Debt Recovery Appellate Tribunal - Delhi
State Bank Of Bikaner And Jaipur vs G.P. Goyal And Anr. on 21 September, 2004
Equivalent citations: II(2005)BC49
ORDER
K.S. Kumaran, J. (Chairperson)
1. The appellant-State Bank of Bikaner and Jaipur (hereinafter referred to as "the appellant-bank") filed the O. A. (initially numbered as O. A. No. 473 of 1996) against the first respondent (the fourth defendant in the O. A., and hereinafter referred to as "the respondent-defendant"), the second respondent herein (the first defendant in the O. A., and hereinafter referred to as "the respondent-company") and others for the recovery of Rs. 84,95,730 before the Debt Recovery Tribunal, Jaipur (hereinafter referred to as "the DRT").
2. Defendants Nos. 5, 8 and 9 contested the O. A., and the rest of the defendants remained ex parte. The learned presiding officer of the Debt Recovery Tribunal, by the order dated March 18, 1997, held that the appellant-bank is entitled to recover Rs. 84,95,730 from defendants Nos. 1 to 3 and 5 to 7 with interest and costs. He also held that out of this amount the appellant-bank is entitled to recover Rs. 4,15,862.04 from the respondent-defendant with interest at I6 1/2 per cent. per annum with quarterly rests from January 20, 1988, till the filing of the application, and future interest till realisation. Thereafter, the respondent-defendant, namely, the fourth defendant, filed an application to set aside the ex parte order, which was allowed. The respondent-defendant then contested the claim of the appellant-bank. The O. A. was renumbered as O. A. No. 476 of 1996. The learned presiding officer of the Debt Recovery Tribunal, by the impugned order dated December 18, 2000, held that the guarantee deed executed by the respondent-defendant came to an end on January 20, 1988, when a new agreement was entered into by the parties and the limit sanctioned was also enhanced, that in view of the variation in the contract the claim against the respondent-defendant is not maintainable, and that the claim against the respondent-defendant is also barred by limitation. Therefore, the learned presiding officer of the Debt Recovery Tribunal dismissed the claim of the appellant-bank as against the respondent-defendant.
3. Therefore, the appellant-bank has preferred this appeal. The respondent-defendant has filed a suitable reply opposing the appeal.
4. I have heard counsel for both the sides, and perused the records.
5. The case of the appellant-bank before the DRT was as follows :
6. The respondent-company was sanctioned cash credit hypothecation limit of Rs. 4 lakhs on January 12, 1987, and apart from the loan documents executed in favour of the appellant-bank the respondent-defend-ant and defendants Nos. 2 and 3 have executed a deed of guarantee on March 3, 1987. Later on, the cash credit hypothecation limit was enhanced to Rs. 29 lakhs, for which the documents were executed on January 20, 1988, but the guarantee deed was executed by defendants Nos. 2, 3, 6 and 7 and by the fifth defendant on December 22, 1988. Revival letters were executed from time to time. A sum of Rs. 84,95,730 was due as on the date of O. A.
7. The case of the fourth defendant before the Debt Recovery Tribunal was as follows :
8. The respondent-company did not pass any resolution before taking the loan from the appellant-bank, that when the limit was enhanced, he (respondent-defendant) had informed the appellant-bank by the letter dated December 20, 1987, that he was not responsible for the loan, that there was a variation of contract when the new agreement was executed on January 20, 1988, thereby discharging him from liability, and that the claim as against him (respondent-defendant) is also barred by time.
9. As pointed out already, the learned presiding officer of the Debt Recovery Tribunal accepted the contention of the respondent-defendant that there has been variation of the contract, and that the claim of the appellant-bank as against the respondent-defendant is also barred by time. In this appeal also, learned counsel for the respondent-defendant contends that the respondent-company had not passed a resolution before taking the loan from the appellant-bank and, therefore, the respondent-defendant cannot be made liable to answer this suit claim. But, learned counsel for the appellant-bank relies upon the guarantee deed executed by the respondent-defendant, and contends that the respondent-defendant is not entitled to resist the claim of the appellant-bank on this ground. Learned counsel for the appellant-bank relies upon clause 14 of the deed of guarantee dated March 3, 1987, executed by the respondent-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 here under 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."
10. I agree with learned counsel for the appellant-bank in this regard. In view of this clause contained in the deed of guarantee executed by the respondent-defendant, the contention of the respondent-defendant that there has been no resolution by the respondent-bank to borrow the amount and, therefore, he (respondent-defendant) is not liable, cannot be accepted.
