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IN THE HIGH COURT OF DELHI AT NEW DELHI
S. Muralidhar, Talwant Singh, JJ.
Rajan Malhotra & Anr. - Petitioners
Versus
Union Bank Of India & Ors. - Respondents
W.P.(C) 4802 of 2015, W.P.(C) 4803 of 2015 And W.P.(C) 11928 of 2015
Decided On : 18-11-2019
Guarantee - Loan Facilities - Indian Contract Act, Section 129, 130, 133, 134, 135, 139, 141 - The court discussed the legal provisions of the Indian Contract Act, particularly Sections 129, 130, 133, 134, 135, 139, and 141, and their interpretations in the context of the guarantees provided by the parties. The court emphasized the principle of continuing guarantee under Section 129 and the revocation of guarantee under Section 130. It also highlighted the waiver of rights by the surety and the implications of novation of contract under Section 62 of the Indian Contract Act. The court's decision was influenced by its interpretation of these legal provisions and their application to the facts of the case.
Fact of the Case:
The case involved three writ petitions related to a dispute between the Union Bank of India and various individuals and companies regarding loan facilities and guarantees. The petitioners challenged an order passed by the Debt Recovery Appellate Tribunal (DRAT) in appeal No. 79/2014, which allowed the bank's appeal against the petitioners and other respondents. The dispute centered around the execution of guarantee deeds and the liability of the parties for the loan facilities extended to a company named M/s Faishan Flairs India Private Limited.
Finding of the Court:
The court found that the original loan contract was discharged and substituted by a new contract between the bank and the new directors of the company, along with a new surety. The court emphasized the principle of novation of contract under Section 62 of the Indian Contract Act and held that the earlier obligations stood discharged. It also noted the change in the amount being financed and the execution of new loan documents, which defined the new relationship between the parties. As a result, the court set aside the DRAT's order and restored the judgment of the Debt Recovery Tribunal (DRT) in favor of the petitioners and other respondents.
Issues: The court framed issues related to the grant of credit facility, the discharge of the earlier guarantors, the extent of liability of the parties, and the entitlement of the bank to claim the amount due.
Ratio Decidendi: The court's decision was based on the principle of novation of contract under Section 62 of the Indian Contract Act, which allowed the substitution of a new contract for the original contract, thereby discharging the earlier obligations. The court also considered the change in the amount being financed and the execution of new loan documents as defining the new relationship between the parties.
Final Decision: The court set aside the DRAT's order and restored the judgment of the DRT in favor of the petitioners and other respondents, thereby dismissing the writ petition filed by the Union Bank of India.
JUDGMENT :
Talwant Singh, J.
1. By this common order above-mentioned three writ petitions are disposed of. First of these writ petition bearing No. 4802/2015 has been filed by Sh. Rajan Arora, Sh. Neeru Malhotra. Petitioner No.1 claims to be ex-director of Respondent No.3 company and Petitioner No.2 is the earlier guarantor of loan/credit facilities enjoyed by Respondent No.3 company from Respondent No.1 & 2 bank. Union Bank of India is Respondent Nos. 1 and 2. Respondent No. 3 is a company named M/s Faishan Flairs India Private Limited. Respondent No. 4 is Sh. Ram Raghubir Pandey, who is ex-director of Respondent No.3 company, Respondent No. 5 is Sh. Raman Mehta and Respondent No. 6 Smt. Geetha Mehta are the new directors of Respondent No.3 company and Respondent No. 7 Sh. Kuldeep Singh had mortgaged his property to Respondent Bank for the loan facilities extended to Respondent No.3 company. The Petitioners have challenged the order dated 25th March, 2015 passed by Debt Recovery Appellate Tribunal (‘DRAT’) in appeal No. 79/2014 by which the appeal filed by Respondent Nos. 1 and 2 Bank against the present Petitioners and Respondent No. 4 was allowed. The writ petitioner bearing No. 4803/2015 was filed by Sh. Ram Raghubir Pandey who was Respondent No. 4 in petition No. 4802/2015. He has also impleaded the Union Bank of India as Respondent Nos. 1 and 2, M/s Faishan Flairs India Private Limited as Respondent No. 3, Smt. Neeru Malhotra and Rajan Malhotra as Respondents No. 4 and 5 and Respondents No. 6, 7 and 8 are same i.e. Sh. Raman Mehta, Smt. Geetha Mehta and Sh. Kuldeep Singh. The impugned order is the same i.e. order dated 25th March, 2015 passed by DRAT in appeal No. 79/2015 against the Petitioner Ram Raghubir Pandey and Respondent No. 4 and 5 Neeru Malhotra and Rajan Malhotra. Sh. Ram Raghubir Pandey has died and has been substituted by his legal heirs.
2. The writ petition No. 11928/2015 was filed by Union Bank of India wherein Sh. Rajan Malhotra, Smt. Neeru Malhotra and Ram Raghubir Pandey (since deceased) have been impleaded as Respondent Nos. 1, 2 and 3 respectively and the company M/s Faishan Flairs India Pvt. Ltd. is Respondent No.4. Sh. Raman Mehta, Smt. Geetha Mehta and Sh. Kuldeep Singh have been impleaded as Respondent Nos. 5, 6 and 7. The Bank has also challenged the same order passed by DRAT as the bank is aggrieved from that portion of the order where DRAT had held that bank had failed to prove that Respondent Nos. 1, 2 and 3 had executed the deeds of guarantee dated 22nd July, 1995. For the sake of convenience we will be referring to the parties and pleadings in Writ Petition (Civil) No. 4802/2015 as all the three petitions have emanated from the same order dated 25th March, 2015 and the parties as well as the facts are common although the relief claimed by Union Bank of India is different from the relief claimed by the Petitioners in Writ Petition No. 4802/2005 and 4803/2015.
3. The relevant portion of the impugned order of DRAT is as under:
.... The Court in this case has considered the contract between the parties. After examining the agreement executed between the appellant and the bank, the Court has observed that one of the conditions clearly shows that the guarantee to be a continuing one under Section 129 of the Indian Contract Act. As per Section 130 of the Contract Act, a continuing guarantee may at any time be revoked by the surety, as to future trans
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