DRAT Delhi (2026.09.08) in Anil Kumar Jain vs Canara Bank & Ors. [Appeal No. 466/2019 ] held that;
The respondent no 2 sent letter dated 16.08.2001 and the appellant sent letter dated 13.02.2002 to the respondent no 1 for revocation of the guarantee furnished by the appellant and these letters also satisfied requirements of section 130 and requirements as contained in various clauses of guarantee agreement 24.08.2000.
Section 62 of the Indian Contract Act of 1872 recognizes novation when the parties to the agreement agree to substitute, cancel, or amend a contract and thereafter the original contract need not be performed. Novation ends the old contract which needs not to be fulfilled.
The essential components of section 62 are that there should be a previous enforceable contract between the parties and replacement, revocation, or modification of a contract leading to the formation of a legally valid new contract.
There is no force in these arguments advanced by the counsel for the respondent no.1 as the respondent no.1 restructured the entire loan outstanding or granted to the respondent no.2 on 16.02.2005 on execution of fresh loaning documents. The appellant did not stand as a guarantor. The respondent no.2 itself admitted that the previous loan accounts were declared as NIL and fresh accounts were opened.
The counsel for the appellant was justified in argument that restructuring of loan account of the respondent no 2 sans the appellant as guarantor was novation of previous loan agreement between the respondent no 1 and the respondent no 2.
Excerpts of the order;
1. Canara Bank which is respondent no 1 in present Appeal and applicant in Original Application (hereinafter referred to as "the respondent no 1") has filed present O.A. bearing no 408/2011 before DRT-III, Delhi under Section 19 of The Recovery of Debts Due To Banks And Financial Institutions Act, 1993 (hereinafter referred to as "RDDB&FI Act") for recovery of Rs. 47,87,81,427.31 along with pendent lite and future interest @16.75% p.a. compounded with monthly rests plus 2% penal interest from the date of filing the Original Application (hereinafter referred to as "O.A.") till realization and the costs, charges and expenses.O.A. was subsequently transferred to DRT-1 with new No. TA80/15.
1.1 The respondent no 1 in O.A. pleaded that M/s IndocountChoonggnam Textiles Limited which is respondent no 2 in present appeal and the defendant no 1 in O.A. (hereinafter referred to as "the respondent no 2")through Sunil Kumar Jain who is the respondent no 3 in present appeal and the defendant no 2 in O.A.(hereinafter referred to as the "respondent no 3") and Anil Kumar Jain who is appellant in the present appeal and the defendant no 3 in O.A. (hereinafter referred to as "the appellant")approached the respondent no 1 for sanction of credit facilities in the July 1998. The respondent no 1 sanctioned FDB/E (ST) ofRs. 200.0 lakhs and Inland Letter of Credit Limit of Rs. 100.0 lakhs against hypothecation of stocks of machineries, book-debts and plant & machinery. The respondent no 3 executed loaning documents on 03.07.1998 which were Counter Indemnity, Power of Attorney and Letter of Undertaking. The respondent no 3 again on 28.07.1998 also executed Hypothecation Agreement of goods & Book debts and Agreement of opening Inland Irrevocable Letters of Credit on behalf of respondent no 2.The appellant and the respondent no 3 also executed Guarantee agreements on 03.07.1998 along with guarantee covering letter in their individual capacity. The appellant and the respondent no 2 and in March 1999 approached the respondent no 1 with a request to enhance facilities to FDB/E for Rs. 400.0 Lakhs and ILC facility of Rs. 200.0Lakhs. The respondent no 3 after approval on the existing terms and conditions executed fresh documents on 22.03.1999 which were Pronote, Take delivery Note, Hypothecation Agreement, Counter Indemnity, Agreement of opening ILC, power of Attorney and Letter of Undertaking. The appellant and the respondent no 3 also executed guarantee agreements in their individual capacity.
1.2 The respondent no 1 in September, 1999 at the request of the respondent no 2 sanctioned adhoc PC facility for Rs. 100.0 lakhs and adhoc ILC facility of Rs. 100.0 lakhs and FDB/E facility was renewed. The respondent no 3 on behalf of the respondent no 2 again executed loaning documents on 18.09.1999 and acknowledgement of debt and also executed guarantee agreement in his individual capacity. The respondent no 1 again in May 2000 at the request of the respondent no 2 enhanced/modified the facilities to FDB/E (PBLC) of Rs. 400.0 lakhs, ILC/FLC (DA) facility of Rs. 400.0 lakhs {with sublimit of PC (PBLC) of Rs. 200.0 lakhs} and SL PC facility of Rs. 50.0 lakhs. The respondent no 3 had executed security documents on 12.05.2000 on behalf of the respondent no 2. The appellant and the respondent no 3 executed guarantee letters in individual capacity on 12.05.2000 & 16.05.2000 respectively. The respondent no l again in July 2000 at the request of the respondent no 2 enhanced the ILC / FLC (DA) facility from Rs. 400.0lakhs to Rs.450.0 lakhs
and the respondent no 3 on 20.07.2000 on behalf of the respondent no 2 executed Link Letter, Supplemental agreement, agreement for opening Inland Irrevocable Letters of Credit, Hypothecation agreement of goods & Book debts, Letter of Undertaking and personal Guarantee in individual capacity. The respondent no 2 again requested for enhancement of the facility to Rs. 500.0 lakhs which was approved on execution of same documents on 31.07.2000.
