M/S. H.D.F.C. Vs.
Gautam Kumar Nag & Ors.
[Civil Appeal No.137 of
J U D G M E N T
Aftab Alam, J.
appeal is directed against the judgment and order dated August 9, 2005, of the Delhi
High Court by which it allowed the appeals of the two respondents (defendant Nos.2
and respectively before the trial court), set aside the judgment and decree passed
by the trial court and permitted the appellants to file their written statements
within four weeks from the date of the judgment, directing further that the trial
court would then proceed 2with the suit and dispose it of in accordance with law.
appellant M/s. Housing Development and Finance Corporation (in short "HDFC")
instituted a suit under Order XXXVII of the Code of Civil Procedure, 1908, for realisation
of its dues against defendant No.1 (the borrower; not before this Court) and the
two respondents (defendant Nos.2 & 3) who were the guarantors to the loan.
According to the case
of the appellant-plaintiff, defendant No.1 who was the owner of a plot of land approached
the appellant-plaintiff for a loan for constructing a house on the plot. The loan
was sanctioned on October 29, 1997, and on December 9, 1997, defendant No.1 executed
the Loan Agreement and a promissory note in favour of the appellant. In addition,
defendant No.1 also created an equitable mortgage in favour of the plaintiff by
depositing the title deeds of the plot in question.
The other two defendants,
respondents before this 3Court, stood guarantee for repayment of the loan and executed
the letters of guarantee on December 9, 1997. On the execution of the necessary
documents the loan was disbursed to defendant No.1 in two instalments.
loan amount, along with interest at the rate of 15% per annum was to be repaid
in equalised monthly instalments over a period of 180 months and in case of default,
according to the terms of the loan, the outstanding would attract additional interest
@ 18% per annum.
defendants defaulted in payment of the EMIs and as a result, a large sum was outstanding
against them. The defendants did not pay the instalments despite letters and reminders.
Hence, the plaintiff invoked the guarantees vide letter dated October 22, 1998,
and intimated the two respondents that in case of failure to make the payment, legal
proceedings would be instituted against them. Despite the aforesaid letter and legal
notices sent on behalf of the appellant, the defendants did not pay the outstanding
amount of Rs.4,37,350/-, and the plaintiff was thus left with no option but to
institute the suit for realisation of its dues.
No.1 did not appear in the suit despite notice. The two defendants-respondents,
however, appeared before the trial court and filed separate applications under Order
XXXVII Rule 3 sub-rule (5) of the Code of Civil Procedure for permission to
defend the suit.
defendants' applications were based on a number of grounds but we may only
advert to the one that seems to have weighed with the High Court.
It was contended on behalf
of the respondents that since the plaintiff-appellant had got a promissory note
executed in its favour by the borrower-defendant No.1 and had further made the borrower
create an equitable mortgage in its favour by deposit of title deeds, they would
be absolved of 5their liability in terms of Section 139 of the Contract Act.
According to the respondents,
their plea gave rise to a triable issue and they, accordingly, sought permission
to file their written statements and contest the suit. The trial court by its judgment
and order examined all the pleas, including the one based on Section 139 of the
Contract Act and found and held that none of the pleas raised by the defendants
gave rise to any substantial defence against the claim of the plaintiff.
dismissed the petitions filed by the defendants-respondents by order dated April
29, 2005, and proceeded to decree the suit of the appellant-plaintiff for a sum
of Rs.4,54,669/- along with cost and pendente lite and future interest @ 10% per
annum on the decretal amount from the date of filing of the suit till the date of
appeal the Delhi High Court, as noted above, set aside the order and decree
passed by the trial court and directed it to allow the defendants-respondents to
file their written statement and proceed to try the suit from that stage.
The High Court noted that
relying upon Section 139 of the Contract Act, a contention was raised by the respondents
that for recovery of its loan from defendant No.1, the principal borrower, the plaintiff
should have taken recourse first by either seeking to give effect to the promissory
note or by enforcing the equitable mortgage. Neither of these remedies which were
open to the plaintiff were taken recourse to and the recovery was sought to be made
straightaway from the appellants.
The High Court further
held that the trial Judge fell into error in holding that Section 139 of the Contract
Act had no application to the facts of the case. According to the High Court, this
was beyond the scope of deciding an application for leave to defend. The High Court
observed that the question was not about the correctness or otherwise of the defence
raised by the appellants and what was required to be looked into by the trial
Judge was whether a triable issue was made out or not.
If a triable issue was
made out, then leave to defend ought to have been granted and thereafter the defence
raised by the appellants could have been adjudicated on merits. The correctness
of the defence raised by the defendants could not have been looked into by the trial
Judge at the time of deciding the application for leave to defend. In support of
its view, the High Court relied upon a decision of this Court in M/s Mechelec
Engineers & Manufacturers v. M/s Basic Equipment Corporation, (1976) 4 SCC
our view, the High Court was completely wrong in holding that the respondents were
able to make out a triable issue on the basis of Section 139 of the Contract Act.
It is well established that the liability of the guarantor is equal to and co-extensive
with the borrower and it is highly doubtful that the guarantor can avoid his
liability simply on the basis of the promissory note made out or an equitable
mortgage created by the borrower in favour of the lender.
However, in the facts
of this case, this question does not even arise. A reference to the deed of guarantee
executed by the two respondents would have made the position completely clear
but unfortunately the attention of the High Court was not drawn to the relevant
clauses in the deed of guarantee.
two respondents executed identical deeds of guarantee of which clauses (2) and (3)
read as follows:- "(2) I hereby accord my consent to the terms of the said
Loan Agreement and/or any instrument or instruments that may hereafter be
executed by the Borrower/s in your favour as aforesaid, being by mutual consent
between you and him/them in any respect varied or modified without requiring my
consent or approval thereto and I agree that my liability under this Guarantee shall
in no manner be affected by such variations and modifications and I expressly give
up all my rights as surety under the provisions of the Indian Contract Act,
1872 in that behalf.
(3) You shall have the
fullest liberty without in any way affecting this Guarantee and discharging me from
my liability there under to postpone for any time or from time to time the exercise
of any power of (sic.) powers reserved or conferred on you by the said Loan Agreement
or any instrument or instruments that may hereafter be executed by the Borrower/s
in your favour and to exercise the same at any time and in any manner and either
to enforce or forbear to enforce payment of principal or interest or other monies
due to you by the Borrower/s or any of the remedies or securities available to you
or to grant any indulgence or facility to the Borrower/s AND I SHALL not be released
by any exercise by you of you (sic.) liberty with reference to the matters aforesaid
or any of them or by reason of time being given to the Borrower/s or of any other
forbearance, act or omission on your part or any other indulgence by you to the
Borrower/s or by any other matter or thing whatsoever which under the law relating
to sureties would but for this provision have the effect of so releasing me AND
I hereby waive all surety ship an (sic.) other rights which I might otherwise be
entitled to enforce or which but for this provision have the effect of
releasing me." (emphasis added)
light of the expressed stipulations, in the guarantee, any reliance on Section 139
of the 10Contract Act is evidently futile and of no avail. In our view, therefore,
the impugned judgment of the High Court is unsustainable and is fit to be set
aside. We, accordingly, set aside the impugned judgment of the High Court and restore
the order and decree passed by the trial court.
the result the appeal is allowed but in the facts of the case, there will be no
order as to costs.
(Ranjana Prakash Desai)