High Court · 2024
Legal Reasoning
1 WP-3770-95,2856-96-J.odtIN THE HIGH COURT OF JUDICATURE AT BOMBAYBENCH AT AURANGABADWRIT PETITION NO.3770 OF 1995 Deogiri Nagri Sahakari Bank Limited,Aurangabad, (a registered Co-op.Society, registered under the MaharashtraCo-operative Societies Act) having its Registered Office at Kranti Chowk,Aurangabad and one of its branches at Jawahar Colony, Aurangabad, through itsBranch Manager (Constituted Attorney)Branch at Aurangabad..PetitionerVersus1.M/s. Powerup Electricals, Aurangabadthrough its proprietor Mahesh Rameshbhai Chauhan, Age Major,Occu.Business, R/o. K-10/1, Pawannagar,N-9, CIDCO, Aurangabad2.Rajendra Ganpatrao Mhaske,Age Major, Occu. Service,R/o. 2-8-29, Fazalpura, ST Colony,Aurangabad3.Subhash Rameshbhai Chauhan,Age Major, Occu. Business,R/o. K-10/1, Pawannagar, N-9,CIDCO, Aurangabad4.Keshav Ladharam Patel,Age Major, Occu. Business,R/o. C/o. Patel Trading Co.,Krantichowk, Aurangabad5.Mohanlal Premji Ramani,Age Major, Occu. Business,R/o. 39, 7-Hills Colony,Jalna Road, Aurangabad6.Superintending Engineer, MSEB,Circle Office, Yeotmal
Legal Reasoning
2 WP-3770-95,2856-96-J.odt7.Taluqa Dy. Registrar, Co-op. Societies,Aurangabad8.The Divisional Joint Registrar,Co-operative Societies Aurangabad9.The State of Maharashtra.. RespondentsWITHWRIT PETITION NO.2856 OF 1996Mohanlal s/o. Premji Ramani,Aged 35 years, Occu. Bueiness,R/o. Seven Hills Colony, Jalna Road,Aurangabad..Petitioner (Original Respondent No.5)Versus1.Deogiri Nagari Co-operativeSahakari Bank Ltd., Head OfficeAt Kranti Chowk, Branch Jawahar Colony, Aurangabadthrough its Manager, Aurangabad2.M/s. Power-up ElectricalsProp. : Shri. Mahesh Rameshbhai Chavan,C/o. M/s. Vishwas Tin Repairing Works,Sanjay Gandhi Tapri Market, N-9,CIDCO (T.V. Center) Aurangabad3.Rajendra S/o. Ganpatrao Mhaske,Age Major, Occu. Service, R/o. 2-8-89, S.T. Colony,Fazalpura, Aurangabad4.Subhash Rameshbhai Pawar,Age Major, Occu. Business,R/o. N-9, 10/1, Pawannagar, CIDCO,Aurangabad5.Keshav Ladharam Patel,Age Major, Occu. Business, R/o. C/o. M/s. Patel TradingCompany, Kranti Chowk, Aurangabad 3 WP-3770-95,2856-96-J.odt6.Maharashtra State Electricity Board,through its Superintending Engineer,M.S.E.B. (O & M) Circle, Yeotmal,District Yeotmal7.Divisional Joint Registrar,Co-operative Societies, Aurangabad8.Taluka Deputy Registrar,Co-operative Societies, Aurangabad..Respondents(Original RespondentsNo.1, 4 and 6) Mr. D. V. Soman, Advocate for Petitioner in W.P.3770 of 1995 and Respondent No.1 in W.P.No.2856 of 1996;Mr. M. N. Nawandar, Advocate for Petitioner in W.P. 2856 of 1996 and Respondent No.5 in W.P. No.3770 of 1995;Mr. D. R. Markad, Advocate holding for Mr. N. K. Kakade, Advocate for Respondent No.4 in W.P. 3770 of 1995;Mr. H. M. Karwa, Advocate for Respondent No.6 in both petitions -absentCORAM :S. G. MEHARE, J.Reserved on : 31-01-2024Pronounced on : 10-04-2024JUDGMENT :-1.These writ petitions have been preferred against twoseparate orders against the common defendant bank, who hasalso preferred the Writ Petition No. 3770/1995. 2. Respondent No.4 in W.P. No. 3770/95 preferred the revisionbearing Case No.170 of 1994, respondent No.5 had preferred the 4 WP-3770-95,2856-96-J.odtrevision bearing Case No.232 of 1995, respondent No.6 hadpreferred the revision bearing Case No.176 of 1994 and thepresent petitioner had preferred the revision bearing Case No.194of 1994 before the Divisional Joint Registrar, Co-operativeSocieties, under Section 154 of the Maharashtra Co-operativeSocieties Act, againt the certificate of Deputy Registrar underSection 101 of the Maharashtra Co-operative Societies Act, dated20.07.1994. 3.In cases No.176 of 1994 and 170 of 1994, the Divisional JointRegistrar discharged them from liability for paying the debtbecause the bank had extended the time to repay the loanwithout their consent. He dismissed the revision of the presentpetitioner bearing No.190 of 1994 and confirmed the certificateissued against the principal debtor. 