1.3 The respondent no lin the month of August, 2000 at the request of the appellant and the respondents no 2 & 3 renewed and enhanced limits to Rs. 800.00 lakhs of FDB/E (PBLC) and Rs. 600.00 lakhs of ILC FLC on execution of documents on 24.08.2000 by the respondent no 3 on behalf of the respondent no 2. The appellant and the respondent no 3 stood guarantors 3 stood guarantors in individual capacity for the enhanced limits. The respondent no 1 in October, 2000 at the request of the appellant and the respondents 2 & 3 enhanced ILC/ FLC facility to Rs. 750.0 lakhs on execution of documents by the respondent no 3 on behalf of the respondent no 2 on 10.10.2000 besides furnishing own Guarantee in personal capacity. The respondent no 1 in November, 2000 enhanced these facilities twice to Rs. 850.0 lakhs and further to Rs. 1000.0 lakhs on execution of documents on 18.11.2000 & 27.11.2000 respectively.
1.4 The respondent no 1 in January, 2001; March, 2001 & July 2001 enhanced ILC facility to Rs. 1200.0 lakhs, further to Rs. 1400.0 lakhs and finally to Rs. 1800.0 lakhs on execution of similar documents on 29.01.2001, 01.03.2001 & 06.07.2001 by the respondent no 3 besides furnishing guarantee in personal capacity. The appellant and the respondents no 2 & 3 in June, 2003 and May 2004 again approached the respondent no 1 for enhancement of ILC facility to Rs. 1900 lakhs & further FDB/E facility of Rs. 250.0 Lakhs which was acceded to on execution of similar documents on 05.06.2003 & 14.05.2004 the respondent no 3 including his guarantee in personal capacity. The respondent no 1 in October, 2004 sanctioned ad hoc ILC / FLC facility of Rs. 500.0 Lakhs at the request of the appellant and the respondents no 2 & 3 on execution of documents which were Take delivery letter to DPN, Pronote, GPA, Agreement for opening ILC, Hypothecation agreement and Letter of Authority on28.10.2004 by the respondent no 3 including furnishing guarantee in personal capacity.
1.5 The respondent no 2 & 3 and the appellants approached the respondent no 1 in February, 2005 with a request to restructure and enhance the facilities. Accordingly, the respondent no 1 approved PC/FDB/E/OCC forRs. 3350.0 lakhs, ODBD/CDB/LCDB for Rs. 1190 lakhs, ILC/FLC facility of Rs.500.0 lakhs and bank guarantee of Rs 50.0 Lakhs on execution of fresh loaning documents by the respondent no 3 on 16.02.2005 on behalf of the respondent no 2 including furnishing guarantee in personal capacity. The respondent no 2 through its authorized representative to secure the these advances executed declaration undertaking in respect of joint mortgage by deposit of title deeds of properties in the name of the respondent no 2 comprising of freehold land admeasuring 1,38,787 square meters situated at Village Lakodara, Taluka Karjan, District Vadodra (Gujarat) along with Building & structures thereon and plant & machinery installed/attached to the earth on a pari-passu basis in favour of the respondent no 1 which was created with IDBI Bank. The charge on the fixed assets was registered with the Registrar of Companies. The appellant and the respondents no 2 & 3 again approached the respondent no 1 in February, 2007 and at their request PC/FDB/FBE/OCC/Bills facility of Rs. 3350.0 lakhs (with sub-limit of PC for Rs. 1350.0 lakhs), OCC facility of Rs. 500.0 lakhs, FDB/FBE for Rs. 1500.0 lakhs, LC limit of Rs. 500.0 lakhs, BG facility of Rs. 50.0 lakhs, WCTL facility of Rs. 1190.0 lakhs and FITL facility of Rs. 215.0 lakhs was sanctioned on execution of loaning documents on 10.02.2007 by the respondent no 3 on behalf of the respondent no 2 who also executed personal Guarantee covering all the amounts.
1.6 The respondent no 2 availed and utilized loan facilities sanctioned by the respondent no 1 from time to time. The respondent no 2 has failed to maintain financial discipline. LCs amounting to Rs. 6,37,16,206.52including interest up to 27.02.2011 were devolved and the respondent no 1 issued legal notice dated 28.01.2011 to the appellant and the respondents no 2 & 3 but they failed to pay the demanded amount. Hence the respondent no 1 filed present OA.
# 2. The respondents no 2 & 3 and the appellant filed respective written statement. The respondents no 2 & 3 in the written statement raised following objections;-
i. The officials of the respondent no 1 forcefully took signatures on blank, undated printed forms which were later on used as per the whims of these officials, which are forged and fabricated.
ii. The interest claimed is excessive & exorbitant and penal interest has been capitalized.
iii. OA is time-barred in terms of Section 22(1) of SICA, there is no bar on OA proceedings, especially against the respondent no 3 defendant no. 2.
iv. OA has not been signed, verified or instituted by duly authorized and/or competent person.
v. The statement of account filed is neither a true copy as per provisions of Section 4 of the Banker's Book of evidence Act nor is it a complete statement showing rates of interest periodically.
vi. There is no cause of action and denied that the appellant and the respondents no 2 & 3 approached the respondent no 1 or executed any documents including the alleged guarantees or mortgaged any property.
