State Bank of Saurashtra vs Chitranjan Ranganath Raja
1980 AIR 1528
Case Summary
[Discharge of Surety's Liability]
Facts
The Bank of India extended a cash credit facility of Rs. 75,000 to the principal debtor, secured by a pledge of 5,000 tins of groundnut oil. The respondent acted as surety for the debt. After the principal debtor’s death, the Bank demanded repayment from the surety. The trial court found the Bank negligent in safeguarding the pledged goods, but held the surety liable. The High Court ruled that the surety was discharged under Sections 139 and 141 of the Indian Contract Act due to the loss of security. The Bank appealed.
Issues
Whether the surety is discharged from liability due to the loss of pledged goods caused by the Bank’s negligence.
Whether the provisions of the Indian Contract Act regarding the discharge of sureties apply.
Judgement
The Supreme Court upheld the High Court’s decision, discharging the surety due to the Bank’s negligence in safeguarding the pledged goods. The Court held that under Sections 139 and 141 of the Indian Contract Act, the surety is discharged to the extent of the value of the lost security. The clauses in the letter of guarantee, which allowed the Bank to alter or release securities, were not applicable to this situation.
Ratio Decidendi
A surety is discharged from liability if the creditor loses the security due to negligence. In this case, the Bank’s failure to protect the pledged goods led to the surety's discharge from liability.
Comments