judgement:
Civil Appeal No. 1058 of 1970.
From the Judgment and Decree dated 25 4 1969 of the Gujarat High Court in Appeal No. 22/61.
section N. Kackar, K. J. John and Sri Narain for the Appellant.
section T. Desai, H. section Parihar and I. N. Shroff for the Respondents.
The Judgment of the Court was delivered by DESAI, J.
This appeal by certificate under Article 133(1) (a) of the Constitution is by the original plaintiff State Bank of Saurashtra ( 'the Bank ' for short) whose suit for recovery of Rs. 76,368 04 P. from the legal representative of the deceased principal debtor Harilal Parmanaddas Adatia and his surety original defendant 2 Chitranjan Rangnath Raja.
( 'Surety ' for short) was decreed by the trial court both against the legal representative of the principal debtor and the surety but on appeal by the surety, was dismissed by the High Court only against the surety.
Harilal Parmananddas Adatia, hereinafter referred to as 'principal debtor ', approached the Manager of the Bagasra Branch of State Bank of Saurashtra seeking facility for cash credit upto Rs. 75,000/ .
He submitted proposal form Ext.
66 on September 10,1957, offering to give security for the cash credit by pledge of groundnut oil tins as also a personal guarantee of defendant 2 Chitranjan Rangnath Raja.
919 After obtaining the approval of the General Manager of the Bank cash credit facility to the extent of Rs. 75,000/ was sanctioned against the pledge of approved goods under the lock and key of the Bank and on personal guarantee of the surety.
The principal debtor executed a demand promissory note, Ext.
81 in favour of the Bank on September 16, 1957, and on the same day the principal debtor also executed a demand promissory note, Ext. 30, in favour of the surety which the surety endorsed in favour of the Bank. 'Along with the two demand promissory notes, simultaneously the surety executed a letter of guarantee Ext.
31 in favour of the Bankand ' the principal debtor executed a bond Ext.
83 in favour of the Bank.
The principal debtor also passed letter of continuity of the bond and the promissory note Ext.
Thereafter the principal debtor enjoyed the cash credit facility by borrowing various amounts.
By the end of February 1959 the principal debtor owed Rs. 76,368.04 P. in this account to the Bank.
Principal debtor died in November 1957.
The Bank wrote to the surety letter Ext.32 dated December 24,1957, calling upon him to pay the outstanding balance of Rs. 70,879/ in cash credit account of principal debtor as in the circumstances mentioned in the letter the balance was required to be recovered from the surety.
Some correspondence ensued thereafter between the Bank and the surety and ultimately the Bank filed the suit for recovery of Rs. 76,368.04 P. against defendant 1, the legal representative of principal debtor and defendant 2, the surety.
Defendant 1 contested the suit, inter alia, contending that the court had no jurisdiction to hear the suit and he had no knowledge about the suit transaction.
The allegation of fraud made against him in the plaint was denied.
He also denied his liability for the claim of the Bank as heir and legal representative of deceased principal debtor.
Defendant 2, the surety, contested the suit as per written statement Ext.
7, inter alia, contending that the Bank had agreed to grant cash credit facility to deceased principal debtor on the security of goods by way of pledge and that though the goods were to be kept in the godown in the compound of Vijay Oil Mills Pvt. Ltd., but the godown was to be kept under the lock and key of the Bank.
It was also contended that the principal debtor would provide such quantity of goods as would provide full cover to the outstanding balance in the cash credit account and the Bank was to be responsible for the safe custody and keeping of the pledged goods.
It was also contended that the principal debtor had all throughout pledged sufficient quantity of goods to provide full cover for the Bank 's claim but the Bank either wrongfully lost the goods or was negligent in retaining the goods within 920 its custody or the Bank wrongfully parted with the goods without the consent of the surety and, therefore, the surety was discharged.
The trial Court found that there was negligence on the part of the Bank with regard to the safe custody of the pledged oil tins but as the contract of guarantee entered into by the surety with the Bank was independent of the pledge of goods given by the principal debtor, the surety is not discharged from his liability under the guarantee.
So observing the trial court decreed the suit.
On appeal by the surety, the High Court held that the two promissory notes, one executed by the principal debtor in favour of the Bank, Ext. 81, and another by the principal debtor in favour of the surety and endorsed by the surety to the Bank, Ext.30, and the letter of guarantee Ext. 31 executed by surety in favour of the Bank as also the bond executed by the principal debtor in favour of the Bank Ext.
83 and the letter of continuity Ext.
82 executed by the principal debtor in favour of the Bank, all on September 16, 1957, constituted one composite transaction and they evidence that the principal debtor had offered two securities, one the pledge of oil tins and another personal guarantee of the surety.
The High Court further held that the Bank was utterly negligent and had not exercised such care as a prudent man would in the circumstances of the case which resulted in the loss of security, namely, pledged oil tins and, therefore, in view of combined operation of sections 139 and 141 of the Indian Contract Act, ( 'Act ' for short), the surety is discharged.
Accordingly, the appeal of the surety was allowed and the suit against him was dismissed.
Hence this appeal by the plaintiff Bank.
Uncontroverted facts concurrently found and not sought to be reviewed in this appeal are that the principal debtor as per his application Ext.
65 sought cash credit facility to the extent of Rs. 75,000/ pursuant to which the Bagasra Branch of the Bank submitted a proposal Ext.
