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2009(6) Supreme 171
SUPREME COURT OF INDIA
(From Calcutta High Court)
Mr. Dalveer Bhandari & Mr. H.L. Dattu, JJ.
Industrial Investment Bank of India Ltd. — Appellant
versus
Biswanath Jhunjhunwala — Respondent
Civil Appeal No. 4613 of 2000
Decided on : 18-08-2009
AIR 1992 SC 1740; (1969) 1 SCR 620 – Relied upon.
(1869) 6 Bombay High Court Reports 241 – Referred.
(b) Recovery of Debts Due to Bank and Financial Institutions Act, 1993 – Section 19 – Liability of the guarantor is co-extensive but not in the alternative – Both the principal debtor and the surety are liable at the same time to the creditors. (Para 24)
AIR 1940 Bombay 247; AIR 1977 Kant 204 – Cited with approval.
(c) Recovery of Debts Due to Bank and Financial Institutions Act, 1993 – Section 19 – It is the lender’s discretion to proceed under either DRT Act or Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (Para 27)
(2008) 1 SCC 125 – Relied upon.
(d) State Financial Corporations Act, 1951 – Section 29 – Right under section 29 is besides the right already possessed at common law. (Para 29)
(1994) 2 SCC 647 – Relied upon.
Facts of the case:
1. The appellant Industrial Investment Bank of India Ltd. on 27.9.1994 sanctioned the first short term working capital loan of Rs.3 crores in favour of Modern Malleables Limited.
2. The loan agreement and a deed of personal guarantee was executed by the respondent on 03.10.1994 in respect of the said loan granted by the appellant in favour of the borrower company.
3. The borrower company committed defaults in the payment/ repayment of the principal amount of the loan as well as interest, liquidated damages and other moneys.
4. The appellant on 18.03.1997 filed an application in the High Court.
5. The appellant on 17.7.1997 filed an application against the respondent in the Debts Recovery Tribunal, Calcutta.
6. The respondent on 20.3.1998 also filed an application in the Debts Recovery Tribunal, Calcutta for stay of further proceedings in the case filed by the appellant in the same Tribunal, inter alia, on the ground that the rights of the appellant against the respondent as guarantor did not crystallize till the rights of the appellant against the borrower company are established.
7. The Debts Recovery Tribunal, dismissed the application filed by the respondent.
8. The High Court by the impugned judgment allowed the application filed by the respondent and stayed further proceedings in O.A. No. 156 of 1997 filed by the appellant against the respondent in the Debts Recovery Tribunal, Calcutta.
Finding of the Court:
Liability of the guarantor and principle debtors are co-extensive and not in alternative.
Result : Appeal allowed
JUDGMENT
Dalveer Bhandari, J.—
1. This appeal is directed against the judgment of the High Court of Calcutta in Civil Revisional Jurisdiction dated 10.9.1999 in C.O. No. 1581 of 1999.
2. Briefly stated the facts are as follows: The appellant Industrial Investment Bank of India Ltd. (hereinafter referred to as “the appellant”) on 27.9.1994 sanctioned the first short term working capital loan of Rs.3 crores in favour of Modern Malleables Limited (hereinafter referred to as “the borrower company”).
3. The loan agreement was entered into between the appellant and the borrower company on 03.10.1994 in respect of the first short term working capital loan of Rs.3 crores. The said loan agreement was signed on behalf of the borrower company by the respondent as a Director of the borrower company. On the same day, demand promissory note for Rs.3 crores was executed on behalf of the borrower company in favour of the appellant. The same was executed on behalf of the borrower company by the respondent as the Director of the borrower company. A deed of undertaking to create mortgage in respect of its various immovable properties was also executed on behalf of the borrower company by the respondent.
4. A deed of personal guarantee was executed by the respondent on 03.10.1994 in respect of the said loan granted by the appellant in favour of the borrower company. The relevant clauses of the said deed of guarantee are reproduced.
“7. This guarantee shall be enforceable against the guarantor notwithstanding that any security or securities comprised in any instrument(s) executed by the borrower in favour of the Industrial Reconstruction Bank of India Ltd. (for short, IRBI) at the time when the proceedings are taken against the guarantor on this guarantee, be outstanding or un-realized or lost.”
5. Clause 11 of the deed of personal guarantee reads as under:
“11. To give effect to this guarantee, the IRBI may act as though the guarantors were the principal debtor to the IRBI.”
6. The appellant sanctioned the second term working capital loan of Rs.3 crores on 15.03.1995 in favour of the borrower company. The Demand Promissory Note for Rs.3 crores was executed on 21.03.1995 on behalf of the borrower company by the respondent as the Director of the borrower company in favour of the appellant. A deed of undertaking to create mortgage in respect of its immovable properties was also executed on behalf of the borrower company in respect of the said second short term working capital loan.
7. The borrower company committed defaults in the payment/repayment of the principal amount of the loan as well as interest, liquidated damages and other moneys. Some of the cheques issued on behalf of the borrower company by the respondent were dishonored for want of funds. Consequently, the proceedings started against the respondent under section 138 of the Negotiable Instruments Act, 1881 are pending before the court.
8. In view of the defaults committed by the borrower company, the appellant on 18.01.1997 issued a demand notice to the borrower company recalling the entire loans and calling upon the borrower company to pay the total sum of Rs.5.40 crores together with further interest at the rate of 17% per annum and liquidated damages at the rate of 2.1% from 1.1.1997 till repayment.
9. The appellant on 18.03.1997 filed an application in the High Court of Calcutta under section 40 of the Industrial Reconstruction Bank of India Act, 1984 (for short “IRBI Act”) for attachment and sale of the assets of the borrower company. The respondent was not made a party to the said application, inasmuch as there was no scope for seeking any relief against the guarantor under an application under section 40 of the IRBI Act. Hence, a prayer was made for attachment of the assets of the borrower company. The provisions of section 40 of the IRBI Act are pari materia with the provisions of sections 31 and 32 of the State Financial Corporations Act, 1951.
10. A notice was issued on 20.3.
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