First Appeal No.168 of 1987

5th October, 1996

Petitioner Counsel: Shri G.G.KAMAT
Respondent Counsel: Shri J.V.COELHO

Cases Cited:
AIR 1968 SC 1432 [Para 4]
AIR 1980 SC 1528 [Para 4]
AIR 1987 SC 1078 [Para 4]
AIR 1992 Bom. 482 [Para 4]
AIR 1967 SC 1105 [Para 7]

JUDGMENT

R.K.BATTA, J.:- Respondent No.1 (original plaintiff) had filed a suit for recovery of money against the appellants (original defendant No.2, now represented by LRs. and defendant No.3) and respondent No.2 (original defendant No.1). Respondent No.2 had taken loan of Rs. 58,300/- from the respondent No.1 and the appellants had stood guarantors for the same. The loan was not paid and respondent No.1 executed a fresh agreement of hypothecation dated 11.9.84, thereby hypothecating Matador Pick-up, for the purchase of which the loan was taken. Likewise, the appellants executed a fresh Deeds of Guarantee dated 25.3.1985 and 11.9.84 respectively.

2. The suit was not contested by respondent No.2 who admitted the respondent No.l's claim, but the appellants took up the plea that fresh agreement of hypothecation and fresh guarantee taken by respondent No.1 was without any consideration and did not have effect of extending limitation period. After recording the evidence, the Civil Judge, Sr. Division, Panaji decreed the suit for a sum of Rs.64,617.33 together with interest thereon at the rate of 12% per annum, from 1.10.1986 till the date of the decree and also from the date of decree till the date of complete realisation of the decreetal amount. All the defendants were made jointly and severally liable to pay the decreetal amount.

3. The said Judgment dated 29.9.1987 is the subject matter of challenge in this First Appeal, filed by the guarantors, namely defendants No.2 and 3 who are the appellants in this appeal.

4. Learned Advocate Shri G.G.Kamat, appearing on behalf of the appellants contended before us that since collateral security had been taken by respondent No.1, the Lower Court should have passed a composite decree and the collateral security, namely Matador vehicle, should have been ordered to be sold under the said decree for satisfaction of the decree, as had been prayed by respondent No.2 in prayer clause 18(a) of the plaint. In case a composite decree was passed, the liability of the guarantors would be restricted to the balance of the decreetal amount, which would be left after the sale of collateral security, namely the Matador vehicle. However, it has been pointed out that the said Matador vehicle was, in fact, sold for Rs.30,700/- in the year 1992, but the respondent No.1 was negligent in not seeking its attachment at the time of the filing of the suit and for having taken steps to sell the said Matador vehicle, after the passing of the Judgment on 29.9.87. He, therefore, contends that the value of the vehicle in the meantime diminished from the year 1987 to 1992, when it was sold solely on the account of the negligence of respondent No.1 and, in case, respondent No.1 had taken appropriate steps for the sale of the said vehicle in the year 1987, respondent No.1 could have certainly fetched atleast Rs.10,000/- more than for its sale which was ultimately sold in the year 1992 for Rs.30,700/-. Accordingly, it is urged by him that the appellants cannot be made liable for the amount which was lost in the sale of the said vehicle, on account of the negligence of respondent No.1. The third contention advanced by Learned Advocate for the appellants is that the Trial Judge erred in awarding interest on Rs.64,671-33 paise and the interest could be awarded only against the principal sum adjudged which was Rs.58,300/-. In support of his submissions, he relied upon the decisions in the case of Amrit Lal Goverdhan Lalan (dead) by his LRs. v. State Bank of Travancore and ors. (AIR 1968 SC 1432); The State Bank of Saurashtra v. Chitranjan Rangnath Raja and anr. (AIR 1980 SC 1528); Union Bank of India v. Manku Narayana (AIR 1987 S.C.1078) and Union Bank of India V. Dalpat Gaurishankar Upadyay (AIR 1992 Bombay 482).

5. On the other hand, Learned Advocate Shri J.V.Coelho, appearing on behalf of respondent No.1, submitted that there was no need to pass composite decree and in the facts and circumstances of the case since the collateral security, namely the Matador vehicle has already been sold and the sum of Rs.30,700/- has been realised, the question of passing composite decree is only an academic exercise. According to him, there was no negligence on the part of respondent No.1 as alleged by the appellants.

6. Respondent No.2 at the time of obtaining loan had not only furnished guarantee of the appellants towards repayment of the loan, but he had also executed an agreement of hypothecation in respect of the Matador vehicle, which was to be purchased with the said loan. The deed of hypothecation and the deed of guarantee were renewed by respondent No.2 and the appellants respectively. In view of the same, there is considerable substance in the contention of Advocate Shri G.G.Kamat that the Trial Court should have passed a composite decree against all the defendants personally as well as with respect to the hypothecated Matador vehicle. Respondent No.1 had, in fact, prayed that the hypothecated vehicle be ordered to be sold and the sale proceeds thereof be applied towards satisfaction of the decree. However, taking into account that after passing of the decree, the hypothecated Matador vehicle was actually sold in the year 1992 for Rs.30,700/-, the question of composite decree raised by Advocate Shri G.G.Kamat has become only academic, as rightly contended by Learned Advocate Shri J.V.Coelho. As informed, the sale proceeds of Rs.30,700/- have already been adjusted against the decree.

