MANU/JH/0084/2005

Equivalent Citation: AIR2005Jhar69, III(2005)BC 217, [2005(2)JC R232(Jhr)]

IN THE HIGH COURT OF JHARKHAND

AFOD Nos. 237 and 271 of 1995 (R)
Decided On: 12.01.2005
Appellants: Bishwanath Agarwala and Ors.
Vs.
Respondent: State Bank of India and Ors.
Hon'ble Judges/Coram:
Hari Shankar Prasad, J.
Counsels:
Rajesh Kumar, Adv. for the State Bank of India
For Appellant/Petitioner/Plaintiff: Debi Prasad, Sr. Adv. and L.K. Lal, Adv.
For Respondents/Defendant: S.N. Das, Adv.
Background :
Contract - Liability of Guarantor - Section 133 and Section 139 of the Indian
Contract Act, 1872 - Court - Guarantor refused to repay the loan as without
his consent overdraft facility was allowed by the Bank - Trial Court held
guarantor liable but reduced the interest by 7.5% from 17.5 % agreed in
agreement - Hence this Appeal.
Issues :
Whether the guarantor was liable for the repayment of loan as his consent
was not taken at the time of over draft facility and rate of interest reduced by
Trial Court is valid?
Holding :
It is clear that the liability of Appellant is limited to the cash credit facility up
to the sum of Rs. 2,50,000/- and the Appellant is not bound by the overdrafts
allowed by the Bank and, therefore, the Appellant is not liable for the
overdrafts amounts. And so far as rate of interest is concerned,This is a
settled principle of law that when there is no agreement between the parties,
then usual rate of interest will be 6% per annum and when there is
agreement between the parties, then the rate of interest will be that rate
which has been agreed in between the parties and since in this case the rate
of interest agreed upon was 17.5% per annum, therefore, The Trial Court was
not justified in reducing the rate of interest from 17.5% to simple 7.5%.
Appeal allowed in part.
JUDGMENT
Hari Shankar Prasad, J.

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1 . Both the appeals bearing Nos. 237 of 1995 and 271 of 1995 filed on behalf of the
appellants namely Bishwanath Agarwala and State Bank of India respectively, have
arisen out of the same judgment dated 29th July 1995 and decree dated 4th August
1995 passed in M.S. No. 43 of 1989.
2 . The case of the plaintiff in brief is that defendant No. 1 Joydeb Panja was running
business of wholesale medicine and he approached the plaintiff-bank for cash credit
facility for running his business up to the sum of Rs. 2,50,000/- and the plaintiff-bank
sanctioned the loan on 7.3.1986 on usual documentation and on acceptance of terms
and condition by the defendant No. 1. The aforesaid loan was sanctioned on acceptance
of terms and condition No. 1 to the effect that loan amount with agreed interest at the
rate of 17.5% per annum with quarterly rest would be paid on demand and on creating
security by the defendant No. 1 and, defendant No. 2 stood as guarantor for defendant
No. 1 and agreed to pay the dues in case of default by the defendant No. 1 and thus the
defendant No. 2 jointly and severally became liable with the defendant No. 1 for the due
payment of the loan with interest and in pursuance to that defendant No. 2 executed an
agreement of guarantee in Form-1 (Special) and delivered the same to the plaintiff
along with promissory note dated 7.3.1986 for a sum of Rs. 2,50,000/-and interest
payable on demand made by the defendant No. 1 in favour of defendant No. 2. The
defendant No. 2 endorsed the promissory note in favour of the plaintiff-bank which has
intended as guarantee to the extent of the loan limit and the interest from time to time
payable by the defendant No. 1 and the remaining unpaid on account of the cash credit
which for the purpose of such guarantee shall be considered continuing,
notwithstanding it may any time or from time to time be brought to credit, until the
notice in writing that the same is closed is given by the plaintiff. Further case of the
plaintiff is that defendant No. 1 availed cash credit facility from the plaintiff but failed to
carry out the terms and conditions of the loan documents because he failed to adhere to
the financial norms in not routing the cash credit account and also by committing other
irregularities, the account thus became irregular and despite the repeated persuasion
and request made by the officer of the plaintiff-bank, the amount remained irregular.
The defendant No. 1 by his letter dated 18.10.1986 and 5.1.1987 approached the
plaintiff-bank for additional facility by way of over-drawal of rupees two lakh and three
lakh on the cash credit account, since his business was running at a loss and the bills
could not be retired and for the reasons he required further capital. The defendant No. 1
with such request gave definite and positive proposal in terms of repayment and
considering this position and on assessment of the scope of his business, stock, chance
of recovery and other factors, the plaintiff-bank allowed to the defendant No. 1 over-
drawal of sums of rupees 1,53,180.24 paise and Rs. 3,03,182.10 paise on 20.10.1986
and 5.1.1987 in the said cash credit account as special case. The defendant No. 1 went
on carrying on his business and ultimately failed to carry out his promises and the
account became irregular. The plaintiff thereafter served advocate's notice dated
23.1.1989 on the defendant Nos. 1 and 2 by registered post calling upon them to pay
the outstanding amount with agreed interest. The defendant No. 2 acknowledged the
aforesaid notice by a reply dated 31.1.1989 sent through his advocate admitted his
liability to the extent of Rs. 2,50,000/- with a request to recover due by selling the
hypothecated stock of defendant No. 1 and recover the remaining from him. The
defendant No. 1 did not pay the demanded amount nor gave any reply to the advocate's
notice. But defendant No. 1 deposited a sum of Rs. 4,000/- on 17.4.1989 in his cash
credit account by way of repayment of loan. The plaintiff bank has claimed that the
defendants are jointly and severally liable to pay the amount claimed in the present
suit.
3 . Defendant No. 1 appeared in the suit and filed written statement on 5.4.1991 and

