IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 19TH DAY OF AUGUST, 2019 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON'BLE MR. JUSTICE S. G. PANDIT WRIT PETITION NO.9590 OF 2006 (GM-DRT) C/W WRIT PETITION NO.24303 OF 2005 (GM-DRT) W.P.No.9590 OF 2006 BETWEEN:
CENTRAL BANK OF INDIA A BODY CORPORATE ESTABLISHED UNDER THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, HAVING ITS HEAD OFFICE AT “CHANDERMUKHI”
NARIMAN POINT, MUMBAI AND A BRANCH INTER-ALIA AT “JAYAM COMPLEX”, Nos.100-107 SAMPIGE ROAD, MALLESHWARAM BENGALURU-560 003 REPRESENTED HEREIN BY ONE OF ITS PRINCIPAL OFFICERS NAMELY THE BRANCH MANAGER OF BENGALURU.
MALLESHWARAM BRANCH SHRI NAGARAJ C. HASYAGAR.
(BY SRI Y V PARTHASARATHY, ADVOCATE) AND:
SHRI KAILASH CHANDRA GAUR SON OF LATE MADANLAL GAUR NO.6, MARISAMAPPA LANE 4TH CROSS, NEW TIMBER YARD LAYOUT MYSORE ROAD, BENGALURU-560 026.
... PETITIONER ... RESPONDENT (BY SRI.VARUN SRINIVASAN, ADVOCATE FOR SRI. SUHAS T L, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 21.07.2005 PASSED BY THE DRAT, CHENNAI IN R.A.NO.7 OF 2005 VIDE ANNEX-K.
W.P.No.24303 OF 2005 BETWEEN:
CENTRAL BANK OF INDIA A BODY CORPORATE ESTABLISHED UNDER THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, HAVING ITS HEAD OFFICE AT “CHANDERMUKHI”
NARIMAN POINT, MUMBAI AND A BRANCH INTER-ALIA AT “JAYAM COMPLEX”, Nos.100-107 SAMPIGE ROAD, MALLESHWARAM BENGALURU-560 003 REPRESENTED HEREIN BY ONE OF ITS PRINCIPAL OFFICERS NAMELY THE BRANCH MANAGER OF BENGALURU MALLESHWARAM BRANCH SHRI NAGARAJ C. HASYAGAR.
(BY SRI Y V PARTHASARATHY, ADVOCATE) AND:
SHRI V NANDAKUMAR AGED 60 YEARS SON OF T.V. VENKATARAMAN RESIDING AT No.2-535 “SUKH NIVAS”, 17TH ROAD KHAR (WEST) MUMBAI-400 052.
... PETITIONER ... RESPONDENT (BY SRI.S SREEVATSA, SENIOR COUNSEL FOR SMT. JAYASHREE NARASIMHAN AND SRI FREUD RICHARDIAN, ADVOCATES) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 31.08.2005 PASSED BY THE DRAT, CHENNAI IN R.A.NO.8 OF 2005 VIDE ANNEX-K.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 31.07.2019 COMING ON THIS DAY, S.G.PANDIT J., PRONOUNCED THE FOLLOWING:
ORDER The petitioner-Central Bank of India (for short ‘Bank’) is before this Court in W.P.No.9590 of 2006 assailing the order dated 21.07.2005 passed by the Debt Recovery Appellate Tribunal, Chennai (hereinafter referred to as 'the DRAT’ for short) in R.A.No.7 of 2005 and in W.P.No.24303 of 2005 assailing the order dated 31.08.2005 passed by the DRAT in R.A.No.8 of 2005.
2. Since, R.A.No.7 of 2005 and R.A.No.8 of 2005 arise out of common order dated 21.11.2003 in O.A.No.382 of 1998 on the file of the Debts Recovery Tribunal at Bengaluru (hereinafter referred to as 'the Tribunal' for short), with the consent of the learned counsels, both the writ petitions are taken up together for hearing and disposed off by this common order.
