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Bombay High Court
Adv. Vasantrao J Phalke And Ors vs M/S. Jarandeshwar Sahakari Sakhar ... on 23 March, 2026
Author: Amit Borkar
Bench: Amit Borkar
2026:BHC-AS:13776-DB
20-wp-8742-2023 Final.doc
MPBalekar
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 8742 OF 2023
Vasantrao J. Phalke and Ors. ... Petitioners
V/s.
M/s. Jarandeshwar Sahakari
Sakhar Karkhana Ltd. and Ors. ... Respondents
Mr. Mahesh Phalke for the petitioners.
Mr. Hemant Ghadigaonkar for respondent No.3.
Mr. Rahul Motkari a/w Manasi Pawar for respondent
No.2.
Adv. A.I. Patil, Addl.G.P. a/w S.R. Crasto, AGP, for the
State.
CORAM : AMIT BORKAR, J.
DATED : MARCH 23, 2026
P.C.:
1. The present writ petition challenges the order passed by the
Co-operative Appellate Court in Appeal No. 29 of 2021. By that
order, the Appellate Court confirmed the earlier judgment and
award dated 4 November 2021 passed by the Co-operative Court
No. 1 in Dispute No. CC/I/109/2002. Under the said award, the
present petitioners have been directed to pay an amount of
Rs.1,74,400/- together with future interest at the rate of 19.50
percent per annum from 31 December 2001 till the amount is fully
paid. The challenge therefore is not only to the monetary liability
but also to the findings recorded by both the Courts below. This
Court is required to examine whether such concurrent findings
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suffer from any legal error or whether they are based on proper
appreciation of the material placed on record.
2. In order to understand the controversy, it is necessary to
state the basic facts in simple terms. The original disputant is a
District Central Co-operative Bank. The opponent No.1 is a Co-
operative Sugar Karkhana. The opponents Nos.2 to 21 are its
Directors, and opponent No.23 is its Managing Director. Both the
disputant bank and the Karkhana are connected with an Apex
Bank. The Karkhana had approached the disputant bank seeking
financial assistance for its activities. It requested a loan of
Rs.1,24,00,000/- for construction of a godown and further sought
Rs.2,74,00,000/- for a water supply scheme. Since such borrowing
required prior approval, the Karkhana also approached the Apex
Bank for permission. The Apex Bank, by its letter dated 17 January
2000, granted such permission but imposed certain conditions.
This aspect shows that the transaction was not casual. It was
structured and subject to institutional control.
3. After such permission, the disputant bank considered the
request and sanctioned a total loan of Rs.2,49,00,000/- in favour
of the Karkhana. The sanction was not unconditional. One
important condition was that the Karkhana would pay Rs.30 per
bag of sugar sold to the bank towards repayment. It appears that
the Karkhana was in urgent need of funds, and therefore the bank
disbursed Rs.2,00,00,000/- immediately. The loan was to be repaid
within two years in instalments along with interest at the rate of
17.5 percent per annum. It was also clearly agreed that if there
was default in payment of instalments, additional penal interest at
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the rate of 2 percent per annum would be charged. The Karkhana,
through its authorised officers, executed all necessary loan
documents. Further, the Directors gave personal guarantees. They
undertook that in case the Karkhana fails to repay, they would be
personally liable and recovery could be made from their personal
properties. This part is important because it shows clear
acceptance of liability not only by the institution but also by its
office bearers.
4. However, the record shows that the Karkhana and its
Directors failed to repay the loan as agreed. Due to this failure, the
disputant bank issued a notice dated 27 August 2001 demanding
repayment of Rs.160.19 lakhs along with future interest at the rate
of 19.5 percent within seven days. In reply dated 14 September
2001, the Chairman of the Karkhana admitted that the loan
amount was received. At the same time, it was stated that the
Karkhana was facing financial difficulties and that the repayment
period had not fully expired. A request was made not to take
coercive steps. This reply is significant. It does not deny the
transaction. It does not dispute execution of documents. It only
expresses inability to pay within time. In such situation, the bank
had no effective option but to initiate proceedings for recovery.
Accordingly, the dispute came to be filed claiming Rs.174.04 lakhs
with future interest at 19.5 percent per annum against all
opponents jointly and severally.