66 seeking permission of the General manager of the Bank to extend the facility.
The General Manager of the Bank sanctioned advance, inter alia, on the following terms: "A cash credit limit of Rs.75,000/ (Rupees Seventy five thousand only) is hereby sanctioned against pledge of approved goods under Bank 's lock and key and on the personal guarantee of Shri C. R. Raja, Junagadh.
Noted that the Bank 's godown keeper already posted at Amrali would look after the goods pledged by the above party also.
921 All other terms as proposed." (underlining ours).
Accordingly, on the strength of two pronotes Exts. 30 and 81 and on the strength of letter of guarantee Ext.31 and the bond Ext.83 cash credit facility was extended to the principal debtor.
The pledged goods were kept in the godown in the compound of Vijay oil Mills under the lock and key of the Bank and the Bank had appointed a Godown keeper to look after the goods pledged by the principal debtor.
Two promissory notes Exts.
30 and 81 and letter of guarantee Ext.
31 and the bond executed by the principal debtor Ext.
83 all of September 16, 1957, constituted one transaction.
The High Court held that the surety had agreed to become surety, on the principal debtor pledging oil tins as and by way of security for the advance and, therefore, two securities were offered, namely, pledge of goods and the personal guarantee of the surety.
The High Court also found that 5,000 tins of oil had come to be transferred by Vijay oil Mills in the name of the deceased principal debtor and they were treated as pledged with the Bank as security for cash credit facility.
It is concurrently found that the Bank was utterly negligent with regard to the safe keeping and handling of pledged oil tins and the security of pledged oil tins was lost on account of the negligence of the Bank.
Disagreeing with the trial court the High Court held that the pledge and the personal guarantee were not two independent transactions but they formed part and parcel of one composite transaction.
The High Court, therefore, held that the creditor having lost one security, namely, the pledged goods, the surety was discharged to the extent of the value of security and that as in this case the entire security was lost, the surety was wholly discharged.
Only contention canvassed in this appeal is that in view of clauses 5,7 and 13 of letter of guarantee Ext.31 even if it is found as a fact that negligence of the creditor Bank was responsible for the loss of security of pledged oil tins, yet the surety would not be discharged.
Before we refer to clauses 5, 7 and 13, it is necessary to notice section 141 of the Indian Contract Act under which the surety claims the relief of discharge.
Section 141 reads as under: "141.A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
" 922 In order to attract section 141 it must be shown that the creditor had taken more than one security from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the consent of the surety parts with the other security the surety would be discharged to the extent of the value of the security.
In the instant case as found by the High Court and not controverted, the principal debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the surety.
Verily, the General Manager of the Bank accepted the proposal for cash credit facility on the specific condition that the principal debtor shall offer two securities, one the pledge of goods to be kept under the lock and key of the Bank to be supervised by the Bank 's employee, and secondly, the personal guarantee of the surety.
The surety himself agreed to give personal guarantee on the specific understanding and with the full knowledge of the Bank that the principal debtor was offering another security, namely, pledge of goods.
The surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor (see Sanderson vs Aston) If the two promissory notes Exts.
81 and 30 coupled with the letter of guarantee Ext.
31 executed by the surety and the bond Ext.
83 executed by the principal debtor at one sitting on September 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety.
The surety in good faith contracted to offer personal guarantee on the clear understanding that the principal debtor has offered security by way of pledge of goods and the goods were to be in the custody of the creditor Bank.
On this conclusion section 141 of the Act will be indubitably attracted.
Section 141 comprehends a situation where the debtor has offered more than one security one of which is the personal guarantee of the surety.
Even if the surety of personal guarantee is not aware of any other security offered by the principal debtor yet once the right of the surety against the principal debtor is impaired by any action or inaction, which implies negligence appearing from lack of supervision undertaken in the contract, the surety would be discharged under the combined operation of sections 139 and 141 of the Act.
In any event, if the creditor loses or without the consent of the surety parts with the security, the surety is discharged to the extent of the security lost as provided by section 141.
923 In Halsbury 's Laws of England, 4th Edn., Vol. 20, para 280, p. 52, the statement of law bearing on this point reads as under: "280.Effect of loss of securities.
On paying the guaranteed debt the surety is entitled to have all securities held by the creditor for the debt handed over to him by the creditor in exactly the same state and condition in which they were originally provided whether they were in existence at the date of the contract of suretyship or came into existence subsequently.
Consequently, any act of the creditor interfering with or impairing that right will, to the extent, at all events, of any loss inflicted, relieve the surety from liability, and, if it has the effect of altering or purporting to alter the contract of suretyship, discharge him altogether.
Thus, where there is a mortgage security given in respect of a debt which is subsequently guaranteed, the creditor must hold the security for the benefit of surety, so that, on paying the debt, the surety may obtain a transfer of mortgage in its original unimpaired condition.
If the creditor does not fulfil his duty in this respect the surety is discharged.
" This statement of law is reflected in ss.140 and 141 of the Act.
In State of Madhya Pradesh vs Kaluram the facts were that one Kaluram had executed a surety bond undertaking to discharge the liability arising out of any act or omission or negligence or default of a forest contractor whose bid was accepted at an auction held for sale of felled trees and who was required to pay the bid amount in four instalments.