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contested the money suit. On 5.4.1991 he has admitted that his liability to pay Rs.
2,50,000/- which he admittedly borrowed from the plaintiff-bank by way of cash credit
facility but denied the execution of various documents to bind himself with the terms
and condition thereon. It is stated that he signed and executed the document without
getting an opportunity of examining the contents thereof which were either blank or
partly filed up. The defendants has questioned correctness of the statement of account
and he denied that cash credit loan amount to Rs. 2,50,000/-could at any time rise to
Rs. 7,57,810.27 paise at the stipulated rate of interest. The defendant No. 1 has stated
that the claim of the plaintiff-bank is exaggerated and has denied to pay the claim.
4. A supplementary affidavit has been filed on behalf of defendant No. 1 following the
amendment of the plaint introducing Para-10(a) and alleged that over drawls dated
18.10.1986 and 5.11.1987 are barred by limitation and that he never consented that
these payments be incorporated in loan account. According to him, these over drawals
are distinct and separate from all practical purposes and it has no connection so far as
his cash credit account facilities is concerned. The defendant has denied his liability to
pay over drawals of Rs. 1,53,180.74 and Rs. 3,03,182.10 made on 20.7.1986 and
5.1.1987.
5 . The defendant No. 2 has also appeared and contested the suit by filing separate
written statement admitting that he stood as guarantor for defendant No. 1 to cash
credit facility to the latter to the extent of Rs. 2,50,000/- with an understanding that he
will be liable to the extent of the amount of Rs. 2,50,000/- only and if at any
subsequent stage, any new transaction is made without his knowledge and consent, his
guarantee shall stand seized while admitting that he delivered the promissory noted
dated 7.3.1986 to the plaintiff-Bank for a sum of Rs. 2,50,000/-payable with interest. It
was stated that he stood as guarantor with specific understanding that he will not be
liable for any amount excess to that limit and if any fresh contract was made in future in
between the plaintiff and the defendant No. 1, his liability will stand seized and he will
not be liable to pay any amount. On the other hand, through his additional written
statement, he has denied any knowledge of any over drawals on 20.10.1986 and
5.1.1987 made by the defendant No. 1 and this according to him, being beyond contract
between him and the plaintiff-bank, is a breach of contract as a result of which, initial
contract stands revoked and varied. The defendant No. 2 has claimed that contract
stands barred under Sections 128, 133 and 139 of the Contract Act.
6. On the pleadings of the parties, following issues have been framed for determination
in the suit ;
1. Whether the plaintiff has a valid cause of action for the suit?
2. Whether the suit as framed is maintainable?
3. Whether the suit is barred by the law of Limitation?
4 . Whether the plaintiff is entitled to a decree for the amount claimed against
the defendants?
5 . Whether the over-drawals made by the defendant No. 1 of Rs. 1,53,180.24
and Rs. 3,03,182.10 on 20.10.86 and 5.1.87 are separate and distinct
transactions and independent of the cash credit account?
6. Whether the agreement between the plaintiff-Bank and the defendant No. 2
stood revoked and varied by reason of the over drawals to the defendant No. 1

