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PETITIONER: AMRIT LAL GOVERDHAN LALAN

       Vs.

RESPONDENT: STATE BANK OF TRAVANCORE & ORS.

DATE OF JUDGMENT: 11/04/1968

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C.

CITATION:  1968 AIR 1432            1968 SCR  (3) 724  CITATOR INFO :  R          1980 SC1528  (16)

ACT: Indian  Contract  Act  (9 of 1872), ss. 133,  135  and  141- variance in terms of contract-When to be inferred-Promise to give  time to principal debtor’, in s. 135-What amounts  to- Scope of s. 141.

HEADNOTE: In  February  1956,  respondents  3 to  6,  as  partners  of respondent  2 firm, ,entered into an agreement with  a  Bank (Predecessor-interest   of   the   first   respondent-bank), undertaking to open in the Bank a cash credit account to the extent  of Rs. 100,000 to be secured by goods to be  pledged with the Bank.  Clause 9 of the agreement provided that  the borrowers shall be responsible for the quantity and  quality of  goods  pledged.   The appellant ,executed  a  letter  of guarantee  in favour of the Bank guaranteeing the  liability of the borrowers in respect of the account upto a limit  Rs. 100,000.   Under  cl.  5 of the  letter  of  guarantee,  the appellant agreed that the Bank may enforce and recover  upon the guarantee the full amount guaranteed notwithstanding any other  security  the Bank may hold.   The  weekly  statement dated  15th  March 1957 showed that the  stock  pledged  was valued  at  about Rs. 99,991 but when the  quantity  of  the goods  actually  in  stock  was  verified  with  the  weekly statement  dated 18th April 1957, shortage of goods  to  the value of Rs. 35,690 was found.  It was admitted on behalf of the  Bank that. it was not known how the  shortage  occurred and that respondents 2 to 6 must have taken away the  goods. Respondents 2 to 6 were granted one month’s time to make  up the  deficit, and in spite of the time being  extended,  the deficit was never made up.  In May 1958, after adjusting the money  realised on the sale of the goods pledged  and  other adjustments,  a  sum of Rs. 40,933.58 was found due  to  the Bank from respondents 2 to 6. The Bank filed a suit  against them  and  the  appellant, and the suit  was  decreed.   The decree was confirmed by the High Court. In appeal to this Court, it was contended that : (1) Certain entries  in  the account books of the Bank showed  that  the maximum limit of credit was reduced to Rs. 50,000 and  again raised to Rs. 100,000 without consulting the appellant, that

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therefore there was a variation in the terms of the contract without the surety’s (appellant’s) consent and, under s. 133 of  the Indian Contract Act the liability of  the  appellant was discharged; (2) Under s. 135 of the Act, the conduct  of the Bank in giving time to respondents 2 to 6 to make up the deficit  in the quantity of goods absolved the appellant  of all liability; and (3) under s. 141 of the Act, since a por- tion of the security was parted with or lost by the creditor without surety’s consent, the liability of the appellant was discharged  to  the extent of the value of the  security  so lost. HELD  :  (1) The entries in the books of account  were  mere internal   instructions   not   legally   binding   on   the respondents,  and  in  view  of the  formal  record  in  the original agreement and letter of guarantee, there could  not leave been a variation in the terms without a proper written agreement, Therefore, there was no variance in the terms  of the  contract between the creditor and the principal  debtor and the provisions of s. 133 of the Act were not  attracted. [729 B-C.  E]                             725 (2)  What  really constitutes a promise to give time  within the  meaning  of s. 135 of the Act is the extension  of  the period  at which, the principal debtor was by  the  original contract obliged to pay the creditor, by substituting a  new -and valid contract between them, or, whenever the taking of a new security from the principal debtor operates as  giving time.  Therefore, the act of the Bank in giving time to  the principal debtor to make up the quantity of goods pledged is not tantamount to giving of time to the principal debtor for making  payment  of  the money, within the  meaning  of  the section. [730 E-F] Rouse v. Broadford Banking Co. [1894] 2 Ch. 32, referred to. (3)  Under  s.  140 of the Contract Act the  surety  is,  on payment 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. 141  of  the Act  the  surety has a right to the securities held  by  the creditor  at  the  date when he  became  surety.   The  word ’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.  Therefore, 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 s.  141,  discharged  to  the extent of  the  value  of  the security lost or parted with. [731 F; 732 D-F; 733 C-D] In  the present case, the shortage of goods of the value  of Rs.  35,690 was brought about by the negligence of the  Bank and to that extent there must be deemed to be a loss by  the Bank of the security which the Bank had at the time when the contract of surety was entered into; and there is nothing in cl.  5  of  the letter of guarantee  to  indicate  that  the appellant  was no, entitled to invoke the provisions  of  s. 141.  The words ’any other security’ in the clause meant any security  other  than the pledge of goods mentioned  in  the primary  agreement.   Therefor.--,  the  principle  of   the section  applies  and  the  surety  was  discharged  of  his liability to the Bank to the extent of Rs. 35.690. [731 D-E; 733 E-F] State of M.P. v. Kaluram, [1967] 1 S.C.R. 266, followed. wulff  and Billing v. Jay, L.R. [1872] 7 Q.B. 756,  referred to.

