The negligence of a bank in preserving prime security results in the discharge of the surety under Section 141 of the Contract Act, 1872.

ORDER :

(Anil Kumar Jukanti, J.)

1. Mr. M. Narender Reddy, learned Senior Counsel representing Mr. Umesh Singh, learned counsel for the petitioner.

Mr. Gadi Praveen Kumar, learned Deputy Solicitor General for respondent Nos.1 and 2.

2. This writ petition is filed seeking to grant the following relief:

"For the reasons stated in the accompanying affidavit, the petitioner Bank herein prayed that this Hon'ble Court may be pleased to issue a writ, order or direction more particularly a Writ in the certiorari calling for the records in RA.No.41/2007 from the 1st respondent and to quash the order dated 11.01.2008 in RA.No.41/2007 of the 1st respondent and pass such other order or orders as this Hon'ble Court may deem fit and proper in the interest of justice."

3. Brief facts:

The unofficial respondent Nos.4 and 5 are in the business of manufacturing mileage boosters, which save petrol and each piece costs Rs.1,500/-. They approached the petitioner-bank for financial assistance and the bank initially sanctioned a Term Loan of Rs.40,433.63 ps. for purchase of machinery etc., and that the 5th respondent himself invested a sum of Rs.1,00,000/- for the purchase of machinery.

3.1. The respondent No.5, proprietor of respondent No.4 availed Cash Credit (Mundy Type) facility with a limit of Rs.5,70,000/-, Cash Credit (Outward Bill) facility with a limit of Rs.1,10,000/- and a Medium Term Loan facility with a limit of Rs.1,45,000/-. The respondent No.5 representing respondent No.4 executed Guarantee Agreement dated 18.05.1984 for grant of Small Industrial Advances and Hypothecation of Movables Agreement for a sum of Rs.6,80,000/-, Ancillary Agreement No.1 for a sum of Rs.5,70,000/- and Ancillary Agreement No.3 for a sum of Rs.1,10,000/- and 3rd respondent stood as guarantor for repayment of loans and executed the Guarantee Agreement on 18.05.1984.

3.2. The respondent Nos.4 and 5 admitted that the respondent No.3 stood as guarantor and created equitable mortgage of his immovable property in favour of petitioner. However, respondent Nos.4 and 5 denied the correctness of the statement of account(s) filed by petitioner and also denied liability with regard to insurance charges claimed by petitioner.

3.3. The respondent No.3 on 06.06.1984 executed an agreement and extended equitable mortgage by depositing title deeds as security for repayment of loans. As the respondents did not pay the dues in spite of notices, the petitioner-bank filed O.S.No.1082 of 1989 on the file of V Additional Judge, City Civil Court, Hyderabad, for recovery of an amount of Rs.12,09,697.72 ps. under cash credit facility and Rs.2,77,066.09 ps. under Medium Term Loan facility. Respondents admitted sanction of Rs.5,70,000/- under the Cash Credit (Mundy Type) facility and Rs.1,10,000/- under the Cash Credit (Outward Bills) facility, but denied sanction of Rs.1,45,000/- under the Medium Term Loan facility. O.S.No.1082 of 1989 was transferred to Debt Recovery Tribunal (hereinafter referred to as 'DRT') at Bangalore and numbered as O.A.No.146 of 1997 after constitution of DRT for States of Karnataka and Andhra Pradesh. O.A.No.146 of 1997 was transferred to DRT, Hyderabad, and renumbered as O.A.No.616 of 1999 after constitution of DRT at Hyderabad.

3.4. The DRT by order dated 13.09.2006 held that respondent Nos.3 to 5 are jointly and severally liable to pay a sum of Rs.14,86,763.81 ps. with costs, current and future interest at 15% per annum on Rs.12,09,697.72 ps. with quarterly rests and interest at 13.5% per annum, on Rs.2,77,066.09 ps. with quarterly rests from the date of filing of the suit till the date of realization. Aggrieved by the order of the DRT, the respondent No.3 filed appeal No.RA-41 of 2007 before the Debts Recovery Appellate Tribunal (DRAT) at Chennai and by order dated 11.01.2008, DRAT allowed the said appeal.

3.5. The DRAT recorded in its order that it was evident from records that subsequent to filing of inventory report by Commissioner in February, 1992, all the 492 mile