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 and the defendant No. 2 stands discharged from the liability of suretiship to the
loan?
7. Whether the suit is barred as against the defendant No. 2 under Sections 133
and 139 of the Indian Contract Act as against the defendant No. 2?
(8) To what other relief or reliefs is the plaintiff entitled?
7 . While deciding issues, the learned Court below decreed the suit in favour of the
plaintiffs and almost all the issues were decided in favour of the plaintiffs.
8. Admitted case of the parties is that the defendant No. 1 Jay Dev Panja was running
business of wholesale medicine and he approached the plaintiff-bank for cash credit
facility for running his business up to the sum of Rs. 2,50,000/- and the plaintiff-bank
sanctioned the loan and defendant No. 2 Bishwanath Agarwala stood as guarantor for
defendant No. 1 and agreed to pay dues in case, of default by defendant No. 1 and,
thus, this defendant jointly and severally became liable with the defendant No. 1 for the
due payment of loan amount and interest and in pursuance to that, defendant No. 2
executed agreement of guarantee in Form No. 1 (Special) and delivered the same to the
plaintiff along with promissory note dated 7.3.1986 for a sum of Rs. 2,50,000/- and
interest payable on demand made by the defendant No. 1 in favour of defendant No. 2.
The defendant No. 2 endorsed the promissory note in favour of the plaintiff-bank which
was intended as guarantee to the extent of loan limit and interest from time to time
payable by the defendant No. 1 and the remaining unpaid on account of the cash credit
which for the purpose of such guarantee shall be considered continuing,
notwithstanding it may at any time or from time to time be brought to credit, until the
notice in writing that the same is closed is given by the plaintiff. Thereafter defendant
No. 1 again approached the plaintiff-bank for further amount and the plaintiff-bank
sanctioned two additional amounts on two occasions but without the consent of the
guarantor. On default being made by the defendant-principle debtor, the plaintiff-bank
brought the suit for realization of the amount including two more over drawls with
interest accruing thereon and the learned Court below after considering the materials on
record and also considering the legal position in this respect, came to a finding that the
liability of the surety is co-existence with that of principle debtor who will also be liable
for that additional withdrawals that principle debtor had made without the consent of
the principle debtor and against that findings, the guarantor has brought this appeal
being aggrieved by the judgment and decree of the learned Court below. Similarly,
plaintiff-State Bank of India has also filed this appeal being aggrieved with the findings
of the learned Court below reducing the amount of interest on pendente lite and future
from 17.5% to simple 7.5%, On behalf of the guarantor Bishwanath Agarwalla, case
was also made out since there was variation in the terms of the agreement, hence due
to variation in the terms of the agreement, without his consent, in view of Sections 133
and 139 of the Indian Contract Act, his liability stands revoked and he stands
discharged from the liability as guarantor. Now the following issue arise for
determination in this appeal :
1 . Whether the agreement between the plaintiff-bank and the defendant No. 2
stood revoked by reason of variation in terms of agreement of withdrawals,
allowed in favour of the defendant No. 1 and whether the defendant No. 2-
appellant stands discharged from the liability of suretiship to the loan.
2. Whether the suit is barred as against the defendant No. 2 under Sections 133
and 139 of the Indian Contract Act?