# 3. The appellant in the written statement raised following objections:-
i. The appellant is neither a guarantor nor a mortgagor, hence not a necessary or proper party to the OA. The appellant had last executed the guarantee deed on 24.08.2000 for Rs.14.00 Crores only whereas limits have been enhanced several times thereafter. The appellant had ceased to be a Director of the respondent no 2 since April 2001 which was conveyed to the respondent no 1 vide letters dated 16.08.2001 issued by the respondent no 3 and dated 13.02.2002 issued by the appellant. The respondent no 1 vide sanction/renewal letter dated 19.01.2005 has restructured the account stipulating personal Guarantee of the respondent no 3 only and closed all earlier accounts to merge them into fresh limits, which amounts to novation of contract in terms of section 62 of the Indian Contract Act and as such the appellant stands discharged.
ii. O.A.qua the appellant is time barred.
# 4. The respondent no 1 filed replication to the written statement of the respondent no 2 & 3 wherein denied allegations made by the respondents 2 & 3 and reiterated the averments made in OA. The respondent no 1 also filed replication to the written statement of the appellant wherein denied allegations made by the appellant and reiterated the averments made in OA and reiterated that the appellant had executed continuing Personal Guarantee deeds on 03.07.1998, 22.03.1999, 16.05.2000 & 24.08.2000which were never revoked by the appellant.
# 5. The respondent no 1 and the appellant led respective evidence by way of affidavit and proved requisite documents.
# 6. DRT-1 considered objection raised on behalf of the respondents no 2 & 3 that the officials of the respondent forcefully took signatures on blank, undated printed forms which later on misused by the officials of the respondent no 1. DRT-1 did not accept said objection by observing that the respondent 3 and the appellant have not claimed that they were illiterate persons and once signatures on a document are admitted then the document stand proved. DRT-1 further observed that the appellant and the respondent no 3 have failed to produce any cogent and independent evidence to establish that loaning documents were blank at time of signing of these documents.
6.1 DRT-1 also considered another objection raised on behalf of the respondents no 2 & 3 that interest as claimed by the respondent no 1 was excessive and exorbitant and penal interest was capitalized. DRT-1 did not accept said contention and observed that the respondents no 2 & 3 have only made bald statement and could not point any specific instance of any departure from the agreed rate of interest.
6.2 DRT-1 also did not accept contentions of the respondents no 2 & 3 that OA was time barred as there was no bar to proceed with OA under RDDB&FI Act in terms of section 22 (1) of SICA against the respondent no 3 being guarantor. DRT-1 observed that the documents were lastly executed on 10.02.2007. The respondent no 2 was before BIFR which was abated on 17.05.2010 and as such period up to 17.05.2010 has to be deducted for the purpose of calculating limitation. It was further observed that the respondent no 3 and the appellant have raised the plea that there was no bar for action against the guarantors. It was also observed that the present OA was filed for enforcing the rights of a creditor in whose favour a mortgage has been created by the appellant and the respondents no 2 & 3 and as such the limitation period applicable shall be 12 years in terms of Article 62 of the Schedule of the Limitation Act and not three years as claimed. The DRT-1 after mentioning that present OA was instituted on 28.02.2011 and as such was filed within in limitation.
6.3 DRT-1 also considered another objection raised on behalf of the respondents no 2 & 3 that OA has not been signed, verified or instituted by duly authorized and/or competent person but not accepted said objection by observing that OA cannot be dismissed on this technical ground. DRT- 1 also considered another objection raised on behalf of the respondents no 2 & 3 that the respondent no 1 did not file true copy of statement of account as per Section 4 of the Banker's Book of evidence Act and complete statement showing rates of interest periodically. DRT-1 did not accept said contention by observing observed that the respondent no 1 filed complete statement of account from year 2005 onward in respect of devolved LCs, WCTL, FITL and OCC which was duly certified as per provisions of the Banker's Book of Evidence Act but the respondent no 1 despite directions did not file the statement of account for initial period of advance till 30.03.2005. However DRT-1 observed that missing statement was pertaining to dates prior to the restructuring of loans and fresh documentation as such it would not affect the outcome of the present OA against the respondents no 2 & 3. DRT-1 also considered claim of the appellant that he did not execute any document after 24.08.2000. DRT-1 ultimately observed that the respondent no 1 has already filed the certificate dated 28.02.2011 in terms of Section 2A(b) of the Bankers Books of Evidence Act, therefore, said objection raised by the respondents no 2 & 3 wasnot sustainable. DRT-1 also considered objection raised by the respondents no 2 & 3 that cause of action was never accrued against the respondents no 2 & 3 but not accepted said objections on basis of documents proved on record.