3. For the sake of convenience and better understanding of the facts, petitioner in both the writ petitions is referred to as petitioner-Bank; respondent in W.P.No.9590 of 2006 is referred to as defendant No.6 and respondent in W.P.No.24303 of 2005 is referred to as defendant No.7 4. The petitioner-Bank filed O.S.No.5000 of 1992 on the file of the City Civil Judge, Bengaluru for recovery of dues from M/s. Movers Limited in a sum of Rs.4,00,59,559/- with interest at 16.5% p.a. compounded quarterly; directing to pay a sum of Rs.1,10,08,541-42 together with interest at the rate 17.5% p.a. compounded quarterly and for a direction to the first defendant- Company represented by the Official Liquidator to pay and make over to the Bank a sum of Rs.42,00,000/- being the sale proceeds of the properties of the first defendant- company which constitutes the substituted security to the Bank towards protanto satisfaction of the debt. In view of the constitution of Debts Recovery Tribunal at Benglauru, as the suit claim exceeded the jurisdiction of the Civil Court, the suit of the petitioner-Bank was transferred to Debts Recovery Tribunal, Benglauru, which, on transfer was numbered as O.A.No.382 of 1998 (for short ‘O.A.’).
5. The petitioner-Bank sanctioned various financial assistance to M/s. Movers Limited (‘Company’ for short).
The financial assistance was extended to the Company for the period from August 1980 to August 1989. The Company executed security documents in addition to personal guarantee of Directors including the respondents in both the writ petitions. As the Company failed to honour its commitments and became defaulter, the petitioner-Bank having no other option filed the above stated suit which was transferred to the Tribunal on its constitution. The petitioner-Bank claims that defendant No.6 executed letters of continuing guarantee on 07.06.1983 for a sum of Rs.4.70 lakhs and on 08.08.1983, for a sum of Rs.76.00 lakhs respectively. The guarantees executed by 6th defendant are continuing guarantees which are marked as Ex.A23 and Ex.A24 before the Tribunal. Similarly, defendant No.7 executed letter of guarantee dated 25.09.1984 for a sum of Rs.1,59,75,000/- and on 08.05.1985 for a sum of Rs.1,82,75,000/- respectively which are marked as Ex.A132 and Ex.A133.
6. The defendant No.6 filed his written statement contending that he was the Director of the Company between 06.8.1980 and 06.07.1984. He stated that he resigned from the Directorship of the Company on 06.07.1984 and his resignation was accepted by the Board of Directors of the Company on the same day and resolution was passed which was intimated to the petitioner-Bank accordingly. Further, it was stated that he executed guarantee agreement on behalf of the Company in favour of the petitioner-Bank securing repayment of the limits permitted up to 06.07.1984 only. It was also stated in the written statement that the Company by letter dated 06.07.1984 addressed to the petitioner-Bank had informed the resignation of 6th defendant and requested the bank to relieve him from all the obligations pertaining to the Company arising out of the guarantee. It is stated that the 6th defendant also addressed a letter dated 06.07.1984 in that regard and again sent a reminder on 15.05.1985 addressing the petitioner-Bank requesting to relieve him from the obligation as guarantor. The petitioner-Bank in turn, by its letter dated 12.06.1985 acknowledged the letter of 6th defendant and stated that it has already taken up the matter with its higher authorities regarding relieving him from liabilities of the guarantee. It is his entire case that from the date of resignation in July 1984, the 6th defendant was neither aware of the activities of the Company nor he is a party to any of the activities of the Company.
7. The defendant No.7 had also filed his written statement, stating that he ceased to be a Director of the Company many years before the date of filing the suit. Therefore, no proceedings could be initiated against him. It is stated that 7th defendant was neither a director nor a party to the promissory note dated 08.08.1983. It is further stated that this defendant resigned from directorship and the same was made known to the Bank by the Company and the Bank also accepted the resignation. The Bank suggested that another Director is required to be appointed in place of 7th defendant, so that, this defendant could be relieved of his liability. Since one Mr.M.S.Padake, the 5th defendant to the O.A. was appointed as Director, this defendant ceased to be a Director on his resignation and all the transactions between the Bank and this defendant gets extinguished. It is further contended that since the subsequent Director executed deed of guarantees, the guarantee, if any, executed by him gets extinguished. Defendant No.7 further states that he cannot be held liable for any amount due from the Company which is under liquidation, since the Bank admitted in its letter dated 31.10.1985 that this defendant was relieved from Directorship having accepted the resignation.
8. The petitioner-Bank examined five witnesses as A.W.1 to A.W.5 through affidavits and marked documents as Ex.A.3 to Ex.A.225, whereas on behalf of the defendants three witnesses were examined. Defendant No.6 got examined himself as DW.1 and defendant No.7 got examined himself as DW.2. Documents on behalf of the defendants were marked as Ex.D1 to Ex.D18.
