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    Hukumchand Insurance Company Limited

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    Brena Gala
    The first defendant took out a cash credit loan from the plaintiff bank, secured by movable and immovable assets. The second defendant, an insurance company, issued a cash credit indemnity policy to indemnify the bank for any losses due to the first defendant defaulting on repayment. The first defendant then defaulted, so the bank sued both defendants. The court held that: 1) The insurance policy was valid as the insurer had accepted the premiums; 2) The policy covered pre-existing loans; 3) The bank's claim was not premature; and 4) The insurer's liability was not limited to the collateral's proceeds, as the principal and surety have separate liabilities.

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    Hukumchand Insurance Company Limited

    Uploaded by

    Brena Gala
    382 views2 pages
    The first defendant took out a cash credit loan from the plaintiff bank, secured by movable and immovable assets. The second defendant, an insurance company, issued a cash credit indemnity policy to indemnify the bank for any losses due to the first defendant defaulting on repayment. The first defendant then defaulted, so the bank sued both defendants. The court held that: 1) The insurance policy was valid as the insurer had accepted the premiums; 2) The policy covered pre-existing loans; 3) The bank's claim was not premature; and 4) The insurer's liability was not limited to the collateral's proceeds, as the principal and surety have separate liabilities.

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    The first defendant took out a cash credit loan from the plaintiff bank, secured by movable and immovable assets. The second defendant, an insurance company, issued a cash credit indemnity policy to indemnify the bank for any losses due to the first defendant defaulting on repayment. The first defendant then defaulted, so the bank sued both defendants. The court held that: 1) The insurance policy was valid as the insurer had accepted the premiums; 2) The policy covered pre-existing loans; 3) The bank's claim was not premature; and 4) The insurer's liability was not limited to the collateral's proceeds, as the principal and surety have separate liabilities.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    382 views2 pages

    Hukumchand Insurance Company Limited

    Uploaded by

    Brena Gala
    The first defendant took out a cash credit loan from the plaintiff bank, secured by movable and immovable assets. The second defendant, an insurance company, issued a cash credit indemnity policy to indemnify the bank for any losses due to the first defendant defaulting on repayment. The first defendant then defaulted, so the bank sued both defendants. The court held that: 1) The insurance policy was valid as the insurer had accepted the premiums; 2) The policy covered pre-existing loans; 3) The bank's claim was not premature; and 4) The insurer's liability was not limited to the collateral's proceeds, as the principal and surety have separate liabilities.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Hukumchand Insurance Company Limited

    v.
    Bank of Baroda and Others
    Facts:
    First defendant executed what is styled as a "Cash Credit Agreement" with the plaintiff bank and
    secured cash credit for business. By way of security the moveable assets of the firm were
    hypothecated in favour of the creditor-Bank. In addition, under a mortgage by deposit of title-
    deeds certain immovable properties were offered as security for the said loan.
    Later, the second defendant, Hukumchand Insurance Co. undertook (under “Cash Credit
    Indemnity Policy”) to indemnify the plaintiff against losses that may be suffered by the Plaintiff
    in consequence of any default on the part of the first defendant in due repayment of all moneys at
    any time payable by the first defendant to the plaintiff.
    The first defendant having committed default in the matter of repayment of the moneys borrowed
    from the plaintiff, plaintiff instituted the present suit against both the defendants.
    Issues:
    1. Whether the Insurance Policy issued is unauthorised and invalid?
    2. Whether the Cash credit indemnity clause could be invoked in respect of advances made
    earlier than the signing of the clause by the HICL? (Basically past consideration)
    3. Liability of the Insurers would, at all events, arise only after the plaintiff had exhausted
    its remedy against the principal debtor, and, that therefore, the suit claim is premature;
    4. Whether the liability of the second defendant must be limited to such part as may remain
    unsatisfied by the proceeds of sale of the security?
    Arguments:
    1. HICL also contended that the person who executed the alleged Cash Credit Indemnity
    Policy on behalf of the second defendant had no right or authority or power to execute or
    issue such documents and that therefore no liability on its part arose.
    2. HICL says that "After 28-12-1967, bank has not made any new advances to the 1 st
    defendant", strenuously contended that in the light of this admission and upon proper
    construction of Ext. P-6 no liability could be fastened on HICL.
    3. The contention urged in this behalf, in effect and in its essence, is that the remedy against
    the appellant would arise only when it is shown that the debt was irrecoverable from the
    first defendant.
    4. According to HICL, a personal decree against the principal debtors being limited to such
    part of the mortgage debt, if any, as may remain unsatisfied consequent upon an
    insufficiency in the proceeds of sale of the security, the decree against the appellant
    should also be so limited.
    Held:
    1. The conduct of the appellant in having obtained and retained the benefit of this premium,
    in our opinion, clearly amounts to a ratification of the acts of its manager within the
    meaning of Ss. 196 and 197 of the Contract Act. According to general principles of law
    when an agent acting for and on behalf of another, stipulates a benefit for the principal
    under a contract, and the principal without demur avails himself of that benefit, the law
    implies a ratification of that contract on the part of the principal. THEREFORE,
    BINDING.
    2. Even after 28-12-1967, the first defendant was permitted to make withdrawals from the
    account which, but for the guarantee under Ext.P-6, would not have been permitted. But,
    in our opinion, the continuance of the cash credit account even after 28-121967 is in
    pursuance of the guarantee policy.
    3. Exhibit P-6 is styled 'an Indemnity Policy'= Primary liability. Now, whether the contract
    in the instant case is viewed as a contract of indemnity or as one of guarantee and
    whether, correspondingly, the liability is to pay a new debt arising under the
    contract to indemnify or to pay the original debt, the claim, in our opinion, cannot be said
    to be premature. The liability on the part of the appellant under Ext. P-6 arises in
    consequence of default of the borrowers in due repayment on demand. Both the demand
    against and the default by the 1st defendant must be held to have been established.
    4. The liability of a principal debtor and the liability of a surety which is co-extensive with
    that of the former are really separate liabilities, although arising out of the same
    transaction. Notwithstanding the fact that they may stem from the same transaction, the
    two liabilities are distinct. Referring to Bank of Bihar v Damodar Prasad,
    “Before payment the surety has no right to dictate terms to the creditor and ask him to
    pursue his remedies against the principal in the first instance. As Lord Eldon observed in
    Wright v. Simson: 'But the surety is a guarantee; and it is his business to see whether the
    principal pays, and not trial of creditor.' In the absence of some special equity the surety
    has no right to restrain an action against him by the creditor on the ground that the
    principal is solvent or that the creditor may have relief against the principal in some
    other proceedings.
    Likewise where the creditor has obtained a decree against the surety and the principal,
    the surety has no right to restrain execution against him until the creditor has exhausted
    his remedies against the principal......"

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