# 7. DRT-1 considered prime objection of the appellant that the appellant was not a necessary party in OA as the appellant was not a guarantor or a mortgagor. The appellant admittedly lastly executed the guarantee deed on 24.08.2000 for Rs. 14.00 crores but the respondent no 1 thereafter enhanced the limits several times and vide sanction/renewal letter dated 16.02.2005 has restructured the account stipulating personal guarantee of the respondent no 3 only and closed earlier accounts which were merged in fresh limits and said act was novation of contract in terms of Section 62 of the Indian Contract Act. The respondent no 1 refuted said contention of the appellant by stating that the liability of the borrower and guarantor was joint and several.DRT- 1 considered that the appellant executed personal guarantee to the facility granted to the respondent no 2 being the borrower from 1998 till 24.08.2000 and thereafter the respondents no 2 & 3 sought enhancement of the limit and executed the requisite documents on 18.11.2000, 27.11.2000, 29.01.2001, 01.03.2001, 06.07.2001,05.06.2003, 14.05.2004 and 28.10.2004 but the appellant did not execute any document for the enhanced facility and there was no personal guarantee of the appellant for the enhanced facility. DRT- 1 also noticed that on 16.02.2005 all the facilities were renewed and all requisite documents were executed afresh by the respondents no 2 and 3. DRT-1 further observed that the appellant was not a part of these facilities and did not furnish personal guarantee for fresh facilities/renewal of the facilities. DRT-1 also considered submission advanced on behalf of the appellant that the appellant may be discharged as the facilities were renewed subsequent to guarantee of the appellant and also no statement of account prior to the year 2005 was produced by the respondent no 1 to establish that there were any dues existing prior to the renewal of the facilities. DRT-1 observed that the appellant did not execute any guarantee after August 2000but it was a continuing guarantee which was never revoked in writing and as such the appellant was liable to pay the dues of the respondent no 1. DRT- 1 simultaneously observed that the respondent no 1 did not produced any statement of account for the period from 1998 till 30.03.2005 to establish any default during said period and the respondent no 1 specifically stipulated the guarantee of the respondent no 3 only as guarantor on 16.02.2005 at the time of renewal of the facilities. DRT- 1 held that the respondent no 1 impliedly recognized that the appellant was not liable for any future advances and held the appellant liable for the advances to respondent no 1 which were outstanding as on 16.02.2005 andrestricted liability of the appellant to the extent of Rs. 14.0 crores being the amount of the last Deed of Guarantee executed by the appellant along with interest thereon as per contractual terms i.e. just before the restructuring.
7.1 DRT-1 did not accept another objection of the appellant that OA qua the appellant is time barred.
# 8. DRT-1 ultimately observed that whole case of the respondent no 1 is based on documents and the witness of the respondent no 1 has duly proved averments made in OA by secondary evidence as the original documents have been seized by CBI. The liability of the appellant and the respondents no 2 and 3 is joint and several. The respondent no 1 has claimed pendent lite and future interest @16.75% p.a. compounded with monthly rests plus 2% penal interest from the date of filing the OA till realization in full. DRT-1 vide judgment dated 21.09.2019 (hereinafter referred to as "the impugned judgment") allowed OA and directed the respondent no 2 & 3 to pay within a period of 30 days a sum of Rs. 47,87,81,427.31 along with pendent lite and future interest @16.75% p.a. compounded with monthly rests plus 2% penal interest from the date of filing the OA till realization in full. It was further ordered that in case of default decretal amount shall be recovered from the sale of hypothecated assets of the respondent no 2 and mortgaged immovable property as well as from personal movable and immovable properties of the respondents no 2 and 3. DRT-1
also directed the appellant to pay within a period of 30 days a sum of Rs. 14,00,00,000/- along with pendent lite and future interest @16.75% p.a. compounded with monthly rests plus 2% penal interest from the date of filing of the OA till its realization in full and failing which the aforesaid amount shall be recovered from the personal movable and immovable properties of defendant no. 3. DRT-1 also passed further directions.
# 9. The appellant being aggrieved filed present appeal bearing no 466/2019 to challenge impugned judgment primarily on grounds that impugned judgment is perverse, arbitrary and was passed without application of mind. DRT-1 did not consider pleadings, documents and contentions of the appellant. DRT-1 has erred on facts and law while passing impugned judgment. DRT-1 did not consider that the respondent no 1 did not produce and file requisite documents to fasten liability on the appellant. DRT-1 has not considered letter dated 13.02.2002 sent by the appellant to the respondent no 1 regarding revocation of his guarantee and as such wrongly held that it was valid and continuing guarantee. The appellant resigned from the respondent no 2 in March, 2001. The appellant has challenged the impugned judgment on various other grounds as detailed in memo of appeal. It was prayed that impugned judgment qua the appellant be set aside.
