The court established that modifications to a loan agreement do not constitute novation, and original guarantors remain liable despite changes in directorship.

ORDER

1. This appeal is filed under Section 20 of RDDB & FI Act, challenging the order of dismissal of OA 145/2010 as against D2 passed by Ld.Presiding Officer, DRT-I, Chennai on 8.6.2016.

2. The appellant bank filed OA 145/2010 to recover a sum of Rs.2,89,59,633,75p i.e., a sum of Rs.1,15,49,349.12p due under Cash Credit Limit and Rs.1,74,10,284.25p due under Short Term Loan with future interest at 19% per annum with monthly rests from 17.6.2010 till date of realization in full along with costs of this application. After full fledged trial, Ld. Presiding Officer, DRT-1, Chennai found that appellant is entitled to the said claim from Defendants 1, 3 and 4 and claim against D2 was dismissed for the reason that D2 is not a party to the revised guarantee agreement and thus by virtue of Section 62 of Indian Contract Act, liability if any of D2 stood extinguished by operation of law. Challenging the said finding, this Appeal is filed.

3. Ld. Counsel for appellant bank submitted that loan in favour of first respondent ( first defendant in OA) was sanctioned as per Sanction dated 7.11.2007. When the loan was sanctioned, 2^nd respondent was also one of the directors of the first respondent. R2 along with other directors had executed guarantee deed on 24.11.2007. As per clauses 4 and 7 of the Guarantee Deed, guarantor namely R2 along with other guarantors agreed that bank shall be entitled to give temporary and extra Overdraft or other advances to the borrowers and to provide the payments made by the borrowers towards recovery of any moneys advanced/disbursed by the bank to the borrowers from time to time and it was also agreed that guarantors consent to the bank making any variance, change or modification that the bank may think fit in the terms of the bank’s contract with the borrowers to the Bank determining, enlarging or varying any credit facility to the borrower. Guarantors also agreed that they shall not be discharged from liability to the bank. Thus, Ld. Counsel submitted that these conditions make it expressly clear that guarantors including R2 are bound to pay amounts guaranteed.

4. In continuation of his submissions, Ld. Counsel for the bank submitted that appellant bank, consequent to the formation of consortium and bank being inducted with a cash credit facility of Rs.100 lakhs, was pleased to inform that first respondent was sanctioned with restructured loan facility to the effect that a Cash Credit Facility of Rs100 lakhs has been carved out of the existing Short Term Loan of Rs.1000 lakhs availed by the company in November, 2007 and the Cash Credit Limit will be made available to the company upon execution of the joint consortium documents by all the banks.

5. In terms of restructuring of the existing short term loan, which is carved out from the existing short term loan sanctioned in the year 2007, second respondent cannot say that second respondent is exonerated from its liability and discharge of loan amount. It is not a case of novation of contract. Second respondent is still liable on the basis of the personal guarantee executed by him on 24.11.2007. Thus, Ld. Counsel submitted that finding of the Ld. Presiding Officer in discharging the proceedings against R2 is not correct and not in accordance with law and prayed the Tribunal to set aside the order of the Ld. Presiding Officer as against R2 and allow the appeal fixing the liability on R2 as well.

6. In support of his submissions, Ld. Counsel for appellant bank produced judgment of Hon’ble Supreme Court of India in re Lata Construction and others Vs. Dr. Rameshchandra Ramniklal Shah and another reported in (2001) SCC 586.

7. In reply, Ld. Counsel for R2 submitted that on the basis of sanction letter dated 7.11.2007 and personal guarantee given by second respondent on 24.11.2007, no amount was disbursed by the appellant bank. Loan amount was disbursed on 27.6.2008, subsequent to the substitution of loan agreements by sanction letter dated 27.3.2008 followed by execution o