9. The Tribunal, by its order dated 21.11.2003 in O.A.No.382 of 1998 allowed the application of the Bank and directed defendants No.1 to 7 to pay the petitioner- Bank jointly and severally a sum of Rs.4,00,59,558/- with subsequent interest at the rate of 10.5% p.a. and an amount of Rs.1,10,08,541/- with subsequent interest at the rate of 17.5% p.a. Further, the liability of defendant No.6 i.e. respondent in W.P.No.9590 of 2006 was confined to guarantee agreements Ex.A23 and Ex.A24 and so also the liability of defendant No.7 i.e. respondent in W.P.No.24303 of 2005 was confined to guarantee agreements at Ex.A132 and Ex.A133. Aggrieved by the order dated 21.11.2003, defendant No.6 filed R.A.No.7 of 2005 and defendant No.7 filed R.A.No.8 of 2004 respectively before the DRAT. Before the DRAT, defendant No.6 urged that as per Ex.D8 and Ex.D9 he had sought for relieving him from the liability as Guarantor and also contended that the claim against him is time barred apart from urging various other grounds.
10. Defendant No.7 urged before the DRAT that he had resigned from the Directorship of the Bank and consequent upon his resignation, fresh guarantee was taken by the Bank with the newly appointed Director and hence the guarantee given by him got extinguished.
11. The Appellate Tribunal, by order dated 21.07.2005 allowed the appeal of defendant No.6 in R.A.No.7 of 2005 and set aside the order dated 21.11.2003 in O.A.382 of 1998 passed by DRT Bangalore insofar as defendant No.6 is concerned. By order dated 31.08.2005, the Appellate Tribunal allowed the appeal of defendant No.7 in R.A.No.8 of 2005 and set aside the order dated 21.11.2003 in O.A.No.382 of 1998 passed by the Debts Recovery Tribunal, Bengaluru insofar as defendant No.7 is concerned.
12. Aggrieved by the orders dated 21.07.2005 and 31.08.2005 passed in R.A.No.7 of 2005 and in R.A.No.8 of 2004 by the DRAT at Chennai, the petitioner-Bank filed W.P.No.9590 of 2006 and W.P.No.24303 of 2005.
13. This Court, by order dated 03.01.2013 in W.P.No.9590 of 2006 dismissed the writ petition confirming the order of the Appellate Tribunal. The petitioner/Bank against the dismissal of the writ petition, filed Civil Appeal No.8263 of 2016 before the Hon'ble Apex Court. The Hon'ble Apex Court by its order dated 23.08.2016 allowed the Civil Appeal on the ground that two writ petitions which were filed by the Bank ought to have been decided together for a fuller and complete adjudication of the matter, so that, the individual or the joint liability of these two defendants could be properly adjudicated. The Civil Appeal was remanded to the High Court to decide both the writ petitions together. Hence, both the writ petitions are listed together for hearing.
14. Learned counsel for the petitioner/Bank would submit that both the orders under challenge in these two writ petitions are contrary to material on record. Learned counsel submits that the defendant No.6 executed Ex.A23 and Ex.A24 guarantee agreements, which are continuing guarantees. He also submits that defendant No.7 executed guarantee agreements at Ex.A132 and Ex.A133 which are also continuing guarantees. Acknowledgement by the creditors is binding on the guarantors. Learned counsel invites attention of this Court to clauses (3), (7) and (9) of the Guarantee Agreement to contend that any admission or acknowledgement by the Principal debtor would bind the guarantors; to contend that guarantee is a continuing guarantee which shall remain in force, till all the amounts due and payable are paid up in full; and to contend that the guarantors have consented for making any variance in the contract with the Principal.
15. Per contra, learned counsel for defendant No.6 would contend that defendant No.6 resigned from the Directorship on 06.07.1984 and on which date, the Company accepted the resignation and informed the petitioner/Bank. Thereafter, on 15.05.1985, the 6th defendant had sent a reminder to the petitioner/Bank requesting to relieve him from the liabilities as a guarantor. The Bank replied on 12.06.1985 stating that the Bank has already taken up the matter to the higher authorities with regard to relieving him from the liability as a guarantor and shall communicate after hearing from the higher authorities, which they did not inform subsequently. Further it is contended that defendant No.7 replaced him as Director and executed guarantee agreements as per Ex.A132 and Ex.A133. Hence he is discharged from his liability as surety. Further it is contended that the claim against 6th defendant is time barred, since, by letter dated 06.07.1984 itself defendant No.6 had sought for relieving him from the liabilities as guarantor.
