Can a person be held liable for offence of dishonour of cheque if he was partner of firm that had taken loan or a he was guarantor for the loan?

  It is an admitted case of the respondent Bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, an expression interpreted by this Court in Girdhari Lal Gupta v. D.H. Mehta and Another11 to mean ‘a person in overall control of the day-to-day business of the company or the firm’, the conviction of the appellant has to be set aside.{ State of Karnataka v. Pratap Chand and Others, (1981) 2 SCC 335.} The appellant cannot be convicted merely because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan. The Partnership Act, 1932 creates civil liability. Further, the guarantor's liability under the Indian Contract Act, 1872 is a civil liability. The appellant may have civil liability and may also be liable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability. Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is in overall control of the day to-day business of the company or firm. Vicarious liability under sub-section (2) to Section 141 of the NI Act can arise because of the director, manager, secretary, or other officer's personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company. {Para 11}

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

AJAY RASTOGI; SANJIV KHANNA, JJ.

CRIMINAL APPEAL NO. 767 OF 2022 

DILIP HARIRAMANI Vs BANK OF BARODA

Author: SANJIV KHANNA, J.

Dated: MAY 09, 2022

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Whether liability of the Personal guarantor for Corporate debt will extinguish on approval of the Insolvency resolution plan?

  All creditors and other classes of claimants, including financial and operational creditors, those entitled to statutory dues, workers, etc., who participate in the resolution process, are heard and those in relation to whom the CoC accepts or rejects pleas, are entitled to vent their grievances before the NCLT. After considering their submissions and objections, the resolution plan is accepted and approved. This results in finality as to the claims of creditors, and others, from the company (i.e. the company which undergoes the insolvency process). The question which the petitioners urge is that in view of this finality, their liabilities would be extinguished; they rely on Sections 128, 133 and 140 of the Contract Act to urge that creditors cannot therefore, proceed against them separately. {Para 128}

129. In Vijay Kumar Jain v. Standard Chartered Bank67, this court, while dealing with the right of erstwhile directors participating in meetings of Committee of Creditors observed that:

“we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. The regulations also make it clear that these persons are vitally interested in resolution plans as they affect them”

130. The rationale for allowing directors to participate in meetings of the CoC is that the directors' liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this court, in V. Ramakrishnan where it was observed that the language of Section 31 makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act. It was observed that:

“25. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor.…”

131. And further that:

“26.1 Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor — often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor.”

132. In Committee of Creditors of Essar Steel (I) Ltd. v. Satish Kumar Gupta68 (the “Essar Steel case”) this court refused to interfere with proceedings initiated to enforce personal guarantees by financial creditors; it was observed as follows:

“106. Following this judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], it is difficult to accept Shri Rohatgi's argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], is set aside.”

133. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act. This court observed as follows:

 Under Section 128 of the Indian Contract Act, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath [AIR 1940 Bom 247; see also In re Fitzgeorge Ex parte Robson [[1905] 1 K.B. 462]).”

136. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.

137. For the foregoing reasons, it is held that the impugned notification is legal and valid. It is also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors). The writ petitions, transferred cases and transfer petitions are accordingly dismissed in the above terms, without order on costs.

In the Supreme Court of India

(Before L. Nageswara Rao and S. Ravindra Bhat, JJ.)

Transferred Case (Civil) No. 245/2020

Lalit Kumar Jain  Vs Union of India 

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Whether the borrower can initiate an insolvency proceeding against the corporate person who is a guarantor regarding the loan account given to the partnership firm?

To get over this position, much reliance was placed on

Section 5(5A) of the Code, which defines the expression

“corporate guarantor” to mean a corporate person, who is the

surety in a contract of guarantee to a Corporate debtor. {Para 23}

24. Accepting the aforementioned argument of the appellant

would result in diluting or constricting the expression “corporate

debtor” occurring in Section 7 of the Code, which means a

corporate person, who owes a debt to any person. The “debt” of a corporate person would mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The expression “debt” in Section 3(11) is wide enough to include liability of a corporate person on account of guarantee given by it in relation to a loan account of any person including not being a corporate person in the event of  default committed by the latter. It would still be a “financial debt” of the corporate person, arising from the guarantee given by  it, within the meaning of Section 5(8) of the Code.

