Punjab-Haryana High Court
Renu Gupta & Another vs Debt Recovery Tribunal-Ii on 27 May, 2013
Author: Hemant Gupta
Bench: Hemant Gupta, Ritu Bahri
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
Date of Decision: 27.05.2013
C.W.P.No.9138 of 2012
Renu Gupta & another ...Petitioners
Versus
Debt Recovery Tribunal-II, Chandigarh & others ...Respondents
CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA
HON'BLE MS. JUSTICE RITU BAHRI
Present : Mr. Ashok Khubbar, Advocate,
for the petitioners.
Mr. G.S.Anand, Advocate,
for respondent Nos.2 & 3.
HEMANT GUPTA, J.
Challenge in the present writ petition is to the proceedings initiated by the Bank against the petitioners under Section 13 of the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the Act') and the order dated 18.04.2012 passed by the Debt Recovery Tribunal on an application filed by the petitioners under Section 17 of the Act.
The brief facts out of which present writ petition arises are that Avinash Chander, the husband and father of the petitioners namely Renu Gupta and Prikshit Gupta was working with Dilbagh Singh, Proprietor of Karan T.V. Centre, Patiala. Dilbagh Singh was granted cash credit limit by CWP No.9138 of 2012 2 the respondent-Bank in which Avinash Chander and his wife stood guarantors by mortgaging their house. The deed of guarantee was executed on 18.02.2003. It was on 02.06.2003, Avinash Chander and his wife submitted an application to the Bank withdrawing the guarantee that they will not be responsible for any transaction done by Karan T.V. Centre. The Bank did not respond to such communication.
It was on 21.10.2005, petitioner No.1 was served with a notice under Section 13(2) of the Act pointing out that a sum of Rs.67,34,240.70 is due and payable in the cash credit account of Rs.65,00,000/-. In response to the notice, the petitioners sought return of the title deeds repudiating any liability to pay the amount. It was asserted that the Bank has increased the limit and advanced more amount instead of stopping loan facilities after the communication of the petitioners without the consent of the petitioners. The borrower deposited Rs. 64,00,000/- on 9.2.2006 and his mortgaged property was released.
It was on 18.01.2010, the Bank purportedly taken symbolic possession of the mortgaged property, which led the petitioners to file an application to invoke the jurisdiction of the Debt Recovery Tribunal under Section 17 of the Act. On such application, the learned Tribunal noticed the communication dated 02.06.2003 and the fact that the petitioners did not receive any reply from the Bank, held that the petitioners are liable to pay the amount in terms of liability under the continuing guarantee. The Tribunal found that deposit of Rs.64 lacs on 09.02.2006 by Dilbagh Singh, the principal borrower and release of mortgaged property of the Dilbagh Singh in his favour will not absolve the petitioners of their liability under the deed of guarantee. It is the said order, which is subject matter of challenge in the present writ petition.
CWP No.9138 of 2012 3
Learned counsel for the petitioners raised the following arguments:
(i) that since the total outstanding at the time of issuance of notice under Section 13(4) of the Act was Rs.13,11,215/-, which is less than 20% of the loan amount and interest accrued thereon, therefore, in terms of Section 31(j) of the Act, the proceedings under the Act are not maintainable;
(ii) that the Bank has enhanced cash credit limit to Rs.65 lacs from 01.10.2003 and such enhancement of the limit has materially varied the terms of the contract, therefore, on account of novation of contract, the petitioners are not liable to pay any amount consequent to variation of the terms of the contract;
(iii) that the petitioners have withdrawn the deed of guarantee on 02.06.2003, therefore, the petitioners cannot be made liable to pay any amount then what was due and payable by the borrower on the said date. Consequently, it is argued that since the borrower has deposited Rs.64 lacs on 09.02.2006, therefore, the petitioners can be said to be liable to pay only such amount as was due and payable from the borrower after adjusting Rs.64,00,000/- on the date of withdrawal of the guarantee in terms of Section 130 of the Contract Act, 1872; and
(iv) that notice under Section 13(2) of the Act was issued on 21.10.2005. The petitioner submitted reply on 14.11.2005 but after deposit of Rs.64 lacs against the cash credit account by the principal borrower, the Bank has issued CWP No.9138 of 2012 4 noticed under Section 13(4) of the Act only on 18.01.2010. It is contended that once the mortgaged property of the principal borrower has been released from mortgage, the petitioners cannot be made liable for any liability under the terms of the guarantee. It is further contended that notice has been issued after almost 4 years of the deposit of Rs.64 lacs by the principal borrower and that such notice at this stage is invalid.
