CCCA/27/2004 of Smt.P.Savitha Krishna Reddy Vs Union Bank of India on 19 January 2026

1. Union Bank of lndia, Andhra Bank Division, Sultan Bazar Branch, Koti, Hyderabad - 500094. '(Amended as per court order dated 20.02.2025 vide l.A.No- 1 of 2025 in cccA27t2oo4)

2. M/s. Uniloids Ltd., a Public Limited represented by its Managing 10, t.D.A., Director Sri.Gautam Pingale, having regd. Nacharam, Hyderabad. at Road NO. ... RESPONDENTS'DEFEN DANTS Counsel for the Appellant: Sri Sunil B Ganu, representing Sri. Manjari S Ganu Counsel for the Respondent No.1 : Sri B.Madhana Rao representing Mrs. V Dyumani Counsel for the Respondent no.2: None appeared The Court made the following: ORDER

HON'BLE SRI JUSTICE K LAKSHMAN AND HON'BLE SRI JUSTICE VAKITI RAMAKRISHNA REDDY CITY CIVIL COURT APPEAL No.27 OF 2004 Betweerr Smt. P.Savita Krishna Reddy ...Appellant and Union Bank of tndia, Andhra Bank Division, Sultan Bazar Branch, Koti, Hyderabad and another Respondents This CorLrt delivered the following (Per Hon'ble Sri Justice K. Lakshman) Heard Mr. Sunil B. Ganu, learned Senior Counsel representing Mrs. Manjari S. Ganu, leamed counsel for the appellant and Mr. B. Madhava Rao, leamed counsel representing Mrs. V. Dyumani, leamed r:ounsel for respondent No.l Bank. None appeared for respondent No.2.

2. The present appeal is frled by the appellant - plaintiff challenging the judgment and decree dated 19.06.2003 passed by leamed II Senior Civil Judge, Ciry Civil Court, Hyderabad, in O.S. No.l2l I of 1991, dismissing the suit of the plaintiff.

KL J & VRKR,J CCCA No.27 of2004

3. The appellant herein is the plaintiffin O.S. No.121l of 1991, while the respondents herein are the defendants. The plaintifffiled the said suit for recovery of Rs.12,86,000/-(Rupees twelve Lakhs Eighty Six thousand only) with interest @ l0%o per annum thereon.

4. Respondent No.2 herein - IWs. Uniloids Limited, is a company incorporated under the lndian Companies Act, 1956. It was financed by the Financial Institutions, such as IDBI, APIDC and APSFC. Respondent No.1 - Union Bank of India (erstwhile Andhra Bank) also granted certain working capital facilities in the nature of open cash credit, bill discounting etc. to respondent No.2.

5. The husband of Appellant Mr. P. V. Krishna Reddy was an Executive Director of the said Company in the year 198 I . -Respondent No.2 Company furnished securities to respondent No.l bank for the aforesaid facilities. The goods and articles of respondent No.2 were pledged with respondent No.1 bank which was more than sufficient to satisff the outstanding amounts due by respondent No.2. Still, respondent No. t bank insisted upon additional security to be furnished. Therefore, the appellant gave the title deeds of her personal house property bearing building No.8-2-700, situated at Road No.12, J KT. J & VRKR.' CCCA No.27 of2m4 Jubilee Hills, Hyderabad, as additional security on behalf of her husband on I1.12.1981.

6. At the request of the appellant, respondent No.l bank permitted her to sell the said property and sale proceeds were depositeC in fixed deposit to the tune of Rs. 12,86,000/- for 36 months as security for repayment to respondent No.l bank, which is evident by letter dated 23.03.1989.

7. While so, without the knowledge and consent of the appellanl, respondent No.l bank changed the management of respondent No.2 Company and the husband of appellant was made to resign as the Executive Director of the Company and was excluded from the management and affairs of the Company. A Senior Officer of resporLdent No.l bank, namely Mr. Pullaiah was deputed by the bank whc, assumed the entire control and management of respondent No.2 Company 1n December, 1981 until the change in the management in or about April, 1982.

8. Respondent No.l bank decided and recommended to the other Fin;mcial Institutions to hand over the management to one

KL ' & VRK&J CCICA No.27 of 2fiX Dr. Gautam Pingale and his Associates. The same was done clandestinely.

