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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVILAPPELLATE JURISDICTION

CIVIL APPEAL No. 3654 OF 2006   

CENTRAL BANK OF INDIA            .….. APPELLANT

Vs.

VIRUDHUNAGAR STEEL ROLLING MILLS  LTD. & ORS.             .….. RESPONDENTS

J U D G M E N T

VIKRAMAJIT SEN, J.

1 This Appeal assails the concurrent findings of the Trial Court as well as

the High Court absolving the Respondents, other than Respondent No.1 which

is the company which received various credit facilities from the Appellant Bank,

of  a  total  amount  of  12  lacs  against  security  of  moveable  as  well  as  raw

materials.  These facilities were subsequently secured in favour of the Appellant

Bank by means of  continuing guarantee by the Directors of  the Respondent

Company, who are  Respondent  Nos.  2  to  4  herein,  in  terms  of  Promissory

Notes, Letters of Guarantee, Letters of  Hypothecation and Letters of Continuity

all  dated  30.8.1974.    On 30.6.1977 and again on 31.12.1977,  by means of

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separate letters from the Respondent Company to the Appellant Bank, the entire

balance due, stood confirmed.  Eventually, the Appellant filed a suit on 2.5.1980

for recovery of  3,94,805.42 with future interest at the rate of 14 per cent per

annum.   In  the  interregnum  another  creditor  of  the  Respondent  Company,

namely Respondent  No. 5,  had already initiated recovery proceedings in the

Court in the course of which the properties of  Respondent Company came to be

auctioned and were purchased by Respondent No. 6 on 26.10.1979.    

2 As many as ten issues were framed by the Trial Court which went on to

decree the suit  against  the Respondent Company, but dismissed it  as against

Respondent Nos. 2 to 4.  The conclusions of the Trial Court so far as they are

germane  to  decision  in  this  Appeal  were  that  the  liabilities  incurred  by  the

Respondent  Company  prior  to  the  execution  of  the  personal  guarantees  by

Defendant Nos. 2 to 4 were not recoverable from the latter.    The Trial Court

placed  reliance  on  two  judgments  of  the  Madras  High  Court,  namely  J.J.

Harigopal  Agarwal  v. State  Bank  of  India  AIR 1976  MAD 211 and  D.  K.

Mohammed Ehiya Sahib  v.  R.M.P.V. Valliappa Chettiar AIR 1976 MAD 536.

In the latter case it was held that if there is any variation in the original contract

the legal consequence would be that the surety stood absolved.

3 The impugned Judgment notes that the main submission on behalf of the

Appellant  Bank  was  that  all  the  documents  executed  by  the  Respondent

Company,  including  those  dated  30.8.1974  and  the  acknowledgement  of

liability dated 30.6.1977 and 31.12.1977 had to be taken together in fastening

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the  liability  of  the  Directors  of  the  Company  with  regard  to  their  personal

guarantees.   It  also noted that  in none of  the documents relied upon by the

Respondent Company had Respondent Nos. 2 to 4 acknowledged or undertaken

their personal liability and/or stood guarantee for repayment of any specific and

liquidated amounts already advanced by the Appellant Bank to the Respondent

Company prior to 30.8.1974.  The High Court also returned the finding that

there  was no cogent  evidence  to  establish  that  the claims raised  in  the suit

pertained  to  advance  or  credits  made  subsequent  to  30.8.1974,  the  date  on

which Respondent Nos. 2 to 4 had executed the documents relied upon by the

Appellant Bank.

4 The  learned  Counsel  appearing  for  the  Appellant  Bank  had  raised

arguments,  firstly  to  the question of  limitation,  secondly to the discharge of

surety by variance and thirdly on priority claims in respect of Rollers.  Since the

question  which  engaged  the  attention  of  the  High  Court  in  the  impugned

Judgment  revolved  around  the  fastening  of  the  liability  on  the  Respondent

Nos.2 to 4 in respect of transactions prior to the date of the execution of those

documents, i.e. 30.8.1974, we shall restrict our attention only to this point.  It

will be a relevant reiteration that the entire claim of the Appellant Bank had

been decreed against the Respondent Company.