4.The petitioner of W.P.No.2856/1996 had preferred a revisionbearing No. 232/1995. He had a case that the District DeputyRegistrar did not issue him a notice of the proceeding undersection 101 of the Maharashtra Co-operative Societies Act. He hadsigned the agreement at the behest of one of the Directors of theBank. He was told that the surety was nominal and that it wasonly for two months He was also told that money would berecovered from the borrower only. Believing in him, he signed thedocuments. He knew nothing about it. He also claimed the 5 WP-3770-95,2856-96-J.odtdischarge as there was a novation of contract between the creditorand the principal debtor.5.Respondent No.6 had a case that his office never was theguarantor for the principal debtor nor issued any letter to thateffect. Whatever the documents produced before the bank wereforged. Therefore, he cannot be held liable for repaying the loanjointly or severally. When the petitioner learnt about it and had itfiled a criminal complaint against the principal debtor. By filingsuch a complaint they have principally admitted that the fraudhad been played in the name of respondent No.6.6.Most of the facts are admitted. The principaldebtor/respondents No.1 to 3 had applied for a temporaryoverdraft facility. Respondents No.4 and 5 were the guarantors forrespondent No.1. The principal debtor and guarantors executed apromissory note and agreement of loan and letter of continuedsecurity. It is admitted that the term loan was only for two monthsi.e. up to 22.06. 1992. The principal debtor has agreed to repaythe loan in ten instalments. However, the said period was over,and respondents No.1 to 3 applied to the Branch Manager of thepetitioner to extend the time to repay the loan on 18.07.1992. Hisrequest was accepted, and time was extended till September1992. 7. The learned counsel for the petitioner in Writ Petition 6 WP-3770-95,2856-96-J.odtNo.3375 of 1995 referred to the documentation of temporaryoverdraft and argued that it was a continuing surety. Therefore,merely extending the time to repay the loan is not a novation ofthe contract. Respondent No.2 played a fraud not only with thepetitioner bank but also with M.S.E.B. The guarantors were theconspirators. Therefore, they cannot be a nominal guarantor. Theprincipal debtor has absconded and is left with no property torecover the loan. It is a public money. Hence, it must be recoveredfrom guarantors who could not be discharged. The extension oftime does not affect the rights of the bank and absolve theguarantors. Therefore, Section 133 of the India Contract Act doesnot apply. The Divisional Joint Registrar erred in holding that it’s anovation of contract. Hence, guarantors have been discharged. 8.To bolster his arguments, he relied on the case of(i) Industrial Investment Bank to India Limited vsBiswanath JhunJhunwala, (2009) 9 SCC 748, (ii) Ramkishunand others vs State of Uttar Pradesh, (2012) 11 SCC 511,(iii) Central Bank of India vs. C.L. Vimla and othes (2015)SCC 337, (iv) Mukesh Gupta vs. Sicom Limited Mumbai,(2004) (1) Mh.L.J. 159, (v) State Bank of India vs. M/s.Indexport Registered and others, (1992) 3 SCC 159.9.Per contra, learned counsel for respondent No.4 has arguedthat the guarantee was only for two months. The request of 7 WP-3770-95,2856-96-J.odtprincipal debtor to extend the time to repay the loan was acceptedwithout the consent of the guarantor. Therefore, it was a novationof contract, and such a new contract is not binding on theguarantors. He relied on the case of (i) Keshavlal HarilalSetalvad vs. Pratapsing Mohanlalbhai Seth LEX (PVC) 19319 29 and (ii) T. Raju Setty vs. Bank of Baroda, of theKarnataka High Court, decided on 20.12.1990, (iii) S.Peramal Reddiar vs. Bank of Baroda, A.I.R. 1991 Madras180.10.Mr. Navandar, learned counsel in Writ Petition No.2858 of1996 vehemently argued that he was the guarantor to the sameperson. A recovery certificate was never served upon him.However, the Divisional Registrar did not consider this materialaspect and issued a certificate without notice to him. He alsoargued that the guarantor cannot be made liable beyond theterms of his engagement. Therefore, the petitioner was also liableto be discharged. He relied on the case of State of Maharashtravs. Dr. M. N. Kaul (dead) by his L.Rs. and another, A.I.R.1961 SC 1634. 