Debt Recovery Appellate Tribunal - Delhi
State Bank Of Bikaner & Jaipur vs G.P. Goyal And Anr. on 2 August, 2002
Equivalent citations: III(2003)BC125
ORDER
K.S. Kumaran, J. (Chairperson)
1. The appellant-State Bank of Bikaner and Jaipur has come forward with this appeal against the final order passed by the Presiding Officer, Debts Recovery Tribunal, Jaipur (hereinafter referred to as DRT), dated 18.12.2000 in State Bank of Bikaner and Jaipur v. Sirohi Cement Ltd. and Ors. (O.A. No. 473/96 renumbered as O.A. 476/96). By this order, the learned Presiding Officer of the DRT, Jaipur held that the suit for the recovery of money against the 4th defendant (the first respondent herein) is not maintainable and is time-barred and, therefore, dismissed the claim of the appellant Bank as against the said 4th defendant.
2. Service on the respondents in this appeal has been effected by substituted service, i.e. publication in the newspaper. None has appeared on behalf of the respondents. Therefore, arguments of the learned Counsel for the appellant have been heard.
3. The case of the appellant-Bank before the DRT was that the 2nd respondent-company was sanctioned Cash Credit Hypothecation Limit of Rs. 4 lakhs by letter dated 12.1.1987 at the minimum rate of interest of 17.5% per annum with quarterly rests subject to revision from time-to-time. According to the appellant, the loan documents were executed. The deed of guarantee was executed by defendants 2 to 4 on 3.3.1987. Subsequently, at request of the defendant company, Cash Credit Hypothecation Limit was enhanced to Rs. 29 lakhs. At that time the loan documents were executed on 20.1.1988 and a guarantee deed was executed by the defendants 2, 3, 6 and 7. The 5th defendant is also stated to have executed a guarantee deed on 22.12.1988. According to the appellant-Bank, revival letters were executed from time-to-time and a sum of Rs. 84,95,730 was outstanding on the date when the OA was filed. The OA was resisted by defendants 5, 8 and 9 only. The other defendants did not choose to contest the O.A. Therefore, the Presiding Officer of the DRT passed the final order dated 18.3.1997 for a sum of Rs. 84,95,730 against the defendants 1 to 3 and 5 to 7, along with cost and interest as mentioned in that order. The learned Presiding Officer also ordered that out of the above sum mentioned, the appellant was entitled to recover Rs. 4,15,862.04 from the 4th defendant along with cost and interest @ 16.5% per annum with quarterly rests from 20.1.1988 till the filing of the O.A. and future interest till the realization.
4. But the 4th defendant, who had remained ex parte, thereafter filed an application to set aside the order passed against him, which was accepted, and thereafter the 4th defendant filed his reply to the O.A. In his reply, the 4th defendant denied his liability to pay the amount on the basis of the guarantee executed by him, though, he admitted that he had executed the guarantee deed. According to the 4th defendant, the first defendant-company, before taking any loan from the Bank did not pass any resolution and, therefore, liability cannot be fastened upon him. The 4th defendant also pleaded that the loan of Rs. 4 lakhs was sanctioned on 3.3.1987, but, at the time when the limit was enhanced, the Bank wrote a letter to the 1st defendant for which he (4th defendant) had replied that he was not responsible for the loan. The 4th defendant pleaded that inasmuch as he has sent this letter dated 20.1.1987 disowning the liability to pay the amount, the suit cannot be filed thereafter. According to the 4th defendant, since a new agreement was executed on 20.1.1988 there occurred a variation of the contract and, therefore, also he (the 4th defendant) stood discharged from the liability. The learned Presiding Officer of the DRT accepted the contention put forward by the 4th defendant that there has been a variation of the contract and, therefore, the 4th defendant stood discharged from his liability to pay the amount, and also held that the claim was barred by limitation. Therefore, as against the 4th defendant, the Presiding Officer of the DRT dismissed the claim by order dated 18.12.2000.
5. Aggrieved by this order, the appellant-Bank has approached this Tribunal with this appeal. I have heard the learned Counsel for the appellant and perused the records on file.