The forest contract rules provided for preventing the contractor from removing the forest goods in case he made default in payment of the instalments due.
The authorities responsible for supervising the contract allowed the contractor to remove the felled trees without making the subsequent payments.
Subsequently the State of Madhya Pradesh initiated proceedings to recover the balance of the amount through surety Kaluram.
The surety Kaluram contended before this Court that because the State had lost or parted with the security, namely, forest produce, he stood discharged.
Upholding this contention this Court quoted Wulff and Billing vs Jay, wherein Hannen, J., stated the law as under: ".
I take it to be established that the defendant became surety upon the faith of there being some real and substantial 924 security pledged, as well as his own credit, to the plaintiff, and he was entitled, therefore, to the benefit of that real and substantial security in the event of his being called on to fulfil his duty as a surety, and to pay the debt for which he had so become surety.
He will, however, be discharged from his liability as surety if the creditors have put it out of their power to hand over to the surety the means of recouping himself by the security given by the principal.
That doctrine is very clearly expressed in the note in kees vs Barrington 2 White & Tudor 's L.C. 4th Edn.
at p. 1002 As a surety on payment of the debt, is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor who has had, or ought to have had, them in his full possession or power, loses them or permits them to get into the possession of the debtor, or does not make them effectual by giving proper notice, the surety to the extent of such security will be discharged.
A surety, moreover, will be released if the creditor, by reason of what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands.
" This Court concluded that subject to certain variations section 141 of the Indian Contract Act incorporates the English law relating to discharge from liability of a surety where the creditor parts with or losses to security held by it.
Mr. Kackar, however, contended that in view of clauses 5, 7 and 13 of the letter of guarantee, Ext. 31, even if it is held proved that security of pledged goods was lost on account of the negligence of the creditor Bank, yet the surety would not be discharged from the obligation undertaken under the letter of guarantee.
Clauses 5, 7 and 13 may be extracted: "5.
You shall in any case, be at liberty and without my/our further assent or knowledge, at any time, to grant to the customer or any person liable with or for his, whether as guarantor or otherwise, any time or indulgence and to determine, enlarge or vary its credit and to vary exchange or take other securities or release any other securities held or to be held by you for or on account of the moneys intended to be hereby secured or any part thereof or to renew any bills, notes or other negotiable security and to compound or make any other arrangements with the customer or any 925 person so liable with or for the customer as you may think fit without discharging or in any manner affecting my/our liability under this guarantee." "7.
To the extent that you may obtain satisfaction of the whole of your claim against the customer, I/we agree that you may enforce and recover upon this guarantee the full amount hereby guaranteed and interest thereon notwithstanding any such proof or composition as aforesaid, and notwithstanding any other guarantee, security or remedy, guarantees, securities or remedies which you may hold or be entitled to in respect of the sum intended to be hereby secured or any part thereof, and notwithstanding any charges or interest which may be debited in your account current with the customer, or in any other account upon which the customer may be liable." "13.
Should the customer be a limited company, corporate or an incorporate body, committee, firm, partnership, trustees or debtors on a joint account, the provisions hereinbefore contained shall be construed and take effect where necessary as if the words importing the singular number included also the plural number.
This my/our guarantee shall then remain effective notwithstanding any death, retirement, change, accession or addition as fully as if the person or persons constituting or trading or acting as, such body, committee, firm, partnership, trustees, or debtors on joint account, at the date of the customer 's default or at and time previously, was or were the same as the date hereof.
And further you may recover against me/us to the extent here in before mentioned notwithstanding that any security given or to be given to you may be void, defective, or informal, or notwithstanding that the customer being a limited company, corporate or unincorporated body or committee, may exceed its borrowing powers or that the borrowing from you may have been ultra vires.
" Clause 5 confers right upon the creditor Bank to grant any time or indulgence in payment of the debt or to determine, enlarge or vary its credit and to vary, exchange or take other securities or release any other securities held by the Bank but such an act on the part of the Bank would not have the effect of discharging the surety or in any manner affecting his liability under the letter of guarantee.
We fail to see how 926 clause 5 can help the creditor Bank in any manner.
It is not a case of granting time or indulgence to the principal debtor or variation of the credit or taking one set of security in substitution of some other security or release of any security.
Release of security implies a volitional act on the part of the Bank.
Loss on account of negligence cannot be equated with release.
Therefore, clause 5 would not assist the Bank in this case.
Clause 7 provides for non discharge of surety even if the creditor Bank enters into a composition with the principal debtor and that the surety would nonetheless be liable even if the Bank has guarantee, security or remedy, guarantees, securities or remedies from the principal debtor.
Upon a true construction of clause 7, the expression 'any other guarantee, security or remedy ' therein mentioned must be security other than the pledged goods.
In an almost identical situation with regard to an identical clauses in Amrit Lal Goverdhan Lalan vs State Bank of Travancore and Ors, this Court after referring to clause 5 in the letter of guarantee which is in pari materia with clause 7 of the letter of guarantee under discussion, held as under: "On behalf of the respondent Bank reference was made to cl. 5 of exhibit P 4 which has already been quoted.
It was contended that on account of this clause in exhibit P 4 the appellant has opted out of the benefit of section 141 of the Indian Contract Act.
We are unable to accept the argument put forward by the Attorney General on behalf of the respondent Bank.
