Heard Shri R.K. Jain learned Senior Advocate, assisted by Shri Ankur Sharma, for the petitioner. None appears on behalf of the respondents.
2. The brief facts of this case as stated in the writ petition are that the respondent No. 2 filed a Claim application under Section 19 of Recovery of Debts Due to banks and Financial Institutions Act, 1993 (hereinafter referred to as 'RDB Act') in the Debts Recovery Tribunal, Allahabad which was numbered as Original Application No. 99 of 2001 for issuing of recovery certificate for its alleged dues of Rs. 24,48,546/- with interest pendentelite and future at the rate of 16.5.% p.a. with quarterly rests against a partnership firm known as M/s. Anandeshwar Industries respondent No. 4 (defendant No. 1 in the claim application) and its partners. The guarantee was executed by the petitioners in consideration of the aforesaid loan of Rs.14 lacs.
3. In the claim application the Bank, inter alia, alleged that M/s. Anandeshwar Industries and its partners and mortgagor (respondent Nos. 4 to 9) approached the Bank for grant of a credit facility of Rs.14 lacs, which was granted by the Bank against the security of hypothecation of stocks, second charge on the immovable property of the defendant No. 1 (respondent No. 4 herein). The said credit facility was also secured by personal guarantees of respondent Nos. 5,6 & 7 (defendants Nos. 2,3,4) and also by the personal guarantees of the petitioners. (defendants Nos. 8 and 9 before the DRT).
4. In respect of aforesaid credit facility of Rs.14 lacs granted by the Bank to M/s Anadeshwar Industries various loan and security documents were executed by the said firm and its partners and guarantee agreements were also executed by the petitioners. All the aforesaid documents were executed simultaneously and on the same date i.e. on 2.9.1994 and they were executed to secure the above credit facility of Rs.14 lacs and formed part of one and the same transaction representing the said credit facility granted by the Bank to M/s Anandeshwar Industries.
5. On 21.8.1995 the above contract of loan of Rs.14 lacs was varied and M/s. Anandeshwar Industries was allowed credit facility of Rs.25 lacs in substitution of the earlier credit limit of Rs.14 lacs. The fact that the credit facilities granted earlier were varied has been specifically admitted in Para 5 (Q) of the Application filed by the Bank in the DRT.
6. The term of the original contract under which the credit facility was provided was further varied inasmuch as M/s. Anand Industries by its letter dated 21.8.1995 authorised the bank to charge interest @ RBI. The petitioner allege that the afore-mentioned variations in contract took place without the knowledge and consent of the petitioners. In consideration of the bank guarantee in consideration of aforesaid revised credit facility of Rs.25 lacs respondent Nos. 5, 6 and 7 for self and as partners of respondent No. 4 executed and delivered a completely new set of contract documents dated 21.8.1995 in substitution of the old documents. The Bank also obtained supplementary agreement dated 21.8.1995 from the respondent No. 5 (defendant No.2) through its partners respondent Nos. 5,6 and 8 (Defendant Nos. 2, 3 and 6 in the claim petition) extending their earlier equitable mortgage dated 2.9.1994 to cover the varied/revised credit limits of Rs. 25 lacs.
7. Although new set of documents were executed on 21.8.1995 in substitution of earlier documents dated 2.9.1994 and new guarantees were obtained from defendant Nos. 2,3,5, and 6 (respondent nos. 5,6,8 and 9 herein) the petitioners were neither required to execute any fresh guarantee agreements nor were they required to extend/modify the earlier guarantees to cover the revised/credit facilities of Rs.25 Lacs granted on 21.8.1995.
8. Except the petitioners who were arrayed as defendants Nos. 8 and 9 in the claim application, no other defendant put in appearance despite publication and DRT decided to proceed against them ex-parte.
9. The petitioners filed their written statement dated 24.1.2002 (Annexure 11) in reply to the claim application.
10. The petitioners in their written statement interalia contended that the petitioners are not liable to pay the amount claimed as they stood discharged on 21.8.1995 upon variation/innovation of earlier contract without their consent ; they did not guarantee the enhanced credit facility of Rs.25 lacs; they are not liable for the transactions after 21.8.1995 as contemplated under Section 133 of the Contract Act and they are entitled for the benefits of the various credit entries made in the account of the defendant No. 1 after 21.8.1995 ; the defendant No. 1 (respondent No. 4 herein) had deposited more than Rs.5 crore after 21.8.1995 which was more than the outstanding balance of Rs. 7,38,578.35 as on 21.8.1995; thus the outstanding balance as on 21.8.1995 was fully paid /liquidated by the defendant No. 1 ; the guarantee of the petitioners stood revoked when the variation in contract was made on 21.8.1995 without their consent and knowledge ; the claim of the Bank as against the petitioners was time-barred. The petitioners denied their liability and prayed for dismissal of the application with special cost.