5. The defence taken by the Karkhana in its Written Statement
dated 3 July 2009 is also required to be carefully seen. The
Karkhana has admitted that finance was provided by the bank. The
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main defence is that due to a slowdown in the sugar industry, it
became difficult to repay the loan as agreed. It is further stated
that the Karkhana is ready and willing to repay and has even
offered to pay Rs.20 per bag from the next harvesting season. On
this basis, it is contended that the bank is not entitled to recover
the full amount with high interest as claimed. A prayer is made for
dismissal of the dispute with costs. This defence, when read
properly, shows that the liability is not denied in substance. The
only ground raised is financial hardship and request for
concession. Such a ground may be relevant for seeking
restructuring or settlement. However, it does not by itself take
away the legal right of the bank to recover the amount in terms of
the agreed contract.
6. It appears from the record that the main defence raised by
the petitioners before the Appellate Court was that they cannot be
made personally liable for repayment of the loan. According to
them, they had ceased to be members of the managing committee
of the Sugar Factory, and therefore, any liability arising after that
period cannot be fastened upon them. This argument, at first
glance, may appear reasonable. However, the Appellate Court has
examined this contention in detail with reference to the documents
executed at the time of sanction of loan. In paragraph 17 of its
judgment, the Appellate Court has specifically reproduced Clause
No.5 of the deed of guarantee. A plain reading of this clause shows
that the guarantors had agreed that the bank would be entitled to
treat them as if they were the principal debtors for all payments
under the loan agreement. This means that their liability was not
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limited or conditional. It was direct and enforceable, like that of
the borrower itself.
7. Once such a clause is accepted and signed, the subsequent
resignation or cessation from the managing committee does not
wipe out the liability already undertaken. The Appellate Court has
therefore rightly observed that the petitioners were members of
the managing committee at the time when the loan was disbursed,
and they had executed the guarantee in that capacity. Their
liability had already come into existence on that date. Further, the
Appellate Court has also noted that the petitioners had signed the
necessary forms while enrolling as nominal members, which also
supports the conclusion that they had consciously accepted their
role and responsibility in the transaction. Thus, the defence that
they are not personally liable cannot be accepted in view of the
clear contractual terms and their own conduct.
8. The Appellate Court has also dealt with another defence
raised by the petitioners regarding sale of the property of the
Sugar Factory. It was contended that opponent No.23 had sold the
property of the Sugar Factory for a substantial amount of Rs.65.70
Crores, and even thereafter a large sum of Rs.954.18 Lakhs was
still lying with the Apex Bank. On this basis, an attempt was made
to suggest that the liability should stand reduced or adjusted and
that the petitioners should not be called upon to pay. The
Appellate Court has considered this submission by examining the
material placed on record. It has come to a finding regarding the
actual dues payable by the Sugar Factory. The Court has not
accepted the contention in the manner sought by the petitioners,
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as there was no sufficient material to show that the entire liability
stood discharged or that the guarantors were relieved of their
obligation. Mere reference to sale of property or existence of some
funds, without clear proof of full adjustment of dues, cannot
absolve the liability arising under a binding guarantee.
9. During the course of arguments before this Court, a further
submission was made on behalf of the petitioners that the
Government, acting as a guarantor, has already repaid the entire
dues of the Sugar Factory. Based on this, it was argued that once
the principal liability of the borrower is extinguished, the liability
of the guarantors, being coextensive, also comes to an end. This
argument is based on a settled principle of law, but its application
depends entirely on facts. In the present case, the respondent No.3
Bank has filed a detailed affidavit placing on record the actual
financial position. It is stated that respondent No.3, who was
original opponent No.23, received an amount of Rs.911.65 Lakhs
from respondent No.2 towards its share in the project loan facility.
However, it is also clearly stated that even after such payment, a
substantial balance amount of Rs.1868.00 Lakhs still remains
unpaid towards the project loan. This factual position directly
contradicts the submission made by the petitioners.
10. In view of the above discussion, it becomes clear that the
contention raised on behalf of the petitioners that the Government
has cleared the entire dues of the Sugar Factory is not supported
by the material on record. The affidavit filed by the respondent
Bank shows that significant outstanding amount still exists.
Therefore, the foundation of the petitioners' argument itself fails.
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Once it is held that the principal liability continues, the question of
discharge of guarantors does not arise. The findings recorded by
the Appellate Court are based on proper appreciation of the
documents, including the deed of guarantee and other relevant
material. The reasoning given is consistent and does not suffer
from any legal error. In such circumstances, no interference is
warranted in exercise of writ jurisdiction.
11. The writ petition is therefore dismissed.
(AMIT BORKAR, J.)