# 10. Sh. Aniruudh Sharma, Advocate advanced arguments on behalf of the appellant. The appellant also submitted written submissions dated 23.06.2021 and additional written submissions dated 08.07.2026.The counsel for the appellant stated that the appellant executed last personal guarantee on 24.08.2000 covering an amount not exceeding Rs. 14 crores. The appellant ceased to be Director of the respondent no 2 since April, 2001 and revocation of personal bank guarantee of the appellant was duly communicated to the respondent no 1 vide letter dated 16.08.2001 issued by the respondent no 2 and subsequent loans were granted to the respondent no 2 on personal guarantee of the respondent no 3 and the appellant did not furnish personal guarantee. The appellant vide letter dated 13.02.2002 again reiterated that he was no more director of the respondent no 2 and sought release of his personal guarantee. It was further stated that after withdrawal/revocation of guarantee by the appellant and as per section 130 of the Indian Contract Act, 1872, the appellant could not be liable for future transactions/loans/facilities which were granted/enhanced or renewed without personal guarantee of the appellant. The respondent no 3 only executed personal bank guarantee for several enhancements and renewals post 24.08.2000. The counsel for the appellant further stated that the respondent no 1 did not place on record statement of account prior to 01.04.2005. The counsel for the appellant after referring above factual position argued as under:-
i. DRT-1 in impugned judgment observed that the respondent no. 1 did not produce statement of accounts for the period from 1998 till 30.03.2005 and working capital facilities of the respondent no. 2 were renewed by the respondent no. I from 2000 to 2004 and on 19.1.2005/16.2.2005 fresh loans/facilities were granted after closing all previous accounts and also in February 2007 but wrongly held that the appellant executed last Personal Bank Guarantee of Rs. 14 Crores on 24.08.2000 which was a continuing bank guarantee and that facilities of ICTL were renewed by the respondent no 1 on 16.02.2005 and as such the appellant is liable to pay Rs. 14 crores with interest towards outstanding as on 16.02.2005 of ICTL towards the respondent no 1.
ii. The respondent no 2 vide letter dated 16.08.2001 and the appellant vide letter dated 13.02.2002 have withdrawn/revoked personal bank guarantee given by the appellant. The respondent did not reply these letters and as such deemed to be accepted request of the appellant as the respondent no 1 allowed further enhancement and disbursement of limits to the respondent no 2/ the borrower from time to time without the personal bank guarantee of the appellant after 24.08.2000. The appellant in affidavit tendered in evidence referred the letters dated 16.08.2001 and 13.02.2002 as Ex D-3/W1 and D-3/W2 but the respondent no 1 did not rebut these letters in evidence. There were no outstanding dues against the respondent no 2 prior to renewal of facilities in February 2005 but DRT-1 in impugned judgment wrongly restricted liability of the appellant to Rs. 14 crores which was amount of last deed of guarantee executed by the appellant along with contractual interest before the restructuring on 16.02.2005after observing 16.02.2005after observing that continuing guarantee was not revoked.
iii. DRT-1 has not considered in right perspective the revocation of the personal bank guarantee dated 24.08.2000 by the letter dated 16.08.2001 submitted by the respondent no 2 and letter dated 13.02.2002 submitted by the appellant and acknowledged by the respondent no 1 on 21.02.2002 and the respondent no 1 did not file and prove statements of accounts for the period from 1998 till 30.03.2005 which was required to prove default or outstanding dues for working capital facilities limits comprising of LC/FLC (Inland and Foreign Letter of Credit) as non-fund based and FBD (Foreign Bill Discounting). The respondent no 1 has restructured facilities in year 2005 which was exclusively secured by obtaining personal guarantee of the respondent no 3 and the respondent no 1 has not obtained any fresh personal guarantee of the appellant. The counsel for the appellant ultimately argued that impugned judgment is not based on cogent and convincing evidence and as such present appeal is liable to be accepted.
# 11. Sh. P.B.A. Srinivasan, Advocate advanced arguments on behalf of the respondent no 1. The respondent no 1 also submitted written submissions dated 23.06.2021 and additional written submissions dated 08.07.2026. The counsel for the respondent no 1 submitted that the appellant was one of the directors of the respondent no 2 and has availed loans on behalf of the respondent no 2 on execution of guarantee agreements. The appellant claimed to resign from the respondent no 2 as its director but it does not absolve the appellant from liability under contractual obligation. The appellant did not file any agreement between him and the respondent no 1 regarding stoppage of his liability after resignation from the respondent no 2. It was further stated that letters dated 16.08.2001 and 16.02.2002 do not amount to revocation of personal bank guarantee furnished by the appellant. The guarantee dated 24.08.200 was continuing guarantee and referred clauses 1 and 3 of guarantee agreement dated 24.08.2000 which contemplates that guarantee obligation continues till expiry of six months from actual service of revocation notice. The appellant and the respondent no 2 had sent the letter dated 16.08.2001 wherein date of resignation was not mentioned and it was only stated that the appellant was not involved in affairs of the respondent no 2 and has not attended any board meeting of the respondent no 2 for last more than three years and further the appellant has resigned from the board of directors. The counsel for the respondent no 1 in light of these facts argued as under:-
i. The letter dated 16.08.2001 did not contain stipulation that the personal bank guarantee was revoked and substituted by any other guarantee. The appellant claimed to have sent letter dated 13.02.2002 which was addressed to Head Office of the respondent no 1 situated in Bangalore with copy to the Reserve Bank of India, Mumbai but letter dated 13.02.2002 was not sent to branch which sanctioned the loan and where documents were executed and further as per guarantee deed executed by the appellant, the letter should have been addressed to the branch which was mentioned in guarantee deed. The contents of letter dated 13.02.2002 cannot be treated as revocation of guarantee. The counsel for the respondent no 1 also relied on section 130 of the Indian Contract Act, 1872 which deals with revocation of continuing guarantee which provides that a continuing guarantee may be revoked by the surety as to future transactions by notice to the creditor and argued that continuing guarantee may be revoked only for future transactions. The continuing guarantee was not validly revoked.
