Bombay High Court
Central Bank Of India vs M/S. Multi Block Private Ltd. And Others on 16 January, 1997
Equivalent citations: AIR1997BOM109, AIR 1997 BOMBAY 109, (1997) 1 ARBILR 676, (1997) 33 BANKLJ 211, (1997) 1 BANKCLR 248
JUDGMENT
1. Both the suits are being disposed of by the common judgment. The plaintiffs herein are the same. The first defendant who are the principal borrower are also the common. Some of the defendants in both these suits are also common. Defendant Nos. 2 to 9 in both the suits are suied in their Capacity as guarantors and they were also the Directors of the first defendant Company. The another element which is common in both the suits is that decrees have been already passed against the first defendant, the principal borrower. The defendants in both the suits are sued in their capacity as guarantors. The defendants who are contesting and are appearing before the Court have raised common contentions with regard to their liability and have challenged the efficacy of the guarantee bond. The contentions raised are common and, therefore, the issues raised are also common.
2 It may be stated at this stage itself that the issue was also raised in both the suits by and on behalf of the contesting defendants about the maintainability of the suits for want of leave under Order 2, Rule 2 of the Code of Civil Procedure. This was done since the plaintiffs had earlier filled a suit being Suit No. 324 of 1977 is this Court in which is also the first defendant, who is also the first defendant in these two suits as the principal borrower and some of the defendants are also common defendants in the said earlier suit. However, by judgment of order dated 10th December, 1996 passed by my Brother Judge Vaidyanatha, the said issue has been resolved with the finding that the leave under Order 2, Rule 2 of the Civil Procedure Code was not necessary for the institution of both these suits herein. Therefore, that aspect need no longer detain us.
3 It will be useful to recapitulate the factual aspects in each of the case.
Suit No. 975 of 1978:--
4. The claim herein is for a sum of Rs. 1,21,245/- with interest at the rate of 15.5%. There is also a prayer for the disposal of the security assets, namely, hypothecated goods.
5. It is the case of the plaintiffs that the claim in the suit relates to a Term Loan facility granted to the first defendant. The defendant 2 to 9 were at the relevant time the Directors of the first defendant and they had executed the guarantee bond for a sum of Rs. 4,25,000/-, for the advancement of the loan facility to the first defendant. It may be stated that in the suit defendant also in another two suits, namely, Suit No. 976 of 1978 and Suit No. 324 of 1977 the guarantee bond is common. According to the plaintiffs, the defendant No. 2 onwards executed the guarantee bond for securing the loan advanced to the first defendant.
6. In the plaint, the plaintiffs have given the particulars of the claim stating that at the foot of their account the amount claimed in their suit was outstanding against the first defendant in respect of the said Term Loan facility. At the outset, it may be stated that as far as merits of the claim on concerned, there is no challenge by and on behalf of the defendants. Further more as stated earlier, the decree has already been passed against the first defendant -- the principal borrower and this is also one more relevant factor which would not admit any dispute about the amount as claimed in the suit herein.
7. The plaintiffs have stated that they served demand notices upon the principal borrower as also the guarantors, the defendants herein in calling upon them to pay the amount outstanding in respect of the Term Loan facility to which there was no response and hence the suit. It will thus be noticed that defendants 2 to 9 are sought to be indicted as the Guarantors.
Suit No. 976 of 1987:--
8. In this suit the claim is for a sum of Rs. 57,707.61. The same relates to a Short Term loan facility granted to the first defendant. Rest of the facts as far as execution of the relevant documents by the first defendant as the principal borrower and guarantee bond by the guarantors -- the defendants 2 to 9 herein, are common like the earlier Suit No. 975 of 1978 and it need no repetition. As stated earlier, the decree against the first defendant has already been passed.
