State Bank of India vs Dr. T.K. Subramaniam and Others

J. Kanakaraj, J.—The plaintiff in O. S. No. 170 of 1983 is the appellant before us. The first and second respondents, who were the

contesting respondents are the fifth and eighth defendants respectively in the said suit.

The appellant/plaintiff is the State Bank of India established under the State Bank of India Act, 1955, and the Karur branch of the bank filed the

suit for recovery of Rs. 6,43,708.30 for a mortgage decree in respect of A, B, C, D and E schedule properties, for a personal decree against

defendants Nos. 2, 5 and 8, for a charge over the handloom goods, stock-in-trade for the custody of the plaintiff-bank and for realisation of the

amounts due from defendants Nos. 1 to 8. Defendant No. 9 was subsequently added because after the filing of the suit, defendants Nos. 2 to 4

were adjudicated insolvents, on applications taken out by other creditors. The plaint case is that defendants Nos. 2 to 8 approached the plaintiff-

bank and sought for financial accommodation for the first respondent''s business. The first respondent is a partnership firm comprising defendants

Nos. 2 to 4 as partners. According to the plaintiff, defendants Nos. 2 to 4 executed a general agreement on December 19, 1980, for the grant of

advances on the hypothecation of movables, book debts and other assets to the limit of Rs. 5,25,000. On the same day, defendants Nos. 1 to 4

had executed an ancillary agreement to pay interest at a specified rate for loan accommodation to the tune of Rs. 4 lakhs under the head cash

credit bill against demand documentary bills accompanied by lorry/railway receipts. A third agreement was executed by defendants Nos. 1 to 4 for

financial accommodation under pledge of goods and other assets to the tune of Rs. 1 lakh. The fourth agreement related to demand draft

purchases up to a maximum limit of 85 per cent. of the face value of the bills. All the documents were executed on December 19, 1980.

The further case is that defendants Nos. 2 to 4 along with the fifth defendant executed on the very same day (viz., December 19, 1980), a

guarantee agreement in favour of the plaintiff-bank, guaranteeing repayment of all kinds of advances made to defendants Nos. 1 to 4 to the tune of

Rs. 5,25,000. This guarantee is said to be a continuing guarantee, until notice in writing, i.e., the same is closed is given by the plaintiff.

The plaint then proceeds to describe the deposit of title deeds made by defendants Nos. 2 to 4 in respect of A schedule properties, defendant

No. 6 in respect of B schedule properties, defendant No. 7 in respect of C schedule properties, defendant No. 8 in respect of D schedule

properties and defendant No. 4 in respect of E schedule properties. The statutory particulars in respect of the mortgages are given in the

prescribed form.

In respect of large outstandings due from the first defendant-firm, a communication was sent by the plaintiff on June 22, 1982. A reply was

received from the fifth defendant, stating that the plaintiff-bank had sanctioned loan facility to the first defendant only to a limited extent of Rs. 2

lakhs and he had also sought guarantee only for that amount. A reply was given to the fifth defendant denying the allegations. The plaintiff-bank

relied upon the regular and proper accounts maintained by them in the usual course of business. As per the true copy of the accounts filed along

with the plaint, the defendants are liable to pay a sum of Rs. 6,43,708.30 as on September 14, 1983. The plaint was amended after defendants

Nos. 2 to 4 were adjudicated as insolvents by impleading defendant No. 9. Defendants Nos. 2 to 4 were declared insolvents in I. P. No. 16 of

1982 and the properties of defendants Nos. 2 to 4 had vested with the ninth defendant.

Defendants Nos. 1 to 4, 6 and 7 remained ex parte. Defendants Nos. 5 and 8 alone contested the suit along with the ninth defendant (as

receiver). In his written statement, the fifth defendant, at the outset points out that the plaintiff had committed a mistake in the plaint and that he did

not approach the plaintiff-bank for any financial accommodation. He denies that he had given guarantee for the advances made to defendants Nos.

1 to 4 to the tune of Rs. 5,25,000. To his knowledge the guarantee was only to the tune of two lakhs. He further alleges that he had no knowledge

of the figures in the guarantee agreement raising the guarantee limit to Rs. 5,25,000 and denies having given any guarantee for the said sum of Rs.

5,25,000. He also denied the accounts relied on by the plaintiff, to prove the liability of the first defendant-firm. The further case of the fifth

defendant is that the plaintiff did not act diligently in realising the outstanding from the principal debtors. He complained that he had not been

informed about the dishonour of bills and the grant of extension of time to the first defendant for making payments. To the letter sent by the plaintiff

on June 22, 1982, he had sent a suitable reply on August 20, 1982. So far as the third defendant is concerned, who happened to be the wife of the

fifth defendant, it was stated that she was only a dormant partner. He cannot, therefore, be imputed with knowledge relating to the dealings of the

first defendant. He once again repeated that each and every entry in the accounts of the plaintiff should be strictly proved. He questioned the sale

of goods which were recalled by the plaintiff on the ground that proper advertisement had not been given.

The eighth defendant filed a separate written statement. He also contended that he did not approach the bank for any financial accommodation.

He also complained that the plaintiff had not acted diligently and carefully in making advances to the first defendant. According to him, the laches

on the part of the plaintiff-bank in taking prompt action against the first defendant, the eighth defendant, as guarantor cannot be made liable. He

also insisted on the plaintiff proving each and every entry in the account books. Though the eighth defendant has toed the same line as the fifth

defendant in charging the plaintiff-bank with negligence, ultimately, he put forward a plea as follows :

This defendant is entitled for equitable relief, namely, that in any event, the D schedule property may be brought for sale only after successive

realisation of the decree amount (if passed) from the assets of the A schedule ; then B schedule ; then C schedule and by proceeding against the

guarantor (i.e., the fifth defendant) (if he is made liable for the suit amount.) That is if anything remains to be paid to the plaintiff, only as a last

resort, the D schedule properties should be proceeded against,

The ninth defendant filed a formal written statement, seeking protection for the general body of creditors. It is now interesting to notice the

additional written statement filed by the eighth defendant on January 10, 1986. It has to be remembered that his first written statement was filed on

March 29, 1984. In this additional written statement, a new theory is put forward. It is stated that there was no relationship of creditor and debtor,

between the plaintiff and the eighth defendant as on October 30, 1981. It is again worthwhile to quote a passage in the additional written statement:

This defendant was not the ''debtor or their agent duly authorised for that purpose'' on the date of delivery of the documents by this defendant to

the plaintiff on October 30, 1981.