ii. The appellant has intentionally misrepresented that the restructuring of the accounts which took place in year 2005 was novation of the contract as mere closure of old loan account and opening of fresh account was an administrative or accounting exercise and does not amount to novation of contract.Section 62 of the Indian Contract Act, 1872 provides that there must be an agreement between the parties to substitute the existing contract with new contract. The respondent no 1 only agreed to restructure the facilities provided and enhance the loan amount but there was no substitution or replacement of existing contract. The guarantee deeds executed in 1999 and 2001 were continuing guarantee covering the borrowing liabilities of the respondent no 2 unless expressly revoked or discharged. The loan package sanctioned to the respondent no 2 was restructured and all previous accounts were declared as NIL by the respondent no 1. The existing accounts were closed and fresh accounts were opened. The mere structuring of loan facilities does not amount new facilities being provided but only amount to modification/revision.There was no novation of contract between the parties.
iii. Original Application is not time barred.
# 12. The counsel for the appellant also advanced arguments in rebuttal. The counsel for the appellant to rebut argument advanced on behalf of the respondent no 1 that the appellant had given continuous guarantee referred para no 8 of the replication wherein the respondent no 1 admitted that the appellant is liable to the extent of the loan sanctioned/disbursed till 24.08.2000. The respondent no 1 had continued to grant and disbursed enhanced fresh limits to the respondent no 2 and admittedly the appellant did not sign or execute any document for enhanced facilities post 2000 and there was no personal guarantee furnished by the appellant for the enhanced/renewed facilities. The respondent no 1 could not prove any default or outstanding in respect of working capital loan/limits sanctioned as per personal bank guarantee dated 24.08.2000 or till 13.08.2002.The counsel for the appellant to reiterate argument that there was novation of contract argued that the respondent no 1 itself admitted that the loan package of the respondent no 2 was restructured in year 2005 and all previous accounts of the respondent no 2 were declared as NIL by the respondent no 1. The appellant cannot be held liable for any default post 13.08.2002. It was reiterated that appeal be allowed.
# 13. It is reflecting from record that the respondent no 2 through the respondent no 3 and the appellant approached the respondent no 1 for sanction of credit facilities in the July 1998 which were sanctioned on execution of requisite loaning documents on 03.07.1998 besides execution of guarantee agreements by the appellant and the respondent no 3 in their individual capacity. The loan facilities were subsequently enhanced from time to time on execution of fresh loaning documents besides execution of guarantee agreements by the appellant and the respondent no 3 in their individual capacity. The appellant had last executed the guarantee deed on 24.08.2000 24.08.2000 for Rs. 14.00 Crores. The appellant claimed that he ceased to be director of the respondent no 2 since April 2001 which was conveyed to the respondent no 1 vide letters dated 16.08.2001 16.08.2001 issued by the respondent no 3 and dated 13.02.2002 issued by the appellant. The respondent no 1 restructured loan package sanctioned to the respondent no 2 in year 2005. The respondent no 3 in subsequent enhancement of credit facilities furnished guarantee in his personal capacity. The respondent no 1 lastly in February, 2007 sanctioned PC/FDB/FBE/OCC/Bills facility of Rs. 3350.0 lakhs (with sub-limit of PC for Rs. 1350.0 lakhs), OCC facility of Rs. 500.0 lakhs, FDB/FBE for Rs. 1500.0 lakhs, LC limit of Rs. 500.0 lakhs, BG facility of Rs. 50.0 lakhs, WCTL facility of Rs. 1190.0 lakhs and FITL facility of Rs. 215.0 lakhs on execution of loaning documents on 10.02.2007 by the respondent no 3 on behalf of the respondent no 2 and the respondent no 3 also executed personal guarantee covering all the amounts. The respondent no 2 has failed to maintain financial discipline.The respondent no. 1 did not produce statement of accounts for the period from 1998 till 30.03.2005. DRT-1 in impugned judgment qua the appellant observed that the appellant did not execute any guarantee after August 2000 but previous guarantee was continuing one and was never revoked in writing. DRT-1 held that the appellant was liable to pay the dues of the respondent no 1. DRT-1 further held that the respondent no 1 impliedly recognized that the appellant was not liable for any future advances and restricted liability of the appellant to the extent of Rs. 14.0 crores being the amount of the Last Deed of Guarantee executed by the appellant along with interest thereon as per contractual terms.
