Skip to content


State Bank of India Vs. Monarch Cyber Solutions Limited - Court Judgment

LegalCrystal Citation
CourtDRAT Madras
Decided On
Judge
Reported inIV(2005)BC204
AppellantState Bank of India
RespondentMonarch Cyber Solutions Limited
Excerpt:
.....defendant company borrowed the amount to which the defendant nos. 2 to 4 as its directors stood as guarantors. defendants 5 to 7 have offered corporate guarantee. the 1st defendant company was dealing with the software/hardware items such as computers, printers, furniture, fittings, etc. the loan, obtained by the 1st defendant company was not discharged and hence, the appellant bank filed the oa.2. the defendant nos. 1, 5, 6 and 7 remained ex parte. the 2nd defendant filed the written statement and defendants 3 and 4 together have filed a separate written statement. that in the written statement of the 2nd defendant, it had admitted the borrowings from the appellant bank and also further admitted that the defendant nos. 2 to 4 have guaranteed the repayments of the loans. it is also.....
Judgment:
1. Aggrieved by the Order dated 30.11.2004 passed by the DRT, Hyderabad, in OA 454/2000, the State Bank of India has preferred this Appeal. The brief facts of the case of the appellant are as follows: The 1st defendant Company borrowed the amount to which the defendant Nos. 2 to 4 as its Directors stood as guarantors. Defendants 5 to 7 have offered corporate guarantee. The 1st defendant Company was dealing with the software/hardware items such as computers, printers, furniture, fittings, etc. The loan, obtained by the 1st defendant company was not discharged and hence, the Appellant Bank filed the OA.2. The defendant Nos. 1, 5, 6 and 7 remained ex parte. The 2nd defendant filed the written statement and defendants 3 and 4 together have filed a separate written statement. That in the written statement of the 2nd defendant, it had admitted the borrowings from the appellant Bank and also further admitted that the defendant Nos. 2 to 4 have guaranteed the repayments of the loans. It is also stated that the defendants 5 to 7 are Body Corporate and they have also given guarantee to the loan sanctioned to the 1st defendant company. Though, the defendants 3 and 4 have filed separate written statement, it is almost in the nature of adoption of the written statement filed by the 2nd defendant and they have also admitted the execution of the Guarantee Agreement by defendants 2 to 4 and also the corporate guarantee given by them i.e. defendants 5 to 7. The only defence raised by the defendants is that the Order passed by the DRT in appointing a Receiver to take charge of the movable property of the 1st defendant company and the sale made by the Receiver and the realisation of the amount of Rs. 4,06,000/- (Rupees four lakh and six thousand) which, sale according to them, was not properly held. Their contention is that the property was worth more than 40,00,000/- (Rupees forty lakh).

3. The DRT had accepted the case of the defendants that the value of the movable security given by the guarantors at the time of sanctioning of the loan was Rs. 87.14 lakh, but, whereas, it was sold by the receiver only for Rs. 4,06,000/- and held that the properties were not sold for proper value which impaired the value of the security given by the defendants. It had also observed that the sale was made without giving notice to the defendant Nos. 2, 3 and 4, which is not valid.

That only in the said circumstances, the DRT came to the conclusion that the 1st defendant alone is liable to pay the OA claim and discharged the guarantors 2 to 7. As against the same, the present appeal has been preferred.

4. The defendants 1, 5, 6 and 7 remained ex parte before the DRT and the defendants 2, 3 and 4 alone contested the OA after filing their written statement. Before this Tribunal all the respondents remained ex parte.

6. It is the contention of the appellant that in respect of the loan granted to the 1st defendant, the defendants 2 to 4 who are the Directors of the company stood as guarantors not only as directors but also in their individual capacity and they have executed necessary Guarantee Deed to that effect and the same is available at page 63 of the typeset of papers. Clause (7) of the guarantee agreement explicably states: "The guarantee hereby given is independent and distinct from any security that the bank has taken or may take in any manner whatsoever whether it be by way of hypothecation pledge and/or mortgage and..., that the guarantors have not given the guarantee upon any under standing faith or belief that the Bank has taken and/or may hereafter take any or other such security and that notwithstanding the provisions of Sections 140 and 141 of the Contract Act, 1872 or any other section of that Act or any other law, the Guarantors will not claim to be discharged to any extent." 7. Pointing out this clause in the agreement, it is argued that the guarantees given by the defendants 2 to 4 are independent guarantees and apart from that they are liable as directors and also apart from that the movables of the defendant No. 1 have been hypothecated.