According to the eighth defendant, since there was no delivery of documents of title by any debtor, there was no valid equitable mortgage

created by the letter, dated October 31, 1981. He also contended that he was not a guarantor.

A reply statement was filed by the plaintiff-bank denying the allegations of the eighth defendant and reiterated that there was a valid mortgage

created in respect of the D schedule properties by the eighth defendant.

On the above pleadings the following issues were framed by the trial court :

Whether the guarantee of the fifth defendant is restricted to only rupees two lakhs ?

Whether the guarantee of the eighth defendant is restricted to only rupees one and a half lakhs ?

Whether the bank had not taken diligent action against the principal debtors ?

Whether the sale of recalled goods has been done by the bank properly and according to law ?

Whether the fifth defendant is absolved of liability to pay the suit claim ? and

Whether the 8th defendant is entitled to claim any equity ?"" An additional issue also was framed which is as follows :

Whether the alleged equitable mortgage by the eighth defendant is true, valid and binding ?

The trial court accepted the case of defendants Nos. 5 and 6 and held that the fifth defendant was absolved of any liability for the suit claim

and that there was no valid equitable mortgage of the D schedule properties by the eighth defendant. In the result, the trial court gave a preliminary

decree with costs as prayed for less a sum of Rs. 14,075 against defendants Nos. 1 to 4 and 6 and 7. The suit as against defendants Nos. 5 and 8

was dismissed. The plaintiff-bank has come up on appeal. Defendant No. 5 has filed a memorandum of cross-objection, complaining that the court

should have awarded the costs in his favour, because of the dismissal of the suit. Before adverting to the points raised by the appellant, it will be

convenient to notice the findings of the trial judge and the reasons given by him to accept the case of defendants Nos. 5 and 6.

The trial court found that the fifth defendant had in fact admitted his signature in exhibit A-5, dated December 19, 1980, which is the guarantee

agreement executed by the fifth defendant. The trial court found that the appellant/plaintiff had narrated his history only from December 19, 1980.

Actually, from the statement of accounts filed by the plaintiff/appellant, viz., exhibit A-5, it could be seen that a sum of Rs. 3,90,616.54 had been

brought forward in the account of the first defendant as and from December 19,1980. The truth is that the first defendant partnership firm along

with the partners defendants Nos. 2 to 4 were having business dealings with the plaintiff-bank right from May 3, 1978, as seen from exhibit A-28,

dated May 3, 1978. Exhibit A-30, dated September 25, 1978, is the proposal for sanction of working capital advances made by the first

defendant to the plaintiff-bank. Exhibits A-48 to A-58 are the documents executed by defendants Nos. 1 to 4 and in particular exhibits A-53 and

A-54 are the guarantee agreements executed by the fifth defendant in favour of the plaintiff on September 25, 1978. We will advert to these

documents relating to the commencement of the business and the part played by the fifth defendant, a little later. The trial judge is of the view that

even after December 19, 1980 (exhibit A-5), the correspondence disclosed that there is a reference to the fifth defendant''s guarantee being only

up to the limit of Rs. 2 lakhs. Secondly, the trial judge, points out that the fifth defendant had means only to the tune of about Rs. 2 lakhs and that

was why he had given guarantee only for Rs. 2 lakhs. Therefore, the enhancement of the guarantee limit to Rs. 5,25,000 is doubted by the trial

court. Exhibit A-5 itself was not filled up in all particulars before taking the signature of the fifth defendant. Says the trial judge that a sum of Rs.

5,25,000 was filled up in different ink by a different person, just at the time of filing of the suit. One does not know as to which piece of the

evidence made the judge to come to the conclusion that it was filled up just before the filing of the suit. When the bank had sufficient securities, the

trial judge observed that it was ""too much to say that the bank had lent a huge sum of Rs. 5,25,000 to the first defendant firm only on the strength

of the personal guarantee of the fifth defendant"". The trial judge then proceeds to say as follows : ""I am of the opinion that the bank has filled up the

column in exhibit A-5 as Rs. 5,25,000 just before filing the suit, since the first defendant-firm has to pay Rs. 6 lakhs and more the bank has also

got a reason to create a guarantee.

It is a very strong accusation against the bank without there being sufficient evidence and materials to make such a comment. The trial judge

has noticed the fact that exhibit A-5 contained a clause which made the fifth defendant liable, independent of other securities and irrespective of

Sections 140 and 141 of the Indian Contract Act, whereas the earlier guarantee under exhibit A-53, dated September 25, 1978, did not contain

such a clause. From this, the trial judge concludes so, the bank had misled the fifth defendant and obtained his signature subsequent to December

19, 1990. Ultimately, the trial judge finds that the fifth defendant had given a guarantee only for Rs. 2 lakhs and not for Rs. 5,25,000.

The next finding of the trial judge relates to the bank not acting diligently and in not controlling the credit balance of the first defendant-firm

properly resulting in the mulcting of responsibility on the guarantor. In other words, if the bank had acted in a reasonable manner and like an

ordinary person with reasonable prudence, such heavy liabilities would not have arisen and, therefore, the surety is discharged from his burden.

Therefore, the trial judge held that the fifth defendant was absolved of his liability to pay the suit claim.

