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United Bank Of India v. Bengal Behar Construction Company Ltd. And Others
Factual and Procedural Background
Special leave was granted. On 28-11-1995, the Court set aside the Division Bench’s order that had nullified a decree passed by a learned Single Judge against the principal debtor and restored that decree. Consequently, there exists a decree on admission against the principal debtor under Order 12 Rule 6 of the Code of Civil Procedure.
As to the guarantors, the Court had previously deferred confirmation of the decree against them and directed them to file undertakings within seven days not to dispose of any personal properties (to be indicated in the undertakings) until further orders. The two guarantors filed undertakings, but the Court found them “far from satisfactory.” The undertakings, identically worded except for schedules of equity shares and their values, stated ownership of the scheduled assets and an agreement not to deal with those assets, but did not state that the deponents had no other properties.
While these proceedings were pending, the guarantors instituted Suit No. 281 of 1995 in the High Court seeking a declaration that seven letters of guarantee are null and void and not binding, and seeking relief against enforcement of the guarantees by execution of any decree passed in Suit No. 223 of 1985 (the suit giving rise to the present proceedings). This filing was not disclosed in the pleadings. The Court noted that the guarantors appeared to be attempting to avoid orders in the present proceedings and to initiate separate proceedings notwithstanding the pendency of Suit No. 223 of 1985.
Legal Issues Presented
- Whether the previously deferred question of confirming the decree against the guarantors should now be decided.
- Whether, in light of Clause 15 of the letters of guarantee and the decree on admission against the principal debtor, the guarantors are liable to satisfy the decree jointly and severally.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court first noted the existing procedural posture: a decree on admission under Order 12 Rule 6 CPC stands against the principal debtor by virtue of the Court’s 28-11-1995 order restoring the learned Single Judge’s decree. The Court had earlier deferred confirming the decree against the guarantors, requiring undertakings regarding non-disposal of properties; these undertakings were found inadequate because they only listed certain shares and did not disclaim ownership of other assets.
The Court further observed that the guarantors filed Suit No. 281 of 1995 during the pendency of these proceedings, seeking to invalidate the letters of guarantee and restrain enforcement of any decree in Suit No. 223 of 1985, and that this was not disclosed in the pleadings. The Court viewed this as an attempt to evade orders in the present proceedings, which weighed against any further deferral.
On the merits of guarantor liability, the Court relied on the express terms of the letters of guarantee. Clause 15 states that any action settled or stated between the bank and the principal debtor, or admitted by the principal debtor, shall be accepted by the guarantors as conclusive evidence. Applying this clause, the Court reasoned that once a decree on admission has been passed against the principal debtor, the guarantors become liable to satisfy the decree jointly and severally. Accordingly, there was no reason to continue deferring confirmation of the decree against the guarantors.
Holding and Implications
HOLDING: The appeals by special leave against the guarantors are ALLOWED. The order of the Division Bench of the High Court is SET ASIDE, and the order of the learned Single Judge is RESTORED. The respondent-guarantors shall pay costs quantified at Rs 10,000.
Implications: The guarantors are liable, jointly and severally, to satisfy the decree in light of the decree on admission against the principal debtor and Clause 15 of the letters of guarantee. The decision resolves the previously deferred question of confirming the decree against the guarantors and enables enforcement against them. The opinion addresses the direct dispute without articulating broader doctrinal changes or setting out new precedent.
1. Special leave granted.
2. On 28-11-1995, we passed an order setting aside the order of the Division Bench of the High Court which had set aside the decree passed against the principal debtor by the learned Single Judge and we restored that decree. Therefore, so far as the principal debtor is concerned, there is a decree on admission against him under Order 12 Rule 6 CPC.
3. As regards the decree against the guarantors, we had deferred the issue regarding the confirmation of the decree against them but had directed them to file an undertaking within 7 days to the effect that they will not dispose of any of their personal properties, encumbered or otherwise to be indicated in the undertaking till further orders. Pursuant thereto, undertakings have been filed by the two guarantors which are far from satisfactory. They are identically worded except for the schedule of properties in which the equity shares and their value have been set out. The undertaking is to the following effect:
“In compliance of the said order, I annex hereto a schedule of properties and assets owned and possessed by me and I declare that I am the sole owner of the said properties and assets.
I give an undertaking that I will not alienate, transfer, dispose of or deal with the said properties and assets until further order of this Hon'ble Court.”
In the schedule, certain shares of a limited company and the value thereof has been stated. The deponent does not state that except the property shown in the schedule, he has no other property. The undertaking is, therefore, far from satisfactory.
4. Apart from that, we now find that the guarantors have instituted Suit No. 281 of 1995 in the High Court for a declaration that the said 7 letters of guarantee are null and void and are not binding on the plaintiffs. It is clear that they have also sought relief against the enforcement of the guarantees by execution of any decree passed in Suit No. 223 of 1985 which is the suit which has given rise to the present proceedings. The aforesaid Suit No. 281 of 1995 was filed by the guarantors during the pendency of the present proceedings and yet this fact has not been disclosed in the pleadings. It is, therefore, clear that the guarantors are trying to avoid any order that may be passed in the present proceedings for enforcement of the guarantees and have initiated separate proceedings notwithstanding the pendency of Suit No. 223 of 1985.
5. In view of the above, the question regarding confirmation of the decree against the guarantors now needs to be settled. We had deferred the question by our order dated 28-11-1995 but now see no reason to further defer it. Since the decree has been confirmed against the principal debtor by virtue of the order of 28-11-1995, albeit on admission, we see no reason why the guarantors should not be made liable under the letters of guarantee, the terms whereof clearly stipulate that on the failure of the principal debtor to abide by the contract, they will be liable to pay the amount due from the principal debtor by the appellants. Clause 15 of the letter of guarantee, in terms states that any action settled or stated between the bank and the principal debtor or admitted by the principal debtor shall be accepted by the guarantors as conclusive evidence. In view of this stipulation in the letter of guarantee, once the decree on admission is passed against the principal debtor, the guarantors would become liable to satisfy the decree jointly and severally. In the result, these appeals by special leave against the guarantors must be allowed. The order passed by the Division Bench of the High Court is set aside and the order passed by the learned Single Judge is restored. The respondent-guarantors will pay the cost of the appeals quantified at Rs 10,000.
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