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2013 Supreme(P&H) 565
IN THE HIGH COURT OF PUNJAB AND HARYANA
The Hon’ble Mr. Justice Hemant Gupta AND The Hon’ble Ms. Justice Ritu Bahri
C.W.P.No.9138 of 2012
Renu Gupta & Anr.
v.
Debt Recovery Tribunal-II, Chandigarh & Ors.
{Decided on 27/05/2013}
For the Petitioners:Mr. Ashok Khubbar, Advocate.
For Respondent Nos.2 & 3:Mr. G.S.Anand, Advocate.
Headnote:Securitization--Notice--On the date when notice was issued, the amount due was less than 20% of the principal and interest due--Notice held to be without jurisdiction.
Bank Guarantee--Continuing Bank Guarantee--It can be revoked by the guarantor, as to future transactions--The only condition in the guarantee, is to make the guarantor liable for a period of six months of the actual service of notice on the Bank after receipt of specific notice of revocation of writing.
(A) Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Ss.31(1) & 13(2)--Proceedings under the Act could not be initiated or even continued with, if at any stage the amount due falls less than the amount contemplated in Section 31(j) of the Act--It is not the date of the notice under Section 13(2) of the Act which is relevant but at all stage of the proceedings i.e. the date on which the possession is taken or later when the property is intended to be sold, the amount payable should be more than the minimum amount contemplated under the Statute i.e. 20% of the principal and interest due. (Para 9)
(B) Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Ss.31(4) & 13(j)--Notice--On the date when notice was issued, the amount due was less than 20% of the principal and interest due--Notice held to be without jurisdiction. (Para 9)
(C) Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Ss.31(1) & 13(2)--Continuing Bank Guarantee--It can be revoked by the guarantor, as to future transactions--The only condition in the guarantee, is to make the guarantor liable for a period of six months of the actual service of notice on the Bank after receipt of specific notice of revocation of writing--Once the deed of guarantee permits revocation of the guarantee, therefore, in terms of Section 130 of the Contract Act, 1872, the liability of the guarantor stand crystallized as it existed on that particular date--Guarantor could not be made liable to pay any amount more than the amount standing to the account of the borrower on the said date--Contract Act, 1872, S.130. (Para 13)
Certainly. Here are the key legal points derived from the provided document:
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Jurisdiction of Proceedings Under the Act: Proceedings initiated under the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, are not maintainable if the amount due at any stage falls below 20% of the principal amount and interest. The relevant stage is when the possession is taken or when the property is intended to be sold, not solely the date of notice issuance (!) (!) .
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Notice Validity and Jurisdiction: A notice issued under Section 13(2) of the Act when the amount due was less than 20% of the principal and interest is without jurisdiction. The proceedings cannot be continued if this threshold is not met at any stage (!) (!) .
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Effect of Payment and Release of Property: Payment made by the principal borrower (Rs.64 lacs) and the subsequent release of the mortgaged property do not absolve the guarantors from their liability under the guarantee, especially if the guarantee is a continuing guarantee and the guarantee deed permits variations without discharging the guarantors (!) (!) (!) (!) .
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Continuing Guarantee and Revocation: A continuing guarantee can be revoked by the guarantor through notice, but only to future transactions. The liability of the guarantor is fixed as it exists on the date of revocation, and the guarantor cannot be held liable for amounts beyond the balance at that time. The revocation becomes effective after six months from the receipt of the notice by the bank (!) (!) .
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Liability of Guarantors and Adjustments: Payments made by the borrower reduce the liability of the guarantors proportionally. The liability as on the date of revocation or the last relevant date is adjusted by any payments made by the borrower, and the guarantors are liable only for the remaining balance at that time (!) (!) .
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Time Limitation: The period of limitation for enforcing a mortgage claim is 12 years, and the action is within the permissible period if initiated before this expiry, regardless of the delay in taking action after the notice. The limitation period begins when the amount becomes due, not necessarily from the date of notice (!) (!) .
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Legal Effect of Variations and Contract Terms: The guarantee deed explicitly permits the bank to vary the terms of the contract with the borrower, including increasing limits and making any variations, without releasing the guarantors from their obligations. The guarantors agree to such variations and the bank's discretion in managing the security (!) (!) .