7. The next question which is required to be decided is whether on account or inaction on the part of respondent No.1 in not taking steps for sale of the hypothecated Matador vehicle after passing of the Judgment and Decree from 1987 till 1992, had substantially diminished the value of the said Matador Vehicle, which could be realised and whether for the consequent diminution of the value, in the process, liability to that extent cannot be fixed on the appellants?. In this connection, reliance has been placed by Learned Advocate Shri G.G.Kamat on the Apex Court rulings in the case of Amrit Lal Goverdhan Lalan (dead) by his LRs. v. State Bank of Travancore and Ors (supra) and The State Bank of Saurashtra v. Chitranjan Rangnath Raja and anr. (Supra). Section 141 of the Indian Contract Act,1872, lays down :-

"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."

It is in this connection, it was pointed out by the Apex Court in State of Madhya Pradesh v. Kaluram (AIR 1967 SC 1105) that if the creditor has lost or parted with the security without the consent of the surety, the latter is by the express provision contained in Section 141 discharged to the extent of the value of the security lost or parted with. In the case of Amrit Lal Goverdhan Lalan (dead) by his legal representatives v. State Bank of Travancore and ors. (supra) the Apex Court held that on the basis of the evidence adduced by the parties, it was found that there was shortage of goods of the value of Rs.35,690/- brought about by the negligence of the Bank or for some other reason and to that extent there must be deemed to be a loss by the Bank of the securities, which the Bank had at the time when the contract of surety was entered into. In these circumstances, the Apex Court observed that the principle of section 141 of the Indian Contract Act applied to said case and the surety was discharged of the liability to the Bank to the extent of Rs.35,690/. The same principle was reiterated by the apex Court in the case of the State Bank of Surashtra v. Chitranjan Rangnath Raja and anr. (Supra). The Apex Court observed that section 141 comprehends a situation where the debtor has offered more than one security one of which is the personal guarantee of the surety; that even if the surety of personal guarantee is not aware of nay 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 Contract Act.

7A. Applying the principle laid down by the Apex Court, we are of the opinion that respondent No.1 was certainly negligent in not taking action for the sale of the hypothecated Matador vehicle immediately after passing of the decree in 1987. The said vehicle was ultimately sold in the year 1992 for Rs.30,700/-. The loan was taken in the year 1981 and at that time, value of the said vehicle was Rs.77,753-08. We are inclined to agree with Shri G.G.Kamat that the delay of 5 years in selling the said hypothecated Matador vehicle had resulted in diminution of the value of the said hypothecated Matador Vehicle. If the said vehicle had been sold in the year 1987 it would have certainly fetched much more than Rs.30,700/-. Taking into consideration the value of the said Matador Vehicle in the year 1981 and its sale in the year 1992 of Rs.30,700/- we are of the opinion that the diminished value of the said vehicle during the said period, can be taken at around Rs.10,000/-. In other words, the said Matador vehicle, if it had been sold in the year 1987 would have fetched around Rs.10,000/- more than Rs.30,700/- for which it had been sold in the year 1992. Therefore, the appellants are entitled to the benefit of the said negligence on the part of respondent No.1, and, as such, their liability cannot be fixed for a sum of Rs.40,700/-, that is Rs.30,700/- already realised by sale of Matador vehicle and Rs.10,000/- towards loss by respondent No.1 on account of their negligence.

8. Coming to the third contention advanced by Learned Advocate for the appellant, the ruling of Full Bench of this Court, upon which reliance has been placed, clearly supports the said contention. It has been held therein :

" A clear picture which emerges from reading of this section is that the Court while decreeing the suit will adjudge, (i) the principal sum and (ii) any interest on such principal sum prior to the date of institution of the suit. Both amounts adjudged by the Court by way of "principal" sum" as well as "interest" thereon for the period prior to the institution of the suit together may be termed as "aggregate amount adjudged" as payable on the date of the suit. But interest under S.34 is not payable on such aggregate amount. It is made payable only on the principal sum adjudged. No interest is payable on the amount of interest adjudged on such principal sum. Interest, whether simple or compound will remain 'interest' for the purpose of S.34 and shall never merge in the principal. The legislature while using the expression "in addition to any interest adjudged on such principal for any period prior to the institution of the suit" in S.34 in contra-distinction to the expression "principal sum" has not made any distinction between the interest computed by way of simple interest or compound interest. The legislative scheme and intent being so clear, there is no scope for doubt that the expression "principal sum adjudged" would mean only the "principal sum". It will never include the interest whatever be the agreement between the parties. Interest under S.34, therefore, can be allowed only on the principal sum and not on the principal sum plus interest accrued thereon till the filing of the suit. In view of foregoing discussion, we hold that the "principal sum adjudged" used in S.34 of the C.P.C. means the original amount lent without the addition thereto of any interest whatsoever. This will be the position notwithstanding any agreement between the parties or any prevailing banking or trade practice to the contrary. The first three questions are answered accordingly."

9. In view of the Full Bench ruling of this Court, the Trial Judge erred in allowing interest on the total sum adjudged, namely, Rs.64,617-33 whereas the interest should have been awarded only on the principal sum of Rs.58,300/-.

10. In view of the above, the appeal is partly allowed and the impugned order stands modified to the extent that even though the total amount payable under the said Decree is Rs.64,617-33 paise, but the interest awarded by the Trial Judge should be restricted to the principal sum, namely, Rs.58,300/-. Besides this, the appellants shall be liable to pay only the balance due after deducting Rs.30,700/-, which has been realised by sale of hypothecated Matador vehicle and Rs.10,000/- on account of the diminution of the value of the said Matador vehicle, due to inaction/negligence on the part of the respondent No.1 for which liability cannot be fixed on the appellants. In the facts and circumstances of the case, there shall be no order as to costs.

Appeal partly allowed.