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 3 . Whether the findings of the learned Court below reducing the amount of
interest from 17.5% to simple 7.5% on pendente lite and future is justified or
not.
9 . Issue No. 1 and 2.--Admitted case of the parties is that the defendant No. 2-
appellant of appeal No. 237 of 1995 (R) stood as guarantor for the cash credit facility to
the defendant No. 1-respondent No. 2 to the extent of Rs. 2,50,000/- and for that he
had executed a promissory note, etc and subsequently the principal debtor entered into
some sort of agreement with the plaintiff bank without the consent of this guarantor and
made over drawals twice as a result of which, in all these over drawls, there was some
variance in the terms of the agreement. But this question is purely based on law points.
The learned counsel appearing for the appellants referred to Section 133 of the Indian
Contract Act, which is quoted hereinbelow :
"133. Discharge of surety by variance in terms of contract.--Any variance, made
without the surety's consent, in terms of the contract between the principal
(debtor) and the creditor, discharges the surety as to transaction subsequent to
the variance."
and submitted that since without the consent of the appellant-respondent No. 2, over
drawls have been allowed by the plaintiff bank-respondent No. 1 and drawn by the
defendant No. 1-respondent No. 2, hence the liability of surety who has stood as surety
for the cash credit facility to the extent of Rs. 2,50,000/-, stands discharged. But from
careful scrutiny of this section, it will appear that any variance made without surety's
consent in the terms of the agreement between principal debtor and the creditor,
discharges the surety as to transactions subsequent to the variance and provision thus
read goes to show that liability of the surety shall stand discharged in case any variance
in terms of the contract is made between principal debtor and creditor without the
consent of the surety with respect to the subsequent transactions. So far as over
drawals are concerned, this provision may apply. Learned counsel then referred to
Section 139 of the Indian Contract Act which is quoted hereinbelow :
"139. Discharge of surely by creditor's act or omission impairing surety's
eventual remedy.--If the creditor does any act which is inconsistent with the
rights of the surety, or omits to do any act which his duty to the surety requires
him to do, and the eventual remedy of the surety himself against the principal
debtor is thereby impaired, the surety is discharged."
from perusal of which it will appear that so far as the provision under Section 139 of
the Indian Contract Act is concerned, this section is not applicable in the facts and
circumstances of the case because if the creditor does any act which is inconsistent with
the rights of the surety, the surety is discharged.
10. On the other hand, learned counsel for the respondent No. 1 submitted that liability
of the surety is co-existence with principal debtor. Learned counsel further drew my
attention to Section 129 of the Indian Contract Act which is quoted hereinbelow :--
"129. 'Continuing guarantee'.--A guarantee which extends to a series of
transactions, is called a 'continuing guarantee'."
Which shows that the guarantee which extends to a series of transactions is called
continuing guarantee. Since appellant-respondent No. 2 stood as guarantor for cash
credit facility in favour of the defendant No. 1-respondent No. 2 up to the extent of Rs.
2,50,000/- and that was extended to a series of transactions and over drawals made by

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the defendant No. 1-principal debtor will also come in the series of transactions which
the principal debtor has overdrawn and, thereof, the appellant will be liable to the
extent of all the transactions including over drawals made beyond the extent of Rs.
2,50,000/-.
11. Another plea that was taken was with respect to the fact that the suit is barred by
limitation against the defendant No. 2-appellant because he stood as guarantor on
7.3.1986 the suit was filed in September 1989 after expiry of more then three years
and, thereof, a plea was taken that the suit against the defendant No. 2 stands barred
by limitation because in a suit of this nature, period of limitation is three years and an
agreement was entered into on 7.3.1986 and the suit was filed in September 1989 after
expiry of more than three years and, therefore, period of limitation will apply and the
suit will become barred by limitation. The period of limitation under Article 55 of the
Limitation Act for enforcing the liability of the defendant for the surety bond is three
years when the contract is broken or breach of contract occurs and the guarantor did
not pay dues in spite of notice given by the plaintiff-bank. Then the instant suit was
brought in September 1989 within a period of limitation as laid down under Article 55
of the Act. In the instant case also, the guarantor has not given any notice under
Section 130 of the Act about the revocation of continuing guarantee to the creditor.
Further that limitation will run from the date of breach of contract or the contract is
broken. In that view of the matter, the liability of surety does not stand barred by
limitation. In this connection, reliance has been placed upon MANU/BH/0088/1999 :
2000(1) PL JR 966. Another point that was taken on behalf of the learned counsel for the
appellant that the money suit stands barred by limitation as period of recovery of rent
from the date of cause of action is three years and in the instant case, the agreement
was entered on 7.3.1986 and the suit was filed in September 1989 and, therefore, the
suit was filed after three years from the date of agreement and, therefore, the suit is
barred by the law of limitation.
12. It was also submitted that the creditor-plaintiff Bank should first exhaust its remedy
against the principal debtor and after that, the creditor should proceed against the
surety. It was also pointed out that since hypothecated goods are in possession of the
creditor, he should first sell those goods and thereafter proceed against the principal
debtor and after exhausting remedy against the principal debtor, then proceed against
the creditor. In this connection, reliance was placed upon MANU/SC/0070/1966 wherein
it has been held that pledgee cannot maintain suit for recovery of the suit as well as
retain the pleaded property.
13. On the point of limitation that the money suit stands barred against the defendant
No. 2, learned counsel for the respondent No. 1 submitted that the period of limitation
will run from the date of breach of contract or when contract is broken and not from the
date of agreement dated 7.3.1986. In this connection, reliance was placed upon
MANU/SC/0292/1978 wherein it has been held that limitation starts running from the
date of breach of contract.
14. So far as plea that the creditor-plaintiff bank should first exhaust its remedy against
the principal debtor, it was submitted that the liability of principal debtor and guarantor
being joint and several, it is for the creditor to choose as to against whom he wants to
proceed first and he cannot be forced to first proceed against the principal debtor and
thereafter exhaust all his remedy to proceed against the guarantor. In this connection,
reliance was placed upon AIR 1092 SC 1740 wherein it has been held that decree holder
cannot be forced to first exhaust remedy by way of execution of mortgaged decree
alone and then to proceed against the guarantor. Therefore, in the facts, and