9. As stated earlier, the defence of the defendants in both the suits as also in Suit No. 324 of 1977 is common. Defendant Nos. 2, 3, 5 and 6 in Suit No. 975 of 1978 and defendant No. 2, 3, 4, 5 and 6, 7 and 8 in Suit No. 976 and 1978 have filed their written statements. Their defence may be summarised as under:--
10. It is urged that their signatures on the guarantee bond were obtained without explaining the contents and implications of the various clauses of the guarantee bond. Some of the defendants have also urged that soon after execution of the guarantee bond they ceased to be the Directors of the first defendant. The guarantee furnished was in their capacity of Directors and since they ceased to be Directors of the first defendant, they will not be liable for the claim of the first defendant.
11. The point of limitation was also urged but at the outset it may be stated that no data is made available by and on behalf of the defendants.
12. The plea of maintainability of these two suites was raised as stated earlier for want of leave under Order 2, Rule 2 of the Code of Civil Procedure. But as stated earlier, that issue stands resolved.
13. Not specifically pleaded but across the bar defendants challenged the guarantee deed inter alia contending that the same is not enforcible and binding upon the said defendants as guarantors. The same is illegal being opposed to the public policy. This defence is taken in the context of provisions of Sec. 23 of the Indian Contract Act. Although it is not specifically stated and elaborated in their pleadings by the defendants since being the issue of law, the same was allowed to be urged and it may be sated that the main thrust of the arguments advanced by and no behalf of the defendants revolved over the said aspect.
14. On the basis of pleadings, the following issues were framed in Suit No. 975 of 1978:--
(1) Whether this suit is not maintainable in view of the filing of earlier Suit No. 324/1977 and without taking Leave under Order 2, Rule 2 of the Code of Civil Procedure?
(2) Whether the suit is barred by limitation?
(3) Whether the Deed of Guarantee dated 16th December, 1974 cannot be enforced against the defendants as alleged in the written statement?
(4) Whether the Deed of Guarantee dated 16th December, 1974 has been given up or abandoned or waived or terminated as alleged in the written statement?
(5) Whether the plaintiffs prove that they are entitled to the suit claim from all or any of the defendants?
(6) What decree or order?
15. My findings on the above issues are:--
Issue No. 1 :-- This issue stands already resolved in view of judgment and order dated 10th Dec., 1996 holding that the suit is maintainable.
Issue No. 2:-- No. Issue Nos. 3 and 4:-- No. Issue No 5:-- Yes.
Issue No 6:-- As per order.
REASONS
16. Before I embark on consideration of the individual issues in the light of material made available before the Court, I would briefly advert of the evidence made available in these cases by the parties. The plaintiffs have examined one Mr. Vinod Pandurang Savant, Branch Manager attached to their branch at Gokhale Road, Dadar, Mumbai, who has deposed the facts as have been averred in the plaint, already briefly adverted to hereinabove. He has reiterated and reaffirmed the amount as claimed in the suits which is due form the defendants. He has also produced the relevant documents, such as, Deed of Guarantee of Demand and Statement of Accounts kept and maintained by the plaintiffs in due course of business which have been respectively marked as exhibits.
17. As far as guarantee bonds are concerned, the witness has stated that the same were duly executed by the guarantors, the defendants in the suit herein. He has further stated that the guarantors executed the guarantee bonds of their capacity as the Directors as also in their individual capacity and it was Continuing Guarantee. He as also stated that the notices of demand were served upon the principal borrower as also upon the guarantors -- the defendants herein before filing of the suit and as there was no favourable response the suits have been filed.
18. There is cross examination of this witness by and on behalf of the defendants. However, the trend and tenure of such cross-examination proceeded in the direction to point out whether the defendants who acted as the guarantors were at the relevant time Directors of the first defendant or not and when they ceased on be the Directors as such. The suggestion made that the defendants 2 to 9 as the guarantors signed guarantee bonds only in their capacity as the directors has been emphatically denied by the witness. The witness has reiterated that the guarantee deed was a continuing one.
19. As far as defendants are concerned, they have not adduced any evidence. Not only the defendants adduced any oral evidence but no documentary evidence has also been made available.
20. Now I take up issues one by one.
21. Issue No. 1:-- The same has been answered accordingly as mentioned hereinabove.
22. Issue No. 2:-- No material has been made available in this regard. The suits have been filed within three years after service of notice of demand. Therefore, this issue has to be answered in the Negative.
