2009 Supreme(SC) 1685

(2010) 12 Supreme Court Cases 458
TARUN CHATTERJEE AND AFTAB ALAM, JJ.
H.R. BASAVARAJ (DEAD) BY HIS LRS. AND ANOTHER ……Appellants;
Versus
CANARA BANK AND OTHERS ……Respondents.
Civil Appeal No. 233 of 2003
Decided on : October 28, 2009

Headnote:(a) Contract Act, 1872 – Section 129 – Waiver – Respondent waiving his right of examining related documents before executing guarantee – By waiving such right, his liabilities under the guarantee, particularly a continuing guarantee, cannot be waived. (Para 12, 13, 14)

       Provash Chandra Dalui v. Biswanath Banerjee; Lachoo Mal v. Radhey Shyam; Sita Ram Gupta v. Punjab National Bank – Relied upon

       T. Raju Setty v. Bank of Baroda – Cited with approval

       (b) Contract Act, 1872 – Section 129 and 130 – Continuing liability – Concurrent findings of High Court and trial court – Agreement executed for a continuing liability despite the variation of terms of the contract – Absence of a specific revocation of the guarantee – Guarantee stands – Legal representatives of the deceased liable to repay loan. (Para 16)

       (c) Contract Act, 1872 – Section 62 – Novation – Consent of contracting parties necessary – Original contract kept alive and not rescinded even in second contract – There can be no novation and it cannot be substituted by second contract – Contract between JNKP and Bank – LST depositing part of outstanding loan amount – Mere deposit of amounts by a third party towards liquidation of an outstanding amount cannot ipso facto lead to the novation of a contract – Instantly Bank never expressly accepting change of the hands of the property ownership and thereby change in the liability – The Receiver cannot bring about a change in the contract so as to affect the legal consequences for the borrower or the guarantor – Administrator appointed by the Government though securing a loan for facilitation of running of the publications, not creating any new charge on the property – Hence there was no novation of contract between JNKP and the Bank – LST not liable. (Para 19, 20, 21, 23)

       (d) Contract Act, 1872 – Section 70 – Board of Trustees competent to take any loan and such loan would be loan taken by the Trust – Similarly loan taken by Administrator would also be deemed to be loan taken by Trust – Trust liable to repay such loan (Para 27)

       Satyabrata Ghose v. Mugneeram Bangur & Co.; Industrial Finance Corpn. of India Ltd. v. Cannanore Spg. and Wvg. Mills Ltd. – Distinguished

       Estoppel – Trust ratifying all actions taken by others and benefiting from the same – It cannot now deny its liability under the contract. (Para 33)

       Pickard; B.L. Sreedhar – Relied upon

       Facts of the case:

       Lokashikshana Trust (LST) was a public trust registered under the Bombay Public Trusts Act, 1950 which was engaged in the publication of it Kannada daily Samyukta Karnataka and some other periodicals. In 1974, the Board of Trustees entered into an agreement with M/s Karnataka Patrika (P) Ltd. (KPP) for the transfer of publication and printing rights and machineries as also to create a lease in the buildings owned by the Trust.

       Some interested persons filed a suit (No.4 of 1997) praying for the removal of trustees; scheme for management of the Trust, etc.

       While this suit was pending, KPP entered into an agreement with M/s Jaya Karnataka News and Printers (P) Ltd., Appellant 2 (JKNP) for transfer of all its rights, interest and liabilities.

       There was a loan transaction between JKNP and the respondent Bank whereby a loan of Rs.15 lakhs was sanctioned to the former at an interest of 15% p.a. by open cash credit compounded quarterly. Appellant 1 along with other office-bearers of the said company allegedly executed a demand note.

       On the same day, JKNP through its Executive Director requested for an overdraft facility of Rs.5 lakhs which was granted on an on-demand promissory note with an interest of 15% p.a. compounded quarterly. This loan was secured by book-debts and Appellant 1, Basavaraj (since deceased) along with the Executive Director of JKNP also executed a hypothecation agreement to provide collateral security to the Bank. Subsequently, JKNP and its Executive Director executed a pro note for a term loan of Rs.2,86,000 at the same interest rate as before. The appellants herein also executed an agreement of guarantee to the tune of Rs.13 lakhs with a maximum of Rs.30 lakhs. JKNP became a public limited company on 28-9-1978.

       The respondent Bank filed a suit (No. 119 of 1984) against the appellants for recovery of the loan amount. The suit was decreed by the Principal Civil Judge, Hubli at the trial court level on 1-8-1994 directing the appellant to pay Rs.19,97,839.51 with future interest at 17% p.a. and other reliefs and costs.

       Meanwhile, an interim order was passed in OS No. 4 of 1997 appointing JKNP as the Receiver of the properties in its possession subject to the conditions mentioned in the order. On 9-9-1980 the Charity Commissioner, Belgaum was appointed the new Receiver. Again, the court at Dharwad relieved the Charity Commissioner of Receivership of the property and instead appointed a District Judge to be the Receiver and manage the Trust publication and movable properties.

       Meanwhile, the Governor of Karnataka had issued the Lokashikshana Trust (Taking Over of Management) Ordinance in 1991 (later replaced by the Lokashikshana Trust (Taking Over of Management) Act).

       The suits in the High Court were related to three different loan transactions that had taken place between the respondent Banks and the appellants between 1977 and 1981. The first out of these have been taken by KPP in 1977, the second by JKNP in 1978 and the third loan was taken by the Administrator appointed by the Government under the LST Act. The subject-matter of these appeals has been to decide as to who should be liable to pay the loan amounts.

       OS No.4 of 1977 was dismissed by the District Court, Dharwad. The first set of appeals in the High Court had been against the decree of the trial court, which was passed against KPP and JKNP regarding a loan of Rs.90,000 from Syndicate Bank where three different appeals were filed by KPP, JKNP and the Bank separately.

       The High Court dismissed the appeal filed by the Appellant.

       Finding of the Court:

       High Court judgment cannot be sustained.

       Result:

       Appeal allowed.