6. From the narration of the above facts it can be seen that the 2nd respondent-company (1st defendant in the suit) had approached the appellant-Bank with a request for Cash Credit Hypothecation Limit of Rs. 4 lakhs which was sanctioned on 12.1.1987. The loan documents were executed on 3.3.1987. The 1 st respondent (4th defendant) was one of the guarantors. Subsequently, the limit was enhanced but the first respondent herein had not guaranteed the repayment of above said enhanced limit. Not only that, he had also written a letter to the appellant-Bank as follows :
"Being given to understand that your honour has sanctioned a loan of Rs. 29 lakhs for working capital and write to you as under--
That as far as best of my knowledge and belief neither any resolution has been passed for the said borrowing nor such resolution has been proposed for the said loan.
That we have overdues interest payable to financial institution above fifteen lakhs. We have liabilities of sundry creditors above 12 lakhs for goods and expenses. Looking to the present liabilities and as per inspection carried by RIICO few months back, RIICO is negotiating for change of management which please note.
Since the affair of the company is not in my control I will not be responsible for any such loan.
Thinking you, Yours faithfully, For Sirohi Cement Pvt. Ltd.
Sd/
-Chairman and Managing Director"
7. From the above letter it is seen that the 1 st respondent (4th defendant) has mentioned that he came to know that the Bank had sanctioned a loan of Rs. 29 lakhs and that he will not be responsible for any such loan. This letter is dated 20.12.1987. The defendants 2, 3, 6 and 7 had executed a new guarantee deed on 20.1.1988. The 4th defendant had taken the plea that there has been a variation in the contract and, therefore, he is discharged from his liability to act in terms of the guarantee deed executed by him, and that inasmuch as he has repudiated his liability by the letter dated 20.12.1987 the suit should have been filed within three years thereafter. According to the 4th defendant, the suit filed in the year 1996 is, therefore, barred by time.
The learned Presiding Officer of the DRT accepted this contention and held that the suit is not maintainable in view of Section 133 of the Indian Contract Act. The learned Counsel for the appellant contends that Section 133 of the Indian Contract Act does not in any way absolve the first respondent (4th defendant) from the liability to pay the amount as per the guarantee deed executed by him. He referred to Section 133 of the Indian Contract Act which reads as follows :
"Discharge of surety by variance in terms of contract.--Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance."
8. By referring to the above said provision the learned Counsel for the appellant contends that if there was a variation in the terms of the contract between the principal debtor and the creditor without the surety's consent, then the surety is discharged only with reference to the transactions which took place subsequent to the variance, and that does not affect the liability of the surety with regard to the transactions which took place prior to the variance. The learned Counsel for the appellant also drew my attention to the guarantee deed executed by the first respondent (4th defendant) along with others. Clauses I, 2, 4 and 5 read as follows :--
Clause I "My/Our liability to you hereunder shall be that of aprincipal debtor, and at your option you may treat me/us as primarily liable for the debt of the Borrower or the balance from time-to-time due in respect thereof, and I/we waive all suretyship or other rights at any time inconsistent with any of the terms hereof."
Clause 2 "This Guarantee shall be a continuing guarantee and shall not either wholly or partially be discharged by any partial payment or any fluctuation or settlement of accounts or the existence of a credit balance on any account at any time."
Clause 4 "You may with or without reference or notice to me/us grant time or other indulgence to or accept or make any composition or arrangement with the Borrower or any person or persons liable in respect of any indebtedness or liability hereby granted without affecting this Guarantee and generally you treat me/us as though I/we were primarily and severally liable with the Borrower."
Clause 5 "I/we shall not be in any way released, exonerated or affected by any act or omission, default, neglect or forbearance on your part in requiring or enforcing payment by the Borrower of any moneys the payment whereof is hereby guaranteed or by any act or omission on your part the legal consequence of which might be the discharge of the Borrower or by any variation of any of the terms of any agreement or security subsisting at any time in relation to the said accommodation and banking facilities or any other matter or thing which would or might have the effect of releasing or exonerating me/us and it is expressly agreed that I/we shall be deemed hereby to consent to every such variation as aforesaid."