16. Learned counsel for defendant No.7 contended that he resigned from the Directorship in October 1985 and consequent upon his resignation fresh guarantee was taken by the petitioner-Bank with the newly added Director. Therefore, guarantee given by him got extinguished. In support of his contention, he invites attention of this Court to Section 62 of the Indian Contract Act, 1872 (hereinafter referred to as ‘the Act’ for short).
17. In the light of the above contentions and the material on record, the only question which arises for consideration is whether the DRAT was justified in absolving the liability of defendants No.6 and 7 in the facts and circumstances of the case.
18. Chapter VIII, Sections 124 to Section 147 of the Act, 1872 deals with indemnity and guarantee. Section 126 of the Act defines ‘contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’. Section 128 of the Act deals with ‘surety’s liability’ which states that liability of the surety is co-extensive with that the of the principal- debtor, unless it is otherwise provided by the contract. Section 129 is with regard to ‘Continuing guarantee’ - A guarantee which extends to a series of transactions is called a ‘continuing guarantee’. Section 130 of the Act provides for ‘revocation of continuing guarantee’. The surety could revoke the continuing guarantee at any time as to future transactions, by notice to the creditor. Sections 133 and 139 deals with ‘discharge of surety by variance in terms of contract’ and ‘discharge of surety by creditor’s act of omission impairing surety’s eventual remedy’.
19. The petitioner/Bank examined AW1 to AW5 in support of its case. AW1-Sri H.V.Narayana Rao officer of the petitioner/Bank in his chief-examination/affidavit has stated that the defendants 2 to 7 executed deeds of guarantee at Ex.A23 and Ex.A24. A.W.2-Sri.K.Thimmaiah, Malleswaram Branch Manager of the petitioner/Bank in his chief evidence/affidavit has deposed that defendants 2 to 7 have executed letters of continuing guarantee at Ex.A132 to Ex.A137. There is no cross-examination by the defendants. Likewise, defendant No.6 examined himself as D.W1. In his evidence, he has categorically stated that on 06.07.1984 he resigned from the Directorship of the Company and the same was informed to the petitioner/Bank and the Bank by its letter dated 12.06.1985 replied stating that they have taken up the matter with their higher authorities and they will inform him about it. But nothing has been told to him after addressing the said letter. It is also deposed that the 6th defendant has not signed any papers or documents or any kind of balance confirmation subsequent to his resignation. It is also stated that for the reasons best known to the Bank, it kept quite for seven long years and continued to extend various types of credit limits to the Company. In his deposition, defendant No.6 has made it clear that Ex.A132 to Ex.A137 do not contain his signature.
20. Defendant No.7 examined himself as D.W.2 by filing affidavit before the Tribunal. In his evidence, he has deposed that he resigned from the Directorship of the Company in October 1985 and he is not a party to any increase in the limits, after October 1985. Further defendant No.7 has stated in his deposition that he was asked to sign certain documents and in spite of his specific request to the Bank officials, he was not allowed to look into the documents and he was not permitted to understand the terms and conditions put forth by the Bank. Further, he has deposed that his signature was also taken on a blank sheet which was indicated as promissory note without mentioning the date and also he has signed certain Forms which were not fully filled up.
21. On perusal of Ex.A23 and Ex.A24, guarantee deeds in respect of a sum of Rs.76,00,000/- and 4,70,000/- respectively, it is seen that the same is signed by defendant No.6 as guarantor. Further on perusal of Ex.A132 and Ex.A133, it would reveal that the said guarantee documents are not signed by 6th defendant- Kailash Chandra Gour. Whereas, Ex.A132 and Ex.A133 are signed by defendant No.7-V.Nandkumar. Ex.A132 and Ex.A133 are executed by the guarantors including defendant No.7 as sureties for a sum of Rs.1,59,75,000/- and Rs.1,82,75,000/- respectively. To find out as to whether guarantees executed by defendants No.6 and 7 are continuing guarantees or not, we have to examine particular clause contained in the deed of guarantee. Clause 7 of the guarantee agreement reads as follows:
“7. This guarantee shall not be revoked by me/us and shall remain in force till all the amounts due and payable to you by the principal (s) are paid up in full inclusive of interest, charges, etc., I/We further specifically agree that this guarantee shall continue to remain in force and I/we shall continue to be liable thereunder for all the amounts due and payable to you by the principal/s even though the principal/s has/have/not renewed the documents and even though the amounts due from the principal/s gets time barred and you cannot recover the same from principal/s by filing a suit or any legal proceedings against the principal/s.”