In our opinion, the expression "any security" in cl. 5 of exhibit P 4 should be properly construed as "any security other than the pledge of goods mentioned in the primary agreement, exhibit P 1 between the Bank and the firm.
" We consider that there is nothing in cl. 5 of Ex.
P 4 to indicate that the appellant is not entitled to invoke the provisions of section 141 of the Indian Contract Act.
" Therefore, cl. 7 is of no assistance to the Bank.
A bare perusal of clause 13 would show that it provides for continuing the guarantee where the principal debtor is an association of persons and for continuance of the guarantee in the event of death, retirement, etc.
of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespective of some defect arising from the internal management of such association of person.
We fail to see how it can render any assistance to the Bank.
927 First security, namely, the pledged goods are lost to the Bank and the concurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank.
Whole of the security was lost and, therefore the surety would be discharged in entirety because it is crystal clear that the principal debtor had agreed and had in fact pledged 5,000 tins of oil which even if sold at the then current market price would have satisfied the Bank 's entire claim.
Accordingly, the surety would be discharged in entirety.
It is difficult to entertain a contention that section 141 would not be attracted and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities.
Acceptance of such a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor.
Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable ? Was the guarantee a guarantee against proper performance of the contract evidencing advance of loan and methods of its repayment, or a guarantee covering Bank 's utter disregard of its responsibility or to use the words of the High Court, the Bank 's utter negligence in failing to exercise the care of a prudent man which one would expect in management of one 's own affairs ? The appeal accordingly fails and is dismissed with costs.
The respondent surety has made an application that in compliance with the decree made by the trial court he had paid the entire amount and he should not be exposed to second round of litigation for restitution of the amount and that this Court should give a direction to the Bank as part of this judgment that the amount be returned with interest at current rate to the respondent surety.
By section 144 of the Code of Civil Procedure, 1908 as it stood prior to amendment by the Code of Civil Procedure (Amendment) Act, 1976, the jurisdiction to grant restitution was conferred upon the 'Court of first instance '.
Since the amendment the expression the Court of first instance ' has been substituted by 'the Court which passed the decree or order '.
An explanation has been added to section 144 by the 928 Amendment Act of 1976, the relevant portion of which reads as under: "Explanation For the purposes of sub section (1) the expression "Court which passed the decree or order" shall be deemed to include (a) where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
" In the instant case the appellant was the plaintiff and its suit was decreed by the trial court, i.e. the Court of Civil Judge, Senior Division, Gondal, on November 18, 1960.
The present appellant by its letter dated February 14, 1961, demanded from the surety a sum of Rs. 84,828.07P. inclusive of costs and interest on the principal amount decreed.
The surety respondent I in this Court paid the appellant Rs. 84,828.07P. on April 3, 1961.
In the appeal by the surety the High Court reversed the decree and dismissed the suit against the surety.
Accordingly, the surety is entitled to restitution.
The limited question is whether this Court can grant restitution.
Prior to Amendment Act, 1976, an application for restitution under section 144 in all cases had to be made to the Court of first instance.
Ever since the amendment the substituted expression 'the Court which passed the decree or order ' would as per clause(a) of the explanation, mean the Court of first instance because the expression 'the Court which passed the decree or order ' has been deemed to include where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
The present one is the simplest case where the suit in favour of the appellant and against the surety was decreed by the trial court, i.e. the Court of first instance, and this decree has been reversed by the High Court in exercise of its appellate jurisdiction.
In such a situation clause (a) of the explanation would be attracted and an application for restitution will have to be made to the Court of first instance, i.e. the Court of Civil Judge, Senior Division, Gondal.
It is nowhere suggested that such a Court does not exist.
Therefore, it would not be proper for this Court to direct restitution.
However, there will be no justification for the appellant Bank to withhold the amount which was collected from the surety on a mere demand.
Therefore, an application for restitution made by the surety would not lie to this Court and it would stand disposed of accordingly.
S.R. Appeal dismissed.

summary/full:
The appellant bank allowed a cash credit facility limited to Rs. 75,000/ to the principal debtor Harilal Parmananddas Adatia on his pledging 5,000 tins of groundnut oil under the lock and key of the Bank and on personal guarantee of the surety, respondent No. 2.
The principal debtor executed a demand promissory note Ext.
81 in favour of the Bank on September 16, 1957, and on the same day the principal debtor also executed a demand promissory note, Ext, 30, in favour of the surety which the surety endorsed in favour of the Bank.
Along with the two demand promissory notes, simultaneously the surety executed a letter of guarantee Ext.
31 in favour of the Bank and the principal debtor executed a bond Ext.
83 in favour of the Bank.
The principal debtor also passed letter of continuity of the bond and the promissory note Ext.
Thereafter the principal debtor enjoyed the cash credit facility by borrowing various amounts.
By the end of February 1959 the principal debtor owed Rs. 76,368.04 P in this account to the Bank.
Principal debtor died in November 1959.
The Bank wrote to the surety letter Ext.
32 dated December 24, 1959, calling upon him to pay the outstanding balance of Rs. 70,879/ in cash credit account of principal debtor as in the circumstances mentioned in the letter the balance was required to be recovered from the surety.
Some correspondence ensued thereafter between the Bank and the surety and ultimately the Bank filed the suit for recovery of Rs. 76,368.04 P. against defendant 1, the legal representative of principal debtor and defendant 2, the surety.