9. I agree with the learned Counsel for the appellant in this respect. From Clause 2 of the Letter of Guarantee it is clear that it is acontinuing guarantee. Clause 1 shows that the liability of the guarantor shall be that of a principal debtor by which the guarantor is to be treated primarily liable in respect of the balance. Clause 5 shows that even if there is any variation in the contract, the guarantor shall be deemed to have consented to every such variation and the variation shall not release him from his liability. It is evident that the 1 st respondent (4th defendant) has executed a continuing guarantee and is not exonerated from liability due to any variation in the contract. Therefore, the plea that the 4th defendant had put forward before the DRT that there is a variation in the contract and, therefore, his liability ceases ought not to have been accepted by the Presiding Officer of the DRT.
10. Further, Section 133 of the Indian Contract Act does not in any way exonerate the guarantor from his liability with regard to the transactions which had taken place prior to variation. This is clear from the provisions of Section 133 of the said Act which I have already extracted. The variation could discharge the. surety only as to the transactions which took place subsequent to the variance. Therefore, Section 133 of the Indian Contract Act also will not be of any help to come to the conclusion that the liability of the 1st respondent (4th defendant) has ceased from the date of the variation of the contract.
11. The learned Counsel for the appellant also relied upon the decision of the Hon'ble Punjab and Haryana High Court in State Bank of India v. Depro Foods Ltd. & Ors. [Vol. 64 (1988) Company Cases 375]. That was a case where the Bank had executed a deferred payment guarantee. Five of the directors of the company were the guarantors. One of the clauses in the guarantee deed provided that nothing in the agreement shall prejudice or affect the rights or remedies of the Bank in respect of any person or future securities that the Bank may have for the time being, and the Bank shall have the right to enforce either or more securities, singly or simultaneously, for the satisfaction of its dues against the company. The directors also gave a letter to the Bank that the guarantee shall be independent of any other indemnity guarantee or security which the Bank may have. The Hon'ble Punjab and Haryana High Court held that on the execution of a fresh agreement by some of the directors the other directors did not stand released. This decision also clearly supports the contention of the appellant. Therefore, the finding of the learned Presiding Officer, DRT, Jaipur that the suit is not maintainable in view of Section 133 of the Indian Contract Act is also not sustainable.
12. So far as the plea of limitation is concerned, the learned Counsel for the appellant also contends that the guarantee deed executed by the 1st respondent (4th defendant) is a continuing guarantee, and the liability of the 1st respondent continues till the entire claim is satisfied. According to him, unless the guarantor who had executed a continuing guarantee repudiates it or refuses to honour the guarantee, the limitation does not begin to run as against the Bank. The learned Counsel for the appellant contends that only when such a guarantor repudiates his liability under the continuing guarantee, the period of limitation will start running and the suit will have to be filed within three years from the date of such repudiation.
13. The learned Counsel for the appellant also relied upon the decision of the Hon'ble Supreme Court in Mrs. Margaret Lalita Samuel v. The Indo Commercial Bank Ltd., (1979) 2 Supreme Court Cases 396. It is clear from this decision that in the case of a continuing guarantee, the period of limitation does not commence running so long as the account is a live account in the sense that it is not settled, and there is no refusal on the part of the guarantor to carry out the obligation. It is also clear that the limitation would run from the date of breach. The learned Counsel for the appellant also relied upon the decision of the Hon'ble Kerala High Court in Union Bank of India, Ernakulam v. T.J. Stephen and Ors., AIR 1990 Kerala 180, wherein it was held as follows :--
"To sum up, we hold that in a case of a continuing guarantee so long as the guarantee has not been withdrawn or so long as the guarantors have refused to perform their obligation under the agreement of guarantee and a suit has been filed within the time prescribed under Art. 55 of the Limitation Act, the guarantors are liable for the agreement for the amounts found due to the creditor from the principal debtor."