25. Notably, the expression “corporate guarantee” is not defined

in the Code. Whereas, expression “corporate guarantor” is

defined in Section 5(5A) of the Code. If the legislature intended to exclude a corporate person offering guarantee in respect of a loan secured by a person not being a corporate person, from the

expression “corporate debtor” occurring in Section 7, it would

have so provided in the Code (at least when Section 5(5A) came to be inserted defining expression “corporate guarantor”). It was

also open to the legislature to amend Section 7 of the Code and

replace the expression “corporate debtor” by a suitable

expression. It could have even amended Section 3(8) to exclude

liability arising from a guarantee given for the loan account of an

entity not being a corporate person. Similarly, it could have also

amended expression “financial debt” in Section 5(8) of the Code,

“claim” in Section 3(6), “debt” in Section 3(11) and “default” in

Section 3(12). There is no indication to that effect in the

contemporaneous legislative changes brought about.

26. The expression “corporate debtor” is defined in Section 3(8)

which applies to the Code as a whole. Whereas, expression

“corporate guarantor” in Section 5(5A), applies only to Part II of

the Code. Upon harmonious and purposive construction of the

governing provisions, it is not possible to extricate the corporate

person from the liability (of being a corporate debtor) arising on

account of the guarantee given by it in respect of loan given to a

person other than corporate person. The liability of the

guarantor is coextensive with that of the principal borrower. 

27. In law, the status of the guarantor, who is a corporate

person, metamorphoses into corporate debtor, the moment

principal borrower (regardless of not being a corporate person)

commits default in payment of debt which had become due and

payable. Thus, action under Section 7 of the Code could be

legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of “corporate guarantor” in

Section 5(5A) of the Code needs to be so understood.

28. A priori, we find no substance in the argument advanced

before us that since the loan was offered to a proprietary firm

(not a corporate person), action under Section 7 of the Code

cannot be initiated against the corporate person even though it

had offered guarantee in respect of that transaction. Whereas,

upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor). Hence, the first question stands answered against the appellant. 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2734 OF 2020

LAXMI PAT SURANA  Vs  UNION BANK OF INDIA 

Author: A.M. Khanwilkar, J.

Bench: A.M. Khanwilkar, Dinesh Maheshwari,B R Gawai JJ

Dated: March 26, 2021.

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Whether the court can permit a stranger to the transaction to give a bank guarantee?

It is clear that the object of directing the petitioner to furnish the bank guarantee vide order dated 25.11.2019 was to secure the payment which the respondent was directed to deposit in the escrow account. The bank guarantee now furnished by the petitioner with the assistance of Arcelor Mittal, in my opinion, satisfies the said purpose and secures the respondent for its dues. Mere technical arguments are being raised to try and wriggle out of the directions passed by the court on 25.11.2019 by the respondent.

17. The second argument strongly urged was that the respondent does not wish to deal with a stranger Arcelor Mittal. It was strongly claimed that at the time of encashment of the bank guarantee if such a situation arises, the said Arcelor Mittal may turn around and start proceedings against the respondent. It is pleaded that the respondent is not interested in the Arcelor Mittal and this court cannot force the respondent to deal with the said company.

18. The plea is misplaced. A bank guarantee is a contract between the bankers and the beneficiaries. The respondent for the purpose of the bank guarantee has to deal with the guarantor, namely, the bankers and not the party at the instance the bank guarantee has been given.

19. In my opinion, there is no merit in the plea raised by the respondent. 

IN THE HIGH COURT OF DELHI

OMP (I) (COMM.) 218/2019

Decided On: 03.06.2020

 Bhubaneshwar Expressways Pvt. Ltd.  Vs.  National Highways Authority of India

Hon'ble Judges/Coram:

Jayant Nath, J.

Citation: MANU/DE/1145/2020

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How to ascertain limitation for enforcing liability against surety?

