Delhi High Court

Himachal Pradesh State ... vs M/S Madan Lal Ajay Kumar & Ors. on 14 May, 2013

Author: M. L. Mehta

*         THE HIGH COURT OF DELHI AT NEW DELHI

+                   C.S. (O.S.) No. 1220/1996

                                      Date of Decision: 14.05.2013

HIMACHAL PRADESH STATE CO-OPERATIVE BANK LTD.
                                ............Plaintiff

                       Through:    Mr. Sumant De, Mr. A.K. Mehta
                                   & Mr. Prateek Kohli, Advs.


                             Versus

M/S MADAN LAL AJAY KUMAR & ORS.
                                               ...........Defendant
                       Through:    Mr. Adarsh Dial, Sr. Adv. with
                                   Mr. Pushkar Sood, Adv. for D-9
                                   to 13.


CORAM:
HON'BLE MR. JUSTICE M.L. MEHTA

M.L. MEHTA, J.

1. The plaintiff has filed this suit for recovery of Rs.

2,07,20,177.85 (Rupees Two Crore Seven Lakhs Twenty Thousand

One Hundred Seventy Seven and Paise Eighty Five) with interest

calculated till April 30, 1996 and further pendent lite and future

interest at the rate of 24% per annum. The facts leading to this suit are

as follows:

2. The plaintiff is a co-operative bank registered under the

Himachal Pradesh Co-Operative Societies Act, 1968. The plaintiff has

its registered office in Himachal Pradesh and one of its branches is

situated in Delhi. This suit pertains to the said branch at Delhi situated

at 10, New Sabzi Mandi, Azad Pur, New Delhi - 110033. The plaintiff

submits that defendant no. 1 is a partnership firm duly registered under

the Partnership Act and engaged in the business of Commission Agent

under the name and style of M/s. Madan Lal Ajay Kumar and

defendant nos.2 to 5 are stated to be its partners. That the defendant no.

6 is a partnership concern consisting of two partners namely Sh.

Naresh Kumar Suri, Sh. Deepak Suri i.e. defendant nos. 7 and 8;

running their business under the name and style of M/s. National Fruit

Agency. The plaintiff submits that defendant no.9 is also a partnership

concern consisting of 4 partners namely Sh. Bal Krishan Jaggi, Sh.

Pawan Jaggi, Sh. Sanjay Jaggi and Sh. Rohit Jaggi i.e. defendants nos.

10 to 13 respectively; running their business in the name and style of

M/s. Jaggi Apple Co.

3. The plaintiff submits that defendant no. 1, through its partners,

approached the plaintiff bank for seeking loan facilities in the form of

Cash Credit Limit for the purposes of working capital and business

activities. The loan application was accepted and a Credit Limit facility

in the nature of Cash Credit Limit for Rs. 3, 00,000/- (Rupees Three

Lakh Only) was sanctioned to the defendant no.1 firm. The plaintiff

submits that the defendant no. 1 accepted the terms and conditions of

the plaintiff bank and agreed to pay interest at the rate of 24% per

annum with quarterly rests. It also submits that the defendant no1

executed an Agreement of Hypothecation of Goods to secure the

aforesaid credit facility, in addition to various other documents.

4. It is the case of the plaintiff that the defendant no.1 failed and

neglected to adhere to the terms and conditions of the said loan facility

resulting into overdrawing, above the sanctioned limit of Rupees Three

Lakh against clearing cheques which were presented by the defendant

no.1 to the plaintiff bank from time to time. The said clearing cheques,

however, stood disohonoured by the drawee bank resulting in

overdrawing in excess to the sanctioned limit. In furtherance of this,

the plaintiff submits that being partners of the defendant no.1 firm, the

defendant nos. 2 to 5 are jointly and severally responsible for all acts,

omissions and commission of the defendant no.1 firm. And that since

defendant no. 6 and 9 stood guarantors and hence their partners are

also jointly and severally liable.

5. The plaintiff submits that the outstanding amount of the

defendant no.1 as on April 30, 1996 culminated to a total Rs.

2,07,20,177.85 (Rupees Two Crore Seven Lakhs Twenty Thousand

One Hundred Seventy Seven and Paise Eighty Five). The plaintiff

further submits that the defendant no.1 firm acknowledged and

confirmed the outstanding debts by virtue of an Undertaking Letter

dated January 29, 1994, admitting that a sum of Rs. 1,17,53,507.59

(Rupees One Crore Seventeen Lakhs Fifty Three Thousand Five

Hundred and Seven and Paise Fifty Nine) was due to the plaintiff bank

as on that date. The plaintiff submits that over and above the Deed of

Hypothecation, this defendant has also submitted the collateral security

to the plaintiff bank by depositing the Original Title Deed of the

property bearing No. B-218, New Subzi Mandi, Azadpur, New Delhi

Market, Delhi, thereby creating an Equitable Mortgage in favour of the

plaintiff bank. The plaintiff claims that it is therefore, entitled to

recover the outstanding dues from the sale proceeds of the aforesaid

property.