14. These decisions clearly go to support the contention put forward by the learned Counsel for the appellant. But it is seen that on 20.12.1987 the 1st respondent (4th defendant) has written a letter to the appellant-Bank stating that he had come to know that the Bank had sanctioned Rs. 29 lakhs, and that he was not responsible for any such loan. This was relied upon by the 4th defendant to contend before the learned Presiding Officer of the DRT that by this, the 4th defendant had recalled and withdrawn his guarantee which was made on 3.3.1987 and he has refused to pay the amount and, therefore, the O.A. filed in the year 1996, i.e. beyond three years from 20.12.1987 is barred by time. But the learned Counsel for the appellant contends that this letter does not in any way repudiate the liability of the 1st respondent (4th defendant) to repay the loan of Rs. 4 lakhs sanctioned already in respect of which the loan documents were executed on 3.3.1987. He also points out that this letter only indicates that the 1st respondent (4th defendant) will not be liable to any loan taken by virtue of the enhanced limit of Rs. 20 lakhs. He referred to Section 133 of the Indian Contract Act and contended that it is only in respect of the transactions which have taken place subsequent to the new agreement which was executed on 20.1.1988, i.e. after the credit limit was enhanced, the liability of the 4th defendant will cease, that too, only with regard to the subsequent transaction only. He contends that the liability of the 1st respondent (4th defendant) to the loan of Rs. 4 lakhs which was granted earlier to this new agreement cannot cease.
15. I find that letter dated 20.12.1987 does not repudiate the liability to repay the loan of Rs. 4 lakhs guaranteed by the 1st respondent (4th defendant) who has executed a continuing guarantee. This letter does not indicate that the 1st respondent (4th defendant) refused to pay the sum of Rs. 4 lakhs guaranteed by him. When he stated in that letter that he will not be responsible, it means that it is only with reference to the 29 lakhs sanctioned subsequently according to him, it cannot be stated that theperiod of limitation started running from 20.12.1987 or from the date of the execution of a fresh guarantee on 20.1.1988. Therefore, the finding of the learned Presiding Officer of the DRT that this O.A. is also barred by time cannot also be sustained.
16. The 4th defendant had taken a plea before the DRT that the directors had not passed a resolution to avail of the loan and, therefore, he cannot be made liable. But the learned Counsel for the appellant drew my attention to Clause 14 of the Letter of Guarantee, executed by the 4th defendant and others, which reads as follows :
"In the case of the Borrower being a company or corporation you shall not be bound to enquire into the powers of the Borrower or any officers or agents acting or purporting to act on behalf of the Borrower and moneys in fact borrowed from you shall be deemed to form part of the Moneys hereby guaranteed notwithstanding any absence of or deficiency or excess or irregularity in the exercise of any powers of the Borrower or such officers or agents aforesaid and in the case of the Borrower being a firm my/our guarantee and obligations hereunder shall not be affected by any change in the constitution of such firm by the death or retirement of any member or members or the introduction of any new member or members or otherwise or any change in the style or titles of such firm and whether such firm consist of or be reduced to one member at any time."
17. Therefore, this contention that no resolution was passed and, therefore, the 1st respondent (4th defendant) cannot be made liable also cannot be accepted.
18. From the discussions made above, it is clear that 1 st respondent (4th defendant) is liable to repay the loan of Rs. 4 lakhs with interest and costs. The impugned order dated 18.12.2000 passed by the learned Presiding Officer, DRT has to be set aside and the order dated 18.3.1987 passed by the learned Presiding Officer of DRT, insofar as it relates to the 1st respondent (4th defendant) has to be restored.
19. Accordingly, the appeal is allowed setting aside the impugned order dated 18.12.2000 passed by the learned Presiding Officer, DRT, Jaipur. Resultantly, the appellant-Bank is granted a decree/order against the 1st respondent (4th defendant) also, but the liability of the 1st respondent (4th defendant) will be restricted to the sum of Rs. 4,15,862.04 out of the total amount of Rs. 84,95,730. The 1st respondent (4th defendant) shall also be liable to pay proportionate costs and interest @ 16.5% per annum with quarterly rests from 20.1.1988 till the date of application, and the future simple interest as directed by the DRT, Jaipur by order dated 18.3.1987. This appeal is ordered accordingly. The appellant will bear its costs in this appeal.
Copy of this order be given to the parties and be forwarded to the Tribunal concerned.