Kamal Gupta vs Bank Of India
2007 Latest Caselaw 2087 Del

JUDGMENT

Mukundakam Sharma, C.J.

1. In these appeals, the order dated 22nd August, 2007 passed by the learned Single Judge dismissing the writ petitions filed by the appellants herein is under challenge. The issue raised in these appeals being similar, we propose to dispose of these appeals by this common judgment and order.

2. The issue that was raised before the learned Single Judge and also before this Court is with regard to exact and intended meaning of the word "borrower" as defined under Section 2(f) read with Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002( hereinafter called 'the Act'). By referring to the aforesaid provisions of the Act it was submitted by the counsel appearing for the appellants that the definition of the word 'borrower' and the meaning given thereto would not and cannot extend to include legal representatives of the original borrower inasmuch as the said expression relates only to the person who availed of the loan or who was guarantor for the loan and it does not extend to his heirs, successors or legal representatives. The respondents however took a plea before us and also before the learned Single Judge that the said expression as used in Section 2(f) read with Section 13(2) of the Act would also include not only the person who originally took the loan but also his legal representatives and heirs as the aforesaid debt liability would pass on to the legal representatives/heirs as liability gets devolved on them.

3. One Smt. Parvati Devi, amongst others, stood as guarantor for the financial assistance to the extent of Rs.650 lacs taken by ROM Industries Limited from the respondent-Bank of India. Smt.Parvati Devi also created an equitable mortgage in respect of her immovable property situated at 16/73 Punjabi Bagh, New Delhi for repayment of the amount taken as loan. It is well known that banks while granting loan ask for mortgage of an immovable property to safeguard themselves and reduce their risk. In October, 1996 the account of ROM Industries was declared a non-performing asset by the respondent-bank. On 19th August, 2000 Smt. Parvati Devi passed away leaving behind Girdhari Lal Gupta and Asha Singla as her legal heirs. Unfortunately Girdharil Lal Gupta also passed away on 2nd May, 2004. Kamal Gupta and Rajan Gupta are the legal heirs of late Girdhari Lal Gupta. The residual interest in the mortgage property passed on to the hands of the legal representatives of late Smt. Parvati Devi.

4. In November, 2003, Bank of India filed a recovery application before the Debts Recovery Tribunal in respect of the aforesaid loan. Though Parvati Devi had expired when the recovery application was filed, she was made a party in the said proceeding. On an amendment sought by the bank, her legal representatives namely, Girdhari Lal Gupta and Asha Singla were substituted in her place. Later, on the death of Girdhari Lal Gupta, his legal representatives Kamal Gupta and Rajan Gupta were also substituted and brought on record.

5. On 5th October, 2005 the respondent-bank issued notices under Section 13(2) of the Act against Asha Singla, Kamal Gupta and Rajan Gupta in their capacity as legal representatives of Smt. Parvati Devi.

6. The said notice was under challenge before the learned Single Judge by filing three separate writ petitions, which were dismissed by the learned Single Judge by the impugned order dated 22nd August, 2007 holding that under the definition clause Section 2(f) the terms 'borrower' would mean the principal borrower and after his death, his/her legal representatives. It was further held that it cannot be argued that the word 'borrower' excludes legal representatives and legal heirs. Aggrieved by the said order, these three appeals have been filed on which we have heard the learned Counsel appearing for the parties.

7. In order to decide and adjudicate the contentions raised before us it is necessary to examine the language of Section 2(f), 2(zd) and 2(zf) and Section 13(2). The said provisions are reproduced below:

2. Definitions -(1) In this Act, unless the context otherwise requires,-

xxxxxxx

(f) "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance.

(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes-

(i) debenture trustee appointed by any bank or financial institution; or

(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or

(iii) any other trustee holding securities on behalf of a bank or financial institution,in whose favor security interest is created for due repayment by any borrower of any financial assistance.

(zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favor of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31.