The Hon'ble Apex Court in the case of Syndicate Bank vs. Channaveerappa Beleri and other MANU/SC/2032/2006 : 2006 (11) SCC 506 has considered the meaning of the phrase "on demand" and held that when a contract of guarantee is clear that the guarantor's liability would arise only when the demand is made, the right to sue to the creditor accrues only when a demand for payment is made by the creditor and is refused by the guarantors. When a demand is made requiring payment within a stipulated period, the breach occurs or the right to sue accrues, if payment is not made within the stipulated period. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or the right to sue accrues when the demand is served on the guarantor. The Hon'ble Apex Court has concluded thus:

"We have to however enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due unrecoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of demand validly made in time, the creditor can sue the guarantor within 3 years, even if the claim against the principal debtor gets subsequently time barred'".

16. It is undisputed that in this case the appellant made a demand on the respondents vide its legal notice dated 12.7.1997 calling upon the respondents, including the respondent No. 2, 4 and 5, to pay the amounts due. Though the legal notice dated 12.7.1997 and the acknowledgements as regards service of such notice on the respondents are not marked as exhibits by the appellant, the witness - P.W. 1, has categorically stated in his evidence-in-chief (paragraph 26) that office copy of the legal notice dated 12.7.1997 and the postal acknowledgement signed by respondent Nos. 1, 2 and 4 for receipt of the legal notice were part of the Court's record, and similarly, the un-served registered postal envelopes in respect of respondent Nos. 3 and 5 were also part of the court records. The respondents, more specifically respondent Nos. 2, 4 and 5, have disputed neither the issuance of the legal notice dated 12.7.1997 nor the receipt of the same.

17. As declared by the Hon'ble Supreme Court in Syndicate Bank vs. Channaveerappa Beleri and other, the limitation for the creditor to sue a guarantor commences, where the period is stipulated in the demand, from the date of refusal to pay or from the date of stipulated for payment; in the event no time stipulated in the demand, from the date of receipt of the demand. In view of the undisputed fact that the appellant caused legal notice dated 12.7.1997 and the same were either received or refused by the respondents, the significant date would be 12.7.1997. The appellant had to file the petition under section 31(1)(aa) of the Act, in any event, within 3 years from this date. It's been held by the Hon'ble Supreme Court in Maharashtra State Financial Corporation vs. Ashok K Agarwal and Others MANU/SC/1724/2006 : AIR 2006 SC 1584 that the limitation for filing the petition under section 31 of the Act would be 3 years as provided under article 137 of the Limitation Act, 1963. The present petition is filed under section 31(1)(aa) of the Act on 11.7.2000. As such, the petition is filed by the appellant within 3 years from 12.7.1997.

18. Further, it is nobody's case that the State Financial Corporation's claim against the respondent No. 6 (the principal borrower-debtor) was time barred, and in fact, it cannot be because admittedly the sale of the assets of the respondent No. 2, pursuant to the orders of the Company Court, was in the year 2008 i.e., after the initiation of the present proceedings. The learned District Judge has not considered the aforesaid circumstances and has concluded that the petition as against respondent Nos. 2, 4 and 5 had to be rejected as being time-barred because the appellant had filed the petition invoking the Deeds of Guarantee after a lapse of 15 years from the date these deeds were executed. Therefore, in the considered opinion of this court, the learned District Judge has erroneously concluded that the petition under section 31(1)(aa) of the Act was liable to be dismissed as against respondent Nos. 2, 4 and 5 on the ground that such petition is time-barred.

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Miscellaneous First Appeal No. 4140 of 2010 (SFC)

Decided On: 25.02.2019

Karnataka State Industrial Investment and Development Corporation Limited Vs  G.C. Lohia and Ors.

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Whether guarantor can waive rights granted under contract Act?

"We are of the view that as the provisions contained in Chapter VII of the Act relating 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 section 128 of the Act is no doubt coextensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because section 128 of the Act itself specifically provides that the liability of a surety is coextensive 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 Act. It is a settled legal position of law that a legal right can be given up provided such giving up of a legal rights 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 the 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 8 of the act. Such waving of his right by the surety is permissible under sections 133 read with section 128 of the Act."

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Miscellaneous First Appeal No. 4140 of 2010 (SFC)

Decided On: 25.02.2019

Karnataka State Industrial Investment and Development Corporation Limited Vs  G.C. Lohia and Ors.

Hon'ble Judges/Coram:

Ravi V. Malimath and B.M. Shyam Prasad, JJ.