22. Reading of the above clause would indicate that the guarantee shall remain in force till all the amounts due and payable by the Principal are paid up in full inclusive of interest, charges, etc. The guarantor has agreed that guarantee shall continue to remain in force and that he shall be liable thereunder for all the amounts due and payable by the Principal even though the Principal has not renewed the documents and the amounts due from the Principal gets time barred. Thus, it could be said that it is a continuing guarantee and the same would continue, till all the amounts due from the Principal are paid.
23. Clause 9 of the agreement reads as follows:
“9. I/We hereby consent to your making any variance that you may think fit in the terms of your contract with the principal/s to you determining enlarging or varying any credit to him/them to your making any composition with him/them and or promising to give him/them/it time or not to sue him/them and to your parting with any security you may hold for the guaranteed debt, I/we also agree that I/we shall not be discharged from my/our liability by your releasing the principal/s or any act or omission of yours the legal consequence of which may be to discharge the principal/s or by any act of yours which would, but for this present provision be inconsistent with my/our rights as sureties or by your omission to do any act which but for this present provision your duty to me/us would have required you to do. Though as between the principal/s and myself/ourselves I/we am/are sureties only we agree that as between yourselves and me/us, I/we am/are principal debtor/s jointly with him/them and accordingly I/we shall not be entitled to any of the rights conferred on sureties by sections 133, 134, 135, 139 and 141 of Contract Act.”
24. Under the above Clause, the guarantors have consented for making any variance which the Bank may think fit in terms of the contract with the principal. Further, they have agreed that they shall not be entitled to any of the rights conferred on sureties by Sections 133, 134, 135, 139 and 141 of the Contract Act.
25. The Debts Recovery Tribunal at Bengaluru on examination of the material, both oral and documentary held that defendant No.6 is liable to pay as per guarantee agreements Ex.A23 and Ex.A24 and defendant No.7 is liable under guarantee agreements Ex.A132 and Ex.A.133. The Tribunal has rightly come to the conclusion that defendant No.6 is liable under Ex.A23 and Ex.A24 and defendant No.7 as per Ex.A132 and Ex.A133. But the DRAT absolved defendants No.6 and 7 of the liability holding that since subsequent guarantors executed guarantee agreements which amounts to variance of the original contract and also on the ground that the claim of the Bank in respect of defendant No.6 is barred by time. The said finding of the DRAT would not stand to reasons and legal scrutiny in view of the nature of guarantee executed by 6th and 7th defendants. It is an admitted fact that the 6th defendant executed Ex.A23 and Ex.A24 for a sum of Rs.76,00,000/- and Rs.4,70,000/- respectively. The guarantee executed by the 6th defendant as noted above is a continuing guarantee. As per Ex.D7 and Ex.D8 it is clear that the defendant No.6 has requested the Bank to relieve him from the liabilities as guarantor for the loans advanced to the Company. The petitioner/Bank has replied stating that the matter is taken up to their higher authorities with regard to relieving him from the liability as guarantor for the credit facilities granted to the Company and have stated that they would communicate in the matter after hearing from the higher authorities in this regard. Further, most importantly they have stated that the liability continues to exist as guarantor. This would make it clear that the defendant No.6 is not relieved of his liability as requested by him and it is stated that it would continue to exist. But, defendant No.6 would not be liable for the future transactions and credit facility extended to the Company and he would be liable as guarantor only in respect of guarantee deeds at Ex.A23 and Ex.A24 in view of Section 130 of the Act which provides for revocation of guarantee for future transactions. Defendant No.6 would be liable under Ex.A23 and Ex.A24 since he has not been specifically relieved of his liabilities by the petitioner-Bank. Further, the finding of the DRAT that, since subsequent guarantor executed guarantee deed, there is variance and defendants No.6 and 7 are extinguished of his liability would not stand to reasons. Section 62 of the Act provides for novation. Section 62 reads as follows:
“62. Effect of novation, rescission, and alteration of contract –If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
Illustrations (a) A owes money to B under a contract. It is agreed between A, B and C, that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his (A’s), estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
(c)A owes B 1,000 rupees under a contract, B owes C 1,000 rupees, B orders A to credit C with 1,000 rupees in his books, but C does not assent to the agreement. B still owes C 1,000 rupees, and no new contract has been entered into.”
