Indian Kanoon - Search engine for Indian Law

A. Subbulakshmy, J. (Chairperson)

1. The Bank filed original application (TA) before the DRT for recovery of the amount. The TA was disposed of by the Presiding Officer, DRT-II, Chennai, and the TA was allowed and decree was passed as against defendants 1 to 5 and D-6 was discharged from the loan liabilities. Aggrieved against the order passed by the Presiding Officer, DRT-II, discharging D-6, the Bank has preferred this appeal.

2. Counsel for the appellant Bank submitted that the respondent D-6 executed continuing guarantee under Ex. A9 and as it is a continuing guarantee. D-6 is liable till he revoked that guarantee and any revocation letter sent by D-6 will operate only with regard to the future transactions after the revocation notice and for the prior transactions this continuing guarantee will hold good and D-6 will be liable for the suit claim until it was revoked and only for the future transactions D-6 may not be held liable. Counsel for the respondent D-6 submitted that it is not a continuing guarantee and as D-6 has sent revocation letter revoking the continuing guarantee, he is discharged from this liability immediately when he sent that revocation letter and the order passed by the Presiding Officer, DRT-II, discharging D-6 is perfectly justified. Section 129 of the Contract Act deals with continuing guarantee which states that a guarantee which extends to a series of transactions is called a 'continuing guarantee'. A continuing guarantee is one which extends to a series of transactions and is not exhausted by or confined to a single credit or transaction. A continuing guarantee is usually given as security for an overdraft facility, since the overdraft fluctuates in amount and will often continue for an indefinite period. Guarantees for bank overdrafts usually state in terms that they are to be by way of continuing security, and that they are not to be satisfied, discharged or affected by any intermediate payment or settlement of account.

3. Ex. A-9 the document executed by D-6 the guarantor, the guarantee executed by D-6 is a continuing guarantee, the loan transaction being that overdraft facility. So, it goes without saying that it is a continuing guarantee. In Ex. A9 also it is specifically stipulated that the guarantee is a continuing guarantee and the guarantor can give notice and revoke his guarantee by issuing six months' notice and it shall be binding on the representatives and estates of the guarantor until the expiry of six months after a notice in writing of revocation of guarantee is received by the Bank. Since the loan transaction is for an overdraft facility and the recital in the document also shows that it is a continuing guarantee, it is only a continuing guarantee and D-6 has executed the document for continuing guarantee only.

6. Counsel for the appellant Bank states that no such letter revoking the guarantee was received by the Bank. Counsel for the appellant Bank submits that what he meant by non-receipt of letter is only with regard to the letter dated 16.3.1991 alleged to have been sent by the respondent to the Bank. He fairly submits that the alleged letter dated 16.3.1991 was not received by the Bank but the Bank is in receipt of the letter dated 22.9.1992 Ex. A16. Ex. A16 clearly indicates that the appellant is not in a position to extend the guarantee any more and he has requested the Bank to relieve him of the liability. This letter Ex. A16 dated 22.9.1992 clearly amounts to revocation of guarantee. So, from 22.9.1992 the appellant has not guaranteed for the repayment of the loan. The condition stipulated in Ex. A9 indicates that the continuing guarantee will be in force for a period of six months from the date of the guarantee revocation letter. So, from the date of letter Ex. A16 i.e. 22.9.1992, the continuing guarantee will be in force for a period of six months i.e. 21.3.1993. Till such period i.e. 21.3.1993, D-6 guarantor is liable under the continuing guarantee. Counsel appearing for the appellant Bank submitted that there was no more transaction after 1992 and the Bank has filed the O.A. on the outstanding as in the year 1992 since no further transactions took place after the revocation of guarantee letter dated 22.9.1992. The appellant is liable for the claim by the Bank for the amount due till 21.3.1993 and after that date D-6 guarantor will not be liable.

7. Section 130 of the Contract Act deals with revocation of continuing guarantee Section 130 states that "A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor". So, it implies that only for future transactions the continuing guarantee will not apply after issuance of revocation notice. As per the agreement, even for the period of six months after issuance of notice the continuing guarantee will be in force. D-6 guarantor remains responsible for any sum incurred by the principal debtor governed by the guarantee upto the time of six months after notice was given. As per Section 130 of the Contract Act, even if any revocation letter is given, it will operate only for the further transactions and not for the past transactions. Viewed at any angle, there is no ground to discharge D-6 from his liability. The argument advanced by the Counsel for the respondent D-6 does not hold good. D-6 is liable for the suit claims upto 21.3.1993. The order passed by the Presiding Officer, DRT-II, discharging D-6 from the loan liability is liable to be set aside and it is set aside. The order passed by the Presiding Officer, DRT-II, Chennai, in other respects is not disturbed.