Citation: AIR 2019 Karn 80

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Supreme Court: Liability as guarantor attracts S 138 of NI Act

The issue as regards the co-extensive liability of the guarantor and the principle debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the Statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act: 'Any cheque' and 'other liability' are the two key expressions which stands as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the Statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of grantee and guarantor's liability and thus has overlooked the true intent and purport of Section 138 of the Act. The judgments recorded in the order of the High Court do not have any relevance in the contextual facts and the same thus does not lend any assistance to the contentions raised by the respondents.
IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 797 of 2002

Decided On: 12.08.2002

 I.C.D.S. Ltd. Vs. Beena Shabeer and Ors.

Hon'ble Judges/Coram:

U.C. Banerjee and Y.K. Sabharwal, JJ.

Citation: 2002 AIR SCW 3358

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Whether bank can fix liability upon guarantor on basis of account statement?

 In addressing the above rival submission at the cost of
repeatation for better appreciation, it may be stated that the so called
cash credit facility holder, Madhusudan being dead, his liability towards
the so called cash credit facility as is said to have been availed by him
from the plaintiff-Bank is now sought to be fastened upon the defendant
assigning him in the position as that of a guarantor. 
Undeniably, the plaintiff-Bank neither proved any loan
document i.e. promissory note, nor any such agreement for said cash
credit facility said to have been availed of by Madhusudan from the
plaintiff-Bank nor the agreement of the hypothecation being executed by
Madhusudan Pansari. The document which the bank has proved is the
statement of account certified under Banker’s Book of Evidence Act.
Thus the factum that Madhusudan had availed of any such cash credit
facility from the plaintiff-Bank has not been established. So when the
plaintiff-Bank has not proved the factum of lending of money by way of
cash credit facility to said Madhusudan, there arises no question of any
person coming to be saddled with the liability on that score merely
basing upon the statement of the account that too on being said as a
guarantor. There being no relationship of creditor and debtor between
the plaintiff-Bank and Madhusudan, the creation of relationship putting
a person in the position of a guarantor / surety does not arise. This
assignment of position of a guarantor to the defendant is based upon the
relationship between the person who has taken the cash credit facility
standing as the debtor which stands as the basic precondition so as to be
satisfied. Then only the question of the defendant standing as guarantor
as the surety in securing the payment of dues of the plaintiff- Bank
remaining unpaid by Madhusudan for its recovery on account of default
of Madhusudan would arise.
The law is quite well settled that mere statement of
account is not sufficient to charge the person of the liability unless of
course with the relationship first, the liability if on that score is accepted
by giving a nod to the correctness of the entry of account. This is not the
case here. In every such monetary transaction, the relationship between
the parties must be established first with the availment of the facility and
thereafter the accounts relating to the said transaction as between the
parties as maintained in due course of business when is proved would go
to determine the rights and liability of the parties to the transaction. The
statement of the account has been filed with the plaint. The correctness
of the same has been challenged with the denial of relationship between
the plaintiff-bank and Madhusudan and thereafter the position of this
defendant as assigned by the Bank as a guarantor. When it is stated in
the plaint that Madhusudan has executed a promissory note, no such
pro note has been proved in the case. P.W.1 on behalf of the Bank has
merely gone to depose that the bank record reveals about the advance of
cash credit facility to the extent of Rs.50,000/- to Madhusudan on
21.3.1971 according to his request. Evidence of P.W.1 being read with
the relevant pleading in the plaint, it is seen that the agreement of
hypothecation also is said to have been executed in the year 1976
whereas facility is said to have been so advanced on 21.3.78 which is one
year and four months after the execution of the so called agreement of 
hypothecation. Those documents are not going to establish the
advancement of the cash credit facility to Madhusudan and about such
other documents, it has neither been spoken by P.W.1 nor those have
even been produced and proved in accordance with law. Said documents
have not seen the light of the day. The statement of account filed by the
bank containing the certificate as required under section 3 of the
Banker’s Book of Evidence Act undoubtedly raises a presumption with
regard to correctness of the statement of account until so rebutted by the
adversary. But the same itself is not taken as the document from which
the court can got to hold that the plaintiff-Bank’s case as regards the
advancement of cash credit facility to Madhusudan and the factum as
stated that the defendant stood as guarantor / surety for the same by
tendering the title deeds with the plaintiff-Bank in creating with
equitable mortgage for the purpose of repayment of loan in case of
default by mortgaged has been so established. Mere entry in the books of
account even though maintained therein the Bank in course of official
transaction and by those in due discharge of official duty cannot be
taken as enough and sufficient or the basis so as to fasten the liability
upon the (so called debtor) or a person sought to be proceeded with in
connection with said transactions and dues recoverable by the creditor
being arraigned as a guarantor as to have been given his property as
equitable mortgage through deposit of title deeds for recovery of said 
outstanding dues due to default by the so called debtor and in the
absence of proof of any documents laying the foundations in creating the
relationship between parties.