13. Enforcement of security interest:

(1) xxxxxxxx

(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any Installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4)

8. As observed by the learned Single judge in the impugned judgment dated 22nd August, 2007, the definition Section 2 of the Act begins with the expression 'in this Act, unless the contest otherwise requires'. Therefore, while construing and interpreting and applying the definition clause, the court has to keep in mind the legislative mandate and intent and also consider whether the context requires some other interpretation. (See: Youaraj Rai and Anr. v. Chander Bahadur Karki (2007) 1 SCC 770). A definition provision prefaced with the expression "unless otherwise required by the context" is not to be read in isolation. The definition clause must be given a meaningful application. Where the context requires a definition to be given a different meaning than the one prescribed by the definition clause, courts are not powerless to give a different meaning to a defined word, looking into the context, collocation and the object of the said word in a provision. Courts can always depart from the meaning given in the definition clause where the definition clause itself is not exhaustive and permits departure when the context of the subject matter requires a different interpretation. (See: Ramesh Mehta v. Sanwal Chand Singhvi and Ors. ). It is equally well settled that a literal meaning ought not to be allowed to prevail, when plain construction leads to anomalies and absurdities. The construction put forward by the appellants will lead to irrational results and is contrary to the object of the statute, with legal representatives, for no justifiable reason and cause, being left out of the term 'borrower'.

9. Chapter III relates to enforcement of security interest. Section 13(2) refers to security agreement and the right of the secured creditor to proceed against any security interest on the charge created in favor of the secured creditor in terms of the said section and to exercise rights under Sub-section (4) to Section 13. For the purpose of proceeding against the security interest for repayment of the secured debt or any installment thereof, notice is required to be issued to the 'borrower'. The word 'borrower' as appearing in Section 13(2) of the Act is to be interpreted and understood in this context. If we examine the definition of the term 'borrower' in Section 2(f) keeping in mind the provisions of Section 13 of the Act, it is clear that the said word will include the person who had created any mortgage or pledge as well as his legal representatives. Keeping in view the object and purpose of the Act it cannot be said that legal representatives should be excluded from the word 'borrower'. The relationship between the borrower and the bank or the financial institution is created by a contract under the Indian Contract Act, 1872. Promise made by the promisor is binding on his representatives in case of his/her death, unless a contrary intention appears from the contract. Promise to perform an obligation under contract is not personal to the contracting party but is also binding on his representatives. Legal representatives under law is liable for the debts of their predecessor to the extent of any property inherited by them from their predecessor in interest. Legal representatives are not personally liable for the liability but the liability is to the extent of the estate of the deceased inherited by them. Section 37 of the Contract Act, 1872 reads:

37. Obligation of parties to contracts: The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or ex­cused under the provisions of this Act, or of any other law.

Promises bind the representatives of the promisor in case of the death of such promisors before performance, unless a contrary intention appears from the contract."

Illustration: (a) A promises to deliver goods to B on a certain day, on payment of Rs.1,000/- A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the Rs.1,000/- to A's representatives.

(b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representatives or by B.

10. Salmond on Jurisprudence (10th Ed.) has examined the question of right and liabilities of a dead man and has observed as under"

The rights which a dead man thus leaves behind him vest in his representative. They pass to some person whom the dead man, or the law on his behalf, has appointed to represent him in the world of the living. This representative bears the person of the deceased, and therefore has vested in him all the inheritable rights, and has imposed upon him all the inheritable liabilities of the deceased. Inheritance is in some sort a legal and fictitious continuation of the personality of the dead man, for the representative is in some sort identified by the law with him whom he represents. The rights which the dead man can no longer own or exercise in propria persona, and the obligation which he can no longer in propria persona fulfill, he owns, exercises, and fulfills in the person of a living substitute. To this extent, and in this fashion, it may be said that the legal personality of a man survives his natural personality, until, his obligations being duly performed, and his property duly disposed of, his representation among the living is no longer called for.

The representative of a dead man, though the property of the deceased is vested in him, is not necessarily the beneficial owner of it. He holds it on behalf of two classes of persons, among whom he himself may or may not be numbered. These are the creditors and the beneficiaries of the estate. Just as many of a man's rights survive him, so also do many of his liabilities; and these inheritable obligations pass to his representative, and must be satisfied by him. Being, however, merely the representative of another, he is not liable in propria persona, and his responsibility is limited by the amount of the property which he has acquired from the deceased.