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JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 930 of1965. Appeal  by special leave from the judgment and  order  dated September  11, 1963 of the Kerala High Court in Appeal  Suit No. 444 of 1960. K.   Viswanatha  Iyer,  Kutty Krishna Menon and  R.  Gopala- krishnan, for the appellant. C.   K.  Daphtary, Attorney-General, H. L. Anand, and K.  B. Mehta, for respondent No. 1. The Judgment of the Court was delivered by Ramaswami, J.-This appeal is brought, by special leave, from the judgment of the High Court of Kerala dated September 11, 1963 in Appeal Suit No. 444 of 1960. On February 27, 1956 respondents 3 to 6, as partners of res- pondent No. 2 firm, entered into an agreement with the  then Travancore  Forward  Bank Ltd. undertaking to  open  in  the books 726 of the Bank at Emakulam a Cash Credit Account to the  extent of Rs. 1,00,000 to remain in force until closed by the  Bank and to be secured by goods to be pledged with the Bank.  The said  respondents  also  agreed  that  if  they  failed   or neglected, to repay the Bank on demand the amount due to the Bank, it shall be lawful for the Bank, without any notice to them, to sell or otherwise dispose of all securities, either by  public auction or by private contract and to  apply  the net  proceeds  of such sale towards the liquidation  of  the debt.  It was also agreed that if any balance was still left the Bank shall be at liberty to apply any other money in the hands  of the Bank standing to the credit of the  said  res- pondents  towards  repayment  of the  debt.   The  agreement between  the Bank and the said respondents is Ex.  P  1.  By cl. 2 of the document the borrowers agreed not to pledge  or encumber  the  security  nor  permit  any  act  whereby  the security  hereinbefore  expressed to be given  to  the  bank shall  be  in  any way  prejudicially  affected.   Clause  3 provided as follows :               "That the Borrowers shall with the consent  of               the  be  at  liberty  from  time  to  time  to               withdraw  any of the goods for the time  being               pledged  to the Bank and forming part  of  the               Securities  the  subject  of  this   Agreement               provided  the advance value of the said  goods               is  paid into the said account or goods  of  a               similar  nature and of at least  equal  value,               are  substituted for the goods  so  withdrawn.               Provided always that with the previous consent               of the Bank the Borrowers shall be at  liberty               to  withdraw  any of the goods  for  the  time               being pledged to the Bank without paying  into               the   said  account  such  advance  value   as               aforesaid   or  substituting  any   goods   as               aforesaid   provided  the   necessary   margin               required hereunder is fully maintained."               Clauses 8 and 9 are to the following effect :               "8. That the Borrowers shall make and  furnish               to the Bank such statements and returns of the               cost and market value of the securities and  a               full  description  thereof  and  produce  such               evidence  in support thereof as the  Bank  may               from time to time require and shall  maintain,               in favour of the Bank a margin of 10 per  cent               at Bank’s discretion between the market  value               from  time to time of the Securities  and  the               balance  due to the Bank for the  time  being.