HIGH COURT OF ORISSA: CUTTACK.
S.A. NO.240 of 1998

U.Co.Bank, Bolangir  V Bipin Bihari Pansari 

PRESENT:
  SHRI JUSTICE D.DASH
Citation: AIR 2017 (NOC)776 Orissa

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Whether two simultaneous execution application filed by decree holder against two Judgment Debtors is tenable?

 Order 21 Rule 11 CPC does not bar simultaneous executions.-A decree holder would be entitled to file two execution petitions for realizing or recovering the decretal amount due from two judgment debtors, when judgment and decree passed against them is joint and several. [20] and [21]

(a) However, in case of two execution petitions being filed namely, one for arrest of judgment debtor and other execution petition is filed to proceed against the property of same judgment debtor, then in such a situation, executing Court may refuse execution against the person and property of said judgment debtor at the same time as indicated in Order 21 Rule 30 CPC. [20]

(b) The reasoning adopted by the Executing Court either in holding that two simultaneous execution petitions filed by the decree holder against the principal debtor and the guarantor is not maintainable or directing the decree holder to amend the execution petitions so as to conform the claim made in two simultaneous execution petitions would not exceed the decretal amount put together cannot be sustained. [21]

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

W.P. Nos. 32399, 32400, 32402, 32403, 32404, 32401 and 32405/2015 (GM-CPC)

Decided On: 29.04.2016

 PAFCO 2916 INC. and Ors.

Vs.

Kingfisher Airlines Limited and Ors.

Hon'ble Judges/Coram:

Aravind Kumar, J.

Citation: AIR 2017 karnat 10

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Whether guarantor will be liable for pre-existing debt/liability prior to date of entering in to guarantee contract?

 In view of the foregoing discussion, there appears to be no controversy as
to the fact that the Guarantee Deeds executed by Respondent Nos. 2 to 4 on
30.8.1974 rendered them personally liable for any transactions or advances
made by the Appellant Bank to the Respondent Company after 30.8.1974.
There is also no controversy whatsoever that the Bank account lay dormant after
this date, all dealings having been transacted much prior thereto. Such being
the position, it is not open to the Appellant Bank to pursue Respondent Nos. 2 to
4 for recovery of debts incurred by the Respondent Company in favour of the
Appellant Bank. We may clarify that our decision is founded on the evidence
that has been recorded in this suit. We should not be misunderstood to have
held that a guarantor can, in no circumstances be fastened with liabilities which

had been incurred in the past which the guarantor assumed liability for.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVILAPPELLATE JURISDICTION
CIVIL APPEAL No. 3654 OF 2006
CENTRAL BANK OF INDIA
Vs.
VIRUDHUNAGAR STEEL ROLLING MILLS
LTD. & ORS.
Dated:December 29, 2015.
Citation:(2015) 16 SCC207

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When compromise made between creditor and principal debtor is binding on guarantor?