# 14. The appellant primarily contended that the respondent no 1 allowed further enhancement and disbursement of loan limits to the respondent no 2 from time to time without the personal bank guarantee of the appellant after 24.08.2000. The perusal of guarantee agreement dated 24.08.2000 reflects that the appellant stood as a guarantor for the loan advanced to the respondent no.2 for a sum of Rs.14 crores but thereafter the appellant did not furnish the guarantee for the subsequent enhancement of the loan in favour of the respondent no.2 and particularly after restructuring of the loan account in the year 2005. The respondent no.1 also did not dispute furnishing of guarantee by the appellant lastly vide guarantee agreement dated 24.08.2000. It is also on the record that the respondent no.1 has not produced the statement of account for the period w.e.f. 1998 till 31.03.2005 which may reflectthat any amount was outstanding against the appellant subsequent to the execution of guarantee agreements dated 24.08.2000 and restructuring of the amount in the year 2005. There is no evidence on record that when the loan against the respondent no.1 was restructured in the year 2005 and at that time there was outstanding dues against the respondent no.2 for which the appellant stood as a guarantor. The appellant stated to have resigned from the respondent no.2 from April 2001 which was intimated vide letter dated 16.08.2001 issued by the respondent no.2 and dated 13.02.2002 issued by the appellant. The appellant in the evidence led by way of affidavit has referred these letters as Exhibit D3/W1 and Exhibit - D3/W2 and these letters were not rebutted by the respondent no.1. The perusal of letter dated 16.08.2001 reflects that it was issued by the respondent no 2 through the respondent no 3 and was addressed to Assistant General Manager of Rajouri Garden Branch of the respondent no 1 regarding waiver of personal guarantee of the appellant. It was mentioned in letter dated 16.08.2001 that the personal guarantee of the appellant was stipulated on ground that the appellant was a director of the respondent no 2. It was further mentioned that the appellant was not involved in affairs of the respondent no 2 and has resigned from Board of Directors of the respondent no 2. It was accordingly requested to the respondent no 1 to waive personal guarantee of the appellant for the credit facilities enjoyed by the respondent no 2. The letter dated 13.02.2002 was written by the appellant himself to Credit Department of the Head Office of the respondent no 2 situated at Bangalore. The letter dated 13.02.2002 contained reference of letter dated 16.08.2001 and containing stipulation that the appellant had given personal guarantee to the respondent no 1 to secure collaterally the credit facilities granted by the respondent no 1 to the respondent no 2. It was also intimated that since April. 2001 the appellant ceased to be director of the respondent no 2. The appellant requested the respondent no 1 to release him from guarantee obligation forthwith.
# 15. The argument advanced by the counsel for the respondent no.1 that the letter dated 13.02.2002 was issued to Reserve Bank of India, Mumbai but not sent to the branch of the respondent no.1 situated at Rajouri Garden from where the loan was sanctioned and documents were executed and the letter dated 13.02.2002 should have been sent to the branch of the bank as mentioned in the guarantee deed dated 24.08.2000 is considered in the right perspective. It is pertinent to mention that the appellant has referred these letters in affidavit filed in evidence but the respondent no 1 did not rebut these letters. The appellant also placed photocopy of postal receipt to establish that the letter dated 13.02.2002 was actually sent to Credit Department of the respondent no 1 at Bangalore. The letter dated 16.08.2001 was addressed to Rajouri Garden Branch of the respondent no 1 from where loan was sanctioned and disbursed and loaning documents were executed. Under given facts and circumstances, it is established that letters dated 16.08.2001 and 13.02.2002 were sent to the respondent no 1 by the respondent no 2 and the appellant respectively. It does make any difference that the letter dated 13.02.2002 was sent to Credit Department of the respondent no 1 at Bangalore as it was addressed to Credit Department and was containing reference of letter dated 16.08.2001. The argument advanced by the counsel of the respondent no 1 is without any legal and factual force.
# 16. The counsel for the respondent no.1 also referred Section 130 of the Contract Act, 1872 which provides that the continuing guarantee may at any time be revoked by the surety as to the future transaction by notice to the creditor. The respondent no 2 sent letter dated 16.08.2001 and the appellant sent letter dated 13.02.2002 to the respondent no 1 for revocation of the guarantee furnished by the appellant and these letters also satisfied requirements of section 130 and requirements as contained in various clauses of guarantee agreement 24.08.2000. The respondent no.1 has restructured the loan facility granted to the respondent no.2 in the year 2005 and at that time the appellant did not stand as a guarantee for the respondent no.2.The respondent no.1 could not prove on record by furnishing statement of account for relevant period i.e. from 1998 till 30.03.2005 that there were any outstanding dues particularly qua the appellant when the loan was restructured in the year 2005. The appellant was at the most was liable to the extent for the loan sanctioned / disbursed till 24.08.2000 but the respondent no.1 continued to grant and disburse enhanced fresh limit to the respondent no.2 post 24.08.2000 which was not guaranteed by the appellant. The appellant and the respondent no 2 vide letters dated 13.02.2002 and 16.08.2001 had also intimated the respondent no 1 for revocation of guarantee furnished by the appellant and the respondent no 3 alone stood as guarantor for the loan facilities of the
respondent no 2.