So far as the eighth defendant is concerned, the trial judge at one place holds that ""But the eighth defendant described himself as guarantor and

stated in exhibit A-20 that he gave a guarantee to the maximum limit of Rs. 5,25,000"". But by a curious process of reasoning, the trial judge

observes: ""Hence the eighth defendant is not a guarantor for the advances made to the first defendant."" In respect of exhibit A-15, dated October

31, 1981, creating an equitable mortgage on the basis of deposit of title deeds made on October 30, 1981, the trial judge holds that there was no

equitable mortgage granted by the eighth defendant in respect of D schedule properties. According to the trial judge, the eighth defendant was not

a debtor and not an agent of a debtor. Therefore, he holds that there was no valid equitable mortgage in respect of D schedule properties.

The findings of the learned trial judge appear to be based on a strained interpretation of the various documents and the result of a special plea

by the trial judge in favour of defendants Nos. 5 and 8. The arguments before us also revolved around the very same issues that were urged before

the trial judge.

Mr. M.S. Sundararajan, learned counsel for the appellant/plaintiff was at pains to explain to us that the fifth defendant having admitted the

execution of exhibit A-5, notwithstanding his earlier guarantee under exhibits A-53 and A-54 cannot deny knowledge about the increased credit

facilities and the increased limit of the guarantee by him. He also argued that the bank as such had no axe to grind for filling up the guarantee

agreement subsequent to the signature of the fifth defendant. He also pointed out that the fifth defendant''s wife, viz., the third defendant was a

partner of the first defendant firm and, therefore, he cannot deny knowledge about the increased credit facilities. Argues Mr. M. S. Sundararajan,

that the question of the fifth defendant''s consent for enhancing the credit facilities to Rs. 2,25,000 does not arise because he had voluntarily signed

exhibit A-5. He criticised the judgment of the trial court with reference to Section 133 of the Indian Contract Act by saying that the fifth defendant

had signed exhibit A-5, knowing the contents of the document. So far as Sections 140 and 141 of the Contract Act, Clause 7 of exhibit A-5 takes

care of the same. He also pointed out that the bank had been diligent enough in controlling the finances of the first defendant-firm in taking care of

the returned articles and auctioning the same for the best price. So far as the eighth defendant is concerned, he argues that there was a valid

equitable mortgage by deposit of title deeds and the interpretation of law on that point, by the learned trial judge was erroneous. He further pointed

out that there were letters from defendants Nos. 5 and 8, seeking to be released of their obligation on payment of certain amounts by the

respective defendants. As against the above arguments of Mr. M.S. Sundararajan, Mr. S. Gopalrathinam, learned senior counsel for the

respondents has made elaborate arguments to sustain the findings of the learned trial judge. He has made pointed attention to some of the

documents like exhibit A-25 and A-26 to show that the fifth defendant had never been a party to any agreement guaranteeing the credit facilities of

the first defendant-firm to the tune of Rs. 5,25,000. He referred to certain circumstances, which according to him clearly proved that the

document, exhibit A-5 was not fully and completely filled up at the time of execution by the fifth defendant. In particular, the words in ink ""All such

monies not exceeding Rs. 5,25,000"" were, according to counsel subsequently filled up. Elaborate reference has been made to the acts of

commission and omission by the bank relating to the goods which were rebooked and the amounts realised through auction sales conducted by the

bank. So far as the liability of the eighth defendant is concerned, Mr. S. Gopalrathinam says that the documents of title were already available with

the bank on October 4, 1981, as seen from exhibits A-25 and A-35. Therefore, there is no proof to show that the documents were returned to the

eighth defendant and redeposited on October 30, 1981. Therefore, the creation of an equitable mortgage as per exhibit A-15 cannot be valid.

For the purpose of appreciating the rival submissions, it is indeed necessary to scrutinise the documents along with the oral evidence before

arriving at a specific conclusion. While referring to the documents and evidence, we will also advert to the submissions made by the respective

counsel.

On the arguments of Mr. M.S. Sundararajan, learned counsel for the appellants, and on a bare perusal of the entire documents filed on behalf

of the plaintiff, it is not difficult to hold that the suit has to be decreed in entirety even against defendants Nos. 5 and 8. But there are certain other

aspects pointed out by the lower court and by learned senior counsel Mr. Gopalratinam appearing for the respondents, which throw some doubt

relating to the involvement of the fifth and eighth defendants. But a mere doubt or suspicion created by the fifth and eighth defendants cannot reach

the level of proof required under law. We will scrutinise the documents with reference to the suspicious circumstances pointed out by learned

senior counsel for the respondents and see whether they go to the extent of discarding some of the documents and denying relief against the fifth

and eighth defendants. For this purpose, it will be more convenient to begin with the submissions made by Mr. Gopalrathinam, learned senior

counsel for the respondents along with the findings of the trial court.

The first pointed raised by Mr. Gopalrathinam relates to the suppression in the plaint about the earlier transactions and the commencement of

the business by the first defendant right from the date May 3, 1978, when the first defendant came into existence under the document, exhibit A-

It is pointed out that all the documents like exhibits A-28, A-30, A-48 and A-58 were produced in court at the fag end of the trial at the

instance of the defendants. We are of the opinion that it cannot be called a suppression by the bank because the earlier transactions are evidenced

by documents and the bank does not gain anything by suppressing those documents. On the other hand, it appears to us that the production of the

earlier documents supports the plea of the bank that the fifth defendant did execute a second guarantee agreement apart from his earlier guarantee

agreements, exhibits A-53 and A-54. Exhibit A-53, dated September 25, 1978, is a guarantee agreement to the tune of Rs. 2 lakhs, guaranteeing

accommodation by way of cash credit to the first defendant-firm. Exhibit A-54 is also dated September 25, 1978, guaranteeing accommodation to

the first defendant by way of cash credit to the tune of Rs. 50,000. The point for consideration is, if the fifth defendant had signed these two

guarantee agreements what was the necessity for executing exhibits A-5 guarantee agreement ? It cannot be contended that the fifth defendant

being a doctor and a well informed person did not know the contents of exhibits A-5, While on exhibits A-53 and A-54, we may also advert to

one other point referred to by the defendants that both in exhibits A-53 and A-55, the fifth defendant has not only signed both the pages of the

documents, but has also signed in the margin, where the amounts Rs. 2 lakhs and Rs. 50,000 are written in ink, whereas in exhibit A-5, the

signature is found only in the last page and the reference to Rs. 5,25,000 is filled up in ink without any such signature by the fifth defendant. One

can only explain the above failure to take signatures in each page and at all the corrections or insertions as a failure on the part of the officer, who

attended to the execution of exhibit A-5. Whether such a failure would invalidate the agreement, exhibit A-5 is a matter which we will have to

decide ultimately.