5 So far as the factual matrix is concerned, the Respondent Company was a

constituent  of  the  Appellant  Bank  for  a  considerably  long  period  and  had

availed of various facilities including cash credit, etc.   It is not in dispute that of

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the  limit  of  12  lacs  sanctioned  by  the  Appellant  Bank  in  favour  of  the

Respondent Company, the balance on the close of the business on 29.8.1974

was 7,68,853.39, and the latter stood indebted to the former for the aforesaid

sum.  Learned counsel for the Appellant Bank had sought to rely on Montosh

Kumar Chatterjee v. Central Calcutta Bank Ltd. (1952-53) 57 CWN 852, the

ratio of which appears to be that a creditor is not bound to volunteer to a surety

information as to the state of the principal debtor’s account; and that a creditor

is entitled to appropriate payments received subsequent to the execution of a

guarantee bond, even so far as a pre-existing debt of which the surety had no

knowledge; that there can be no presumption that the surety will be efficacious

for prior as well as current and future debts.  We note that in the case in hand,

the Letter of Guarantee signed on 30.8.1974 by Respondent Nos. 2 to 4 makes

no mention of  any old transactions,  although it  specifically  records  that  the

liability of the guarantors cannot exceed  12 lacs.   The Letters of Guarantee

could easily have recorded the liabilities outstanding against the Respondent

Company on 30.8.1974 with an affirmation from Respondent Nos. 2 to 4 that

they were guaranteeing these outstandings.   Woefully for the Appellant Bank,

there  is  no  such  acknowledgment  or  assumption  of  liability  in  the  subject

Guarantee. The High Court has pithily noted the statement of P.W.1, Accountant

of the Appellant Bank, who has deposed to the effect that the Deed of Guarantee

made no mention of any prior transactions.  It appears to us that if any doubts in

this regard still persisted, they stood dispelled by the testimony of D.W.1, who

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has  stated  in  his  cross-examination  that  the  Appellant  Bank  obtained  the

Guarantee Deed on the understanding that it would be effective and relevant

only with regard to debts subsequent to 30.8.1974.  This very witness had also

clarified  that  the  Guarantee  arrangements  made no mention whatsoever  that

they were effective in respect of prior debts.

6 The decision in Sita Ram Gupta v. Punjab National Bank (2008) 5 SCC

711 is  of  no  advantage  to  the  Appellant  Bank.   That  decision  concerns  the

possibility of a guarantor revoking his continuing guarantee, with the objective

of escaping his liability.   This is not the case before us inasmuch as the defence

of  Respondent  Nos.  2  to  4 is  that  they had agreed to  stand surety only for

transactions after 30.8.1974.  Our attention was also drawn to B. G. Vasantha v.

Corporation Bank, Mangalore (2005) 10 SCC 215 as also M.S. Anirudhan v.

Thomco’s Bank Ltd. AIR 1963 SC 746 but these decisions do not call  for a

detailed analysis.  It is the Appellant Bank which drafted the Guarantee Deed,

and in case of doubt, the document would be read against it.  This is the contra

proferentem rule, which is of a vintage which brooks no contradiction.

7 In view of the foregoing discussion, there appears to be no controversy as

to the fact that the Guarantee Deeds executed by Respondent Nos. 2 to 4 on

30.8.1974  rendered  them personally  liable  for  any  transactions  or  advances

made  by  the  Appellant  Bank  to  the  Respondent  Company  after  30.8.1974.

There is also no controversy whatsoever that the Bank account lay dormant after

this date, all dealings having been transacted much prior thereto.   Such being

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the position, it is not open to the Appellant Bank to pursue Respondent Nos. 2 to

4 for recovery of debts incurred by the Respondent Company in favour of the

Appellant Bank.  We may clarify that our decision is founded on the evidence

that has been recorded in this suit.  We should not be misunderstood to have

held that a guarantor can, in no circumstances be fastened with liabilities which

had been incurred in the past which the guarantor assumed liability for.

8 We accordingly dismiss the Appeal by affirming the concurrent findings

arrived at by both the Courts below.  There shall however be no order as to

costs.

…………………………J [VIKRAMAJIT SEN]

…………………………J [SHIVA KIRTI SINGH]

New Delhi; December 29, 2015.