2019 (11) TMI 901 - HC - Indian Laws

Mortgage of property - execution of guarantee deeds of the retired director - extension of loan facility and change of the terms of loan to respondent company after the retirement of director - immovable property given as collateral security or not - it is the case of petitioner is that the bank had failed to prove the execution of guarantee deeds - HELD THAT - It is to be noticed that DRT had framed issues in the OA pending before it. After going through all the documents and evidence on record the DRT had reached to a reasoned conclusion that the issue be decided in favour of the Bank as the Bank was able to prove that present Respondent No.3 company had availed the credit facility through present Petitioner No.1 and Respondent No.4, who also stood guarantors alongwith present Petitioner No. 2. Whether the agreements with D2 and D3 after 21.07.1995 discharged D4, D5, and D6? - What is the extent of liability of D4, D5 and D6? - HELD THAT - The DRT was cautious of the fact that it was the Bank which had produced on record copy of resolution dated 24th July, 1995 of the Company for creating enhanced credit facility and the said resolution was signed by the new directors, namely, Rajan Mehta and Geetha Mehta who are Respondent Nos. 5 and 6 herein. The Petitioners and Respondent No.4 had taken a stand before DRT that their signatures were obtained on blank papers and that appears to be a correct stand and these personal guarantee bonds were filled later on without even mentioning the names of the persons or addresses of the persons who had allegedly executed the said personal guarantees. In the present case there is no denial of the fact that initially the loan was taken by the Respondent No. 3 Company on the basis of the documents executed by the Petitioners and Respondent No. 4. As the Petitioner No.1 and Respondent No.4 are concerned, they were also Directors; Petitioner No.2 is wife of Petitioner No.1 and she stood surety; the collateral security was of the India Development Bonds pledged by the Respondent No.4. In June, 1995, the entire set of Directors changed and the Respondent Nos.5 and 6 were inducted as new Directors of Respondent No. 3 company and the Petitioner No.1 and Respondent No 4 resigned as Directors of the company - the Petitioner No. 2 requested the Bank for releasing her from her personal guarantee and Respondent No. 4 also requested the Respondent No.1 Bank to return his Bonds which was given as collateral security. It is pertinent to note here that all these documents have been produced on record by none else but the Respondent No.1 Bank itself. There is material of change in the amount being financed by the Respondent No.1 on execution of new set of documents in between the bank and Respondent No.3 company acting through Respondent Nos.5 and 6, the new directors. There is no occasion for the Bank to plead that although the new directors and surety executed the personal guarantee bonds dated 22nd July, 1995 and an immovable property worth much more than the value of loan/limits was given in mortgage, still earlier personal guarantee bonds executed by two erstwhile Directors and Petitioner No.2 are still in force - The DRT was right in coming to the conclusion that the Respondent No. 1 Bank has a right to recover its dues from Respondent No.3 company as well as from Respondent Nos.5 and 6, i.e., new set of Directors and it also has the right to proceed against the property mortgaged by Respondent No.7 and all of them are jointly and severely liable. Petition disposed off.

Summary

Issues Involved:
1. Validity and enforceability of the guarantee deeds dated 22nd July, 1995.
2. Discharge of liability of the erstwhile directors and guarantors due to novation of contract.
3. Limitation and the applicability of the Limitation Act.
4. Effect of change in the management and directors of the company on the guarantees and liabilities.

Detailed Analysis:

1. Validity and Enforceability of the Guarantee Deeds Dated 22nd July, 1995:
The DRAT and DRT both concluded that the alleged guarantee deeds dated 22nd July, 1995, purportedly signed by the erstwhile directors, were not valid. The signatures on these documents did not match the admitted signatures of the directors, and there was no evidence that they had executed these documents after resigning from the company. Moreover, the new directors had already taken over the management and provided fresh guarantees and collateral security. The Court agreed with these findings, emphasizing that the signatures on the alleged guarantee deeds did not resemble the admitted signatures of the erstwhile directors.

2. Discharge of Liability of the Erstwhile Directors and Guarantors Due to Novation of Contract:
The Court held that the case falls under Section 62 of the Indian Contract Act, which deals with novation, rescission, and alteration of contracts. The original contract was novated when the new directors took over the company and executed new agreements with the bank. The Court noted that the new directors provided fresh guarantees and collateral security, thereby discharging the earlier directors and guarantors from their obligations under the original contract. The substitution of new debtors and the execution of new agreements indicated a clear intention to novate the original contract.

3. Limitation and the Applicability of the Limitation Act:
The Court observed that the issue of limitation was not explicitly raised in the written statements by the erstwhile directors. However, it was implied through their arguments that there was no cause of action against them. The Court agreed with the DRT's view that the limitation period did not apply in this case because the original contract was novated, and a new cause of action arose with the execution of the new agreements by the new directors.

4. Effect of Change in the Management and Directors of the Company on the Guarantees and Liabilities:
The Court highlighted that the change in the company's management and directors was duly informed to the bank, and the bank had accepted the new directors and the fresh guarantees provided by them. The new directors executed new agreements and provided additional collateral security, which indicated a clear novation of the original contract. The Court emphasized that the bank could not hold the erstwhile directors liable for the debts of the company after accepting the new directors and their guarantees.

Conclusion:
The Court set aside the judgment dated 25th March, 2015, of the DRAT and restored the judgment of the DRT in O.A. No. 722/1996. The writ petitions filed by the erstwhile directors were allowed, and the writ petition filed by the Union Bank of India was dismissed. The Court concluded that the erstwhile directors and guarantors were discharged from their liabilities due to the novation of the original contract, and the new directors and their guarantees were valid and enforceable.