9. While So, respondent No.l bank vide its letter dated 21.05.1991 informed the appellant that they are initiating legal action for recovery of dues and that the same were adjusting from the fixed deposits of Rs.12.86 lakhs pledged by the appellant as security for the liabilities of respondent No.2 Company. Thereafter, respondent No.l bank filed a suit vide O.S. No.475 of 1991 on the file of II Additional Judge, City Civil Court, Hyderabad, against respondent No.2 and others including the appellant herein. Hence, the appellant filed the aforesaid suit seeking recovery of the said amount of Rs.12.86 lakhs with interest thereon, as the change in management was done without informing the appellant, the liability of the appellant- plaintiff as surety stands discharged.

10. Respondent No.l bank filed written statement denying the claim of the appellant. It contended that the appellant instead of making any claim as a counter claim in O.S. No.475 of 1991 filed by it, filed the present suit. Therefore, the present suit is not maintainable as the same hit by doctrine of resiudicata.

KL ' & VR(&' CCCA No.27 of2m4

ll. The appellant deposited her title deed relating to the aforesaid house as additional security for discharge of loan amount due and payable by respondent No.2 Company and, therefore, she was permitted to sell the said house upon her uidertaking that sale proceedr; of Rs.12,86,000/- would be deposited with the Bank as security for due pa)ment of all the amounts payable to the bank by the date of ,:hange of management in 1982. She also executed a letter dated 23.03.1989 confirming the deposit and also authorizing the bank at its discretion to cancel the fixed deposits and adjust the loan amount from out. of the proceeds of fixed deposit receipts and credited an amount c'f Rs.12,66,410 on I 8.05. I 99 I . .

12. The husband of the appellant willingly walked out and change of management was affected. But, liability of the appellant continuetl to the extent of liability of the Company as was existing till the date of her husband's management and change over to the management of Mr. Goutham Pingle. Therefore, question of variance of terms cf contract, resulting in discharge of appellant's liability to the bank does not arise. Therefore, the bank sought to dismiss the suit.

13. Respondent No.2 remained ex parte before the trial Court.

(L J & VR(&J C@A No.27 of 2(D4

14. Basing on the aforesaid pleadings, the trial Court framed the following issues:

(i) Whether the plaintiffs liability as surety is discharged as pleaded by her?

(ii) Whether the l"'defendant is liable to pay the plaintiffthe suit FDR amount together with interest as prayed for?

(iii) To what relieP

15. To prove the suit claim, the appellant was examined as PW.l and Exs.Al to 44 and Ex.Cl were marked before the trial Court. On behalf of respondent No.l Bank, its Manager (Advances) was examined as DW. I and Exs.B I to 85 were marked.

16. After hearing both sides and on an examination of evidence, both oral and documentary, the trial Court dismissed the suit of the appellant vide the impugned judgment and decree observing that following the law under Section - 73 ofthe Transfer ofProperty Act, and thejudicial precedents cited therein, there can be no longer a doubt to be entertained whether the mortgage property sold by the plaintiffand in its place pledged the FDRs being taken on the realized proceeds of mortgage property and it is in no way affect the rights of defendant No.l of the security and the said security shall be intact. Therefore, the appropriation of FDR amounts of the plaintiff by

KL J & VR(R.' CCCA No.27 of2ma defendant No.l bank is perfectly justified as defendant No.2 runs compan/ under losses. Thus, the plaintifls liability on the surety never discharged and defendant No.l is not liable to pay the suit fixed deposit receipt amount together with interest. ' li'. Challenging the said judgment and decree dated 19.06.2003, the plaintiff filed the present appeal on the following grounds: i), The trial Court failed to consider the provisions of Sections - 126 read with 133 and 145 of the Indian Contract Act, 1872 (for short 'Act, 1872').

ii) As per Section - 139 of the Act, 1872, the surety stands _ discharged on account of acts or omissions of the Creditor which eventually impair the security available with the creditor vls-ri-yrs principal debtor.

18. Appellant also placed reliance on the principle laid down by the Ape:: Court in State Bank of Saurashtra v. Chitranjan Rangnath Ranganikarl, Bank of Rajasthan v. VCK Shares & t lroao; + scc sto

KL J & VRK&J CCCA No.27 of 2fi)4 Stock Broking Ltd2 and the Madras High Court in Indian Banlg Madras v. S. Krishnaswamy3.

19. On the other hand, learned counsel for respondent No.l bank would contend that the plaintiff stood as surety for the due amount and as the plaintiff agreed to deposit the due amount in the form of fixed deposits as a security for the dues, the bank permitted her to selt the property and accordingty sale proceeds were kept in fixed deposit. Since respondent No.2 Company failed to clear the dues, the said fixed deposit amount was adjusted for the same.

20. Further the contention of the plaintiff that the moment when hbr husband was made to walk out of the Company, her surety stands discharged and, therefore, she is entitled for recovery of the fixed deposit amount as per the provisions of the Act, L872, is not correct in law, and the trial Court on consideration of the entire evidence, both oral and documentary and also legal aspects, dismissed the suit of the plaintiff, and there is no error in it. 2 (zots) 13 scc 635 3 1989 SCC Online Mad 63

KL J & VRXR,' CCCA No.27 of2m4 2.. ANALYSIS AND FINDING:

i) In State Bank of Saurashtra (supra), the Supreme Court held tha: a surety is entitled to the full benefit of every security held by the creditor, and any unilateral.act, negligence, or failure by the creditor resulting in the diminution or loss of such security pro tanto discharg,:s the surety under Section l4l of the Contract Act. The Court ernphasised that this right flows from statute and cannot be overriddr:n by contractual authorisations. The Court further clarified that even constructive negligence where the creditor fails to vigilantly safeguard and enforce securities is enough to trigger discharge, and the creditor cannot justiff impairment of securities by invoking intemal rliscretion. Applyrng these principles, the respondent-Bank, having allowed the new management to deplete hypothecated stock, relaxed st:ock-control mechanisms, converted running working-capital facilities into a term loan, and altered the credit structure without notice to or consent of the appellant, has clearly impaired securities and materially varied the arrangement, thereby entitling the appellant to statutory discharge pro tanto and rendering the Bank,s appropriation of her FDRs unsustainable.

KL J & VRK&J CCCA No.27 of2004 i-a) Relevant paragraphs are extracted below:

9. If the two promissory notes Exs. 8l 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 Septernber 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 l4l of the Act will be indubitably attracted. Section l4l comprehands 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 conhact, the surety would be discharged under the combined operation of Sections 139 and l4l of the Act. [n any event, if ttre 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. ll.In State of Madhya Pradeshv. Kaluram [AIR 1967 SC ll05 : (1967) I SCR 2661 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. Theauthorities responsible for supervising the contract allowed the contractor to remove the felled hees 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 lt Billingv.Jay [872 LR 7 QB 756 : 27 l-il ll8] 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 security pledged, as well as his own credit, to the plaintiff, and he was entitled, therefore, tb 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 wil[, 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 expr€ssed in the notes in Rees v. Barrington f 2 White & Tudols LC, 4th Edn., p. I l02l - 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 thern to get into the possession of dre debtor, or does not make thern effectual by giving proper notice, the surety to the extent ol such security will be discharged. A surety, moreover, will be :eleased if the creditor, by reason of what he has done, ,)annot, on payment by the surety, give him the securities in 'rxactly the same mndition as they formerly stood in his hands." 'fhis Court concluded that subject to certain variations liection l4l of the Indian Conaact Act incorporates the Iinglish law relating to discharge from liability of a surety rvhere the creditor parts with or loses the security held by it.

16. First security, namely, the pledged goods are lost t: the Bank and the mncurrent finding again incontrovertible is that the pledged goods were lost on account of the negligence of the creditor Bank. Whole of the security was Lrst 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 5000 tins of oil which even if sold at the then current market price would have satisfied the Bank's ertire claim. AccordinglS the surety would be discharged in errtirety KL J & VRKRJ CCCA No.27 of200.l l2 KI. J & VRKRJ CCCA No.27 of 20(X

ii) In Indian Bantg Madras (supra) the Division Bench of the Madras High court held that where the creditor restructures the borrower's accounts, grants fresh indulgences, or creates new security arrangements without involving or notiffing the surety, the original suretyship stands extinguished, even if no formal guarantee instrument exists, as the law looks to the substance of the transaction rather than its form. It further held that failure to notiff the surety of shortages in primary security and obtaining fresh or alternative securities without the surety's knowledge constitutes negligence discharging the surety, and where the creditor shifts to alternative security or looks to another guarantor, the original surety must be released. ii-a) Relevant paragraphs are extracted below:

17. Mr. Dolia, the learned counsel for appellant bank, has relied upon the decision of a Division Bench of this Court inA.R. Krishnaswami Ayyar v. The Travancore National and Qutlon Bank, Limtted, (lLR (1940) Mad 757 : AIR 1940 Mad 437). That case turns upon the construction of Cl. No. 9 of Exhibit [, a surety bond. [n those circumstances, the Division Bench held that the surety was not discharged and that the lender was entitled to receive balance of the debt from the surety. On the facts of this case, we are of the view, that, unless the sureties had expressly bound themselves unto the creditor even in the case of the creditoCs negligence, the appellant-bank cannot take advantage of the covenant in Ex. D. 3 to fasten the liability of the respondents as sureties. We are not able to appreciate the arguments of Mr. Dolia, the learned Counsel for appellant, that the sureties had waived the benefits conferred l3 under Ss. 133, 134, 136, 139 and 140 of the Contract Act. We are of the view that the decision relied upon by the learned Counsel for appellant-bank, mentioned above, will not apply to the facts of this case.

18. We are entirely in agreement with the view of the learned Judge that the appellant bank is not entitled to hold the respondents liable as principal debtors tating advantage of the covenant contained Ex. D. 3. The decision io Chitguppi and Co. v..ltinayak Kashinath Khadillur, ILR 45 Bom 157 : (AIR l92l Bom 164), has been rightly relied upon by the leamed Judge. ln Amrit Lal Goverdhan Lalan v. State Bank of Travancore, (1968) 3 SCR 724 : (AIR 1968 SC 1432), the Supreme Court has laid down as follows:- "Under S. 140 of the Contract Act the surety is, on pa)ment of the amount due by the principal debtor, entitled to be put in the same position in which the creditor stood in relation to the principal debtor. Under S. I4l of the Act, the surety has a right to the securities held by the creditor at the date when he has become surety. The worrd 'security' is not used in any technical sense and includes all rights which the creditor has against the property at the date of the contract. Iherefore, if the creditor has lost or parted with the security without the consent of the suretg the latter is by the express rrovisions contained in S. l4l, discharged to the extent of r:he value of the security lost or parted with."

19. Therefore, we are of the view that there is no r:scape from the conclusion that to the extent of Rs. l9-% lacs, the appellant-bank cannot hold the respondents liable as lparantors. We are of the view that, in any event, there was a liesh arrangernent between the appellant bank and the (lentral Government and it has brought about a new contract rvhereby the original contract of guarantee stood rescinded. /\t this juncture, it is important to note that to a series of letters written by respondents which are marked as Exs. P. 16 tr P. 28, the appellant-bank has not at all replied. It is not and could not be the case of the appellant bank that the letters p,roduced by the respondents as docurnentary evidence in this case, were got up for the purpose of this case. We are not satisfied with the evidence of D.W. 1 that the bank had acted ffrly and cared to produce all the documents before this C:ourt. We have to agree with the leamed Judge that the acpellant/defendant-bank was satisfied with the guarantee e:<ecuted by the President of India and had closed the KL J & VRXR' CICA No.27 of20(N

L4 KI. I & VRKR.J CCCA No.27 of2(XX accounts of the respondents and was rest content to look to the President of lndia for all the liabilities that were occasioned by the principal debtor-Mills. In our view, the bank's conduct in accepting the guarantee from the President of India, after taking over of the Mills under the lndustries (Development and Regulation) Act, 1951 put an end to the original contract of guarantee executed by the respondents.

iii) In VCK Shares & Stock Broking l,iU 1sup.a), the Court reaffirmed that a banker's lien and right of set-off cannot exceed the bargain between the parties and can operate only where there is a clear nexus between the security and the specific liability; a security given for one defined purpose cannot be pressed into service for a re- engineered or subsequently altered liability without the surety's consent. The Court cautioned that lien and set-off presuppose sameness of capacity and strict authority, and a creditor cannot retro- fit a surety's asset to a new or modified liability structure.

iv) Statutorv Framework iv-a) Relevant provisions of the Indian Contract Act are extracted below:- Section 133. Discharge of surefit by variance tn terms of contract. Any variance, made without the surety's consent, in the terms of the contract between the principal l5 XL J & VRK&' CCCA No.27 of2flX debtor and the creditor, discharges the surety as to transactions subsequent to the vaiance. Section 139. Discharge of surety of 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 surelt is discharged. Section I4I Surety's right to benefit of creditor's securities. A surety is entitled to the benefit of every secuity 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 secarity or not; and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the ,zxtent of the value of the security. iv-b) According to section 133 of the Contact Act, any variance in the contract between creditor and principal debtor, made without the surei:y's consent, discharges the surety as to transactions subsequent to the variance. The Bank's conversion of OCC/KCC/Bills into a term loan, grant of additional facilities, and creation ofjoint securities with others after the management change, and change in the

t6 KT. J & VRKR,J

management of the company were all undertaken without notice to or consent of the appellant, by the statute's plain command, the appellant stands discharged as to liabilities traceable to those altered arrangements. iv-c) Sections 139 & I4l of the Contract Act, the surety is entitled to every security the creditor holds, if the creditor loses or parts with it without the surety's consent, the surety is discharged pro tanto

22. In the present case, the Bank's own evidence shows the dilution of stock-controls, the depletion/sale of hypothecated goods without routing proceeds, and the failure to preserve realizable primary assets and it results in statutory discharge to the extent of lost securities. The Bank cannot then visit the entire shortfall on the appellant's FDRs, as held by the Apex Court in State Bank of Saurashtra (supra).

23. Regarding the character of the appellant's obligation, Even though the mechanism used was mortgage/pledge/substituted security under Section 73 TPA, the substance is suretyship: the appellant's t7 xI- , & vRr&J CCCA No.27 of200a propertv and, later, FDRs were furnished on behalf of the borrower for liabilitie:s as on the management-change date. The Bank's attempt to treat the, FDRs as an independent, free-standing fund is belied by its own documents and pleadings acknowledgidg the replacement character of the deposits. Consequently, the protections of sections 133, 139,14l apply.

24. Consequence for the appropriation Clauses authorizing cancellation/adjustment of FDRs are not.absolute; they operate within the law's boundaries. Once there is a) variance without consent and b) impairment of securities, the creditor cannot enforce such authorisations to the detriment ofthe discharged surety.

25. In the present case, the Bank re-cast the borrower's cash- credit accounts into a term loan, extended further facilities, pennitted the dispcsal of hypothecated stocks, and secured joint mortgage arrangemonts with other hnanciers all without informing the appellant, whose security was furnished only for the liabilities existing as on the date of management change. Consequerttly, consistent with l8 KI. J & VRKR,J

Krishnaswamy (Supra), the appellant stands discharged and the Bank cannot fasten liability on her FDRs.

26. Read together, State Bank of Saurashtra and Indian Bank (supra) foniBi the conclusion that the appellant is not answerabte for liabilities bom of the Bank's unilateral restructuring and laxity in preserving primary securities, VCK Shares reinforces the capacity-matching and clear-authority requirements before any tien/set-off can be invoked against a surety's asset. On this composite footing, the appellant's discharge and the illegality of the FDR appropriation follow as a matter of law.

27. In the light of the same, the following points arise for consideration of this Court:-

1. Whether the appellant stood in the character of a sureQr in law and whether the Bank's conduct resulted in a discharge of such suretyship, wholly or pro tanto?

2. Whether the Bank was entitled to appropriate the appellant's fixed deposits dated 23.03.1989, and whether such appropriation is legally sustainable?

t9 KL ' & VRK&J CCCA No.27of2m4

3. Whether the impugned judgment and decree of the trial Court warrants interference? ISSTJE NO.I: V/hether the appellant stood in thb character of a srrrety in law and whether the Bankrs conduct rr:sulted in a discharge of such suretyship, wholly or pro tanto? 2ti. This Court has already observed that the appellant, though not an rlxecutant of a formal deed of guarantee, had furnished her immovable property, and thereafter the fixed-deposit receipts created from thr: sale proceeds of that property, exclusively as additional security for the borrower's liabilities as existing on the date ofchange ofmanal;ement. The nature and purpose of the security, as reflected in Exs. B-2 to B-4 and acknowledged by the Bank, clearly establishes the substance of suretyship. Once that character is accepted, the statutory consequences under Sections 133, 139 and l4l of the Contract Act, 1872 inevitably follow.

29. The record reveals that the Bank:

KL .' & VRKRJ @CA No.27 of 2004

(a) converted running working-capital accounts into a term loan, (b) extended fresh facilities/indulgences to the new management,

(c) allowed dissipation of hypothecated stock and curtailed stock-verifi cation practices, and (d) failed to notifo or obtain consent of the appellant.

30. These constitute both material variance and impairment of securities. Thus, the appellant stands discharged, at the lext pro tanto, if not fully, from any invocation of security beyond the liabilities tied to the original affangement. The said principle was also laid State Bank of Saurashtra, S. Krishnaswamy, VCK Shares & Stock Broking Ltd (Supra).

31. Accordingly, lssue No.l is answered in favour of the appellant. ISSUE NO.2

2t KL ' & VRI(RJ CIICA No.27 of2flX V/hether the Bank was entitled to appropriate the appellant's fixed deposits dated 23.03.1989, and whether such appropriation is legally sustainable? 3ll. The authorization letters relied upon by the Bank does not and cannot override the statutory incidents ofsuretyship. The right to appropriate is conditional, subject to the creditor's compliance with its obligations. Here, the Bank first altered the contractual structure, compronrised primary securities, and recast liabilities, before seeking to fall back upon the appellant's deposits. Once variance and impairmr:nt are established, any appropriation premised upon pre- existing authority letters becomes unenforceable in law.

the Bank's action in adjusting the FDRs on 21.05.1991 is unsustainable. The amount of t12.86 lakhs, together with inteiest, must be restored to the appellant.

34. Hence, Issue No.2 is answered in favour of the appellant. I Whether the impugned judgment and decree of the trial Court wa rrants interference?

KI. .I & VRKR,.I CCCA No.27 of2004

35. The trial Court, though noticing crucial admissions, failed to give effect to the statutory discharge mandated under Sections 133, 139, and 141 of the Contract Act and overlooked binding principles governing impairment of securities and post-security variance. The impugned judgment, therefore, suffers from material error in law and fact. Interference is imperative to prevent miscarriage ofjustice. Issue No.3 is accordingly answered in the affirmative.

36. In view of the foregoing answers, the appellant cannot be fastened with liability on the altered loan structure, and the Bank's appropriation of the fixed-deposit receipts was contrary to law. The appellant is entitled to refund of the said amount along with applicable interest, as shall be set forth in the final order.

CONCLUSION

37. For the reasons recorded hereinabove, this Court is satisfied that the appellant, who stood in the legal character of a surety by furnishing her immovable property and subsequently depositing the sale proceeds thereof as fixed-deposit receipts exclusively for the liabilities of the borrower as on the date of change of management,

KI. J & VR(&., CCCA No.27 of2004 stood discharged in law by virtue of the Bank's conduct in materially varying the terms of the underlying credit arrangement and in permittirg impairment and dissipation of primary securities without notice to or consent ofthe appellant. 3ti. The record demonstrates that after accepting security from the appellant, the Bank unilaterally converted running credit accounts into a term liability, extended further financial indulgences, allowed disposal of hypothecated stock, and relaxed its own monitoring regime, while keeping the appellant completely uninformed and uninvolved. Such conduct attracts Section 133 of the Contract Act, 1872 (vanance without consent), and Sections 139 & l4l thereof (impairment and loss of securities), leading to the inevitable consequence of discharge of the surety, at least to the extent of the securities impaired.

39. Once such stafutory discharge is attracted, any contractual authorizat:ion for cancellation or appropriation of fixed-deposit receipts trecomes subordinate to the superior mandate of law. The Bank, therefore, could not have lawfully appropriated the appellant's

KI. ' & VRKRJ CCCA No.27 of2004 FDRs on 2L05.1991 towards the altered liabilities of the principal debtor

40. The impugned judgment of the trial Court, having overlooked the binding statutory framework and the settled principles goveming rights of sureties, cannot be sustained and warrants interference.

