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2022 Supreme(P&H) 1690
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. Ramachandra Rao, Jasjit Singh Bedi, JJ.
M/s. Lekh Raj Narinder Kumar & Ors. – Appellants
Versus
Union Bank Of India & Anr. – Respondents
CWP No. 1954 of 2021 (O&M)
Decided On : 13-07-2022
Mr. Akshay Bhan, Senior Advocate Assisted By Mr. A.S. Talwar, Advocate, for the Appellant; Mr. Chetan Mittal, Senior Advocate, Assisted By Mr. Saurabh Bhardwaj, Advocate and Mr. Mayank Aggarwal, Advocate, for the Respondent
The main legal point established in the judgment is the right of a guarantor to revoke a continuing guarantee under Sec. 130 of the Indian Contract Act, 1872, and the arbitrary and unreasonable actions of the Bank in refusing to accept the revocation.
Headnote:
Guarantee Revocation - Bank's Arbitrary Action - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - [Guarantee Revocation] - [Bank's Arbitrary Action] - [Sec. 13(2), Sec. 13(4)] - The court discussed the revocation of personal guarantees given by the petitioners for credit facilities extended by the Bank to respondent No.2. The court highlighted the legal principles related to continuing guarantees and revocation of guarantees under Sec. 130 of the Indian Contract Act, 1872. It emphasized that the Bank's refusal to accept the revocation made by the petitioners was arbitrary, unreasonable, and intended to harass the petitioners. The court allowed the Writ Petition, held the Bank's order to be arbitrary and violative of Art. 14 of the Constitution, and declared the petitioners' letter as an effective revocation of the personal guarantees from the specified date.
Fact of the Case:
The petitioners, a partnership firm, sought revocation of personal guarantees given to the Bank for credit facilities extended to another firm. Despite multiple notices for revocation, the Bank refused to release the guarantees, leading to the Writ Petition.
Finding of the Court:
The court found the Bank's actions to be arbitrary, unreasonable, and violative of Art. 14 of the Constitution. It held that the petitioners' letter effectively revoked the personal guarantees from the specified date, and the Bank had no right to recover any amounts from them under the personal guarantees beyond the specified date.
Issues: The issues included the revocation of personal guarantees, the Bank's refusal to release the guarantees, and the petitioners' right to seek relief through a Writ Petition.
Ratio Decidendi: The court emphasized the legal principles related to continuing guarantees and revocation of guarantees under Sec. 130 of the Indian Contract Act, 1872. It held that the Bank's refusal to accept the revocation made by the petitioners was arbitrary, unreasonable, and intended to harass the petitioners.
Final Decision: The Writ Petition was allowed, the Bank's order was held to be arbitrary and violative of Art. 14 of the Constitution, and the petitioners' letter was declared as an effective revocation of the personal guarantees from the specified date.
JUDGMENT
M.S. Ramachandra Rao, J. -
The Background facts
1. The petitioner No.1 is a partnership firm constituted on 26.04.1974 and re-constituted on 19.10.2012 with petitioner No.3 (As Karta of his HUF), his brother Devraj Miglani (As Karta of his HUF), and their sons as partners for carrying on business of rice mill at Ambala-Jind road, near Hindu High School, Kaithal.
2. The respondent No.2 is another partnership firm which was constituted 10.09.1985 and was re-constituted on 19.10.2012 with 5 partners including Ashok Kumar Miglani and Surinder Kumar Miglani, brothers of petitioner no.3 and Devraj Miglani to carry on business of another rice mill at Shergarh road, Kaithal.
3. The partners of both firms are descendents of Sh. Lekhraj Miglani and are thus related to each other.
The respondent No.1- Bank (for short 'the Bank') had granted CC limit facility of Rs. 30 Crores on 21.01.2013 to the respondent No.2.
4. On account of the close relationship between the partners of both firms, and since one of the properties given as collateral security ( a rice sheller unit situated at Shergarh road, Kaithal) was jointly held by petitioner No.3, Smt. Krishna Rani (the mother of petitioner No.4 who had died on 23.07.2016), personal guarantees were executed for those facilities in favor of the Bank by petitioners along with the partners of respondent No.2-firm and others.
5. Though the actual letter of guarantee executed by petitioners has not been filed by both sides, it is not in dispute that it is in the format mentioned in Annexure P-4 and contains the following clause:-
' THIS GUARANTEE shall be continuing security binding me/us and my/our personal representatives until the receipt by the Bank of notice in writing to discontinue it and notwithstanding the discontinuance by or any release or granting of time or indulgence to anyone or more of us this Guarantee shall remain a continuing security as to the other or others and if discontinued by notice this Guarantee shall nevertheless as to the party or parties giving such notice continue to be available (subject to the aforesaid limit of total amount) for and shall extend to all indebtedness and liabilities of the Principal to the Bank at the date of the receipt of such notice ...
6. Mr. Narinder Miglani (HUF) and Mr. Devraj Miglani (HUF) got partitioned under the deeds of partition dt. 01.04.2016. By virtue of the said partition, the interest of petitioner No.3 and the petitioner No.4 got extinguished in the properties mortgaged to the Bank in respect of the loan granted by it to respondent No.2-firm.
Consequent thereto, the constitution of the petitioner No.1-firm also changed.
7. The petitioner No.1, petitioners No.3 to 5 addressed a letter Annexure P-7 on 10.02.2017 to the Bank informing it that the entire scenario of ownership of property and businesses of the firms had changed; that cross-guarantees which existed then between petitioner No.1-firm and respondent No.2-firm need to be revoked; that such guarantees had been given when there was joint ownership of the properties; now they are separately owned by the partners of the respective firms; so there is no need for cross-guarantees by both the firms and their partners. They stated that the said letter be treated as notice for revocation of guarantee; that petitioners No.1 to 5 would not sign any documents pertaining to the credit facilities of respondent No.2-firm; and if any limits are sanctioned or renewed by Bank post the date of the said letter, they shall not stand as guarantor for the same.
8. In response thereto, the Bank addressed a letter dt. 21.02.2017 (Annexure P-8) recommending the release of the personal guarantees of the petitioners to the Regional Office of the said Bank at Karnal.
9. Thereafter, the facilities of respondent No.2-firm were renewed vide Annexure P-9 letter dt. 18.03.2017. Petitioners alleged that at that time, petitioner No.4 was informed by the Bank that the process for the release of guarantees was on goi