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circumstances of the case, decree holder and creditor cannot be forced to proceed first
against the principal debtor and thereafter against the guarantor.
1 5 . From the discussions made above, it is clear that the liability of the appellant-
guarantor-defendant No. 2 is limited to the cash credit facility up to the sum of Rs.
2,50,000/- and this appellant-defendant No. 2 is not bound by the over drawals allowed
by the plaintiff-bank and made by the defendant No. 1-respondent No. 2 and, therefore,
this point is allowed in favour of the appellant.
16. Issue No. 3--Admitted case of the parties is that parties entered into an agreement
for providing cash credit facility to the defendant No. 1 Jay Deb Panja-respondent No. 2
up to the extent of Rs. 2,50,000/- and defendant No. 2-appellant of appeal No. FA No.
237 of 1995 stood as guarantor for cash credit facility up to the sum of Rs. 2,50,000/-
and the same was advanced with interest at the rate of 7.5% per annum pendente lite
and future. The learned Court below decreed the suit in favour of the plaintiff-bank and
allowed the interest at the rate of 17.5% per annum for the amount claimed for, but
reduced the amount of interest from 17.5% to the simple 7.5% per annum on pendente
lite and future interest. In this connection learned counsel for the appellant submits that
the Court has got no right to reduce the rate of interest agreed upon between the
parties. In this connection he referred to Section 34 of the Code of Civil Procedure
wherein it has been held that when there is a contract in between the parties at which
rate the interest is charged, then that rate of interest will be charged and the Court will
have no right to interfere with agreed rate of interest or when there is no agreed rate of
interest, then rate of interest shall be allowed at the rate of 6% per annum and in case
of commercial transaction, it may be higher than that, because commercial institutions,
depends on the earnings from the rate of interest made and here in the instant case, the
rate of interest was agreed upon at the rate of 17% per annum and the learned Court
below cannot interfere with the rate of interest agreed upon in between the parties and
to that extent, the learned trial Court has committed an error of law. This is a settled
principle of law that when there is no agreement between the parties, then usual rate of
interest will be 6% per annum and when there is agreement between the parties, then
the rate of interest will be that rate which has been agreed in between the parties and
as in the instant case, since the rate of interest agreed upon was 17.5% per annum,
therefore, the learned Court below was not justified in reducing the rate of interest from
17.5% to simple 7.5%.
17. In that view of the matter, the findings of the learned Court below in respect to
interest pendente lite and future is hereby set aside and the rate of interest will remain
same which have been agreed upon between the parties. In that view of the matter, the
appeal being FA No. 237 of 1995 (R) filed by the appellant-defendant No. 1 is partly
allowed. So far as the FA No. 271 of 1995 (R) is concerned, it is allowed. But in the
circumstances, without any order as to costs.

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