The trial court round that there was negligence on the part of the Bank with regard to the safe custody of the pledged oil tins but as the contract of guarantee entered into by the surety with the Bank was independent of the pledge of goods given by the principal debtor, the surety is not discharged from his liability under the guarantee.
So observing the trial court decreed the suit.
The surety paid the entire amount demanded and appealed to the High Court.
The High Court held that the two promissory notes, one executed by the principal debtor in favour of the Bank Ext.
81, and another by the principal debtor in favour of the surety and endorsed by the surety to the Bank, Ext. 30, and the letter of guarantee Ext.
31 executed by the surety in favour of the Bank as also the bond executed by the principal debtor in favour of the Bank Ext.
83 916 and the letter of continuity Ext.
82 executed by the principal debtor in favour of the Bank, all on September 16, 1957, constituted one composite transaction and they evidenced that the principal debtor had offered two securities, one the pledge of oil tins and another personal guarantee of the surety.
The High Court further held that the Bank was utterly negligent and had not exercised such care as a prudent man would in the circumstances of the case which resulted in the loss of security, namely, pledged oil tins and, therefore, in view of combined operation of sections 139 and 141 of the Indian Contract Act, the surety is discharged.
Accordingly, the appeal of the surety was allowed and the suit against him was dismissed.
Hence this appeal by plaintiff Bank.
Dismissing the appeal by certificate, the Court, ^ HELD: 1.
In order to attract section 141 of the Contract Act, it must be shown that the creditor had taken more than one security from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the consent of the surety parts with the other security the surety would be discharged to the extent of the value of the security.
In the instant case as found by the High Court and not controverted, the principal debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the surety.
Verily, the General Manager of the Bank accepted the proposal for cash credit facility on the specific condition that the principal debtor shall offer two securities, one the pledge of goods to be kept under the lock and key of the Bank to be supervised by the Bank 's employee, and secondly, the personal guarantee of the surety.
The surety himself agreed to give personal guarantee of the specific understanding and with the full knowledge of the Bank that the principal debtor was offering another security, namely, pledge of goods.
The surety contracted on the good faith of the principal contract when entering into contract of guarantee in which case he is deemed so to contract that both the securities would be available to the creditor.
If the two promissory notes Exts.
81 and 30 coupled with the letter of guarantee Ext.
31 executed by the surety and the bond Ext.
83 executed by the principal debtor at one sitting on September 16, 1957, evidence one composite transaction, it is an inescapable conclusion that the principal debtor offered two securities, one the pledge of goods and the other the personal guarantee of the surety.
The surety in good faith contracted to offer personal guarantee on the clear understanding that the principal debtor has offered security by way of pledge of goods and the goods were to be in the custody of the creditor Bank.
On this conclusion section 141 of the Act will be indubitably attracted.
[922 A F] Sanderson vs Aston, [1873] L R. at 76, quoted with approval.
Section 141 comprehends a situation where the debtor has offered more than one security one of which is the personal guarantee of the surety.
Even if the surety of personal guarantee is not aware of any other security offered by the principal debtor yet once the right of the surety against the principal debtor is impaired by any action or inaction, which implies negligence appearing from lack of supervision undertaken in the contract, the surety would be discharged under the combined operation of sections 139 and 141 of the Act.
In any event, if the creditor loses or without the consent of the surety parts with the security, the surety is discharged to the extent of the security lost as provided by section 141.
[922 F H] State of Madhya Pradesh vs Kaluram, ; , followed.
917 Wulff and Billing vs Jay, , quoted with approval.
In the instant case, clauses 5, 7 and 13 of the letter of guarantee, Ext.
31 would be of no assistance to the Bank.
[926 B, G, H] (a) Clause 5 confers right upon the creditor Bank to grant any time or indulgence in payment of the debt or to determine, enlarge or vary its credit and to vary, exchange or take other securities or release any other securities held by the Bank but such an act on the part of the Bank would not have the effect of discharging the surety or in any manner affecting his liability under the letter of guarantee.
It is not a case of granting time or indulgence to the principal debtor or variation of the credit or taking one set of security in substitution of some other security or release of any security.
Release of security implies a volitional act on the part of the Bank.
Loss on account of negligence cannot be equated with release.
[925 G H. 926 A B] (b) Clause 7 provides for non discharge of surety even if the creditor Bank enters into a composition with the principal debtor and that the surety would nonetheless be liable even if the Bank has other guarantee, security or remedy guarantees, securities or remedies from the principal debtor.
Upon a true construction of clause 7, the expression 'any other guarantee, security or remedy ' therein mentioned must be security other than the pledged goods.
[926 B C] Amrit Lal Goverdhan Lal and ors.
vs State Bank of Travancore and ors.
; , @ 731, followed.
(c) Clause 13 provides for continuing the guarantee where the principal debtor is an association of persons and for continuance of the guarantee in the event of death, retirement etc.
of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespective of some defect arising from the internal management of such association of persons.
First Security, namely, the pledged goods are lost to the Bank and the concurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank.
Whole of the security was lost and, therefore, the surety would be discharge in entirety because it is crystal clear that the principal debtor had agreed and had in fact pledged 5,000 tins of oil which even if sold at the then current market price would have satisfied the Bank 's entire claim.
