Law: Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)

Section: 9

(a) Financial Institutions (Recovery of Finances) Ordinance (XLVI of 2001)------- --------S. 9--------Contract Act (IX of 1872), S. 141-------Recovery of loan amount-------Discharge of guarantee/surety on release of pledged stock-------Permissibility-------Question before the High Court was as to whether release of pledged stocks by the plaintiff-Bank to the defendants/ principal debtor had discharged the defendants/guarantors from their liability as guarantors-------Guarantees executed by the defendants showed that permission had been granted to the Bank by the terms of the guarantees to deal with the securities of the principal debtor without reference to the guarantors-------Deed of guarantee showed that the scope of liability of the guarantors had been defined in extremely broad and wide terms, the effect of which was not to discharge the guarantor of his obligations or liability, particularly, if there had been some material variation in the principal debtor's obligation or where the creditor had dealt with the securities offered by the principal debtor-------Defendant/ principal debtor had approached the Bank with the request to release the pledged stocks as according to him the stock was losing its value and sought permission to sell the same for repayment to the Bank of the amount under the Case Finance (pledge) Facility, and the Bank had released the pledged stocks after the defendant had executed the trust receipt, after which the defendant had been paying amounts to the Bank for certain period-------By releasing the pledged stocks and getting payments in return, the Bank could not be said to have lost or parted with the security, which could, in turn, affect discharge of the surety under S. 141 of Contract Act, 1872-------Actions of the Bank in releasing the pledged stocks to the defendant and getting money in return was not inconsistent with or rendered nugatory to the rights of the surety in any manner whatsoever-------By releasing the pledged stocks, the Bank had not impaired any of the rights or remedies of the defendants/guarantors against the principal debtor-------Defendants/principal debtors had not pleaded in their applications for leave to…

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