Before adverting to the other points of Mr. Gopalrathinam, we will refer to exhibit A-5. This is a four-page printed document captioned

guarantee agreement for small industrial advances"". It says that the partners of the first defendant firm had entered into a general agreement and a

supplemental agreement on December 19, 1980, for the grant of advances to the borrower and that one of the terms of the financial

accommodation was that the amounts shall be secured by the guarantee of the fifth defendant. The fifth defendant as guarantor, guarantees the

bank the repayment by the borrower the loan amounts etc., all monies not exceeding Rs. 5,25,000. The words Rs. 5.25,000 in figures and words

are filled up in ink. There are considerable blanks regarding the particulars of the general and supplemental agreement in the preamble portion and

regarding the father''s name etc., of the fifth defendant. When we come to the last page, Clause 15 says that the guarantee given under exhibit A-5

is in addition to the guarantee given by the executant to the bank. The cash credit limits are mentioned in the last page in ink as CC Bills Rs. 4 lakhs

CC MT (mundy transactions) Rs. 1 lakh and D. D. purchase Rs. 25,000. The signature of the fifth defendant is found in two places at the last

page. All the three partners defendants Nos. 2 to 4 have signed. On the side of the bank, the field officer one, R. Gopalan, is said to have

witnessed the document. As against the word, ""place"", Karur is mentioned in rubber stamp and against the word ""date"" December 19, 1980, is

mentioned in rubber stamp. One thing which cannot escape our attention is that on the very last page Clause 15 contains the words which we have

referred to already. In other words, the fifth defendant must have clearly known that it is a guarantee in addition to the guarantees already given.

His contention is that the particulars of cash credit limits were not filled up at the time of execution. Even assuming everything in favour of the fifth

defendant, he must be deemed to have known that he was signing"" an additional guarantee document. Should he not have enquired into the matter

and should he not ask the officer of the bank to fill up the blanks, after he noticed the blanks at the time of execution ? Even assuming that he did

not make any enquiries, and he signed a blank additional guarantee agreement, should he not be imputed with knowledge that the blanks can be

filled up against his interest ? While that being so, it surprises this court as to why he did not take any action to recall the said agreement executed

on December 19, 1980.

If we now examine the points urged by learned counsel for the defendants we note that they are not so serious as to dislodge the execution of

exhibit A-5 by the fifth defendant, which is an admitted fact. For instance, it is pointed out that each page of exhibit A-5 had not been signed. The

officer, who examined the document had not been examined. Exhibit A-26 is a letter written by the Karur branch to the Regional Manager,

Madurai, wherein reference is made to the earlier facilities being reviewed and renewed on December 4, 1980. Therefore, the document exhibit

A-5 could not have come into existence on December 19, 1980. We fail to understand this point because the officers could have reviewed the

earlier facilities and decided to enhance the facilities on December 4, 1980, but the necessary documents might have been taken on December 19,

1980. Reference is then made to exhibit A-25, which is a note prepared by the field officer and submitted to the manager. This document is dated

October 6, 1981. His argument is that there is no reference in this document to the enhanced financial limits created on December 19, 1980. What

is more there is a reference in this note as follows :

The unit has TDRS to the tune of Rs. 1 lakh in the name of the unit and its guarantor Dr. T.K. Subramaniam of Kodumudi (T.M. Rs. 2 lakhs).

No doubt in this note there is no reference to the enhanced credit facilities created on December 19, 1980. There are also certain other

documents, which came into existence after December 19, 1980, where it is argued that there is no reference to the enhanced credit facilities. We

will deal with all these documents a little later. Repeated emphasis is laid on the blanks being filled up in ink and there being an appearance of the

difference in the ink used at two places. We are not in a position to associate ourselves with the observation of the trial judge that the figures Rs.

5,25,000 in the first page is filled up in different ink by a different person. These are matters for experts to comment upon. But as we have already

mentioned, the fifth defendant had signed at the last page, wherein Clause 15 says it was an additional guarantee and the limit of the cash credit

facility is given as Rs. 5,25,000.

Much importance is made of certain letters of the bank, after December 19, 1990, the date of exhibit A-5, wherein the bank is said to have

referred to the guarantee of the fifth defendant as being only up to the limit of Rs. 2 lakhs. For instance, the trial judge refers to exhibit A-23, which

is a letter from the Karur branch to the Regional Manager, Madurai, and is dated August 6, 1982. It is pointed out that exhibit A-23 refers to a

guarantee of Rs. 2 lakhs so far as the fifth defendant is concerned. The letter is practically an assessment report of the first defendant firm. The

letter refers to the cash credit limit extended to the first defendant as Rs. 5,25,000 but the outstanding being Rs. 6,36,100. The letter outlines the

steps being taken to liquidate the debts to the bank and also the available securities and guarantees. It also refers to the eighth defendant''s total

debts valued at Rs. 1.59 lakhs and his offer to pay Rs. 1.5 lakhs to be relieved from the equitable mortgage of his properties. Similarly, it refers to

the fifth defendant as another guarantor and his willingness to pay Rs. 1.5 lakhs to be discharged of his liability. While stating so, it is stated (T. M.