# 17. The counsel for the respondent no.1 argued that the guarantee given by the appellant was continuing in nature and alleged resignation of the appellant from the respondent no.2 did not absolve him from his liability. There is no force in the argument advanced by the counsel for the respondent no.1 that the liability of the appellant was continuing one particularly in the circumstances that the appellant did not stand as a guarantor after guarantee agreement dated 24.08.2000 and the loan was restructured in the year 2005. The respondent no.1 also stated that the loan sanctioned to the respondent no.2 was restructured and previous accounts were declared as NIL. It was further stated that the existing accounts were closed and fresh accounts were opened. DRT-I, Delhi in impugned judgment dated 21.09.2019 also observed that admittedly the appellant did not execute guarantee after 2000 and the respondent no.1 did not produce statement of account for the period w.e.f. 1998 till 31.03.2005 to establish any default during said period and also on 16.02.2005 when the respondent no.1 specifically stipulated the guarantee of the respondent no.3 only as guarantor and as such recognized that the appellant was not liable for any future advance. DRT-I, Delhi also held that the guarantee furnished by the appellant vide guarantee agreement dated 24.08.2000 was continuing guarantee and restricted the liability of the appellant to the tune of Rs.14 crores just before the restructuring vide sanction dated 16.02.2005. DRT has not taken the correct view on facts and law particularly when the existing accounts of the respondent no.2 were closed, fresh accounts were opened and the previous accounts were declared NIL. DRT was not justified by holding that the guarantee of the appellant was a continuing one and even after the restructuring of the loan vide sanction letter dated 16.02.2005 and for the outstanding dues on 16.02.2005 particularly when there is no evidence that on 16.02.2005 that an amount of Rs. 14 crores was outstanding against the respondent no.2 as statement of account of relevant period was not produced and proved on record. There is no force in argument advanced on behalf of the respondent no 1 that the guarantee furnished by the appellant was continuing guarantee and in particular post 24.08.2000 and after letters dated 16.08.2001 and 13.02.2002.
# 18. The appellant also strongly contended and as argued by the counsel for the appellant that restructuring of the accounts on 16.02.2005 amounts to the novation of the contract. The counsel for the respondent no.1 opposed the said argument and argued that mere closure of the old account and opening of fresh account was an administrative / accounting exercise and did not amount to novation and referred Section 62 of the Indian Contract Act.Section 62 of the Indian Contract Act, 1872 deals with novation rescission, and alteration of contract and provides that if the parties to a contract agree to substitute a new contract for it or to rescind or alter it the original contract need not to be performed. Section 62 of the Indian Contract Act of 1872 recognizes novation when the parties to the agreement agree to substitute, cancel, or amend a contract and thereafter the original contract need not be performed. Novation ends the old contract which needs not to be fulfilled. The parties must adhere to the new contract. The essential components of section 62 are that there should be a previous enforceable contract between the parties and replacement, revocation, or modification of a contract leading to the formation of a legally valid new contract. The Supreme Court in Lata Construction &others V Dr. Rameshchandra Ramniklal Shah, (2000) 1 SCC 596 observed that in novation requires complete substitution of new contract in place of old contract and only under this condition the original contract is not fulfilled. The new replacement contract will cancel or completely modify the terms of the original contract.
# 19. The counsel for the respondent no.1 after referring section 62 of the Indian Contract Act, 1872 vehemently argued that Section 62 of the Indian Contract Act, 1872 clearly stipulates that there must be an agreement between the parties to substitute the existing contract with new contract and only in a such case the original contract need not to be performed. It was further argued that there was no fresh agreement of the respondent no.1 with the respondent no.2 but the respondent no.1 has only agreed to restructure the facilities provided and enhanced the loan amount and there was no substitution or replacement of the existing contract and the guarantee deeds / agreement executed by the appellant in the year 1999- 2001 were continuing guarantees until expressly revoked or discharged. The counsel for the respondent no 1 also argued that loan package sanctioned to the respondent no.2 in 2005 was restructured only and the previous accounts were declared as NIL and mere restructuring of the loan facility does not mean new facility but the previously sanctioned facilities were modified/revised which is the part of the accounting procedure and does not mean that the loan agreement was substituted. There is no force in these arguments advanced by the counsel for the respondent no.1 as the respondent no.1 restructured the entire loan outstanding or granted to the respondent no.2 on 16.02.2005 on execution of fresh loaning documents. The appellant did not stand as a guarantor. The respondent no.2 itself admitted that the previous loan accounts were declared as NIL and fresh accounts were opened. The restructuring of the existing loan account under given facts and circumstances of the present case cannot be termed as mere administrative or accounting procedure without any substitution of any previous agreement. The restructuring of the loan on 16.02.2005 was only guaranteed by the respondent no.3 and not by the appellant as it was done previously. The restructuring of the account cannot be termed as mere re-schedulement or modification of existing debt. The loan account of the respondent no.2 was substituted by the fresh loaning documents on 16.02.2005. The appellant is entitled for section 62 of the Indian Contract Act, 1872. The arguments advanced by the counsel for the appellant appeal to reasons and are founded on legal and factual force. The counsel for the appellant was justified in argument that restructuring of loan account of the respondent no 2 sans the appellant as guarantor was novation of previous loan agreement between the respondent no 1 and the respondent no 2.
# 20. The arguments oral and in writing advanced on behalf of the appellant and the respondent no 2 are considered in right perspective. In view of above discussion present appeal is allowed and direction passed by the DRT-1 in impugned judgment dated 21.09.2019 qua the appellant being the defendant no 3 in OA as contained in para 32 (ii) are set aside. However, it is made clear that any observation in present judgment shall not affect in any manner whatsoever directions given by the DRT-1 in impugned judgment dated 21.09.2019 qua the respondents no 2 and 3 who are defendants 1 and 2 in OA.
# 21. The pre-deposit if any made by the appellant shall be refunded immediately.
--------------------------------------------------