11. The petitioners filed a replication dated 2.8.2002 to the petitioner's written statement.
12. The respondent No. 4 moved an application for amendment of para 5 (0) of the Claim petition as it originally stood in which the respodnent No. 4 had admitted that guarantee was executed by the petitioner in consideration of Rs.14 lacs. By the amendment the respondent No. 4 sought to substitute the figure 14 lacs with Rs. 25 lacs. Despite the petitioner's objection amendment which had the effect of retracting an admission was allowed by the Debts Recovery Tribunal on 9.10.2003 at the stage when the evidence had been closed and the case was ready for final hearing.
The case was heard on 25.10.2002 by the Debts Recovery Tribunal and the after the exchange of pleadings Debts Recovery Tribunal framed the following issues:-
i.Whether the contesting defendants were discharged as guarantors because of the fact that a change took place in the agreement of the parties ?"
ii.Whether the claim of the Bank in relation tot he defendants is time barred ?"
iii.To what relief if any the applicant Bank is entitled and from which defendants ?
Petitioners have ascertained that the afore-mentioned issues were framed by the Debts Recovery Tribunal while dictating the judgment and not during the course of proceedings nor they were brought to the knowledge of the parties.
13. The case was heard on 25.10.2002 by the Debts Recovery Tribunal on which date the judgment and order was reserved and judgment was pronounced on 10.2.2003, copy whereof has been filed as Annexure No.2. By the aforesaid judgment, the Debts Recovery Tribunal interalia held that the petitioners guarantors were not discharged as their guarantee was continuing and they had not objected to the variations and that the petitioners were bound by the acknowledgement signed by Anand Industries, respondent No. 4. However, the liability of the petitioners was limited to Rs.14 lacs under the guarantee and accordingly, it was held that the Bank was entitled to recover the Rs.14 lacs from the petitioners and not beyond that.
14. Aggrieved from the judgment dated 10.2.2003 passed by the Debts Recovery Tribunal the petitioner filed an appeal before the respondent No. 1 under Section 20 of the Debts Recovery Tribunal Act which was registered as Appeal No. 280 of 2003 and allowed in part by the Appellate Tribunal vide its judgement and order dated 31.3.2004. However, the petitioners claim that they stood discharged from the liability on account of there being variation in the original terms of the contract with effect from the date of such variance was rejected by the appellate Tribunal also. The matter was remitted back to the Debts Recovery Tribunal for determining the petitioners' financial liability towards the Bank after taking into consideration the amount deposited into the account of the first defendant No. 1/ respondent No. 4 after 21.8.1995 and whether upon deposit of such amount the liability of the petitioners stood liquidated and also to re-determine the rate at which the Bank was entitled to charge interest. The instant writ petition has been filed by the petitioner for quashing the order dated 10.2.2003 passed by the Debts Recovery Tribunal as well as the appellate order dated 31.3.2004 to the extent it holds the petitioner liable for part of the alleged dues of respondent No.4.
15. Learned counsel for the petitioner vehemently submitted that once the variation in terms of the original contract took place and upon such variation bank obtained fresh guarantee agreements from other guarantors namely respondent No. 5,6 8 and 9 and a supplementary agreement from borrower respondent No. 7 through its partners respondent Nos. 5,6 and 9 extending earlier equitable mortgage dated 2.9.1994 and agreeing to extend it to cover revised/variation sum of Rs. 25 lacs without any knowledge to the petitioners, the liability of the petitioners stood discharged from the date of such alteration and they could not have been held liable to pay any sum due to respondent No. 5 which they may have been liable to pay under the original agreement pursuant to which credit facility was extended to respondent N. 5 under the original guarantee bond executed by the petitioner which was to the extent of Rs.14 lacs. The reason given in the order of the appellate Court for rejecting the afore-mentioned plea of the petitioners is totally erroneous and against the record.
16. In support of his contention, learned counsel for the petitioners has placed reliance upon AIR 1963 SC 746 (.M.S. Anirudhan Vs. Thomco's Bank Ltd) ; and AIR 2002 SC2548 (Ram Khilona & ors Vs. Sardar & ors).
17. Although a detailed counter affidavit has been filed on behalf of respondent No. 2 but none has appeared on behalf of any of the respondent to oppose this writ petition.
18. I have very carefully examined the submissions advanced by learned counsel for the petitioners and perused the impugned order as well as the materials brought on record. Since there is no dispute in the instant writ petition with regard to the facts of the case, I straightway proceed to examine and decide the legal issue which arises for consideration in this writ petition. In order to appreciate the submissions made by learned counsel for the petitioners, it will be proper to extract Sections 129 and 133 of Indian Contract Act, 1972 (hereinafter referred to as 'Act of 1972') and to examine the case law cited by the learned counsel for the petitioners..