On the other hand, Mr. Anand, learned counsel representing the Bank, argued that provisions of Section 31(j) of the Act have been wrongly referred to by the petitioners in as much as the amount due has to be examined as on the date, when the notice under Section 13(2) of the Act was issued. Any payment thereafter will not absolve the borrower and/or guarantor from payment of the remaining dues. It is also argued that since the petitioners have submitted continuing guarantee, therefore, in terms of the guarantee, there cannot be any novation of contract and that the petitioners as guarantors are liable to pay the balance due amount. It is argued that the property of the borrower was released on deposit of more amount than the valuation of the property in the records of the Bank. Reliance is placed upon the judgment of Hon'ble Supreme Court in Sita Ram Gupta Vs. Punjab National Bank & others (2008) 5 SCC 711 to contend that the release of the property of the borrower will not absolve the guarantors.
At this stage, the relevant provisions of the Act as well as the terms of the deed of guarantee need to be extracted. The same are as under:
Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 "13. Enforcement of security interest - (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 CWP No.9138 of 2012 5 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection (4).
xxx xxx xxx (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;
xxx xxx xxx"
"31. Provisions of this Act not to apply in certain cases - The provisions of this Act shall not apply to -
xxx xxx xxx
(j) any case in which the amount due is less than twenty per cent of the principal amount and interest thereon."
"36. Limitation - No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963."
Contract Act, 1872 "128. Surety's liability - The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
"130. Revocation of continuing guarantee - A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor."
Guarantee Agreement "This agreement made this eighteenth day of February 2003 between..............
xx xx xx Whereas the Guarantor has requested the Bank to grant financial assistance to the Borrower by way of facilities, including gurantees subject to the specific condition that the Guarantor shall unconditionally guarantee the repayment of all amounts advanced and all liabilities guaranteed by the CWP No.9138 of 2012 6 Bank as also all amounts which may be advanced and all guarantees which may be issued by the Bank from this day till the expiry of a period of six months of the actual service on the Bank of a specific notice of revocation in writing. (...Emphasis supplied) xx xx xx Provided always that the total liability ultimately enforceable against the guarantor/s under this agreement shall not exceed a sum of Rs.50,00,000/- (Rupees Fifty Lacs only) plus interest thereon at 4.5% per annum above the on going PLR with a minimum of 15.75% per annum from the date of demand by the bank upon the guarantor/s for payment and expenses, charges, etc. as debited in the account from time to time or at such other rate/s as may be specified by the Bank. The guarantor/s further agrees that the above amount of Rs.50,00,000/- is exclusive of interest, expenses, charges, etc. debited in the account from time to time and the demand made by the bank in this regard shall be binding on the guarantor/s.
xx xx xx NOTWITHSTANDING the Borrower's account or accounts with the Bank may be brought to credit or the credit given to the Borrower fully exhausted or exceeded howsoever the said financial accommodation be varied or changed or renewed from time to time notwithstanding any payments from time to time or any settlement of Accounts or payments in settlement of the balance that may be due from time to time, this guarantee shall to the extent aforesaid, be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the Borrower, until the expiry of six months after a notice in writing of the revocation of the guarantee as hereinafter provided is received by the Bank.