6. Separate Written Statements have been filed by defendant nos. 1

to 5, 6 to 8 as well as 9 to 13. Defendants no. 1 to 3 submit that the

claim of the plaintiff is hit by the provisions of Sec. 34 of CPC and that

the interest charged is exorbitant and not in conformity with the

established RBI Guidelines and Banking Regulations Act, thereby

amounting to unfair trade practice on the part of the plaintiff. The

answering defendants also submit that the present suit is covered under

the HP State Co-Operative Societies Act, 1968 and that the plaintiff

bank is a registered society under the said Act and the defendants are

the members of the society as B-Class Nominal Members. Therefore,

any dispute between the parties should be referred to arbitration

proceedings according to the Act. Defendants no. 6 to 8 submit that

they neither offered nor agreed to act as a guarantor, nor had executed

any guarantee deed, bond or any other documents for anyone or in

favour of the plaintiff and as such, no suit is maintainable. Defendants

no. 9 to 13 also submit that they neither offered nor agreed to act as a

guarantor, nor had executed any guarantee deed, bond or any other

documents for anyone or in favour of the plaintiff and as such, no suit

is maintainable. And that defendant no.10 is not the partner of

defendant no.9, nor was he authorized by any of the defendants to

offer, act or sign any guarantee bond in favour of the plaintiff or stand

as guarantor for any of the other defendants.

7. Vide Order dated January 31, 2006, defendant nos. 6 to 8 have

been proceeded ex parte. Vide Order dated February 25, 2009 the

following issues were framed for trial.

a. Whether the plaintiff is entitled to recover an amount of

Rs. 2,07,20,177.85 jointly and severally from the defendants

along with interest as claimed in the suit or at any other rate of

interest? OPP

b. Whether the defendant No. 6 to 13 stood guarantors and

executed a guarantee deed in favour of the plaintiff for due

discharge of the loan amount? OPP

c. Relief.

8. Sh. G.R Singla was examined as PW-1; Sh. Rakesh Kumar was

examined as PW-2; Sh. Bal Krishan Jaggi was examined as DW1; Sh.

Rohit Jaggi was examined as DW2; Sh. Madan Lal was also examined

as a witness.

9. I have heard the Ld. Counsels for the parties and have perused

through the records. Issue-wise findings are as under:

Issue No: 1:

10. The burden to prove the first issue was on the plaintiff. In the

evidence of PW1, he deposed that defendant no.1 firm failed and

neglected to adhere to the terms and conditions of the loan facility,

which resulted into over drawing above the sanctioned limit of Rs.

3,00,000/-, against the clearing cheques which were presented to the

plaintiff bank by defendant no.1 from time to time. These cheques

stood dishonored by the drawee bank resulting into overdrawing in

excess to the sanctioned limit. He further deposed that despite repeated

demands from the plaintiff bank, the defendant no.1 failed to pay the

outstanding amounts.

11. In his cross examination, PW2 stated that a letter intimating the

defendants that the loan had been sanctioned was sent to them, but the

same was not on court record. Though the letter informing the

defendants of the sanction of the loan is not on record, the same has not

been specifically denied by the defendant no.1 in its written statement.

12. Further, a Letter of Undertaking in favour of the plaintiff bank is

placed on record as Ex- PW-2/11. This Letter of Undertaking is

addressed to the Manager of the plaintiff bank from the Partners of

defendant no. 1 firm, signed by defendant no.2. In the said letter, the

defendant no.1 firm refers to the loan being granted for a credit limit of

Rs. 3,00,000/-. This letter was admitted to have been signed by

defendant no.2 i.e. Sh. Madan Lal in his cross examination.

The Letter of Undertaking states as under:

"We have raised loan from your bank against the sanctioned limit of Rs. 3,00,000.00 expired on 31.12.1993. As on 29.1.1994 we have to pay a loan of Rs. 1,17,53,507.59 (Rupees One Crore Seventeen Lakhs Fifty Three Thousand Five Hundred and Seven and Fifty Nine Paise only) to the Bank against the said sanctioned limit.

At present, the money is invested with the growers of Kashmir and payments are pending in the market, which is expected to be received in the month of January and April, 1994.

We undertake that the bank loan which is outstanding to the tune of Rs. 1,17,53,507.59 with up to date interest will be liquidated in full by the end of 15th March, 1994."