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             Such  margin  shall  be  calculated  on   such               valuation  of the Securities as fixed  by  the               Bank   from   time  to  time  and   shall   be               maintained.by  the  Borrowers  either  by  the               delivery of further securities to be  approved               by  the  Bank  or  by  cash  payment  by   the               Borrowers immediately on the market value  for               the time               being of the securities becoming less than the               aggregate of the balance due to the Bank  plus               the amount of the margin as calculated above-,               9.    That the Borrowers shall be  responsible               for  the  quantity and quality  of  the  goods               pledged  with  the  Bank  and  also  for   the               correctness   of   Statements   and    Returns               furnished  by  them to the Bank from  time  to               time  as mentioned above.  The Borrowers  have               assured   the   Bank  that   all   information               regarding  the quantity, quality, value  etc.,               and  other  description of the  goods  pledged               with the Bank as given in the said  statements               and  returns  is or would be correct  and  the               Bank  has agreed to advance monies  under  the               above  account on such  representations.   The               Borrowers  further declare and agree that  the               goods  pledged  with the Bank  have  not  been               actually weighed and/or valued and in order to               verify  the quantity or quality of  the  goods               pledged or Statements and Returns furnished by               the Borrowers, the Bank shall be at liberty at               any time, in its discretion, to get the  goods               weighed  and  valued  at the  expense  of  the               Borrowers  and the Borrowers agree  to  accept               as.  conclusive  proof  the  result  of   such               weighment  and valuation as certified  ’by  an               authorised  officer of the Bank.  If, on  such               weighment and valuation the goods pledged  are               found  to be short or less than the weight  as               shown by the Borrowers, or of a lower value so               as  to  effect  the  stipulated  margin,   the               Borrowers undertake to make up the deficit  on               demand  and  to  reimburse the  Bank  for  all               losses,  damages or expenses incurred  by  the               Bank on that account." On  March  7,  1956, the appellant executed  Ex.   P-4,  the letter of guarantee in favour of the Bank, guaranteeing  the liability  of  the borrowers in respect of the  cash  credit account  up  to a limit of Rs. 1,00,000 and  in  respect  of liability  under  bills  discounted up to  a  limit  of  Rs. 45,000.   Clause  5  of the letter  of  guarantee  reads  as follows :               "To   the   intent   that   you   may   obtain               satisfaction  of  the  whole  of  your   claim               against  the  customer, I 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               727