26. A careful reading of the above provision would indicate that the parties to a contract could agree to substitute a new contract for it or to rescind or to alter it and the original contract need not be performed. It is clear that only parties to a contract could substitute a new contract or rescind or alter. To supercede a contract by another contract, all the parties to the first contract must be parties to the second contract. But in the case on hand, defendants No.6 and 7 are not parties to the subsequent guarantee agreements. Subsequent guarantee agreements are for enhanced credit amount including the balance as on that date. Execution of subsequent guarantee agreements would also not amount to variance in contract. If the subsequent guarantee agreements specifically contain a clause that the same is executed in supersession of all the earlier guarantee agreements, then defendant could claim that he is not liable as guarantor.
But it is not so in the present case, as it is clear from the guarantee deeds at Ex.A132 and Ex.A.133 that it is not in supersession of earlier deeds of guarantee. No doubt, defendants No.6 and 7 could claim discharge from their liabilities as guarantors on the ground of variance of original terms of agreement between the petitioner/Bank and guarantors. But again, it depends on the terms of contract. In the present case, as could be seen from above extracted clause (9) of the agreement, the defendants No.6 and 7 have waived their rights conferred on them under Sections 133 to 141 of the Act. One of the contentions on behalf of defendant No.7 is that the said clause is opposed to public policy. The same cannot be accepted in view of the decision of Co-ordinate Bench of this Court. This Court, while dealing with the similar contention, in the case of T.RAJU SETTY v/s BANK OF BARODA reported in AIR 1992 KAR 108 at paragraph 11 has held as follows:
“11. We are of the view that as the provisions contained in Chapter V11I of the Act relate to indemnity and guarantee, they deal with one subject and they are to be read together. The liability of the surety as stated in general terms in S.128 of the Act is no doubt co-extensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because S.128 of the Act itself specifically provides that the liability of a surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Thus the liability of the surety is subject to the terms of the contract as may be arrived at between the parties. The words "unless it is otherwise provided in the contract” occurring in Section 128 of the Act will also govern the other provisions contained in Chapter VIII of the Act and enable the surety to give up the rights available to him under Sections 133, 134, 135, 139 and 141 of the Act. It is a settled legal position of law that a legal right can be given up provided such giving up of a legal right under any contract is not hit by Section 23 of the Act. Section 133 of the Act makes it clear that any variance made in the contract between the principal debtor and the creditor without the consent of the surety, discharges the surety as to transactions subsequent to variance. This consent of the surety can be obtained either at the time the contract is made between the principal debtor and the creditor to which the surety gives the guarantee, for making any change or alteration in the contract to be made or not to claim any right or benefit under Chapter VIII of the Act. In other words, in the surety-bond/guarantee-bond itself the surety can agree to waive his rights available to him under the various provisions contained in Chapter VIII of the Act. Such waiving of his right by the surety is permissible under Sections 133 read with Section 128 of the Act.”
Thus, as the defendants No.6 and 7 have waived their right under clause (9) of the guarantee deeds which is permissible as held by this Court in the above decision. The contention of defendants No.6 and 7 that they are entitled for discharge on the ground that there is variance from the original terms of the contract is liable to be rejected and accordingly rejected.