Rs. 2 lakhs). This is what is interpreted by the trial judge as referring to the fifth defendant''s guarantee up to a limit of Rs. 2 lakhs only, We are

constrained to say that this is a total misreading of the document. The document nowhere says that the fifth defendant had executed a guarantee

only to a limit of Rs. 2 lakhs. The word T. M. R. is ""total means reports"". The next document, which is relied upon by the trial court is exhibit A-

It is a memorandum, seeking permission to file a suit against the defendants. According to the trial judge, this document also says that the fifth

defendant has stood guarantee for Rs. 2 lakhs. We have, therefore, perused exhibit A-24 carefully. The document categorically says that the firm

had been granted originally credit facilities to the extent of Rs. 2,70,000 and later, the credit facilities were reviewed and enhanced to the extent of

Rs. 5,25,000. The memorandum is in the nature of a prescribed form, in which Clause 10(a) reads as follows :

Guarantee agreement, dated December 19, 1980, for Rs. 5,25,000 executed by all the partners and guarantor Dr. T.K. Subramanian, Kodumudi

. . . (D5).

We do not know how this categorical reference to the fifth defendant''s guarantee agreement, dated December 19, 1990, for Rs. 5,25,000

escaped the notice of the trial judge. On the other hand, he refers to Clause 15 of the very same memorandum, where the guarantor''s (defendant

No. 5''s) worth is mentioned as Rs. 2 lakhs. The assessment by the learned trial judge discloses a serious lacuna, which affects the rights of the

parties. The next document, exhibit A-25, which is a note put up by the field officer to the manager of the bank. Here also, the same mistake is

committed. The last line of the note is as follows :

The connected formalities with regard to the creation of E. M. will be done shortly. The unit has TDRs to the tune of Rs. 1,00,000 in the name of

the unit and its guarantor Dr. T.K. Subramaniam of Kodumudi (T.M.R. Rs. 2 lakhs).

The word TDR refers to ""term deposit receipt"" and the word TMR refers to ""total means report"". Therefore, there is no reference or statement

that the fifth defendant had executed a guarantee for Rs. 2 lakhs only. The document only says that the fifth defendant is a guarantor and his worth

is assessed at Rs. 2 lakhs. We will now refer to exhibit A-26, dated October 16, 1981, from the Karur branch to the Madurai Regional Office. In

all these letters, the attempt is to find out the worth of the guarantors and the worth of the securities and to find out whether in the event of the bank

going to court and executing a decree, that the minimum amount could be realised from the guarantors and sureties. In the annexure to this letter

under the head ""Collateral security"", the personal guarantee of the fifth defendant is referred to and his worth is mentioned as Rs. 2 lakhs T.M.R. In

fact, the annexure proceeds to describe the other properties equitably mortgaged in favour of the bank and also gives the value of such properties.

They also referred to the proposed mortgage of the eighth defendant and the value of such properties being Rs. 1,59,325. It is totally wrong to say

that the bank was of the impression that the fifth defendant had executed a guarantee for Rs. 2 lakhs only. The trial court also refers to exhibit A-

But it must be remembered that it is a document, dated December 1, 1980, prior to the execution of exhibit A-5 and relates to the proposals

for increasing the credit facility. Here again, under the heading collateral security the guarantee of the fifth defendant is referred to, but it is stated

that his T.M.R. is only Rs. 2 lakhs. The conclusion of the trial judge that exhibit A-5 was subsequently filled up before the filing of the suit is based

on an incorrect appreciation of the documents. The argument of learned senior counsel for the defendants placing much reliance on exhibit A-26

does not impress in any way. The points urged by learned senior counsel on the basis of the non-examination of the officers connected with the

important documents do not also advance the case of the defendants. The courts have to decide the issues on the basis of the available evidence

both oral and documentary and not lament about the non-examination of certain witnesses. If the available evidence and documents do not prove

the case one way or the other, the party who failed to produce the necessary evidence will have to suffer. In this case, we have already clearly

shown that there is absolutely no reason why the fifth defendant executed a guarantee agreement, exhibit A-5 and the circumstances relied on by

the trial judge do not prove the allegation that the guarantee was only for Rs. 2 lakhs and not for Rs. 5,25,000. When the fifth defendant had

already executed a guarantee for Rs. 2 lakhs under exhibits A-53 and A-54, he must have definitely known that he was signing another guarantee

agreement and that there must be a purpose of the same. In the wake of voluminous evidence that defendants Nos. 1 to 4 has sought for additional

credit facilities to the tune of Rs. 5,25,000, the normal presumption is that the bank must have taken a guarantee agreement also for the said sum of

Rs. 5,25,000. The mistakes committed by the officers or clerical staff in not filling up the guarantee agreements and other documents carefully and

meticulously cannot go to the extent of denying the bank the substance of the document, viz., the guarantee for Rs. 5,25,000. As we have pointed

out in the open court, callousness has become the way of life and the trivial mistakes committed by the officers and clerical staff in not filling up the

blanks cannot be held against the bank, which is taking care of the general public interest.

We will now advert to the exchange of notice between the parties and see whether anything turns on the allegations in the notices. By and

large, we find that the notices represent a war of words between the respective counsel and otherwise reiterate the respective pleas of the parties.

