CENTRAL BANK OF INDIA Vs. VIRUDHUNAGAR STEEL ROLLING MILLS LTD&ORS
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 3654 of 2006, Judgment Date: Dec 29, 2015
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVILAPPELLATE JURISDICTION
CIVIL APPEAL No. 3654 OF 2006
CENTRAL BANK OF INDIA .….. APPELLANT
Vs.
VIRUDHUNAGAR STEEL ROLLING MILLS
LTD. & ORS. .….. RESPONDENTS
J U D G M E N T
VIKRAMAJIT SEN, J.
1 This Appeal assails the concurrent findings of the Trial Court as
well as the High Court absolving the Respondents, other than Respondent
No.1 which is the company which received various credit facilities from the
Appellant Bank, of a total amount of [pic]12 lacs against security of
moveable as well as raw materials. These facilities were subsequently
secured in favour of the Appellant Bank by means of continuing guarantee by
the Directors of the Respondent Company, who are Respondent Nos. 2 to 4
herein, in terms of Promissory Notes, Letters of Guarantee, Letters of
Hypothecation and Letters of Continuity all dated 30.8.1974. On 30.6.1977
and again on 31.12.1977, by means of separate letters from the Respondent
Company to the Appellant Bank, the entire balance due, stood confirmed.
Eventually, the Appellant filed a suit on 2.5.1980 for recovery of
[pic]3,94,805.42 with future interest at the rate of 14 per cent per annum.
In the interregnum another creditor of the Respondent Company, namely
Respondent No. 5, had already initiated recovery proceedings in the Court
in the course of which the properties of Respondent Company came to be
auctioned and were purchased by Respondent No. 6 on 26.10.1979.
2 As many as ten issues were framed by the Trial Court which went on to
decree the suit against the Respondent Company, but dismissed it as against
Respondent Nos. 2 to 4. The conclusions of the Trial Court so far as they
are germane to decision in this Appeal were that the liabilities incurred
by the Respondent Company prior to the execution of the personal guarantees
by Defendant Nos. 2 to 4 were not recoverable from the latter. The Trial
Court placed reliance on two judgments of the Madras High Court, namely
J.J. Harigopal Agarwal v. State Bank of India AIR 1976 MAD 211 and D. K.
Mohammed Ehiya Sahib v. R.M.P.V. Valliappa Chettiar AIR 1976 MAD 536. In
the latter case it was held that if there is any variation in the original
contract the legal consequence would be that the surety stood absolved.
3 The impugned Judgment notes that the main submission on behalf of the
Appellant Bank was that all the documents executed by the Respondent
Company, including those dated 30.8.1974 and the acknowledgement of
liability dated 30.6.1977 and 31.12.1977 had to be taken together in
fastening the liability of the Directors of the Company with regard to
their personal guarantees. It also noted that in none of the documents
relied upon by the Respondent Company had Respondent Nos. 2 to 4
acknowledged or undertaken their personal liability and/or stood guarantee
for repayment of any specific and liquidated amounts already advanced by
the Appellant Bank to the Respondent Company prior to 30.8.1974. The High
Court also returned the finding that there was no cogent evidence to
establish that the claims raised in the suit pertained to advance or
credits made subsequent to 30.8.1974, the date on which Respondent Nos. 2
to 4 had executed the documents relied upon by the Appellant Bank.
4 The learned Counsel appearing for the Appellant Bank had raised
arguments, firstly to the question of limitation, secondly to the discharge
of surety by variance and thirdly on priority claims in respect of Rollers.
Since the question which engaged the attention of the High Court in the
impugned Judgment revolved around the fastening of the liability on the
Respondent Nos.2 to 4 in respect of transactions prior to the date of the
execution of those documents, i.e. 30.8.1974, we shall restrict our
attention only to this point. It will be a relevant reiteration that the
entire claim of the Appellant Bank had been decreed against the Respondent
Company.
5 So far as the factual matrix is concerned, the Respondent Company was
a constituent of the Appellant Bank for a considerably long period and had
availed of various facilities including cash credit, etc. It is not in
dispute that of the limit of [pic]12 lacs sanctioned by the Appellant Bank
in favour of the Respondent Company, the balance on the close of the
business on 29.8.1974 was [pic]7,68,853.39, and the latter stood indebted
to the former for the aforesaid sum. Learned counsel for the Appellant
Bank had sought to rely on Montosh Kumar Chatterjee v. Central Calcutta
Bank Ltd. (1952-53) 57 CWN 852, the ratio of which appears to be that a
creditor is not bound to volunteer to a surety information as to the state
of the principal debtor’s account; and that a creditor is entitled to
appropriate payments received subsequent to the execution of a guarantee
bond, even so far as a pre-existing debt of which the surety had no
knowledge; that there can be no presumption that the surety will be
efficacious for prior as well as current and future debts. We note that in
the case in hand, the Letter of Guarantee signed on 30.8.1974 by Respondent
Nos. 2 to 4 makes no mention of any old transactions, although it
specifically records that the liability of the guarantors cannot exceed
[pic]12 lacs. The Letters of Guarantee could easily have recorded the
liabilities outstanding against the Respondent Company on 30.8.1974 with an
affirmation from Respondent Nos. 2 to 4 that they were guaranteeing these
outstandings. Woefully for the Appellant Bank, there is no such
acknowledgment or assumption of liability in the subject Guarantee. The
High Court has pithily noted the statement of P.W.1, Accountant of the
Appellant Bank, who has deposed to the effect that the Deed of Guarantee
made no mention of any prior transactions. It appears to us that if any
doubts in this regard still persisted, they stood dispelled by the
testimony of D.W.1, who has stated in his cross-examination that the
Appellant Bank obtained the Guarantee Deed on the understanding that it
would be effective and relevant only with regard to debts subsequent to
30.8.1974. This very witness had also clarified that the Guarantee
arrangements made no mention whatsoever that they were effective in respect
of prior debts.
6 The decision in Sita Ram Gupta v. Punjab National Bank (2008) 5 SCC
711 is of no advantage to the Appellant Bank. That decision concerns the
possibility of a guarantor revoking his continuing guarantee, with the
objective of escaping his liability. This is not the case before us
inasmuch as the defence of Respondent Nos. 2 to 4 is that they had agreed
to stand surety only for transactions after 30.8.1974. Our attention was
also drawn to B. G. Vasantha v. Corporation Bank, Mangalore (2005) 10 SCC
215 as also M.S. Anirudhan v. Thomco’s Bank Ltd. AIR 1963 SC 746 but these
decisions do not call for a detailed analysis. It is the Appellant Bank
which drafted the Guarantee Deed, and in case of doubt, the document would
be read against it. This is the contra proferentem rule, which is of a
vintage which brooks no contradiction.
7 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.
8 We accordingly dismiss the Appeal by affirming the concurrent
findings arrived at by both the Courts below. There shall however be no
order as to costs.
…………………………J
[VIKRAMAJIT SEN]
…………………………J
[SHIVA KIRTI SINGH]
New Delhi;
December 29, 2015.