27. Defendants No.6 and 7 have further contended that, as they have resigned from the Directorship of the Company which is communicated to the Bank, they are no more liable for the dues of the Company. In that regard, the defendant No.7 has not produced any material to indicate that his resignation was communicated to the Bank and Bank accepting the same relieved him of the liability of the Company. No correspondence whatsoever is placed in support of his contention. Whereas, defendant No.6 requested to relieve him from the liability as guarantor of the Company. The petitioner-Bank replied as per Ex.D8 stating that his request was placed before the higher authorities of the Bank and it was stated that the decision would be communicated. Most importantly, in the reply-Ex.D8 it is stated that the liability as Guarantor would continue till such time, the Bank communicates its decision. Thereafter there is no communication from the Bank discharging defendant No.6 from his liability as guarantor of the Company. The contract would not indicate that the request from the guarantor to relieve him from the liability would be sufficient to discharge him from the liability. The request of defendant No.6 has remained as a proposal which is not accepted by the petitioner-Bank. On the other hand, it is specifically communicated under Ex.D8 that his liability would continue till the decision is taken by the higher authorities. As there is no discharge of liability by specific communication by the petitioner- Bank and in the peculiar facts and circumstances of the present case, the guarantee of defendants No.6 and 7 would continue till the dues are paid to the Bank.
28. The next contention urged is that the claim against the defendants No.6 and 7 is barred by time and the petitioner-Bank cannot enforce guarantee against them. We have already held on scrutiny of Ex.A23, Ex.A24, Ex.A132 and Ex.A133 that the guarantee executed is a continuing guarantee in view of the clauses contained therein. The contention of defendants No.6 and 7 is that they have resigned from the Directorship of the Company which was informed to the petitioner-Bank in the year 1985 itself and the petitioner-Bank has filed the suit invoking the guarantee only in the year 1992. To examine this contention, we have to consider clause (3) of the guarantee deed, which reads as follows:
“(3) I/we agree that the amount hereby guaranteed shall be due and payable to you on your serving me/us with notice, requiring payment of the amount and such notice shall be deemed to have been served on me/us either by actual delivery thereof to me/us or by despatch thereof to me/us by registered post at my/our address written hereunder or any other address in India to which I/we may be written intimation given to the Bank request notices addressed to me/us to be despatched.
Any notice despatched by the Bank by the registered post to me/us at the address to which it is required to be despatched by this clause shall be deemed to have been duly served on me/us at the time when the notice would in the ordinary course of post be delivered at the address notwithstanding that the notice may not in fact have been delivered to me/us or that the address to which it is despatched may have ceased to be my/our address.”
29. On close scrutiny of the above clause, it would indicate that the guarantors had agreed to pay the due amount on serving notice, requiring payment of the amount, which means that guarantor agreed to pay the dues on demand by the Bank. In the instant case, the Bank issued notice demanding payment of the amounts due on 15.07.1992. The plaint averment would indicate that the notices issued to defendants No.6 and 7 have been served as per postal acknowledgement. Thereafter, when the defendants failed to honour the demand notice, the petitioner-Bank filed the suit in July 1992 to recover the amounts due. Thus, the suit filed is within the period of limitation from the date of demand. This view of ours is supported by the decision of the Hon'ble Supreme Court in the case of SYNDICATE BANK v/s CHANNAVEERAPPA BELERI AND OTHERS reported in (2006) 11 SCC 506.
Paragraphs 9 to 11 of the said decision read as follows:
“9. A guarantor's liability depends upon the terms of his contract. A “continuing guarantee” is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time- barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.
10. Samuel, no doubt, dealt with a continuing guarantee. But the continuing guarantee considered by it, did not provide that the guarantor shall make payment on demand by the Bank. The continuing guarantee considered by it merely recited that the surety guaranteed to the Bank, the repayment of all money which shall at any time be due to the Bank from the borrower on the general balance of their accounts with the Bank, and that the guarantee shall be a continuing guarantee to an extent of Rs.10 lakhs. Interpreting the said continuing guarantee, this Court held that 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, the period of limitation could not be said to have commenced running.
11. But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in Bradford and Hartland, the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.”
In the above decision also, the guarantors had agreed to pay and satisfy the Bank, on demand and when they failed to honor the demand, suit was filed, which was held to be within time.
30. For the reasons stated above, the question formulated above is answered in favour of the Bank and accordingly, impugned orders dated 21.07.2005 and 31.08.2005 passed by the Debt Recovery Appellate Tribunal, Chennai in R.A.No.7 of 2005 and in R.A.No.8 of 2004 respectively, are set aside and the order dated 21.11.2000 passed by Debts Recovery Tribunal, Bengaluru in O.A.No.382 of 1998 is confirmed. Accordingly, both the petitions are allowed.
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JUDGE JUDGE mpk/-*CT:bms