2011 (1) TMI 1562 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of notice u/s 13 of the SERFAESI Act.
2. Impact of compromise settlement on guarantor's liability.
3. Applicability of Sections 133 to 135 of the Indian Contract Act.
4. Right of the bank to initiate fresh proceedings under the SERFAESI Act after a compromise decree.

Summary:

1. Validity of notice u/s 13 of the SERFAESI Act:
The Petitioner challenged the notice dated 15.9.2009 issued by the 2nd Respondent u/s 13 of the SERFAESI Act seeking to recover a sum of Rs. 72,00,571/- from the Petitioner and Respondent No. 3. The notice was issued following a loan transaction between the 3rd Respondent and the 1st Respondent.

2. Impact of compromise settlement on guarantor's liability:
The Petitioner stood as guarantor for a loan availed by the 3rd Respondent from the 1st Respondent. A compromise was reached in 2004 between the principal borrower and the creditor bank, wherein the principal borrower agreed to pay Rs. 20,00,000/- in full settlement. The Petitioner argued that this compromise amounted to a novation of the contract, which was done without his consent, thereby discharging him from liability.

3. Applicability of Sections 133 to 135 of the Indian Contract Act:
The Petitioner contended that any variance in the terms of the contract between the borrower and creditor without reference to the surety discharges the surety from liability, as per Sections 133 to 135 of the Indian Contract Act. The Petitioner cited several judgments, including *Amrit Lal Goverdhan Lalan v. State Bank of Travancore* and *Maharashtra Apex Corporation Ltd. v. Poovappa*, to support his claim that the surety is discharged if the creditor gives time to the principal debtor without the surety's consent.

4. Right of the bank to initiate fresh proceedings under the SERFAESI Act after a compromise decree:
The Petitioner argued that once the proceedings under the DRT Act reached finality with a compromise, the bank could not initiate fresh proceedings under the SERFAESI Act. The Petitioner cited the judgment in *Kanhaiya Lal v. State Bank of India* to argue that the bank is estopped from ignoring the final order and starting new proceedings under the SERFAESI Act.

Judgment:
The Court held that the liability of the guarantor ended with the compromise between the principal borrower and the creditor bank in OA. No. 67/2000. The Petitioner, as guarantor, was absolved of liability, and the bank could not initiate proceedings against the Petitioner under Section 13 of the SERFAESI Act. The notice dated 15.9.2009 was quashed. The Court also noted that the ratio laid down in *Satyawati Tandon's* case did not apply to the facts of this case. The petition was allowed, and parties were directed to bear their own costs.