11.On hearing respective learned counsels, the questionrevolves around is whether extending the time to the principaldebtor by the by the creditor is a novation of contract. Hence, theguarantors are not bound by such a contract, and the next 8 WP-3770-95,2856-96-J.odtquestion is, was a notice served upon the petitioner in Writ PetitionNo.2856 of 1996 by the Deputy Registrar, Co-operative Societiesbefore issuing the certificate under Section 101 of the M.C.S. Act?12.The guarantors signed the loan agreement. In the saidagreement, the guarantors and the principal debtor agreed torelease the loan on the promissory note. However, to make therepayment convenient, monthly installments were allowed. It wasa temporary overdraft facility for the principal debtor for twomonths only. It was the responsibility of the guarantors to repaythe loan anyhow. On 22.04.1992, the guarantors executed thecontinue security letter and thereby, they agreed that the demandpromissory note is to be treated as continuing security for thebalance and interest from time to time due to the bank and thesaid hypothecation (TOD) account was not to be considered to beclosed for the purpose of the security. 13.Section 135 of the Indian Contract Act deals with thedischarge of surety when the creditor compounds with, gives timeto, or agrees not to sue the principal debtor. Such acts are thenovation of contracts that discharge the surety. 14.The case of Industrial Investment (supra) relied upon bylearned counsel by the petitioner bank was under Section 128 ofthe Indian Contract Act, which speaks of surety’s liability. In theabsence of any novation of contract without the consent of the 9 WP-3770-95,2856-96-J.odtguarantor, the surety is liable to pay the loan. Therefore, the caselaw has no relevance to the issue involved in this case. The caseRamkishun (supra) was again dealing with Section 128 of theIndian Contract Act. The said section provides that the liability ofthe guarantor/surety is co-extensive with that of the debtor.Therefore, the creditor has a right to obtain a decree against thesurety and the principal debtor. The surety has no right to restrainthe execution of the decree against him until the creditor hasexhausted his remedy against the principal debtor for the reasonthat it is a business of the surety/guarantor to see whether theprincipal debtor has paid or not. The surety does not have a rightto dictate the terms of the creditor as to how he should make therecovery and pursue his remedies against the principal debtor athis instance. The ratio laid down in the said case does not assistthe petitioner. The facts of the case of Mukesh Gupta (supra) werethat there were terms of the agreement that the suit could beinstituted against the appellant treating him as principal debtor,and it was not necessary for the respondent to sue the principaldebtor before instituting the said suit against the guarantor andthe guarantee given by the appellant is enforceable against himnotwithstanding the fact the respondent against the company hastaken no action. In the case at hand, there was no such contact.The Hon’ble Division Bench referring to the judgment of the PrivyCouncil in the case Hodges vs Delhi and London Bank limited, 10 WP-3770-95,2856-96-J.odt1990 27 ind -App 168, in which it was held that it is not possibleto accept the view expressed by the learned