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             728               be  debited in your account current  with  the               customer,  or in any other account upon  which               he may be liable." Respondents  2 to 6 neglected to pay the amount due  to  the Bank in the said account and the goods pledged with the Bank were  consequently sold with notice to the said  respondents and  the  proceeds  were  credited to  the  account  of  the respondents.   The -amount due to the Bank as  on  September 30,  1957  was  Rs.  73,931.35. Respondents 3  to  5  had  a Suspense  Account with the Bank to the extent of  Rs.  5,000 and   the  said  amount  was  -adjusted  in   the   account. Respondent  No. 6 had a deposit of Rs. 5,000 with  the  Bank and  the same was also adjusted in the said account.   Under the  Cash Credit Account, the balance due to the Bank as  on May 21, 1958, stood at Rs. 40,856.34. A sum of Rs. 77.24 was due to the Bank from respondents 2 to 6 -as per short  bills account  as on April 23, 1958.  The Bank  served  registered notices  of  demand  on respondents 2 to 6 as  well  as  the Appellant  and on their failure to make the payment  of  the amount  -due  the Bank filed a civil suit against  the  said respondents and ,the appellant, being Original Suit No.  171 of  1958 for recovery -of Rs. 40,933.58 in the court of  the Subordinate Judge at Ernakulam.  Respondents 2 to 6 did  not contest  the  suit.  The appellant, however,  contested  and filed  a  Written Statement ;exonerating  himself  from  the liability on the allegation that the -contract of  guarantee was discharged on account of the misconduct of the creditor- bank.  The Subordinate Judge of Emakulam granted a decree in favour  of the Bank as against respondents 2 -to 6 and  also against  the  appellant by his judgment  dated  December  9, 1958.   The judgment of the Subordinate Judge was  confirmed in appeal by the High Court of Kerala on September 11,  1963 in Appeal Suit No. 444 of 1960. During  the pendency of the proceedings in  the-High  Court, respondent No. 1, State Bank of Travancore, a subsidiary  of the  State  Bank of India was substituted in  place  of  the Travancore Forward Bank Limited as successor-in-interest  of the said Bank. On  behalf  of the appellant it was contended in  the  first place  that there was a variation made in the terms  of  the contract  between the principal-debtor and the  creditor  in the   present  case  and  the  appellant   was   accordingly discharged of his liability under the contract of guarantee. Reference  was  made to s. 133 of the  Indian  Contract  Act which states :               "Any  variance,  made  without  the   surety’s               consent  in the terms of the contract  between               the  principal  debtor (s) and  the  creditor,               discharges  the  surety  as  to   transactions               subsequent to the variance". It  was pointed out that the maximum limit of  Rs.  1,00,000 allowed as credit in Ex.  P-1 was reduced to Rs. 50,000  and that it was 729 again raised to Rs. 1,00,000 subsequently without consulting the  appellant.   The  only  evidence  in  support  of  this contention  is  certain  entries in the  pages  of  accounts maintained by the Bank of the "limit" as Rs. 50,000.  It was also pointed out that the appellant had withdrawn Rs.  5,000 out  of  Rs. 10,000 deposited by him with the  Bank  towards security for advances to the firm.  But there is no  written agreement between respondent no. 1 Bank on the one side  and the respondent-firm on the other side reducing the limit  of cash  credit accommodation under Ex.  P-1.  In view  of  the

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formal record in the agreements, Ex.  P-1 and Ex.  P-4 it is difficult to hold that the variation of the terms would have been  made without any written record.  The High  Court  has taken the view that the entry in the books of account of the Bank might well be a private instruction to the Cashier that advances were not to be made by him beyond Rs. 50,000  which instruction  may  not  be legally  binding  upon  the  other respondents.   No  inference  may also  be  drawn  from  the withdrawal  of  Rs. 5,000 from the initial  deposit  of  Rs. 10,000  by  the appellant.  The reason is that there  is  no obligation  under  Ex.  P-4 imposed upon the  appellant  to, make any deposit of money with the Bank and the circumstance that  he made an initial deposit of Rs. 10,000 to  reinforce his  guarantee  or  that he withdrew Rs. 5,000  out  of  the deposit appears to be quite immaterial.  In our opinion, the High  Court was right in reaching the conclusion that  there was  no variation of the contract between the  creditor  and the  principal debtor without the consent of  the  appellant and the provisions of S. 133 of the Indian Contract Act  are not  attracted.  We accordingly hold that, the  Counsel  for the  appellant has been unable to make good his argument  on this aspect of the case. It  was  contended, in the second place, on  behalf  of  the appellant  that  respondent  no. 1 Bank had  given  time  to respondents  2  to 6 to make up the shortage  of  the  goods pledged  to the value of Rs. 35,690.  It appears that  under the agreement, Ex.  P-1 respondents 2 to 6 had pledged goods which were verified by the employees of the Bank.  When  the quantity  of the goods actually in stock was  verified  with the  weekly statement dated April 18, 1957, the shortage  of goods  to  the  value of Rs. 35,690  was  found.   The  Bank immediately  requested  respondents 2 to 6 to  make  up  the deficit.   On April 23, 1957 the respondent  firm  intimated that  the deficit will be made up within one month (See  Ex. P-  1  3).   According to the Bank,  one  month’s  time  was granted  by it to enable respondents 2 to 6 to make  up  the deficit in the quantity of goods.  P.W. 1, the Agent of  the respondent  Bank admitted that within one month the  deficit was  not  made up and thereafter even though  the  time  for making  up the deficit was extended, respondents 2 to 6  did not, in fact, make up the deficit by supplying goods to  the value of Rs. 35,690.  It was contended on behalf 730 of the appellant that the conduct of the Bank in giving time to  the  principal-debtor  to make up  the  deficit  in  the quantity  of goods absolved the appellant of  all  liability under  the guarantee.  Reference was made to S. 135  of  the Indian Contract Act which states               "A  contract  between  the  creditor  and  the               principal debtor, by which the creditor  makes               a  composition with, or promises to give  time               to,  or  not  to  sue,  the  principal  debtor               discharges  the  surety,  unless  the   surety               assents to such contract." In our opinion, there is no warrant for the argument of  the appellant.   It is manifest that the act of giving  time  to the borrowers to make up the quantity of the goods found  to be short on weighment by the Bank cannot be considered to be a "promise to give time" to the borrowers as contemplated by s.  135  of  the Indian Contract Act.   In  this  connection reference should be made to cl. 9 of Ex.  P-1 which provides that the borrowers shall be responsible for the quantity and quality of goods pledged and also for the correctness of the statements  and returns furnished to the Bank from  time  to time.   It  is stated in Ex.  P-1 that the  borrowers  have,