Accordingly, the surety would be discharged in entirety.
[926 G H, 927 A B] 4.
Accepting a contention that section 141 would not be attracted and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities, would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a 'preferred debtor '.
A Court should not by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable.
[927 B E] 5.
By section 144 of Civil Procedure Code 1908, as amended by the Amendment Act, 1976, the jurisdiction to grant restitution is conferred upon "the Court which passed the decree or order".
By an explanation added to section 144 by the Amendment Act of 1976, the expression "Court which passed the decree or 918 order" shall be deemed to include where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the Court of first instance.
[927 G H, 928 A] In the instant case (i) the appellant was the plaintiff and its suit was decreed by the trial Court, i.e. the Court of Civil Judge, Senior Division, Gondal, on November 18, 1960.
The present appellant by its letter dated February 14, 1961, demanded from the surety a sum of Rs. 84,828.07 P. inclusive of costs and interests on the principal amount decreed.
The surety respondent 1 in this Court paid the appellant Rs. 84,828.07 P.
On April 3, 1961.
In the appeal by the surety the High Court reversed the decree and dismissed the suit against the surety.
Accordingly, the surety is entitled to restitution; and (ii) the present one is the simplest case where the suit in favour of the appellant and against the surety was decreed by the trial court, i.e. the Court of first instance, and this decree has been reversed by the trial Court in exercise of its appellate jurisdiction.
In such a situation clause (a) of the explanation would be attracted and an application for restitution will have to be made to the Court of first instance, i.e. the Court of Civil Judge, Senior Division, Gondal.
It is nowhere suggested that such a Court does not exist.
Therefore, it would not be proper for this Court to direct restitution.
However, there will be no justification for the appellant Bank to withhold the amount which was collected from the surety on a mere demand.
Therefore, an application for restitution made by the surety would not lie to this Court [928 B D, F H].


judgement:
Civil Appeals Nos.
1303 of 1972 and 1538 of 1971.
Appeals by Special Leave from the Judgment and Orders dated 13 4 1971 of the Assam and Nagaland High Court in Civil Rule No. 368/68 and 174/68.
M. N. Phadke and section N. Choudhary for the appellant in CA.
No. 1538 and Respondent in CA No. 1303/72.
P. R. Mridul and K. P. Gupta for Respondent No. 1 in CA 1538 and Appellant in CA No. 1303/72.
The Judgment of the Court was delivered by KRISHNA IYER, J.
These two appeals, turning on the validity of the retrenchment of 23 workmen way back in 1966, are amenable to common disposal.
Mr. Phadke, appearing for the Management, argued straight to the point; so did Shri Mridul, with the result that we could get the hang of the case without much wrestling with time or getting paper logged.
Since, in substance, we are inclined to leave undisturbed the Award of the Industrial Tribunal, affirmed, as it were, by the High Court, both these appeals will be given short shrift with brief reasons.
968 The facts, to the extent necessary to appreciate the issues canvassed, are brief.
The Management of a tea plantation by name Jorehaut Tea Co., Ltd., retrenched 23 workmen, 16 of whom were paid retrenchment compensation allegedly in terms of s.25F of the Industrial Disputes Act (for short, the Act) and in the order of 'last come, first go ', while the services of the other seven were terminated, although on payment of retrenchment compensation, allegedly in breach of section 25G of the Act, i.e. out of turn.
The dispute that was raised was decided by the Tribunal which upheld the validity of the retrenchment of the 16 but set aside the termination of the other 7.
Consequently it directed their reinstatement with some back wages.
The Award granted the following relief: In respect of the workmen, viz., Sri Bhogeswar Saikia Sri Nandeswar Bora, Sri Gunai Bora, Sri Premodhar Sarma, Sri Alimuddin Ahmed, Sri Deven Sarma and Shri Harlal Biswas whose retrenchment has been found to be not justified they are entitled to reinstatement with continuity of service.
These workmen have not come forward to say that they remained unemployed from the date of their retrenchment.
In the circumstances of the case, I think they may be given wages at half the rate from the date of retrenchment till the date of publication of the award in the Gazette.
We may first dispose of the workers ' appeal.
In all, 23 persons were retrenched.
In respect of 16 the rule of 'last come, first go ' was applied.
Thus homage was paid to s.25G of the Act.
But then, the workmen in their appeal, contended before us that section 25F had been breached and, therefore, the termination was bad in law.
The Management 's case is that, as a fact, all or most of them had been reinstated when fresh vacancies had arisen, although neither party is able to assert with certainty this case of reinstatement.
That apart, if there be non compliance with s.25F, the law is plain that the retrenchment is bad.
However, when probed further as to how s.25F had been violated, Shri Mridul argued that the amount paid by way of retrenchment compensation envisaged in s.25F fell short of what was legally due and hence there was non compliance.
Under more searching interrogation, Shri Mridul stated that the compensation had been computed on the basis of wages previously paid and in derogation of the Wage Board Award which had been implemented by the Management with effect from 1 4 1966.
The retrenchment was on November 5, 1966, i.e. months after April 1, 1966.
Therefore, the revised pay scales as per the Wage Board Award should have been adopted in calculating the retrenchment compensation.
This spinal flaw rendered 969 the tender of compensation insufficient and, therefore, the retrenchment itself was invalid.
Maybe, there is apparent force in this contention.