13. As per the account maintained by the plaintiff bank (in its

ordinary course of business), a sum of Rs. 1,17,53,507.59 was

outstanding against the defendants as on January 29, 1994. The

relevant extracts of the plaintiff bank's record are proved as Ex. PW-

2/13 (Colly.). This sum was admitted by the defendant no.1 firm vide

its Letter of Undertaking as observed above. The plaintiff has also

claimed interest from January 30, 1994 @ 24% p.a. at quarterly rests

and adding the same to the aforesaid acknowledged amount, it has

claimed a total sum of Rs. 2,07,20,177.85/-. In addition, the plaintiff

has also claimed future interest @ 24% p.a. from the date of filing of

the suit till the date of realization.

14. The defendant No. 6 had executed a promissory note in favour

of the plaintiff. The same is proved as Ex.PW2/5, which clearly

stipulates the interest to be 24% p.a. Thus, it stands proved that the

plaintiff would be entitled to the claimed amount with pendente lite

and future interest @ 24% p.a. from the date of filing of the suit till the

date of its realization. The issue is decided accordingly in favour of

the plaintiff.

Issue No. 2:

15. The question for decision would be as to whether in addition to

the defendants No. 1 to 5, who have availed the loan facilities and are

held to be liable to pay, as discussed above, the guarantors who are

defendants No. 6 to 13 would also be liable along with them and if so,

which are those defendants. The plaintiff has tried to establish the

liabilities of these defendants based on the loan application form

Ex.PW2/4, which would evidence having been signed by partner of

defendant No. 6 and Manager of defendant No. 9. Relying upon the

decision of this court in Himachal Pradesh State Co-Operative Bank

Ltd. Vs. Sh. Gulshan Kumar & Ors., CS (OS) 1221/1996, the

learned counsel appearing for the defendants No. 9 to 13 contends that

the loan application, per se, in the absence of there being any letter of

guarantee or guarantee bond/agreement favouring the plaintiff, would

not create guarantee by these defendants. This court in the afore-cited

case of Himachal Pradesh State Co-Operative Bank Ltd. Vs. Sh.

Gulshan Kumar & Ors. (supra), wherein similar issue was there, held

thus:

"Ex. PW-1/A being a mere application does not bind either party save and except requiring said parties to comply with the terms of the application. I do not find any operative words therein to make defendants 3 and 6 as liable as guarantors. Said defendants have only shown their willingness to stand as guarantors. Ex. PW-2/5 shows that the guarantee offered i.e. liability taken over by defendant no. 3 was limited to Rs. 3 Lacs, the credit limit extended by the plaintiff to defendant no. 2 as sole proprietor of defendant no.1."

16. The aforesaid observations of this court being between the same

parties as in the instant suit, are squarely applicable to this case as well.

That being there, the defendants could not be made liable merely on

the basis of the loan application.

17. The matter does not rest here. Admittedly, there was no letter of

guarantee or guarantee bond/agreement executed by the defendant No.

9 in favour of the plaintiff for the loan facility that was enjoyed by the

defendants No. 1 to 5. On the other hand, defendant No. 6 through its

partner, had executed a letter of guarantee (Ex.PW2/3) in favour of the

plaintiff. By virtue of this, this defendant No. 6 bound itself to the

liability of Rs. 3 lakhs with interest @ 24% p.a. The liability, as

envisaged under this Ex.PW2/3, was to be joint and several. That

being the state of affairs qua defendants No. 6 to 8, the liability of

these defendants certainly existed, which was not in the case of

defendants No. 9 to 13. Now, the question lies as to what extent would

be the liability of these defendants No. 6 to 8. According to Section

133 of the Indian Contract Act, if there is any variance made without

the surety's consent, then the surety is discharged with respect to the

transactions that occurred subsequent to the variance. It has been

observed in the case of Himachal Pradesh State Co-Operative Bank

Ltd. v. Sh. Gulshan Kumar & Ors. (Supra), referring to variance as

under:

"133. Discharge of surety by variance in terms of contract. Any variance, made without the surety's consent, in terms of the contract between the principal and the creditors discharges the surety as to transactions subsequent to the variance.'

It is obvious that without the surety's consent plaintiff has varied the terms of the contract between the plaintiff and defendant nos. 1 and 2. I accordingly hold that the defendants no. 3 to 5 stand discharged from their liability of guarantee pertaining to transactions subsequent to the variance. Thus, liability of defendants 3 to 5 is limited to Rs. 3 lacs plus interest thereon."

There is no evidence on record to state that the guarantors were

informed of the variance i.e. that they were liable against a sum greater

than Rs. 3,00,000/- as claimed in the instant suit. Applying this legal

provision, I find that the liability of defendant nos. 6 to 8 as guarantors

is only limited to Rs. 3,00,000/-, as agreed under the letter of

guarantee.

18. Thus, the conclusion comes out to be that the defendants No. 6

to 8 stood guarantee of a sum of Rs. 3 lakhs with interest @ 24% p.a.

in favour of the plaintiff and there were no such liability of defendants

No. 9 to 13. The issue is decided accordingly.

Relief:

19. In view of my above discussion, the plaintiff is entitled to a