V. Jagannathan, J.:— The Appellant-KSFC, aggrieved by the dismissal of the petition filed by it under Section 31(1)(aa) of the State Financial Corporation Act (“Act” in brief) by the Trial Court has come up in this appeal.
2. Heard the learned Counsel for the parties.
3. The facts, in brief, are to the effect that the Respondents No. 1 and 2 before the Trial Court availed a term loan and a soft loan from the Appellant-Corporation and, accordingly, a sum of Rs. 1,00,000 as a term loan and Rs. 12,000 soft loan were sanctioned.
4. The said Two Respondents had also executed an agreement with a memorandum of hypothecation deed in favour of the Appellant-Corporation and the Third Respondent herein was a guarantor for the above transaction and the borrowers committed default, in payment of the loan amount, leading to the Appellant taking action in the form of seizing the machineries and selling the same in the public auction and further, as the amount due to the Appellant was not fully recovered, the Appellant was constrained to file the application under Section 31(1)(aa) of the Act seeking enforcement of liability only on the i.e, the Third Respondent herein and the said application was contested by the Third Respondent by filing his objections and thereafter, the learned Trial Judge, after taking into account the evidence let in by the parties, ultimately dismissed the petition filed by the Appellant and hence, aggrieved by the said order, this appeal has been preferred.
5. Learned Counsel for the Appellant, Sri B. Rudragowda submitted that the Trial Court was in error in dismissing the petition filed by the KSFC and it ought to have noticed that the Third Respondent herein did execute a Deed of Guarantee in respect, of the loan transaction and therefore, the Appellant was justified in seeking enforcement of the liability against the Third Respondent. In support of his submissions, he placed reliance on a decision of the Apex Court reported in (1992) 3 SCC 159 : AIR 1992 SC 1740 to contend that the decree holder cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and then to proceed against the guarantor. Therefore, the Trial Court was in error in recording a finding that the Appellant ought to have proceeded against the principal borrower and not against the Third Respondent-Guarantor.
6. On the other hand, learned Counsel Sri Varadaraj for the Third Respondent, submitted that first of all, the petition was filed by the Appellant against the principal borrower and also the guarantor, but the first Two Respondents before the Trial Court remained on record without they being deleted and only against the Third Respondent, the enforcement was sought. This itself is a serious defect in the case of the Appellant. Therefore, without seeking any relief against the two principal borrowers, the Appellant, could not have sought the relief only against the Third Respondent-Guarantor. Secondly it was submitted that even accepting that the Third Respondent stood as a guarantor to the loan transaction, the evidence on record would go to disclose that the Appellant had rescheduled the entire loan amount by changing rate of interest from 11.5 per cent as fixed originally to 15.5 per cent and to this revised agreement between the KSFC and the principal borrowers, the Third Respondent was not a party and as such, the Third Respondent stood discharged as guarantor when there was a change in the entire loan transaction between the Appellant and the principal borrowers including the rate of interest. Therefore, referring to Section 135 of the Contract Act, it is submitted that once the creditor-decree holder grants loans to the principal judgment-debtor, that amounts to lying time to the principal debtor and surety-judgment debtor not being a party to that arrangement, he stands discharged. In this regard, he placed reliance on the ruling of this Court reported in AIR 1985 Karnataka 116.
7. Having thus heard the submissions made by both the parties and on a careful perusal of the reasoning given by the Trial Court, I am of the considered opinion that the impugned Order cannot be termed as erroneous in law and the reasons for the same are as under:
It is not in dispute that the original loan transaction between the Appellant and the principal borrower stood altered following rescheduling of the payment of loan amount by the principal borrower and there was also rescheduling of the rate of interest from 11.5 per cent to 15.5 per cent. It is also not in dispute that the Third Respondent herein, was not a party to all these revised rescheduling of the loan transaction. Therefore, merely because the Third Respondent stood as a guarantor at the first instance, it cannot be said that the guarantee executed by the Third Respondent amounts to a continuing guarantee. Once there has been change in the repayment of the loan amount, basing on the KSFC and the principal borrower agreeing to reschedule them along with change in the rate of interest, the guarantor, therefore, stands discharged as he was not a party to the revised transaction. In this connection, a decision of this Court in the case of Maharashtra Apex Corporation Ltd. v. Poovappa Saltan, (1985 AIR Karnataka 116) can be pressed into service. In the aforesaid decision, this Court has observed thus:
Under Section 135, even if the creditor gives some time to the principal judgment-debtor without the assent of the surety, the surety stands discharged. Sri Mallya, learned Counsel for the L.R of the surety quoted before me the decision in Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1968 SC 1432. It is clearly laid down on page 1436 as:
The act of Bank in giving time to the principal debtor, to make up the quantity of the goods pledged, is not tantamount to the giving of time to the principal debtor for making the payment of the money within the meaning of Section 135 of the Contract Act. What really constitutes giving of time is extension of the period at which, by the contract between them, the principal debtor was originally obliged to pay the creditor by substituting a new and valid contract between the creditor and the principal debtor to which the surety does not assent. The reason why an agreement to give time, discharges the surety is, because if after making such an agreement, the creditor were to sue the surety, the latter would at once be turned on the principal debtor in breach of the agreement to give time so that the effect of such an agreement is to prevent the surety, from either requiring the creditor to call upon the principal debtor to pay off the debt or himself paying off the debt and then suing the principal debtor, thereby causing prejudice to the surety.
8. It is further laid down in the supreme court case thus:
Thus, to substitute for payment in one sum payment by installments, amounts to a giving of time. Again, whenever the taking of a new security from the principal debtor by the creditor operates as a giving of time, the surety is no longer liable, but not where that transaction has no such effect.
Therefore, in view of the said Supreme Court decision, the granting of installments by the decree-holder to the principal debtor amounts to giving of time to the principal debtor. Therefore, in view of the clear principle laid down by Section 135, the Trial Court rightly held that the liability of the surety stood discharged.
9. Having regard to the above position in law, KSFC could not have sought its enforcement of liability against the Third Respondent herein.
10. One other reason given by the Trial Court is that the petition itself is barred by time, in as much as though notice to the Respondents was given by the Appellant in the year 17th October, 1985, the present petition came to be filed in the year 1992, almost seven years later. Therefore, the observation of the Trial Court that it is time barred and it by part II of the Limitation Act, also cannot be held to be erroneous in law. Therefore, in the light of the above reasoning and the Trial Court also having given proper reasons particularly at paragraphs 12, 13 and 25 of its impugned Order, the Order passed by the learned Trial Judge therefore, cannot be termed as illegal or contrary to the position in law.
11. In the result, the appeal is dismissed.
Comments