But Shri Phadke countered it by saying that it was not open to the workmen to spring a surprise on the Management especially when the question was one of fact.
He urged that before the Tribunal no plea based on the Wage Board Award was made and it was quite possible that the Management would have adequately met the contention if such a plea had been raised.
The fact is that before the Tribunal the contention pressed before us was neither pleaded nor proved.
There is no hint of it in the Award.
In the High Court this new plea based on the facts was not permitted.
Had there been some foundation laid at least in the written statement of the workmen, we might have been inclined to explore the tenability of the plea, especially because there is no dispute about the Wage Board Award and the fact that it had been given effect to from 1 4 1966 and the further fact that in the retrenchment notice the wages were not calculated according to the Wage Board 's Award.
It must be remembered, however, that the Wage Board 's Award was subsequent to the retrenchment although retroactively applied and the workmen had accepted the retrenchment compensation on the wages prevalent at the time of the retrenchment.
In the absence of any basis for this new plea we are unable to reopen an ancient matter of 1966 and, agreeing with the High Court, dismiss the appeal.
But the 16 workmen, being eligible admittedly for the Wage Board scale, will be paid the difference for the period between 1 4 1966 to 5 11 1966.
Now, we will take up the merits of the Management 's appeal which relates to the retrenchment of seven workmen.
Admittedly, the rule in s.25G of the Act, which postulates that ordinarily the 'last come, first go ' will be the methodology of retrenchment, has not been complied with provided we treat all the workmen in the category as one group.
It makes for better appreciation of the point if we read section 25G at this stage: Where any workman in an industrial establishment, who is a citizen of India, is to be retrenched and he belongs to a particular category of workmen in that establishment, in the absence of any agreement between the employer and the workman in this behalf, the employer shall ordinarily retrench the workman who was the last person to be employed in that category, unless for reasons to be recorded the employer retrenches any other workman.
The key note thought of the provision, even on a bare reading, is evident.
The rule is that the employer shall retrench the workman who came last, first, popularly known as 'last come first go '.
Of 970 course it is not an inflexible rule and extra ordinary situations may justify variations.
For instance, a junior recruit who has a special qualification needed by the employer may be retained even though another who is one up is retrenched.
There must be a valid reason for this deviation, and obviously, the burden is on the Management to substantiate the special ground for departure from the rule.
Shri Phadke brought to our notice the decision in M/s Om Oil & Oilseeds Exchange Ltd., Delhi vs Their Workmen to make out that it was not a universal principle which could not be departed from by the Management that the last should go first.
The Management had a discretion provided it acted bona fide and on good grounds.
Shah, J. in that very ruling, while agreeing that a breach of the rule could not be assumed as prompted by mala fides or induced by unfair labour practice merely because of a departure or deviation, further observed that the Tribunal had to determine in each case whether the Management had acted fairly and not with ulterior motive.
The crucial consideration next mentioned by the learned Judge is that the Management 's decision to depart from the rule must be for valid and justifiable reasons, in which case "the senior employee may be retrenched before his junior in employment.
" Surely, valid and justifiable reasons are for the Management to make out, and if made out, section 25G will be vindicated and not violated.
Indeed, that very decision stresses the necessity for valid and good ground for varying the ordinary rule of 'last come first go '.
There is none made out here, nor even alleged, except the only plea that the retrenchment was done in compliance with section 25G grade wise.
Absence of mala fides by itself is no absolution from the rule in section 25G.
Affirmatively, some valid and justifiable grounds must be proved by the Management to be exonerated from the 'last come first go ' principle.
It must be remembered that the above provision which we have quoted insists on the rule being applied category wise.
That is to say, those who fall in the same category shall suffer retrenchment only in accordance with the principle of last come first go.
The short point raised is that the seven workmen are not in the same category.
The finding of the Tribunal, concurred in by the High Court is that they fell in the same category.
We quote the award: "It will be seen that when there is no trade test or anything to mark efficiency, there is no basis for placing the workmen in different grades and when all the workmen of the same category are to do the same work inasmuch as by the management 's own evidence there is no gradewise allo 971 cation of duty within the same category.
Although in the evidence the Management wanted to justify their departure from the principle of 'last come first go ' there is nothing to show that such a reason was recorded for deviating from the principle.
In the circumstances of the case it cannot be said that the management 's selection of persons to be retrenched leaving the juniormost in some category was justified and the reason now adduced for deviating from the principle cannot be accepted in the absence of the reason being not recorded at the time of retrenchment.
Further it will be also noticed that although there is classification of workmen into grades (?) within the category, there is nothing to distinguish one workman of one grade from another workman of another Grade inasmuch as there is no allocation of duties amongst the workmen of different Grades in the category.
" The seniority list is the same, which is a telling circumstance to show that they fell in the same category.
Grading for purposes of scales of pay and like considerations will not create new categorisation.
It is a contusion or unwarranted circumvention to contend that within the same category if grades for scales of pay, based on length of service etc., are evolved, that process amounts to creation of separate categories.
This fallacy has been rightly negatived by a detailed discussion in the Award.
The High Court has avoided the pitfall and we decline to accept the submission.
The result is that the Award must hold good in regard to the illegally retrenched seven workmen.
What remains to be considered is the last submission of Shri Phadke that the engineering establishment wherein these seven workmen are to be reinstated is no longer in existence.