xx xx xx The Guarantor hereby consents to the bank's making any variance that the Bank may think fit in the terms of the Bank's contract with the Borrower, to the Bank's determining, enlarging or varying any credit to the Borrower to the Bank's making any composition with the Borrower or promising to give the Borrower time or not to sue him and to the Bank's parting with any security the Bank may hold for the guaranteed debt. The guarantor also agrees that the Guarantor shall not be discharged from his liability by the Bank's releasing the Borrower or by any act or omission of the Bank legal consequence of which may be to discharge Borrower or by any act of the bank which would, but for this present provision, be inconsistent with the Guarantor's right as surety or by the Bank's omission to do any act which, but for this present provision, the Bank's duty to the Guarantor would have required the Bank to do. Though as between the Borrower and the Guarantor, the Guarantor is surety only, the guarantor CWP No.9138 of 2012 7 agrees that as between the Bank and the Guarantor, the Guarantor is the principle debtor, jointly with the Borrower and accordingly the Guarantor shall not be entitled to any of the rights conferred as surety by section 133, 134, 135, 139 and 141 or any other relevant provision of the Contract Act.
xx xx xx"
We find merit in the argument that the proceedings under the Act cannot be initiated against the petitioners. Section 31(j) of the Act provides that the provisions of the Act shall not apply, inter alia, in any case in which the amount due is less than twenty per cent of the principal amount and interest thereon. The Bank has served notice under Section 13(2) of the Act on 21.10.2005 on which date, the amount due was more than 20% of the principal amount and interest thereon. But after payment of Rs.64 lacs on 09.02.2006, the amount claimed from the petitioners under Section 13(4) of the Act is Rs.13,11,215/- i.e. less than 20% of the principal amount and interest thereon.
The argument of Mr. Anand that amount due on the date when the notice under Section 13(2) of the Act alone is relevant to consider the maintainability of the proceedings under the Act is not tenable. Sub clause (j) of Section 31 uses expression 'amount due', if is less than 20% of the principal amount and interest thereon, then the provisions of the Act does not apply. The amount due is the amount which the Bank is to recover without intervention or assistance of any other Court or Tribunal in terms of the provisions of Act, giving overriding powers to secured creditors. We are of the view that the proceedings under the Act could not be initiated or even continued with if any stage the amount due falls less than the amount contemplated in Section 31(j) of the Act. It is not the date of the notice under Section 13(2) of the Act which is relevant but at all stage of the proceedings i.e. the date on which the possession is taken or later when the property is intended to be sold, the amount payable should be more than the minimum CWP No.9138 of 2012 8 amount contemplated under the Statute. Therefore, the notice issued under Section 13(4) of the Act is without jurisdiction of the Bank, as on that day, the amount due was less than 20% of the principal and interest due.
However, we do not find any merit in the second argument that the Petitioners are not liable to pay any amount as a consequence of novation of contract for the reason that the Bank has increased the credit limits. The deed of Guarantee reproduced above, permits the enhancement of credit limits without notice to the guarantors. The petitioners have agreed to the bank's making any variance that the Bank as it may think fit in the terms of the Bank's contract with the Borrower, to the Bank's determining, enlarging or varying any credit to the Borrower to the Bank's making any composition with the Borrower or promising to give the Borrower time or not to sue him and to the Bank's parting with any security the Bank may hold for the guaranteed debt.
In respect of third argument, the undisputed facts are that the petitioners have withdrawn their guarantee furnished on 02.06.2003, whereas the cash credit limit was enhanced to Rs.65 lacs on 01.10.2003 and that the principal borrower has paid Rs.64 lacs on 9.2.2006 when the mortgaged property of the principal borrower was released.
We do not find that the judgment in Sita Ram Gupta's case (supra) referred to by Mr. Anand is helpful to the argument raised. In the aforesaid case, the guarantor sought to withdraw from the guarantee, when the loan amount was yet to be disbursed to the borrower. There was a specific clause in the deed of continuing guarantee that the guarantee shall not be treated as cancelled or in any way affected by the fact that at any time, the said accounts may show no liability against the borrower or may even show a credit in his favour, but shall continue to be a guarantee and remain in CWP No.9138 of 2012 9 operation in respect of all subsequent transactions. Therefore, in terms of the contract entered upon by the guarantor with the Bank, it was found that even if the loan account shows no liability, the guarantor will continue to be bound by the terms of the guarantee in the case of continuing guarantee.