This Court has held in United Bank of India
v. Bengal Behar Construction Company Ltd. and
others, (1998) 8 SCC 653, that the Clauses in the
letter of guarantee are binding on the guarantors
as follows:
“In view of the above, the question regarding
confirmation of the decree against the
guarantors now needs to be settled. ……………… we
see no reason why the guarantors should not be
made liable under the letters of guarantee,
the terms whereof clearly stipulate that on
the failure of the principal debtor to abide
by the contract, they will be liable to pay
the amount due from the principal debtor by
the appellants. Clause 15 of the letter of
guarantee, in terms states that any action
settled or stated between the bank and the
principal debtor or admitted by the principal
debtor shall be accepted by the guarantors as
conclusive evidence. In view of this
stipulation in the letter of guarantee, once
the decree on admission is passed against the
principal debtor, the guarantors would become
liable to satisfy the decree jointly and
severally.”
(Emphasis supplied)
Thus, we see no reason why the Joint Memo, which
states compromise arrived at between the Central
Bank of India and the principal debtors, would not
bind C.L. Vimla when under Clause (2) she has
admitted that any judgment or award obtained by
the Central Bank of India against the principal
debtor would bind the parties.
 The mere fact of ignorance cannot be a valid
ground. The respondent, C.L. Vimala and her son,
N.Surya Bhagavan who signed the joint memo, were
residing in the same house. We see no reason why
the Respondent would not know of the joint memo,
when she could have by reasonable means made
herself aware of the proceedings.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4043 OF 2015
(Arising out of SLP(C) No.10173 of 2011)
Central Bank of India … Appellant
:Versus:
C.L. Vimla & Ors. … Respondents
Citation;2016(1) MHLJ 134

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When limitation period for liability of guarantor commences?

LIMITATION PERIOD FOR GUARANTEE TO COMMENCE AFTER DETERMINATION OF FINAL LIABILITY OF THE GUARANTOR 

The Supreme Court has in this case dealt with the issue of how the ‘limitation period’ in a contract of indemnity and guarantee is to be computed.

FACTS

In this case, a company (“Borrower”) had defaulted in repayment of a loan availed from the Himachal Pradesh State Industrial Development Corporation Limited (“Respondent”) and accordingly the Respondent issued a recall notice (“Recall Notice”) to the Borrower directing it to repay the outstanding amounts due to the Respondent. Upon failure of the Borrower to repay such amounts, the Respondent sold the properties furnished by the Borrower to secure such loan and set-off a part of its outstandings against the sale proceeds thereof.

The Respondent then called upon the promoter of the Borrower (“Appellant”) being a guarantor to the said loan to repay the balance amounts due to the Respondent. Since the Appellant failed to repay such amount, the Respondent filed a suit for recovery against the appellant which was decreed in favour of the Respondent by a single judge of the High Court of Himachal Pradesh (“High Court”). Being aggrieved by the same, the Appellant filed an appeal before the division bench of the High Court which was dismissed. The Appellant then filed an appeal before the Supreme Court of India (“Supreme Court”) on the ground that the said recovery suit was time barred under the Limitation Act, 1963 (“Limitation Act”).

ISSUE

The main issue before the Supreme Court was whether the period of limitation in a contract for guarantee would commence from the date (a) of Recall Notice; or (b) the Respondent called the Guarantor to re-pay the balance amounts due to the Respondent after setting off the proceeds from sale of the properties furnished to the Respondent as security, as aforesaid.

ARGUMENTS ADVANCED

The Appellant contended that since the suit was filed after 4 (Four) years from the date of the Recall Notice, it was time barred under the Limitation Act. The Respondent, on the other hand, argued that the period of limitation would commence not from the date of the Recall Notice but from the date the Respondent determined the balance liability of the Borrower to be repaid by the Appellant as the guarantor.

JUDGMENT

The Supreme Court held that when the Respondent takes steps for recovery of the amount, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the Borrower as only then would the Respondent be in a position to determine the Appellant’s final liability as the guarantor. It was further stated that, the right to sue under a contract of indemnity or guarantee would principally arise when the indemnifier or the guarantor fails to pay the money claimed from it and not from the time when the Recall Notice is served.

Accordingly, the suit filed by the Respondents for recovery of money from the Appellant being the guarantor was held to be within the period of limitation.

 [REPORTABLE]
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1019/ 2014
[Arising out of Special Leave Petition (Civil) No. 30825 of 2010]
Deepak Bhandari …..........Appellant(s)
Versus
Himachal Pradesh State Industrial
Development Corporation Limited ….........Respondent(s)
Citation:(2015)5SCC518

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When liability of guarantor is not co-extensive with that of principal debtor ?