11. The indemnity bond executed by Smt.Parvati Devi records as under:

xxx.

Mrs. Parbati Devi has deposited original sale deed dated 28th June, 1971 in favor of herself, a site plan of the property in question and latest Municipal Tax receipts in favor of herself with the bank for the purpose of creating equitable mortgage with Bank of India for securing advance granted to M/s. ROM Industries Limited by Bank of India.

12. In terms of the indemnity bond, late Smt.Parvati Devi had admitted having mortgaged the property in favor of the respondent No-1 bank and had admitted existence of mortgagor and mortgagee relationship between her and the respondent-bank. The terms 'mortgage', 'mortgagor' and 'mortgagee' have not been defined under the Act and in terms of Section 2(2) of the Act, words and expressions used and defined in Transfer of Property Act, 1882 can be referred to and relied upon. The expressions 'mortgagor' and 'mortgage' has been defined in Section 58 of the Transfer of Property Act, 1882 as under:

58. xxxxxxx A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may given rise to a pecuniary liability.

The transferor is called a mortgagor, the transferee a mortgagee, xxxxxx.

13. However, Section 59A of the Transfer of Property Act 1882 reads as under:

59A. Reference to mortgagors and mortgagees to include persons deriving title from them: Unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees shall be deemed to include references to persons deriving title from them respectively.

14. The said section therefore clarifies that reference to mortgagor and mortgagee would include persons deriving title from them. A conjoint reading of the aforesaid provisions of the Contract Act, 1872, Transfer of Property Act, 1882 and the Act make it clear that the word 'borrower' as defined in Section 2(f) would mean the original borrower and after his death his legal representatives. The legal representatives to the extent they have inherited the estate from the deceased become a 'borrower' for the purpose of Section 2(f) of the Act. The legal representatives steps into the shoes of the predecessor in title who had mortgaged the property (refer : Samarendra Nath Sinha and Anr. v. Krishna Kumar Nag ). The present case is not one of casus omissus but one where on interpretation of the relevant provisions the word 'borrower' as used in Section 2(f) and Section 13(2) would include not only the original mortgagor but also his legal representatives. There is no presumption of casus omissus and language permitting, Courts should avoid creating a casus omissus. [See: Ramesh Mehta v. Sanwal Chand Singhvi (supra)]

15. We may also state here that the learned Single Judge has referred to contract of guarantee and concept of continuing guarantee with reference to clauses in the guarantee deed. This reference to the said provisions and clauses of the guarantee have been made so as to support the interpretation given above. Agreement of Guarantee and Mortgage may be separate contracts and Section 13(2) notice relates to the agreement of mortgage but the two agreements are inter-connected and inter-twined with the agreement granting loan. In the present case, the letter of guarantee records as under:

This guarantee shall be a continuing security to you, and shall not be determined except at the expiration of three calendar month's written notice given to you of intention so to do by each of us or his legal representatives and in the event of the death of any one or more of us or any one or more of us coming under a disability, the liability of the survivor or survivors and the legal representatives of the person or persons so dying or coming under any disability and of the estate of any of us so dying or coming under disability shall continue under the expiration of three calendar month's notice in writing given to you of the intention of such survivors or survivor and legal representatives to determine the guarantee.

Reference to the said provisions and clauses in no way supports the case of the appellants or contradicts the claim made under Section 13(2) by the respondent No. 1.

16. Therefore, from whatever angle we examine the issue it is apparent that the legal representatives and legal heirs of Smt.Parvati Devi would also be liable and their liability do not get absolved on her death. The mortgage and the letter of guarantee executed by the predecessor in interest of the appellants would not loose their force on the death of the executrix Smt.Parvati Devi.

17. In our considered opinion the learned Single Judge has correctly interpreted the provisions of law which fell for his consideration and also appreciated the facts in the proper and right manner. On going through the records we find that there was neither any misreading nor any misconstruction of the documents on record or of the legal issues involved. The findings recorded by the learned Single Judge are found to be legal and valid.

18. We find no merit in these appeals and the same are accordingly dismissed.