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The appellants-defendants gave their project to the bank requesting financial assistance to the tune of Rs. 15 lakhs as working capital, but the bank neither granted the aforesaid required financial assistance nor refused it. The defendants could not approach any other financial institution. After a lot of time the bank granted some financial assistance and assured that the remaining financial assistance shall be granted shortly. But the remaining financial assistance was neither granted nor denied. The omissions and non-co-operation of the bank and the Uttar Pradesh Financial Corporation (hereinafter referred to as "UPFC") resulted in an acute crisis. The company was taken over under Section 29 of the UPFC Act and was sold away for a throw away price. At the time of the aforesaid seizure, the respondent-bank took over the entire unfixed assets, which were pledged and hypothecated with it. Neither the respondent-bank nor the UPFC took the appellants-defendants into confidence at any stage, nor was any inventory list prepared with regard to the huge stocks, raw materials, etc., mentioned above. At that stage, the hypothecated assets were of more value than the amount disbursed to the defendants. Any outstanding in the account of the defendants could have been adjusted, if just decision had been taken in time by the bank. The respondent-bank has filed the suit without accounting for the primary securities, which were pledged and hypothecated with them. The defendants are entitled to get adjustment on account of their pledged and hypothecated stocks, etc. The defendants had submitted the stock balance of raw materials pledged and hypothecated with the bank, as on May 25, 1992, amounting to Rs. 8,75,603.75.

14. The respondent-bank filed the following reply to the counter-claim made by the appellants-defendants :

"The counter-claim has been filed without filing the written statement and is therefore not maintainable. The counter-claim cannot be decided along with the original application, as the same does not arise exclusively against the respondent-bank. In the counter-claim, there is claim by the defendants against UPFC, which is neither a plaintiff nor a defendant. On the same set of facts, the defendants have filed a claim for set-off along with the written statement.
The bank sanctioned and provided the financial assistance to the defendants after assessing the need. All the papers were signed by the defendants, after reading and understanding them, and they did not sign any blank paper. No assurance was given by the bank to the defendants as alleged. The defendants were granted a limit of Rs. 9 lakhs, and if they were unable to use the same, the bank is not responsible.
The stocks were not under the lock and key of the bank, but were in the sole custody of the first defendant. If the UPFC had done any act to the prejudice of the defendants, the bank is not liable. It is wrong to say that the bank took any asset. The stocks statement is false.

76. Learned counsel for the appellants-defendants contends that the stocks, raw material, etc., which were hypothecated with the respondent-bank got converted into a pledge. According to him when the UPFC took over the appellant-first defendant-company under Section 29 of the UPFC Act, the respondent-bank had taken possession of all the raw materials, etc., but had not taken steps to sell them nor has it accounted for those stocks, raw materials, etc., pledged with it. Therefore, learned counsel for the appellants-defendants contends that the respondent-bank, without giving back the raw material pledged with it, cannot even file the suit. He also contends that inasmuch as the security given in the shape of stocks, raw materials, etc., having been lost, defendants Nos. 2 to 4 who are stated to be guarantors are also discharged.