23. Issue Nos. 3 and 4:-- These issues are threshed out together to avoid overlapping of the discussion. Further more, as noticed earlier, the defendants have also questioned the efficacy and validity of the guarantee bonds as being opposed to the public policy and, therefore, illegal void and being not binding upon them.
24. At the outset, the defendants have not adduced any evidence as stated earlier, oral or documentary. The execution of the guarantee bond is not disputed. In fact, the defendants have admitted the execution thereof.
25. The learned counsel for the plaintiffs took me through the various clauses of the guarantee bonds and submitted that the defendants have not disputed the execution of the guarantee bonds and if one reads the terms, the various clauses of the guarantee bonds, the same binds the defendants as the guarantors in their capacity as the Directors as also in their individual capacities. It is further emphasized that the decree against the first defendant -- the principal borrower has already been passed. The defendants - the guarantors have also not disputed and denied the claim of the plaintiffs in the suits against the principal borrower. Clause 2 of the Guarantee Bond provides for the payment by the guarantors on service of notice. Clauses 3 further provides that guarantee would be remained in force and till specifically countermanded by written notice and clause 4 provides that death of the guarantor will be also liable. Clause 5 provides that the guarantee will be irrevocable. And clause 8 provides option to the plaintiffs for variation of the terms. The original guarantee bond has been produced and it forms part of the exhibits.
25A. Referring to this, the learned counsel for the plaintiffs submitted that defendants having admitted the execution of the guarantee and the same having not been revoked any time, the defendants are bound and liable for the same. Further more, the service of notice of demand upon them. And, therefore, the defendants would be liable for the same. The learned counsel for the plaintiffs has made a reference to the two decisions in case of -- (1) Mrs. Margaret Lalita Samuel v. Indo Commercial Bank Ltd., , and between Ram Nagappa Shetty v. Syndicate Bank, reported in (1986) 88 Bom LR 409. Both these judgments are on the point of limitation in a claim against the guarantor as in the case at hand. But as stated earlier, this aspect of limitation no more survives .
26. As against the contention of the learned counsel for the contesting defendants that the some of the terms of the guarantee bond are unconscionable, oppressive and opposed to public policy and, therefore, unlawful and unenforceable, if needs to be stated that in a case of contract of guarantee neither the consideration nor the object can be said to be unlawful. In that consideration in such case is advancing of loan to the principal debtor and object of the agreement of guarantee is to secure the debt of the creditor. That being so, it cannot be said that either the consideration is unlawful or the object of the agreement is unlawful. Advancement of the loan furnishing of the guarantee cannot be said to be forbidden by the law. As a matter of fact position is otherwise. And that being so, there is no question of application of provisions of Section 23 of the Indian Contract Act to say that some of the clauses of guarantee bond are opposed to the public policy.
27. The defendants have waived their rights conferred under Section 133, 124, 135, 139 and 141 of the Contract Act. But, in my view, the said waiver will not affect the validity and efficacy of the transaction of advancement of loan and furnishing of the guarantee by the guarantors. Section 23 of the Indian Contract Act is mainly concerned with the consideration or object of the agreement of guarantee or consideration of the contract and the rights available under Chapter VIII in Indian Contract Act can be waived by the guarantors and such waiver will not defeat any provision of law. It is not possible to say and view the various clauses in the guarantee bond are such which are opposed to public policy or tainted with immorality. On the other hand, the public policy should be that one should not allow to defeat the debt of the creditor. In the instant case, as held and pointed out earlier, the advancement of the loan to the principal borrower-the first defendant is not in dispute. If the creditor lays down certain the conditions with a view to secure his debt as done in the instant case in accordance with the law, then it cannot be said that the same are opposed to the public policy and, therefore, unenforceable or void, etc. as asserted. I am fortified of above view by the judgment of the Division Bench of the Karnataka High Court of the case of T. Raju Shetty v. Bank of Baroda, .