Further, he pleads that on account of long lapse of time on account of the pendency of the appeal is this Court the compensation payable by way of full wages may amount to a huge sum disproportionate to the deviance from the law.
He, therefore, pleads for moulding the relief less harshly.
We cannot sympathise with a party who gambles in litigation to put off the evil day and when that day arrives prays to be saved from his own gamble.
The Award had given convincing reasons for reinstatement and even reduced the back wages to half.
Still, the workmen were dragged to the High Court and, worse, when worsted there, were driven from Assam to Delhi to defend their pittance.
The logistics of litigation for indigent workmen is a burden the Management tried to use by a covert blackmail through the judicial process.
972 Misplaced sympathy is mirage justice.
We cannot agree.
Even so, we take note of the inordinate delay due to long pendency which is part of the pathology of processual justice in the Supreme Court.
So we direct that half the back wages between the date of retrenchment and the publication of the Award shall be paid, as directed in the Award itself.
For the post Award period, full wages will be paid until the High Court 's judgment on 13 4 71 and thereafter 75% of the wages will be paid until 30 4 1980.
Counsel contends that the Workshop is not in existence now and reinstatement is physically impossible.
Sri Mridul, for the workmen, states that a just solution by the court in the given circumstances is acceptable.
We direct that, in lieu of reinstatement, one year 's wages calculated on the scale sanctioned by the Wage Board recommendations for each such workman be paid.
All the sums, if not paid before 15 5 80, shall carry 12% interest.
And upto 15 5 80 they shall carry 9% interest in supersession of the interim order dated 5 5 72.
Rough and ready justice, for want of full information, is not satisfactory but cannot be helped.
We dismiss the workmen 's appeal.
No costs.
We dismiss the Management 's appeal, subject to the above directions, with costs quantified at Rs. 5,000/ .
section R. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
The Management Tea Co. Ltd. appellant in C. A. 1538/71 retrenched on November 5, 1966, 23 workmen, 16 of whom were paid retrenchment compensation allegedly in terms of section 25F of the Industrial Disputes Act based on wages obtaining prior to Wage Board Award, which came into force on 1 4 66 retroactively and in the order of 'last come, first go ', while the services of other seven were terminated, although on payment of retrenchment compensation, allegedly in breach of Section 25G of the Act, i.e. out of turn.
The dispute that was raised was decided by the Tribunal which upheld the validity of the retrenchment of the 16, but set aside the termination of the other seven.
The High Court agreed with the Tribunal 's Award and hence the appeals both by the workmen and the management after obtaining special leave.
Dismissing both the appeals, the Court ^ HELD: 1.
The plea that the amount paid by way of retrenchment compensation envisaged in Section 25F of the Industrial Disputes Act, not having been computed as per the revised pay scales as per the Wage Board Award, fell short of what was legally due and hence there was non compliance is not tenable because before the Tribunal this contention was neither pleaded nor proved.
There was no hint of it in the Award.
In the High Court this new plea based on the facts was not permitted.
Further the Wage Boards ' Award was subsequent to the retrenchment although retroactively applied and the workmen had accepted the retrenchment compensation on the wages prevalent at the time of the retrenchment.
In the absence of any basis for this new plea Supreme Court cannot reopen an ancient matter of 1966.
But the 16 Workmen, being admittedly eligible for the Wage Board scale, would be paid the difference for the period between 1 4 66 to 5 11 66.
[969 A E] 2.
Section 25G of the Industrial Disputes Act postulates that ordinarily the 'last come, first go ' will be the methodology of retrenchment.
Of course, it is not an inflexible rule and extra ordinary situations may justify variations.
There must be valid reason for this decision, and, obviously, the burden is on the Management to substantiate the special ground for departure from the rule.
Surely, valid and justifiable reasons are for the management to make our, and if made out, section 25G will be vindicated and not violated, varying the ordinary rule of 'last come first go. ' There is none made out here, nor even alleged, except the only plea that the retrenchment was done in compliance 967 with section 25G grade wise.
Absence of mala fides by itself is no absolution from the rule in s.25G.
Affirmatively, some valid and justifiable grounds must be proved by the Management to be exonerated from the 'last come first go ' principle.
The above rule can be applied category wise.
That is to say those who fell in the same category shall suffer retrenchment only in accordance with the principle of last come first go.
[969 E, H, 970 A, B, D F] M/s. Om Oil & Oil Seeds Exchange Ltd., Delhi vs Their Workmen, , followed.
Grading for purposes of scales of pay and like considerations will not create new categorisation.
It is a confusion or unwarranted circumvention to contend that within the same category if grades for scales of pay, based on length of service etc., are evolved, that process amounts to creation of separate categories.
In the instant case, the seniority List is the same which is a telling circumstance to show that they fell in the same category.
[971 C E] 4.
Supreme Court cannot sympathise with a party who gambles in litigation to put off the evil day and when that day arrives prays to be saved from his own gamble.
The Award had given convincing reasons for reinstatement and even reduced the back wages to half.
Still, the workmen were dragged to the High Court and, worse, when worsted there, were driven from Assam to Delhi to defend their pittance.
The logistics of litigation for indigent workmen is a burden the management tried to use by a covert blackmail through the judicial process.
Misplaced sympathy is a mirage justice.
[971 G H, 972 A B]