. 3 and 4 were dismissed on the ground that they stood discharged on the change of management of the Company in the year 1982. In the operative portion it was directed that the appellant shall adjust the amount of the pledged goods.

5. There are two main questions in this appeal. Firstly, as to whether the Court was legally justified in dismissing the suit against defendant Nos. 3 and 4 and s