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declared  and  agreed that the goods pledged with  the  Bank have not been actually weighed or valued in order to  verify the quantity and quality of the goods pledged.  It is in the light  of  these clauses of the agreement that  the  act  of giving  time to the principal debtor has to  be  considered. The  act of the Bank in giving time to the principal  debtor to  make  up  the  quantity of  the  goods  pledged  is  not tantamount to the giving of time to the principal debtor for making the payment of the money within the meaning of s. 135 of the Indian Contract Act.  What really constitutes  giving of  time  is the extension of the period at  which,  by  the contract  between them, the principal debtor was  originally obliged to pay the creditor by substituting a new and  valid contract  between the creditor and the principal  debtor  to which  the  surety  does  not assent.   The  reason  why  an agreement to give time discharges the surety is because  if, after making such an agreement, the creditor were to sue the surety  the latter would at once be turned on the  principal debtor in breach of the agreement to give time, so that  the effect  of such an agreement is to prevent ’the surety  from either  requiring  the creditor to call upon  the  principal debtor to pay off the debt, or himself paying off the  debt, and  then  suing  the  principal  debtor,  thereby   causing prejudice  to the surety [Rouse v. Bradford Banking  Co.(1), per A. L. Smith, L.J.]. "Thus, to substitute for payment  in one sum payment by instalments amounts to a giving of  time. Again,  whenever  the  taking of a  new  security  from  the principal  debtor  by the creditor operates as a  giving  of time,  the  surety is no longer liable but  not  where  that transaction has no such effect." (Halsbury’s (1)  [1894] 2 Ch. 32, 75.                             731 Laws  of  England, Vol. 18, p. 509).  In  our  opinion,  the provisions  of  S. 135 of the Indian Contract  Act  are  not attracted  to  the  present case and  the  argument  of  the appellant on this point must be rejected. We  proceed to consider the next important question  arising in this case, namely, whether a portion of the security  was lost  by  the creditor or parted with without  the  surety’s consent  and whether the surety is discharged to the  extent of the value of the security so lost.  It was pointed out on behalf of the appellant that when the quantity of the  goods actually  in  stock was verified with the  weekly  statement dated April 18, 1957, shortage of goods to the value of  Rs. 35,690 was found.  The weekly statement dated March 15, 1957 shows that the stock was valued at Rs. 99,991 and odd and in the course of his evidence the Agent of the respondent  Bank said  that "he did not know how the shortage  occurred"  and "there  was a possibility of defendants 1 to 5  taking  away the goods".  On behalf of the respondent Bank reference  was made to cl. 5 of Ex.  P-4 which has already been quoted.  It was contended that on account of this clause in Ex.  P-4 the appellant  has  opted out of the benefit of s.  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 Ex. P-4 should be properly  construed as "any security other than the pledge of goods mentioned in the  primary  agreement, Ex.  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 S. 141 of the Indian Contract  Act.   In this  connection it is necessary to consider the  provisions of s. 140 of the Indian Contract Act, 1872 which states               "Where  a guaranteed debt has become  due,  or