28. The learned Counsel for the contesting defendants referred to two decisions of the Supreme Court in the cases of Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, and Olga Tellis v. Bombay Municipal Corporation, . The facts and circumstances as obtained in the said decisions before the Supreme Court in both the cases and in the matter in hand are the quite distinct. Inasmuch as, in Central Inland Water Transport Corporation Ltd.'s case the question involved was a service contract and terms thereof entered by the instrumentality of the State and its employees which provided certain terms which were held to be ultra vires to the provisions of the Costitution, in particular Article 14. Whereas in the case of Olga Tellis, the action of the local authorities, which is also the State, was under challenge in respect of the demolition of dweenlig houses, without prior notice.
29. In the matter in hand, as noticed earlier, it was the simple contract of a commercial nature. The Defendants wanted loan and they applied to the plaintiffs as a financial institution. The loans were advanced on requisite formalities. The defendants which include the principal borrower, the first defendant and the other defendants who are guarantors and who were also Directors of the first defendant, did approach the plaintiff-Bank and applied for the loan and on completion the requsite formalities which also included furnishing of the guarantee bond to secure repayment of the loan and derived the benefits. There is noting wrong if the plaintiffs are the creditor takes steps to ensure security for the recovery of the amount advanced to the debtors. In the instant case, this is what has exactly been done. The Defendants have not made available before the Court any material that there was any compulsion or force used by the plaintiffs in compelling them to sign the guarantee bonds. The evidence is absolutely wanting in this respect. Therefore, it will be legitimate and proper to hold that the transaction the both the suits was simple, a transaction of the willing debtor approaching the financial institution like the plaintiffs and seeking benefit of loan facilities. On this background, the contention raised by and on behalf of the defendants that certain terms of the guarantee bonds were unconscionable or opposed to the public policy and cannot be sustained.
30. The conspectus of the above discussion is that it stands amply proved the defendants having executed guarantee bonds. The plaintiffs have instituted suits after serving demand notices upon the defendants. The claim in the suites is not in dispute. That being the position, the findings of Issues Nos. 3 and 4 has to be in the negative.
31. Issue No. 5 :-- This has to be answered to favour of the plaintifffs since there is no challenge whatsoever to the evidence of the plaintiffs. The plaintiffs have produced statements of accounts of show the amounts as have been claimed by the them in the suits. Moreover, against the principal borrower-the first defendant decree has already been passed. The first defendant has not challenged the claim.
32. Since the plaintiffs succeed in all the issues, it is held that they are entitled to the decree to claimed.
33. At this stage, the learned Counsel for the contesting the defendants however submitted that the defendants as guarantors are the professional persons and their business venture did not go through as contemplated and expected. The request is, therefore, made that while awarding interest from the date of the suit, the Court should take considerate view of the matter. The learned Counsel for the plaintiffs has further pointed out that the interest charged is at the rate of 15.5% and that should be considered as a reasonable one. However, considering the facts and circumstances of the case and the request made by and on behalf of the defendants, in my view, 9% rate of the interest per annum will be reasonable one from the date of the suit till realisation of the decretal amount. Hence the following order :--
ORDER Suit No. 975 of 1978:--
(i) Decree against defendants Nos. 4 and 7 to 9 in terms of prayer (a) of the plaint.
(ii) Decree against defendants Nos. 2, 3, 5 and 6 in terms of prayer (a) with clarification that the rate of interest from the date of the suit till realisation of the decretal amount will be 9% p.m.
(iii) Decree in terms of prayer (g) against defendants Nos. 2 to 9. Cost as would be permissible under the rules.
Suit No. 976 of 1978:--
(i) Decree against the defendants Nos. 3 and 5 to 9 in terms of prayer (a) of the plaint.
(ii) Decree against defendants Nos. 2 and 4 in terms of prayer (a) with modification that the rate of interest will be 95% p.m. from the dated of the suit or till realisation.
(iii) Decree also in terms of prayer (a) against the defendants Nos. 2 to 9. Cost as would be permissible under the rules.
The learned Counsel for the contesting defendants apply for the stay of the operation of the decree. The same stands rejected.
NOTE :-- Since both the sides have been disposed of by common judgment, the Xerox copy of the judgment to be retained in another suit to be treated as judgment in the said suit.
Order accordingly.