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Citation Codes
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Case Number
Disposition

dismissed

Attorney(S)
  • For the Appellant: P. Krishna Murthy
  • Sr. Adv.
  • Romy Chacko
  • Rajiv Mehta
  • Advocates. For the Respondents: S.N. Bhat
  • Advocate.
Judges
  • Justice S.N. Variava
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

dismissed

Attorney(S)
  • For the Appellant: P. Krishna Murthy
  • Sr. Adv.
  • Romy Chacko
  • Rajiv Mehta
  • Advocates. For the Respondents: S.N. Bhat
  • Advocate.
Judges
  • Justice S.N. Variava
See more information ...
Smart Summary

Factual and Procedural Background

The respondent Bank granted a term loan of Rs 60,000 and two cash-credit facilities of Rs 10,000 each (later enhanced to Rs 20,000 and Rs 25,000) to the second respondent. The appellant executed deeds of continuing guarantee covering repayment of the advances with interest. When the loan remained unpaid, the Bank filed a recovery suit. The trial court dismissed the suit, holding that (i) the plaint was not signed by an authorised person and (ii) the appellant had guaranteed only the principal, not interest. On appeal, the High Court reversed the trial court, decreed the suit, and awarded interest at 15.5% p.a. against both the principal debtor and the guarantor. The present appeal challenges the High Court’s decree.

Legal Issues Presented

  1. Whether the suit was barred by limitation in light of the deeds of continuing guarantee.
  2. Whether the appellant-guarantor’s liability extended to interest as well as principal.
  3. If liable for interest, whether that liability could exceed the rate applicable to the principal debtor.

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 agreed with the High Court that the suit was not time-barred because the deeds constituted a continuing guarantee; the guarantor’s liability persists so long as the principal debt remains due.

The Court further concurred that the guarantee covered both principal and interest, rejecting the trial court’s contrary view.

However, the Court held that a guarantor’s liability cannot exceed that of the principal debtor. Although the guarantee documents mentioned 15.5% p.a. interest, the underlying loan agreements fixed interest at 13.5% p.a. for the term loan and 14% p.a. for the cash-credit facilities. Accordingly, the High Court erred in awarding a higher rate.

Holding and Implications

APPEAL PARTLY ALLOWED / DECREE MODIFIED

The decree is varied to award interest at 13.5% p.a. on the term loan and 14% p.a. on the cash-credit facilities; in all other respects, the appeal is dismissed with no order as to costs. The ruling reaffirms that a guarantor’s liability is co-extensive—but not greater—than that of the principal debtor, without setting new precedent beyond the parties to this case.

Show full summary ...

    B.G Vasantha v. Corporation Bank, Mangalore And Another

    Order

    1. This appeal is filed against the judgment dated 25-9-1998.

    2. Briefly stated, the facts are as follows:

    The respondent Bank had advanced a term loan of Rs 60,000 to the 2nd respondent. On the same day it also advanced two cash credit facilities of Rs 10,000 each to the 2nd respondent. The appellant executed deeds of continuing guarantee guaranteeing to repay the amount advanced to the 2nd respondent along with interest thereon. Subsequently, the cash credit limits were extended to Rs 20,000 and Rs 25,000.

    3. The respondent Bank filed suit for recovery of the amount. The trial court dismissed the suit on the ground that the plaint had not been signed by an authorised person. It also held that the appellant herein had only agreed to repay the principal amount and not the interest. As against this, the respondent Bank went in appeal. The High Court by the impugned judgment set aside the judgment of the trial court and decreed the suit. While decreeing the suit it has awarded interest @ 15.5% p.a in respect of the abovementioned facilities.

    4. We are in agreement with the view of the High Court that the suit was not barred by limitation. The guarantee being a continuing guarantee, so long as the principal debt remained due and payable, the guarantor also remained liable.

    5. We are also in agreement with the High Court that the guarantee is not only for repayment of the principal amount but also for interest thereon. However, we find that so far as the principal debtor is concerned, the liability to pay interest is @ 13.5% p.a in respect of the term loan facility and 14% p.a in respect of cash credit facility. Even though the guarantee documents mention interest @ 15.5% p.a, in our view, the liability of the guarantor cannot exceed that of the principal debtor. The guarantor is only guaranteeing debt due by the principal debtor. The High Court thus erred in granting decree against the guarantor and the principal debtor for interest @ 15.5% p.a To this extent the High Court judgment needs to be modified. We direct that the principal amount payable will be with interest @ 13.5% p.a in respect of the term loan facility and 14% p.a in respect of cash credit facility.

    6. Save as above, the appeal stands dismissed with no order as to costs.

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    Comments

    B.G Vasantha v. Corporation Bank, Mangalore And Another
    (Jul 14, 2004)