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             default  of the principal debtor to perform  a               guaranteed  duty has taken place, the  surety,               upon payment or performance of all that he  is               liable  for  is invested with all  the  rights               which  the creditor had against the  principal               debtor(s)."               This  section  embodies the  general  rule  of               equity  expounded  by Sir  Samuel  Romilly  as               counsel and accepted by the Court of  Chancery               in Craythorne v. Swinburne(1), namely :               "The  surety will be entitled to every  remedy               which  the creditor has against the  principal               debtor;  to  enforce every  security  and  all               means of payment; to stand in the place of the               creditor;  not  only  through  the  medium  of               contract,  but  even by  means  of  securities               entered into               (1)   [1807] 14 Ves. 160.               732               without the knowledge of the surety; having  a               right to have those securities transferred  to               him, though there was no stipulation for that;               and  to avail himself of all those  securities               against  the debtor.  This right of  a  surety               also  stands,  not upon contract, but  upon  a               principle of natural justice." The  language  of the section which employs  the  words  "is invested with all the rights which the creditor had  against the  principal debtor" makes it plain that even without  the necessity  of a transfer, the law vests those rights in  the surety.  Section 141 of the Indian Contract Act, 1872 states               "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." As  pointed out by this Court in State of Madhya Pradesh  v. Kaluram(1), the expression "security" in this section is not used  in any technical sense; it includes all  rights  which the  creditor  has against the property at the date  of  the contract.  The surety is entitled on payment of the debt  or performance  of all that he is liable for to the benefit  of the  rights  of the creditor against  the  principal  debtor which  arise out of the transaction which gives rise to  the right  or liability.  The surety is therefore on payment  of the amount due by the principal debtor entitled to be put in the same positionin which the creditor stood in relation  to the  principal  debtor. If the creditor has lost  or  parted with  the  security without the consent of the  surely,  the latter  is  by the express provision contained in  s.,  141, discharged  to the extent of the value of the security  lost or  parted with.  In Wulff and Billing v. Jay(2) Hannen,  J. stated the law as follows : 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, 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

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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 (1) [1967] 1 S. C. R. 266. (2) L. R. (1872) 7 Q. B. 756.                             733               doctrine  is  very clearly  expressed  in  the               notes in Rees v. 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               hag  done, cannot, on payment by  the  surety,               give  him the securities in exactly  the  same               condition  as  they  formerly  stood  in   his               hands.’ " It  is  true  that S. 141 of the  Indian  Contract  Act  has limited  the  surety’s  right  to  securities  held  by  the creditor  at  the  date  of his.  becoming  surety  and  has modified the English rule that the surety is entitled to the securities  given to the creditor both before and after  the contract  of surety.  But subject to this variation, s.  141 of the Indian Contract Act incorporates the rule of  English law  relating  to the discharge from liability of  a  surety when  the creditor parts with or loses the security held  by him.  Upon the evidence adduced by the parties in this  case we  are  satisfied 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.  It follows therefore that the principle of s. 141 of the Indian Contract Act applies to this case and  the surety  is  discharged of the liability to the Bank  to  the extent  of  Rs.  35,690.   We  accordingly  hold  that   the respondent  Bank is entitled to a decree against  respondent 6, the appellant only to the extent of Rs. 5,243.58 and  not to the sum of Rs. 40,933.58 and to proportionate costs. For  these  reasons  we  allow  the  appeal  to  the  extent indicated  above  and modify the decree of  the  High  Court accordingly.   The parties will bear their respective  costs in-this Court. V.P.S.                                                Appeal allowed. 734