Likewise, the defendants 5 to 7 have also given their corporate guarantee and the same is available at page 67 of the typeset of papers and Clause (7) reads as it is available in the other guarantee executed by the defendants 2 to 4.

8. It is, therefore, contended that the liability of the defendants 2 to 4 and 5 to 7, are independent of the hypothecation taken by appellant Bank of the properties of the 1st defendant Company. It is further submitted that the properties held by the 1st defendant Company were computers, printers, software hardware materials, etc., and the 1st defendant Company had shifted part of the properties to Bangalore, while the principal business was carried on at Hyderabad. Though, the defendants 2 to 4 would contend that part of the properties were shifted from Hyderabad to Bangalore with the consent of the bank and they have also permitted such an action, there is nothing on record to show that the Bank had permitted them to do so. They have given a letter of undertaking on 14.9.1999 itself which is available in page 135 of the typeset of papers admitting that they have shifted certain items to Bangalore on September 10,1999, without the permission of the bank and they have also regretted for their action by stating that, "We regret for not keeping the Bank informed about the developments before the actual shift of machinery and we hereby undertake that no equipment/assets of the company will be shifted out of the Hyderabad office without the bank's written approval henceforth". As such, the contention of the defendants that they have shifted part of the materials to Bangalore with the permission of the appellant Bank is not correct. As the defendants made arrangements to dispose of the properties with a view to defeat and defraud the claim of the appellant, the appellant bank filed an application for appointment of Receiver and movable properties of the 1st defendant company were brought to public auction and the Receiver had realized Rs. 4,06,000/- by way of sale proceeds and the same was also deposited in the Tribunal and a report was also filed on 3.6.2002. Though the respondents find fault with the appointment of Receiver and selling the properties in the public auction, they have not chosen to challenge the said auction.

It is also not the contention of the guarantor that the sale of the properties had prejudiced their interest to any extent. That in the absence or any materials to show that the sale or the properties was quite prejudicial to the interest of the guarantors, the reliance made by the DRT to the case of P. Janakiram Chetty v. Punjab National Bank, Ltd., New Delhi and Anr., , cannot be made applicable.

But on the other hand, the appellants contention is that the guarantors bind themselves in Clause (7) of the Agreement that the guarantors will not claim any benefit under Sections 140 and 141 of the Contract Act and thereby waived their right. In such an event, it cannot be stated that the said waiver is also against the public policy as contemplated under Section 23 or the Contract Act. This is the view taken in the case of T. Raju Setty v. Bank of Baroda, , wherein, it was held that, "The liability of the surety as stated in general terms in Section 128 of the Act is no doubt co-extensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because Section 128 of the Act itself specifically provides that the liability of a surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.

Thus, the liability of the surety is subject to the terms of the contract as may be arrived at between the parties. The words 'unless it is otherwise provided in the contract' occurring in Section 128 of the Act will also govern the other provisions contained in Chapter VIII of the Act and enable the surety to give up the rights available to him under Sections 133, 134, 135, 139 and 141 of the Act." In other words, in the surety bond/guarantee bond, itself the surety can agree to waive his right available to him under the various provisions contained in Chapter VIII of the Act, but, such waiving of his right by the surety is permissible under Section 133 read with Section 128 of the Act. As such, in our case also, the guarantors have also waived their right under Clause 7 of the Agreement and, therefore, they cannot claim that the value of the property hypothecated got impaired by the action of the appellant Bank and that too in the absence of any proof. As such, the contention of the respondents that they got discharged by the act of the appellant cannot be accepted.

9. In addition to that the DRT has got power for the appointment of Receiver under Section 19(18), which states "Where it appears to the Tribunal to be just and convenient, the Tribunal may, by order-- (a) appoint a receiver of any property, whether before or after grant of certificate for recovery of debt." As such the appointment of Receiver by the DRT is in order and, in fact, the said order was not at all challenged by the respondents. In that account also, it is not open to the respondents to raise such a plea that the sale of the property by the Receiver would discharge them from their liability. This aspect of the case was not at all taken into consideration by the DRT, which resulted in passing an order which is erroneous and the same is liable to be set aside.

10. In the result, Appeal is allowed and the Order dated 30.11.2004 passed by the DRT, Hyderabad, as against D2 to D7 is set aside.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //