Bank of Rajasthan v. Hajarimal Milap C. Surana

Bank of Rajasthan v. Hajarimal Milap C. Surana

FACTS:

The respondents (R) (Hajarimal Milap C. Surana) were indebted to the appellants (A) (Bank of Rajasthan) and had deposited precious stones as security. For the recovery of the debt, a suit had been filed in the court by A. Pending the suit, the parties came to an agreement, for the enforcement of which another suit was filed by A.

ISSUES:

1. Whether the second suit is maintainable since the first suit for recovery of the debt was already pending?
2. Whether the precious stones constitute full and final settlement of the debt?
3. Whether the A’ claim to interest is justified.

HELD:

Debts Recovery Tribunal: favoured R

Rejected A’s claim on two grounds; (a) Bank had taken the precious stones as full and final settlement (b) Suit was barred under order 23 rule 1(4) of the CPC.

Appellate Tribunal (favoured R)

Recognized the second suit i.e. did not consider it barred on the basis of CPC provisions but dismissed the appeal maintaining that the bank had taken the precious stones in full and final settlement of the debt.

SUPREME COURT (favoured A)

1. (Issue 1) The case was not for the recovery of the original debt but for the enforcement of the agreement and as such not similar to the first suit.
2. (Issue 2) The precious stones did not constitute full and final settlement but were merely security as expressly mentioned in clause 3 of the agreement.
3. (Issue 3)  A’s claim to interest was justified as clause 2 of the agreement revealed that the bank had agreed to charge any further interest.

• Held: S.176 applicable; A was entitled to the recovery of the debt with interest.

LAW POINTS:

S.176 of Indian Contract Act: If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.