Sections 129 & 133 read as under :
129. " Continuing guarantee" --A guarantee which extends to a series of transactions, is called a 'continuing guarantee'.
133. " 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".
19. Even the most superficial reading of Sections 129 and 133 of the Act of 1972 shows that a guarantee extending to a series of transactions is a continuing guarantee and any variance in the terms of the contract between the Principal Debtor and the Creditor made without the sureties caused will discharge the surety as to transactions subsequent to the variance. What follows is that the surety shall remain liable to the transactions which had already taken place prior to the variance in terms of the contract between the principal debtor and the creditor. The transactions which have already taken place will remain unaffected.
20. In the case of M.S. Anirudhan (Supra) the Apex Court held that where an alteration is made in an instrument of guarantee without the assent of the guarantor and such alteration is substantial and to the disadvantage of the surety, the surety can claim to be discharged. In the case of Ram Khilona (supra) while referring to Halsbury's Law of England, 4th Edition page 552, para 1378, the Apex Court held that the effect of making an alteration in a deed after its execution without the consent of the party bound is exactly the same as that of cancelling the deal but if the alteration in the contract in an agreement is not material it shall not effect the validity or enforceability of agreement.
21. After considering Sections 129 and 133 of the said Act as well as the law reports cited on behalf of the petitioners what follows is that a surety upon alteration for variance of contract between the principal debtor and the creditor without his consent and if such variance is material and to the disadvantage of the surety he shall stand discharged as to transactions subsequent to the variance. In the present case pleadings of the parties reflect that totally new sets of contracts came into existence between the principal debtor and the creditor as well as between the principal debtor and other guarantors other than the petitioners on 21.8.1995, by which the respondent No. 3 M/s Anandeshwar Industries was allowed credit facility of Rs.25 lacs in substitution of earlier credit limit of Rs.14 lacs, but as far as the petitioners are concerned neither the terms of the original guarantee were altered to enhance the limit from 14 lacs to 25 lacs nor any fresh contract between principal debtor and the petitioners were executed as regard to the enhanced liability and entirely new sets of contracts which had the effect of varying the terms of original contract between the petitioners and the principal debtor were executed without the consent and knowledge of the petitioners.
22. The reason given by the respondent No. 1 in his judgment for rejecting the petitioner's plea that the in liability as sureties stood discharged on account of the fact that credit facilities granted earlier were varied substantially without the assets of the petitioners and to their disadvantage with effect from the date of such variation, is apparently falicious and vitiated by complete misreading of the guarantee deed Exbt A-9 (Annexure No. 4 the writ petition). The respondent No. 1 after grossly misreading the terms of guarantee agreement between the respondent No. 3 and the petitioners erroneously came to the conclusion that the petitioners had agreed to guarantee the repayment of all sums which may become due to the bank and no amount or time limit has been specified in paragraph No. 2 of the guarantee. The aforesaid observation runs contrary to the record. A simple reading of paragraph No. 2 of the guarantee deed shows that the petitioners had declared that their liability under the guarantee shall be limited and restricted to the sum of Rs.1,400,000/- with interest as agreed but subject to such limit shall nevertheless be a continuing guarantee to the Bank as hereinafter specified for all sums whatsoever may at any time be or become payable by the Principal to the Bank with interest. The words "all sums whosoever" mentioned in paragraph 2 of the guarantee deed are clearly subject to the limit of 14 lakhs and not over and above the limit.
23. For the aforesaid reasons, the finding recorded by the respondent No. 1 in his order that petitioner's liability as surety did not stand discharged in respect of transactions which took place after 21.8.1995 on which date the terms of the original contract between the petitioners and respondent No. 4 stood varied is totally against the record and cannot be sustained and is accordingly set aside. I hold that the petitioners stood discharged as sureties of the principal debtor in respect of all the transactions which had taken place subsequent to the date of variance in terms of guarantee which in the present case is 21.3.1995. The petitioners shall not be liable for any transactions which took place on and from 21.8.1995 onwards.
24. The respondent No. 2 while determining the quantum of the sum payable by the petitioners' pursuant to the order of respondent No. 1 shall interalia keep in mind that the petitioners' liability shall be in respect of only those transactions which had taken place before 21.8.1995; that if any amount deposited in the account of Respondent No. 4 after 21.8.1995 resulted in liquidation of liability of the petitioners, in that case the petitioners shall not be liable to pay any sum to the respondent No. 4; and that if even after taking into consideration the money deposited in the account of respondent No. 4 after 21.8.1995 any amount is found to be payable by the petitioners in respect of those transaction which had taken place before 21.8.1995 then interest shall be charged on such amount according to the rates applicable.
25. In view of the above discussions, the writ petition is allowed in part. The order dated 31.3.2004 passed by respondent No. 1 is modified to the extent indicated hereinabove.
26. There shall be, however, no order as to costs.
Order Date :- 1.10.2010 Pk