The plaintiff''s demand commenced with a letter from the bank itself dated June 22, 1982. This is addressed to defendants Nos. 1 to 4 and a copy

is sent to defendants Nos. 5 and 8. The letter says that the accounts show a limit of credit facilities ""CC bills and hundi transactions up to Rs. 5

lakhs and an outstanding of Rs. 6,23,491"". The letter points out that the account is irregular and the parties had not taken any steps to regularise

the accounts and if steps are not taken time, the bank would be compelled to initiate legal action to recover the dues to the bank. A copy of the

said letter having been received by the fifth defendant, he was quick to reply on August 23, 1982, through a lawyer. The notice says that the fifth

defendant had been informed that the credit facilities were only to a limit of Rs. 2 lakhs and that he learnt from the letter dated June 22, 1982

(exhibit B-6) that the limit had been enhanced. He accepts that his guarantee is for the sanctioned limit. He accuses the bank of negligence and

carelessness in allowing the accounts to be sick. He claims that because of the laches and negligence on the part of the bank the guarantor is

absolved of his liabilities. He went to the extent of charging the bank with collusion with the managing partner of the first defendant firm. The

plaintiff-bank being altered by the stand taken by the fifth defendant came forward with a regular lawyer''s notice dated September 1, 1992,

addressed to the fifth defendant''s advocate. In this notice the entire plaint case is made out and there is a categorical statement that the fifth

defendant had given guarantee to the enhanced limit of cash credit facilities to the tune of Rs. 5,25,000. The notice further points out that the

sanctioned limit to the first defendant was enhanced to Rs. 5,25,000 and that the fifth defendant had readily agreed to and gave guarantee to the

said limit of Rs. 5,25,000. The allegations of negligence and carelessness are denied. The allegation of collusion with the managing partner of the

first defendant firm is denied as palpably false. To this, the fifth defendant again sent a reply under exhibit B-8, dated September 23, 1992. He

denies having"" given guarantee to the tune of Rs. 5,25,000 and sticks to his stand that he had given guarantee only for Rs. 2 lakhs. He alleges that

the guarantee for Rs. 2 lakhs had been altered as Rs. 5,25,000. This allegation shows that the fifth defendant was trying to wriggle out of the

guarantee some how or other, because in reality it has been found that he had executed a separate guarantee agreement under exhibit A-5, dated

December 19, 1980. Therefore, there was no alteration of the earlier guarantee under exhibits A-53 and A-54. Now for the purpose of getting

over exhibit A-5, he is coming forward with a new case that there were blanks in exhibit A-5 and that they had been filled up subsequently. We

have already referred to this aspect of the case and pointed out that the last page, in which the fifth defendant has signed itself shows that it was an

additional guarantee and the limits had been clearly referred to as Rs. 5,25,000. Therefore, the exchange of notices does not also advance the case

of the fifth or eighth defendant.

The next aspect of the case relates to the alleged negligence on the part of the bank in dealing with rebooked goods and realising the dues from

the first defendant. It is not disputed that when the bills are returned the goods are taken delivery by the bank and they have to dispose of the same

legally and realise its best price. Under the discounting procedure, the first defendant is given eighty per cent. of the value of the goods consigned,

immediately on presentation. If the bills are dishonoured, it is the duty of the bank to realise the amounts either through the first defendant or by sale

of the goods. The trial judge holds that the bank was very lethargic in disposing of the goods. Later on, however, when the goods were sold in

public auction, it was the first defendant who took objections to the auction sale. Here again, it is alleged that the bank was inclined in not making

necessary advertisement and in realising the best price for the goods. This is an area where one cannot come to any hasty conclusion because

whenever financial institutions take steps to realise their dues the borrowers always complain that the financial institutions do not give breathing time

and are always hasty in taking action. In this very case, the fifth defendant had opposed the public auction and had sent telegrams but at the same

time complains that the bank was lethargic in realising its dues.

We will try to understand the case of negligence and carelessness on the part of the bank and see whether it is to such an extent that the

guarantor is absolved of his liability. Between June 20, 1981, and August 8, 1991, the first defendant-firm has sent its products to various

consignees in Madras. The consignee did not retire the bills and the consignments were retained at the transporters'' premises. The allegation is that

there are similar hold up of consignments in several other lorry sheds. On October 6, 1981, under exhibit A-25, the field officer prepared a note to

the manager regarding the status of the first defendant firm. Under exhibit A-26, dated October 16, 1981, the plaintiff decided to stop advances to

the first defendant as against the bills. After discussion, a commitment letter was taken from the first defendant to progressively reduce the account

at the rate of Rs. 25,000 per week. On December 4, 1981, under exhibit A-34, the plaintiff wrote to one of the transporters to rebook the goods.

Learned counsel for defendants Nos. 5 and 8 points out that having"" taken a decision on October 16, 1981, under exhibit A-26 to regularise the

accounts, the bank had taken so much time to issue the letter exhibit A-34. We are unable to accept this criticism because there was a delay of

only about fifty days in taking action as per exhibit A-34. With reference to a firm which had long standing association with the bank it is not

unreasonable to give some time to see whether the consignments are accepted or otherwise disposed of for a good price. Exhibit A-35 is dated

August 10, 1982, and it shows that the transporter had received the freight charges from the bank for rebooking the goods from Madras. Here

again, it is pointed out that for nearly nine months, the goods were in the custody of the transporters in his warehouse. Under exhibit A-36, dated

August 6, 1982, the first defendant has authorised the bank to take delivery of the goods and incur the necessary demurrage charges and other

expenses and permitting the bank to debit the expenses in the account of the first defendant. This letter in fact shows that the bank had been

proceeding in the usual course of business and taking the customers (first defendant) into its confidence. Under exhibit B-1, dated September 21,

1982, the bank writes to the firm as well as to the fifth defendant and eighth defendant in answer to their letter, dated August 6, 1982, stating that

they would effect sales of the goods under their custody from September 24, 1982, to the various prospective buyers. Immediately, the fifth

defendant sent a telegram on September 22, 1982, under exhibit B-2 as follows :

Received letter only yesterday. Object seriously to procedure. No public notice given, no proper adequate advertisement made. Sale illegal,

improper, if completed not binding on me, nor liable for shortfall or any consequence.

Earlier an objection was taken that the goods are export quality goods and they have little value locally. Therefore, there is nothing wrong in

waiting for alternative purchasers and thereafter to put up the goods in public auction. Even at that stage, the fifth defendant objected. Therefore,

we are unable to see how the fifth defendant can now complain that there was delay on the part of the bank in realising the dues to the bank.