 We are of the opinion that the questions that
need to be decided by us are regarding the
liability of the guarantor under Section 128 of
the Indian Contract Act, 1872. The legislature has
succinctly stated that the liability of the
guarantor is co-extensive with that of the
principal debtor unless it is otherwise provided
by the contract. This Court has decided on this
question, time and again, in line with the intent
of the legislature. In Ram Kishun and Ors. v.
State of U.P. and Ors., (2012) 11 SCC 511, this
Court has held that “in view of the provisions of
Section 128 of the Contract Act, the liability of
the guarantor/surety is co-extensive with that of
the debtor.” The only exception to the nature of
the liability of the guarantor is provided in the

Section itself, which is only if it stated
explicitly to be otherwise in the Contract.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4043 OF 2015
(Arising out of SLP(C) No.10173 of 2011)
Central Bank of India … Appellant
:Versus:
C.L. Vimla & Ors. … Respondents
Citation; 2015(4) ALLMR414 SC

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Whether surety who is defendant can obtain attachment before judgment and Injunction against principal debtor to protect his own interest?

In view of the aforesaid observations, and especially in view of the provisions of Order 38, Rule 5 read with sections 94(b) & (e) and 151 of the Code of Civil Procedure, in order to protect the interest of the surety and in view of the peculiar circumstances of the facts in the present matter, I am of the opinion that the present applicant, who is the surety, is entitled to apply under Order 38, Rule 5 of the Code of Civil Procedure for attachment of the property of the principal debtor, i.e., the present non-applicant No. 1 before judgment, or even he can apply under Order 39, Rules 1 and 2 read with sections 94 and 151 of the Code of Civil Procedure, to protect his interest and in the ends of justice.

Bombay High Court

Jugalkishore Rampratapji Rathi vs Brijmohan S/O Rampratapji Rathi ... on 10 November, 1992

Equivalent citations: 1994 (2) BomCR 537

Bench: S Mutalik

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Whether liability of guarantor is co-extensive to liability of principal debtor?

The decree is a money decree against all the defendants-respondents and a mortgage decree only against defendant-respondent No. 2 so far as the shop is concerned. The decree does not put any fetter on the right of the decree-holder to execute it against any party, whether as a money decree or as a mortgage decree. The execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decree-holder. There is no preliminary mortgage decree either. It is a final mortgage decree for sale of shop after three months. The decree is not in the prescribed Form No. 5 of Appendix `D' to the Code of Civil Procedure. The decree does not postpone the execution. It is simultaneous and is jointly and severally against all the defendants-respondents, including the guarantor. It is the right of the decree-holder to proceed with it in a way he likes. There is nothing in law which provides a composite decree to be first executed only against the property.

The decree for money is a simple decree against the judgment-debtors, including the guarantor and in no way subject to the execution of the mortgage decree against the judgment debtor No. 2-Respondent No. 2. If, on principle, a guarantor could be sued without even suing the principal- debtor there is no reason, even if the decretal amount is covered by the mortgage decree to force the decree-holder to proceed against the mortgaged property first and then to proceed against the guarantor.

 If the composite decree is a decree which is both a personal

decree as well as a mortgage decree, without any limitation on its execution, the decree-holder, in principle, cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and told that only if the amount recovered is insufficient, he can be permitted to take recourse to the execution of the personal decree. For a simple mortgage decree as prescribed in Form No. 5 of Appendix `D' of the Code of Civil Procedure it could be so because the decree provides like that. It is only when the sum realised on sale of the mortgaged property is insufficient then the judgment-debtor can be proceeded with personally.

 In the instant case, the guarantor never took any plea in the suit to the effect that his liability is only contingent if remedies against the principal debtors fail to satisfy the dues of the decree-holder. If such a plea had been taken and the court trying the suit had considered the plea and gave and finding in favour of the guarantor, then it would have been a different position. But on the face of the decree, which has become final, the court cannot construe it otherwise than its tenor. No executing court can go beyond the decree. All such pleas as to the rights which the guarantor had, had to be taken during trial and not after the decree while execution is being levied. 

Supreme Court of India

State Bank Of India vs Indexport Registered And Ors on 30 April, 1992

Equivalent citations: 1992 AIR 1740, 1992 SCR (2)1031

Bench: Yogeshwar Dayal (J)

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