11. The next contention of the respondent-defendant is that he had executed the guarantee in respect of cash credit hypothecation limit of Rs. 4 lakhs sanctioned on January 12, 1987, and that there has been a variation of the contract on January 20, 1988, without his consent, by which even the limit sanctioned was enhanced to Rs. 29 lakhs. The contention of the respondent-defendant is that in view of the variation he is discharged from the liability. A further contention of the respondent-defendant is that when he came to know about the variation in the contract he had informed the bank by his letter dated December 20, 1987, that he is not responsible for the loan. This letter reads as follows :
"From 20th December 1987
G.P. Goyal
Managing Director,
Sirohi Cement Pvt. Ltd.
Sirohi Road, Rajasthan.
To
The Branch Manager,
State Bank of Bikaner and Jaipur,
Pindwara.
Dear Sir,
Sub: Sanction of working capital to Sirohi Cement
Pvt. Ltd., Pindwara.
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 over dues interest payable to financial institution above rupees fifteen lakhs. We have liabilities of sundry creditors above Rs. 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 affairs of the company is not in my control I will not be responsible of any such loan.
Thanking you, Yours faithfully, For Sirohi Cement Pvt. Ltd.
(Sd.) Chairman and Managing Director."
12. Yet another contention put forward by the respondent-defendant is that even otherwise the claim against him is barred by time since the O. A. had not been filed within three years from December 20, 1987, the date on which he wrote the above said letter disowning the liability/responsibility to pay the loan due to the appellant-bank, whereas the O. A. was filed in the year 1996, and is, therefore, barred by limitation. But, learned counsel for the appellant-bank refers 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."
13. By referring to the above said provision 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. Learned counsel for the appellant-bank, therefore, contends that if there is any subsequent variation in the contract, it will not affect the liability of the respondent-defendant with regard to the transactions which took place prior to the variation, and, therefore, the respondent-defendant is liable to pay the sum of Rs. 4 lakhs with interest.
14. Learned counsel for the appellant-bank also points out clauses 1, 2, 4 and 5 of the deed of guarantee dated March 3, 1987, which are as follows :
"Clause 1.-My/Our liability to you here under shall be that of a principal 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 may 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."
15. By pointing out the above said clauses learned counsel for the appellant-bank contends that the deed of guarantee executed by the respondent-defendant is a continuing guarantee, and the respondent-defendant is not discharged by any variation in the contract. He also contends that in view of the provisions of Section 133 of the Indian Contract Act also the respondent-defendant cannot escape the liability with regard to transactions which took place prior to the variation. In this connection, learned counsel for the appellant-bank relies upon the decision of the hon'ble Punjab and Haryana High Court in State Bank of India v. Depro Foods Ltd. [1988] 64 Comp Cas 375. In the case before the hon'ble Punjab and Haryana High Court, five of the directors of the company were guarantors. One of the clauses provided that nothing in the agreement shall prejudice or affect the rights and 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 of guarantee to the bank that the guarantee shall be independent of any other indemnity, guarantee or security which the bank may have. In these circumstances the hon'ble Punjab and Haryana High Court held that the directors do not stand released in view of a fresh agreement.
16. I agree with learned counsel for the appellant-bank in this respect. It is clear from clause 2 of the letter of guarantee that it is a continuing guarantee. Clause 1 also indicates that the liability of the guarantor shall be that of the principal debtor, and that the guarantor has to be treated primarily liable in respect of the amount due. It is evident from clause 5 of the deed of guarantee that the guarantor should be deemed to have consented to any variation in the contract, if there is such variation, and that the guarantors shall not be released from the liability by such variation. Therefore, the contention of the respondent-defendant that there is a variation in the contract and, therefore, his liability ceased, and that he is automatically discharged, cannot be accepted.
17. Even otherwise, in view of the provision contained in Section 133 of the Indian Contract Act, the respondent-defendant is liable for all transactions which took place prior to the variation. The variation could discharge the surety only with regard to such of those transactions which took place subsequent to the variation. Therefore, the right of the appellant-bank to claim Rs. 4 lakhs with interest in terms of the deed of guarantee dated March 3, 1987, executed by the respondent-defendant cannot come to an end by the variation which took place on January 20, 1988. Therefore, the respondent-defendant cannot draw any support from Section 133 of the Indian Contract Act.