41. In the light of the above discussion, this appeal is allowed. The impugned judgment and decree dated 19.06.2003 passed in O.S.No.L}LI of 1991 by learned II Senior Civil Judge, City Civil Court, Hyderabad, is set aside. - 4l-a. The Respondent No.l-Bank shall refund to the appellant the sum of Rs.12,86,000/ (Rupees Twelve Lakhs Eighty-Six Thousand only), being the amount of the fixed-deposit receipts appropriated on 21.05.199L, along with:

(i) Interest at the contractual FDR rate up to the original maturity date(s); and

KI. .' & VRXR.J CCCA No.27 of 2m4

(ii) Simple interest @60/oper annum from 21.05.1991 till the date ofactual payment. 4l-b. The Respondent No.l-Bank shall affect such payment within a period of three (3) months from the date of receipt of a copy of this judgment. Ari a sequel thereto, miscellaneous applications, if any, pending in this aprpeal shall stand closed. SD'- K.SHYLESHI JOII.IT REGISTRAR //TRUE COPY/' SECT]ON OFFICER To

1. The ll Senior Civil Judge, City Civil Court, Hyderabad, (with records if any)

2. One Ctl to Sri. Manjari S Ganu, Advocate [OPUCI

3. One Crl to Sri. V Dyumani, Advocate [OPUC]

4. Two CD Copies Pr/BA N/

'18*4., t'' r!

HIGH COUR DATED:1910112026

JUDGMENT

CCCA.No.Z7 ot 2004 'flE S r) <) 0 0 N$ 2$?[ * * ,-,$ ALLOWING THE CCGA 7 A xb

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD MONDAY, THE NINETEENTH DAY OF JANUARY rwb rnousauD AND TWENTY slx PRESENT THE HONOURABLE SRI JUSTICE K.LAKSHMAN AND THE HONOURABLE SRI JUSTICEVAKITI RAMAKRISHNA REDDY c c VIL URT PP o OF Between AND Smt.P.Savitha Krishna Reddy, Wo.Sri P'V'Krishna Reddy household R/o'Flat NO.106, Aziz Towers, Hyderabad. ...APPELLANT'PLAI NTI FF Union Bank of lndia, Andhra Bank Division, Sultan Bazar Branch' Koti' Hyderabad - 500094. (Amended as per court order dated 20 '02'2025 vide l'A'No' 1 ot 2025 in ccclzttzoocl

2. 'M/s. Uniloids Ltd., a Public Limited Company- lepresented bv its Manag Director Sri.Gautam pinga]el"h;;'g ;egi bm& at Road -No 10' l'D' Nacharam, HYderabad. ...RESPONDENTS'DEFENDANTS Appeal under Section 96 of Civil Procedure Code'' against the Judgment and decree dated: 19.06.2003 passed in O'S'NO'1211 of 1991' on the file of the Court of the ll Senior Civil Judge, City Civil Court, Hyderabad' This appeal coming on for hearing and upon perusing the grounds of appeal, the Judgment and Decree of the Court below and the material papers in the MVOP and upon hearing the arguments of Sri' Sunil B Ganu' representing Sri' Manjari S Ganu, Advocate for the Appellant and Sri B'Madhana Rao representing Mrs. V Dyumani' Advocate for the Respondent No'1'

lng A.,

This Court doth Order and Decree as follows:

1. That':he Appeal be and hereby is allowed by setting aside the impugned Judgrnent and decree dated 19.06.2003 passed in O.S.No.1211 of 1991 by ll Senior Civil Judge, City Civil Court, Hyderabad.

2. That the respondent No.1-Bank shall refund to the appellant the sum of Rs.12,86,0001 (Rupees Twelve Lakhs Eighty Six Thousand only), being the arnount of the fixed-deposit receipts appropriated on 21.05.1991, along with:

a. lnterest at contractual FDR rate up to the Original Maturity date(s); and

b. Simple interest @ 60lo p€r ?nnUm from 21.05.1991 till the date of actual payment;

3. That the Respondent No.1- Bank shall affect such payment within a period of thr(:e (3) months from the date of receipt of a copy of this Judgment;

4. That there shall be no order as to costs in this appeal. SD'- K.SHYLESHI JOINT REGISTRAR ,/TRUE COPY// S N OFFICER To 'l . The ll Senior Civil Judge, City Civil Court, Hyderabad.

2. - Two CD Copies Pr/BA l, l tv

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