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Withdrawal of Guarantee: The guarantors withdrew their guarantee on a specific date, but due to the provisions of the guarantee deed, this revocation only affects future transactions, not liabilities already accrued. The liability is fixed based on the position at the time of revocation, considering the variations permitted under the guarantee (!) (!) .
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Bank’s Action Timing: The bank's delay of almost four years after the borrower’s payment does not invalidate the proceedings, as the enforceable period within the limitation is 12 years from the date the amount becomes due. The action is within the limitation period and thus valid (!) (!) .
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Order of the Court: The court held that proceedings under the Act are barred when the amount due falls below 20%, and the bank must adjust the liability of the guarantors based on payments made by the borrower. The court allowed the writ petition to the extent of declaring the proceedings invalid and directed the bank to communicate the adjusted amount due from the guarantors within two months (!) .
Please let me know if you need further analysis or specific legal advice related to this document.
Mr. Hemant Gupta, J.:- Challenge in the present writ petition is to the proceedings initiated by the Bank against the petitioners under Section 13 of the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’) and the order dated 18.04.2012 passed by the Debt Recovery Tribunal on an application filed by the petitioners under Section 17 of the Act.
2. The brief facts out of which present writ petition arises are that Avinash Chander, the husband and father of the petitioners namely Renu Gupta and Prikshit Gupta was working with Dilbagh Singh, Proprietor of Karan T.V. Centre, Patiala. Dilbagh Singh was granted cash credit limit by the respondent-Bank in which Avinash Chander and his wife stood guarantors by mortgaging their house. The deed of guarantee was executed on 18.02.2003. It was on 02.06.2003, Avinash Chander and his wife submitted an application to the Bank withdrawing the guarantee that they will not be responsible for any transaction done by Karan T.V. Centre. The Bank did not respond to such communication.
3. It was on 21.10.2005, petitioner No.1 was served with a notice under Section 13(2) of the Act pointing out that a sum of Rs.67,34,240.70 is due and payable in the cash credit account of Rs.65,00,000/-. In response to the notice, the petitioners sought return of the title deeds repudiating any liability to pay the amount. It was asserted that the Bank has increased the limit and advanced more amount instead of stopping loan facilities after the communication of the petitioners without the consent of the petitioners. The borrower deposited Rs. 64,00,000/- on 9.2.2006 and his mortgaged property was released.
4. It was on 18.01.2010, the Bank purportedly taken symbolic possession of the mortgaged property, which led the petitioners to file an application to invoke the jurisdiction of the Debt Recovery Tribunal under Section 17 of the Act. On such application, the learned Tribunal noticed the communication dated 02.06.2003 and the fact that the petitioners did not receive any reply from the Bank, held that the petitioners are liable to pay the amount in terms of liability under the continuing guarantee. The Tribunal found that deposit of Rs.64 lacs on 09.02.2006 by Dilbagh Singh, the principal borrower and release of mortgaged property of the Dilbagh Singh in his favour will not absolve the petitioners of their liability under the deed of guarantee. It is the said order, which is subject matter of challenge in the present writ petition.
5. Learned counsel for the petitioners raised the following arguments:
(i) that since the total outstanding at the time of issuance of notice under Section 13(4) of the Act was Rs.13,11,215/-, which is less than 20% of the loan amount and interest accrued thereon, therefore, in terms of Section 31(j) of the Act, the proceedings under the Act are not maintainable;
(ii) that the Bank has enhanced cash credit limit to Rs.65 lacs from 01.10.2003 and such enhancement of the limit has materially varied the terms of the contract, therefore, on account of novation of contract, the petitioners are not liable to pay any amount consequent to variation of the terms of the contract;
(iii) that the petitioners have withdrawn the deed of guarantee on 02.06.2003, therefore, the petitioners cannot be made liable to pay any amount then what was due and payable by the borrower on the said date. Consequently, it is argued that since the borrower has deposited Rs.64 lacs on 09.02.2006, therefore, the petitioners can be said to be liable to pay only such amount as was due and payable from the borrower after adjusting Rs.64,00,000/- on the date of withdrawal of the guarantee in terms of Section 130 of the Contract Act, 1872; and
(iv) that notice under Section 13(2) of the Act was issued on 21.10.2005. The petitioner submitted reply on 14.11.2005 but after deposit of Rs.64 lacs against the cash credit account by the principal borrower,