Between September 27, 1982, and July 16, 1983, the bank had effected sales. Here again, another complaint is that the most of the sales are by

private negotiation and not by public auction. The bank had realised Rs. 1,32,940 by effecting such sales. In our opinion, the above realisation is a

fairly good recovery and cannot be criticised as the result of any negligence or carelessness. We have already referred to the fact that these goods

may not have much value locally, but certain private parties may be interested in buying them for eventual export. Therefore, there was nothing

wrong in arranging for private sale, where the price offer was good enough. Under the above circumstances, we are unable to accept the findings

of the trial court that the bank had not taken diligent action against the proposed debtors. In this connection, we cannot forget the fact that the first

defendant and its partners could also have helped the bank in finding alternative purchasers. Similarly, if defendants Nos. 5 and 8 were really

interested, they could have also assisted the bank in getting good purchasers. After having sat idle over the period, it is not proper on the part of

the fifth defendant to complain that the bank had slept over the matter. The attitude of defendants Nos. 5 and 8 reflects the general tendency of the

citizens to point out an accusing finger against the public bodies, as if the public bodies only have duties to perform and the citizens have no duty to

perform. So far as the legal submissions relating to the liability of the surety, one cannot ignore Clause 7 of the agreement, exhibit A-5. It is not

necessary to quote the entire Clause, except to say that the guarantee is said to be effective, notwithstanding the provisions of Sections 140 and

141 of the Indian Contract Act or any other section of that Act or any other law. Therefore, the fifth defendant according to us is liable to the bank

in accordance with exhibit A-5 and is not in any way absolved.

We will now consider the case of the eighth defendant. The case of the plaintiff is that he had deposited the title deeds of the D schedule

properties on October 30, 1981, securing an amount of Rs. 5,25,000. By his letter dated October 31, 1981, he had made his intention clear that

he was creating an equitable mortgage over the D schedule properties. We have already seen his two written statements and quoted certain

passages from the two written statements. In his first statement, he had certainly pleaded that the D Schedule properties should be brought to sale

only as a last resort. In the second written statement, he says that there was no intention to create a mortgage and that he was also not a guarantor.

We do not think that elaborate reasoning is required to reject the contention of the eighth defendant. We will first advert to exhibit A-15. The said

letter starts by saying that ""I am writing this to confirm that I have deposited with you on October 30, 1981, title deeds relating to my property-

with the intention of a creation of an equitable mortgage on the said property by way of primary collateral security for the amounts due to the bank

from the concern of Sri Jayalakshmi Textiles under the following"" credit facilities extended to me/it by the bank"".

While so, a strange argument is now made that exhibit A-25, dated October 6, 1981, shows that the documents of the eighth defendant were

filed with the bank earlier and the same is fortified by exhibit A-25, dated October 16, 1981. The argument is that if that was so, how could the

title deeds be again deposited on October 30, 1981, when there was no proof that the documents of title were taken back by the eighth defendant

? We do not accept this contention because the documents had been taken on October 6, 1981, and the same were being scrutinised by the

lawyers. There is, therefore, no reason to disbelieve the eighth defendant''s letter dated October 31, 1981 (exhibit A-15), wherein he clearly

admits of having deposited the title deeds on October 30, 1981. The eighth defendant is not an illiterate person and the court has to give effect to

the said letter as representing the truth. There are also subsequent letters to which we have already made reference that both defendants Nos. 5

and 8 wanted to wriggle out of the guarantee and security by offering to pay a sum of Rs. 1,50,000. Similarly, exhibit A-61, dated August 4, 1982,

written by the eighth defendant himself shows that he stood as guarantor, but he wanted to be relieved on the payment of Rs. 1.5 lakhs. Exhibit A-

21 is a letter written by the eighth defendant''s advocate on November 2, 1982, wherein it is admitted that the eighth defendant gave security for a

sum of Rs. 5,25,000 and that the security was given only on the assurance that the bank would not take any action against the eighth defendant. It

is stated ""only for the formalities sake, the security was taken from my client"". This argument has in fact been pressed before us, viz., that the eighth

defendant gave security only for the sake of formality and it was not meant to be enforced. Certainly, we do not appreciate this argument and a

person of the rank of the eighth defendant cannot be heard to say that he gave a mortgage security only for the sake of formality. We do not

understand what the parties mean by ""formality"". In a business transaction with the State Bank of India, where is the question of formality,

knowing"" fully well that the bank takes guarantees and securities only for the purpose of strict enforcement.

This argument has to be rejected outright and accordingly we reject the said argument. We also do not accept the conclusion of the trial court

that the eighth defendant was not a guarantor, merely because he was not the actual mortgagor. The interpretation placed by the trial court on the

definition of the word equitable mortgage does not in any way go to support the plea that the eighth defendant did not deposit the title deeds by

way of equitable mortgage. The trial judge correctly relies on and refers to the judgment of this court in Veerammal and Another Vs. KR. L.

Lakshmanan Chettiar and Another, and the decision of the Supreme Court in K.J. Nathan Vs. S.V. Maruty Reddy and Others, to find out the

necessary requisites for proving a mortgage. But the trial judge has failed to note that all the requisites are satisfied in this case and it fell into an

error by saying that the eighth defendant by himself did not owe any money to the bank. That was not necessary for creating a mortgage by deposit

of title deeds, in respect of a debt due by another person for whom the mortgagor stood as surety or guarantor. The evidence in this case is

overwhelming to prove that the eighth defendant in fact stood as a guarantor to the tune of Rs. 5,25,000 and also deposited his title deeds in

respect of D schedule properties as and by way of mortgage by deposit of title deeds. The finding to the contrary by the trial judge is set aside.