Judges of the PunjabHigh Court in Pearl Hosiery Mill’s Case. In any event, that was thecase in which without consent of the surety, variations were madein the terms of original contract. Therefore, in view of Section 133of the Act, it was held that surety stood discharged. The case ofthe State Bank of India (supra) was on a different issue. It is alsonot helpful to the petitioner.15.In the case of T. Raju Setty (supra), the Court held thatSection 133 of the Act makes it clear that any variance made inthe contract between the principal debtor and creditor without theconsent of the surety, discharges the surety as to transactionsubsequent to variance. The consent of the surety can be obtainedeither at the time the contract is made between the principaldebtor and the creditor to which the surety gives a guarantee formaking any change or alteration in the contract to be made or notto claim any right or benefit under Chapter VIII of the Act. In otherwords, in the surety – bond, guarantee – bond itself, the surety canagree to waive the right available to him under the variousprovisions contained in Chapter VIII of the Act. Such waiving of hisright by surety is permissible under Section 133, read with Section128 of the Act. In the case at hand, there was no such agreementexecuted by the sureties at the time of the loan agreement. Thepromissory note was collateral subject to the terms of the surety. 11 WP-3770-95,2856-96-J.odtThe Madras High Court in S. Perramal (supra) held that alterationsmade in the deed with respect to amount of guarantee, rate ofinterest charged for amount guarantee, and debt of contractwithout knowledge of surety discharge the surety. In the case ofDr. M. N. Kaul (supra), the Hon'ble Supreme Court held that theguarantor cannot be made liable beyond the terms ofengagement. 16.Admittedly, the consent of the guarantors was not obtainedwhile extending the time. Section 135 of the Indian Contract Actspecifically provides for the discharge of the surety when thecreditor gives time to the principal debtor, and that is the variancein the terms of the contract under Section 133 of the Act. In otherwords, a novation of contract discharged the surety. 17.The facts of the case are clear that the petitioner did notobtain the consent of the guarantors before extending the loanrepayment period to the principal debtor. Therefore, this is a caseof novation of contract that discharges the surety.18.The above discussion leads this Court to conclude that therewas a novation of contract without the consent of the sureties.Hence, they are not liable to repay the loan and respondent No.6never consented to pay the bills under the temporary overdraftfacility. There is no substance in the petition of the petitioner/bank.Hence, it is liable to be dismissed. 12 WP-3770-95,2856-96-J.odt19. Besides the grounds for no service of notice to the petitionerMohanlal (W.P. No.2856/1995), he succeeded in proving that hewas not the party to the novation of the contract. In suchcircumstances, there would be no propriety in remitting the matterto the Divisional Joint Registrar for de novo consideration. Hence,the following order; ORDER1.Writ Petition No.3770 of 1995 stands dismissed.2.Writ Petition No.2856 of 1996 is allowed, and the certificateissued against him by the Deputy Registrar, Co-operativeSocieties Aurangabad, issued in Case No.170 of 1994, dated20.07.1994 and the judgment and order of the DivisionalJoint Registrar Co-operative Societies Auranabad passed incase no. 232/95 dated 22.1.1996 stand quashed and setaside. 3. The amount recovered from the bank account of thepetitioner in Writ Petition No.2856 of 1996 be refundedforthwith to him with prevailing rate of interest by the bank. 4.No orders to costs.5.Rule stands discharged in Writ Petition No.3770 of 1995 andRule stands absolute in Writ Petition No. 2856 of 1996. ( S. G. MEHARE ) JUDGErrd