18. The other contention of the respondent-defendant is that he had informed the appellant-bank, by his letter dated December 20, 1987, that he is not responsible for the loan, which makes it clear that the respondent-defendant has repudiated his liability. I have already reproduced the letter. A perusal of the same shows that in this letter the respondent-defendant was referring only to the enhanced loan of Rs. 29 lakhs, and had stated that since the affairs of the company are not in his control, and since no resolution has been passed or proposed for the said borrowing of the loan, he is not responsible for any such loan. The respondent-defendant was not referring to the loan earlier borrowed, namely, Rs. 4 lakhs, for which he remains a surety. He has also not specifically stated in this letter that he was even repudiating the liability under the surety dated March 3, 1987, for the sum of Rs. 4 lakhs guaranteed by him by the said deed. Therefore, the contention of the respondent-defendant that he has repudiated his liability under the deed of guarantee dated March 3, 1987, by the letter dated December 20, 1987, cannot be accepted. For the same reason his contention that the claim as against him is barred by limitation since he has repudiated his liability by the letter dated December 20, 1987, also cannot be accepted. Because, there is no such repudiation of his liability as per the deed of guarantee dated March 3, 1987, executed by the respondent-defendant. Further, as pointed out already, the deed of guarantee dated March 3, 1987, executed by the respondent-defendant being a continuing guarantee, the responsibility of the respondent-defendant continues till the entire claim is satisfied. Unless the guarantor, who had executed guarantee repudiates it or refuses to honour the guarantee, time does not begin to run against the bank.
19. As learned counsel for the appellant-bank contends, only when the guarantor repudiates his liability under the continuing guarantee, the period of limitation will start running, and the suit or the O. A. will have to be filed within three years from the date of such repudiation. In this connection, learned counsel for the appellant-bank relies upon the decision of the hon'ble Supreme Court in Margaret Lalita Samuel v. Indo-Commercial Bank Ltd. [1979] 2 SCC 396 wherein it was held as follows:
"The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, 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, we do not see how the period of limitation could be said to have commenced running . . ."
20. Learned counsel for the appellant-bank also relies upon the decision of the hon'ble Kerala High Court in Union Bank of India v. T. J. Stephen AIR 1990 Ker 180, wherein it was held as follows :
". . . 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 not refused to perform their obligation under the agreement of guarantee and a suit has been filed within the time prescribed under article 55 of the Limitation Act, the guarantors are liable for the agreement for the amounts found due to the creditor from the principal-debtor . . ."
21. These decisions relied upon by the appellant-bank also support the contention of the appellant-bank.
22. Therefore, the contention put forward by learned counsel for the respondent-defendant that the respondent-defendant has repudiated his liability under the deed of guarantee dated March 3, 1987, or that the respondent-defendant stands discharged from the liability in view of the subsequent variation of the contract or that the claim against the respondent-defendant is barred by limitation, cannot be accepted.
23. One other contention put forward by the respondent-defendant is that the statement of accounts with regard to the cash credit hypothecation limit of Rs. 4 lakhs shows the balance as nil, which means that no amount is due from the respondent-defendant. This plea is found in paragraph 5 of the written statement to the O. A. filed by the respondent-defendant. The appellant-bank has filed a rejoinder urging that this is only a misconception since it has been specifically mentioned in the account that the amount was transferred to the CC Account No. 112. Learned counsel for the appellant-bank contends that the account is a running account, and the earlier account was closed in view of the transfer of the balance due to another account for the sake of the bank's accounting convenience. He, therefore, contends that the respondent-defendant cannot deny the liability by taking such a plea. I agree with learned counsel for the appellant-bank in this respect. After the limit was enhanced, the amount due was transferred to the other account, and it does not mean that no amount is due and payable under the initial limit which was sanctioned. It is not the case of the respondent-defendant that the amount was paid and the liability was discharged. Therefore, this contention of the respondent-defendant cannot be accepted.
24. Taking into consideration all these aspects I am of the view that the respondent-fourth defendant is liable to repay the loan of Rs. 4 lakhs with interest and costs. Therefore, the impugned order dated December 18, 2000, passed by learned presiding officer of the Debt Recovery Tribunal has to be set aside, and the respondent-fourth defendant will be liable to pay the amount as per earlier order dated March 18, 1997, passed by the presiding officer of the Debt Recovery Tribunal.
25. Accordingly, the appeal is allowed setting aside the impugned order dated December 18, 2000, passed by the Debt Recovery Tribunal. Consequently, the appellant-bank is granted a decree/order against the respondent-fourth defendant also. But, the liability of the respondent-fourth defendant is restricted to Rs. 4,15,862.04 out of the total amount of Rs. 84,95,730. The respondent-fourth defendant will also be liable to pay the proportionate costs and interest at 16 1/2 per cent. per annum with quarterly rests from January 20, 1988, till the date of O. A. and future simple interest as directed by the Debt Recovery Tribunal by the order dated March 18, 1997.
26. Copy of this order be furnished to the parties, and also be forwarded to the concerned Debt Recovery Tribunal.