The present case is a case of continuing guarantee i.e. a guarantee which extend to series of transactions, but the fact remains that there is no provision in the agreement as was in the case relied upon, which prohibits the guarantor to withdraw from the guarantee. Therefore, in terms of Section 130 of the Contract Act, 1872, a continuing guarantee can be revoked by the surety, as to future transactions. The only condition in the guarantee, as reproduced above, is to make the guarantor liable for a period of six months of the actual service of notice on the Bank after receipt of specific notice of revocation of writing. Therefore, the revocation of the guarantee would be effective on 01.12.2003 instead of 02.06.2003, when the notice was served. Once the deed of guarantee permits revocation of the guarantee, therefore, in terms of Section 130 of the Contract Act, 1872, the liability of the petitioners stand crystallized as it existed on 01.12.2003. The petitioners could not be made liable to pay any amount more than the amount standing to the account of the borrower on the said date.
The second part of the argument is that the borrower has paid Rs.64 lacs on 09.02.2006, therefore, the said amount has to be adjusted while determining the liability of the petitioners as on 01.12.2003. In Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala, (2009) 9 SCC 478, the Supreme Court observed that the legal position as crystallised by a series of cases of the Supreme Court is clear that the liability of the guarantor and principal debtors is coextensive and not in alternative. In Sri Chand Vs. Jagdish Pershad Kishan Chand, AIR 1966 SC 1427, the Court observed as: CWP No.9138 of 2012 10
"12. Liability of the sureties is under the law joint and several. If a creditor seeks to enforce the surety bond against some only of the joint sureties, the other sureties will not on that account be discharged: nor will release by the creditor of one of them discharge the other: vide Sections 137 & 138 of the Contract Act. But the fact that the surety bond is enforceable against each surety severally, and that it is open to the creditor to release one or more of the joint sureties, does not alter the true character of an adjudication of the Court when proceedings are commenced to enforce the covenants of the bond against all the sureties. We are not concerned in this appeal with the privilege which a creditor may exercise, but with the effect of an adjudication which the Court has made in a proceeding to enforce the covenant of the bond. The mere fact that the obligation arising under a covenant may be enforced severally against all the covenantors does not make the liability of each covenantor distinct. It is true that in enforcement of the claim of the decree-holder the properties belonging to the sureties individually may be sold separately. But that is because the properties are separately owned and not because the liability arises under distinct transactions."(Emphasis supplied) Thus, any payment by the borrower has the effect of reducing the liability of the guarantor as well. The liability of the petitioners as on 01.12.2003 stands reduced to the extent of Rs.64 lacs paid by the borrower. Therefore, the petitioners would be liable to pay such amount after adjusting the amount paid by the borrower and not the amount, which was due and payable by the borrower on 21.10.2005, when notice under Section 13(2) was served upon the borrower and the guarantors.
The last argument raised by the petitioners is that after serving of notice on 21.10.2005 and deposit of Rs.64 lacs on 09.02.2006 by the borrower, the Bank has taken no action for almost 4 years. It is contended that though Section 36 of the Act empowers the secured creditors to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963, but the secured creditor cannot be permitted to take action almost after 4 years of serving of notice under CWP No.9138 of 2012 11 Section 13 of the Act. We do not find any merit in the said argument. The limitation to enforce payment of money secured by a mortgage is 12 years, and the time from which period begins to run is when the money sued becomes due. Therefore, when notice under Section 13(4) was issued, it cannot be said that the mortgagee has lost right to sue in terms of Article 62 of the Schedule to the Limitation Act, 1963. It appears that as against the sum of Rs.67,34,240.70, the amount due on 21.10.2005, the Bank released the property of the principal borrower on receipt of Rs.64 lacs. Even if the reasons to initiate proceedings after four years are unknown and unexplained and to take advantage of its dominant position but since such claim is within period of limitation, the action of the Bank cannot be said be illegal.
In view of the above, we find the action of the Bank is barred under Section 31(j) of the Act and that the Bank has to adjust the payment made by the borrower to find out the liability of the petitioners as on 01.12.2003. The Bank shall then communicate any amount due from the petitioners within two months. The present writ petition is allowed to that extent with no order as to costs.
(HEMANT GUPTA)
JUDGE
27.05.2013 (RITU BAHRI)
Vimal JUDGE