One other argument advanced by Mr. Gopalrathinam is that no decree can be passed on the basis of the accounts of the bank evidenced by

exhibit A-6. This is because both defendants Nos. 5 and 8 have disputed the accounts and have sought for proof in respect of each and every

entry in the account. In this connection, we have to take this plea along with the case of defendants Nos. 1 to 4. We have already noticed that

defendants Nos. 1 to 4 did not choose to contest the suit claim. Learned counsel for the appellant relies on Section 34 of the Evidence Act and

Section 4 of the Bankers'' Book Evidence Act for the proposition that entries in the account books regularly kept in the usual course of business

are relevant for the purpose of proving the same. Section 4 of the Bankers'' Books of Evidence Act says that a certified copy of the entries are

prima facie evidence of the existence of such an entry.

The Supreme Court had occasion to consider the above two provisions in Chandradhar Goswami v. Gauhati Bank Ltd. [1967] 37 Comp Cas

Observed by the Supreme Court (page 112) :

Therefore, where the entries are not admitted, it is the duty of the bank, if it relies on such entries, to charge any person with liability, to produce

evidence in support of the entries to show that the money was advanced as indicated therein and thereafter the entries would be of use as

corroborative evidence. But no person can be charged with liability on the basis of mere entries whether the entries produced are the original

entries or copies u/s 4 of the Bankers'' Book Evidence Act.

In that case before the Supreme Court a specific plea was taken by the borrowers that no money had been taken by them after April 1, 1947.

The bank was relying upon an entry to prove an advance of Rs. 10,000 on March 19, 1947. It is with reference to such a contest between the

parties that the apex court observed that the advance of Rs. 10,000 should be independently proved, apart from the entry in the account books.

But the case before us is totally different. The principal debtors have not disputed the accounts and even defendants Nos. 5 and 8 had on various

occasions admitted the credit facilities extended to the principal debtor. Reliance was also placed on Perumal Reddiar (S.) v. Bank of Baroda

[1981] 94 LW 116. That was a case where in a document of guarantee certain alterations were made in material particulars and it was proved that

certain material particulars were filled up subsequently. In these circumstances, a learned single judge of this court observed as follows :

The surety, it is often said, is a favoured debtor. An unauthorised material alteration by the promisee whether that is by adding anything to or by

striking out any part of a written contract, avoids the contract against the person otherwise liable upon it. In a printed form of guarantee, if the

signature of the guarantor is obtained prior to the filling up of the blanks relating to material particulars of the contract, the said filling up of the blank

spaces in the printed form of guarantee amounts to material alteration especially when the said deed relating to the contract of guarantee is in the

possession of the promisee or his agent, and discharges the contract of guarantee.

Reliance was also placed on Union of India v. Bank of India : Bank of India v. Matha Gowder (H.J.) [1981] 94 LW 451. The last mentioned

case has absolutely no application to the facts of the present case. In that case, it was held that the vagueness as to period of forbearance in suing,

and granting time as long as the bank thinks fit would render the agreement void as not supported by proper consideration. Apparently at a later

stage when the first defendant firm fell apart and ran into difficulties, the fifth and eighth defendants sought to wriggle out of these liabilities. We

have absolutely no hesitation in holding that exhibit A-6 accounts are true, valid and prove the suit claim.

Learned counsel for the defendants also sought to attack exhibit A-6 accounts on the basis that a deposit of Rs. 2 lakhs had not at all been

given credit to in the accounts of the bank. According to the fifth defendant this is a serious lacuna in the accounts and it would go to show that the

accounts are not acceptable. This charge is easily met by learned counsel for the appellants by adverting to exhibit A-59. Exhibit A-59 is a letter

written on June 16, 1983, by the fifth defendant''s father. It is also signed by the fifth defendant, agreeing to the change proposed by his father. The

letter further says that the fifth defendant''s father deposited the entire amount both in his name as well as his son''s share (fifth defendant). He

further made it clear that he wanted the money to go to the fifth defendant only after his death. He asserted that the entire amount belongs to him.

He then proceeds to say that the relationship between him and his son had become strained and. therefore, he wanted to exclude his son''s name

(fifth defendant''s name) from the joint deposit. Instead he wanted his grandson''s name to be included in the place of the fifth defendant. The

grandson, S. Sivakumar has also signed the letter. We do not, therefore, see any justification in the criticism levelled by counsel for the fifth

defendant in respect of the genuineness of the accounts.

The last point that was urged before us is as follows : The preliminary decree against the principal debtors had been passed on February 28,

1986, and till date no final decree application had been filed. Therefore, the bank is barred by limitation to proceed against the principal debtors.

Consequently, there could be no claim against the guarantor and surety. The point was urged on the basis of certain correspondence between

counsel and there being some difference of opinion, we called for the records from the lower court. We find that an application was filed on April

23, 1990, bearing I. A. No. 626 of 1991 under Order 34, Rule 5 of the Code of Civil Procedure, along with a petition in I. A. No. 626 of 1990,

seeking to excuse the delay of 365 days in filing the final decree application. The said Application No. 626 of 1990 was allowed on the plaintiff-

bank not pressing"" the application as against defendants Nos. 5 and 8 on June 16, 1993. In fact, the fifth defendant had filed a counter-affidavit in

the said application for excusing the delay. The final decree was also passed, as prayed for, on June 16, 1993. Therefore, the last point urged by

learned senior counsel for defendants Nos. 5 and 8 also fails. In fine, we reject all the arguments of learned counsel for the defendants and we also

set aside the findings of the trial judge on the relevant issues relating to defendants Nos. 5 and 8.

The appeal is allowed as prayed for and the suit shall stand decreed with costs even against defendants Nos. 5 and 8 except to an extent of

Rs. 14,075 as referred to in the preliminary decree. Defendant No. 5 has -filed a memorandum of cross-objections, seeking"" payment of costs.

Inasmuch as we have decreed the suit even against defendant No. 5 the question of payment of costs to them does not arise. The memorandum of

cross-objections also stands rejected. There will be no order as to costs, in this appeal and cross-objections.