CENTRAL BANK OF INDIAversusVIRUDHUNAGAR STEEL ROLLING MILLS LTD. & ORS.

                      [2015] 12 S.C.R. 64


A                  CENTRAL BANK OF INDIA
                               V.

     VIRUDHUNAGAR STEEL ROLLING MILLS LTD. & ORS.
                (Civil Appeal No. 3654 OF 2006)
B
                     DECEMBER 29, 2015
       [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]
       Bank/Banking: Credit facilities taken by respondent
c company from appellant-bank - On 30. 8. 1974, respondent
  nos.2 to 4, the Directors of the respondent company gave
  personal guarantee - Held: Liabilities incurred by the
  respondent company prior to the execution of personal
  guarantees by respondent nos.2 to 4 were not recoverable
D from the latter.

        Dismissing the appeal, the Court

        HELD: The Guarantee Deeds executed by
  Respondent Nos.2 to 4 on 30.8.1974 rendered them
E personally liable for any transactions or advances made
  l>Y the appellant Bank to the Respondent Company after
  30.8.1974. The Bank account lay dormant after this date,
  all dealings having been transacted much prior thereto.
F Such being the position, it is not open to the Appellant
  E3ank to pursue Respondent Nos.2 to 4 for recovery of
  debts incurred· by the Respondent Company in favour
  of the Appellant Bank. The decision is founded on the
  evidence that has been recorded in this suit. [Para 7] [69-
G 0-F]
        Sita Ram Gupta v. Punjab National Bank (2008)
        s sec 111: 2008 (4) SCR 636 - held
        inapplicable.
H
                               64
 CENTRAL BANK OF INDIA v. VIRUDHUNAGAR STEEL                       65
              ROLLING MILLS LTD.

      J. J. Harigopal Agarwal v. State Bank of India AIR           A
     1976 MAD 211; D. K. Mohammed Ehiya Sahib
     v. R.M.PV Val/iappa ChettiarAIR 1976 MAD 536;
     Montosh Kumar Chatterjee v. Central Calcutta
     Bank Ltd. (1952-53) 57 CWN 852; B. G. Vasantha
     v. Corporation Bank, Mangalore (2005) 10 SCC                  B
     215; M.S. Anirudhan v. Thomco's Bank Ltd. AIR
     1963 SC 746: 1963 Suppl. SCR 63 - referred
     to.

                    Case Law Reference                             C
AIR 1976 MAD 211              referred to.           Para 2
AIR 1976 MAD 536              referred to.           Para2
(1952-53) 57 CWN 852          referred to.           Para 5
2008 (4) SCR 636              held inapplicable.     Para 6
(2005) 1osec 215              referred to.           Para 6        D
1963 Suppl. SCR 63            referred to.           Para 6
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3654 of2006
                                                                   E
      From the Judgment and Order dated 02.01.2003 of the
Division Bench of the High Court of Madras in Appeal Suit No.
251 of 1987

      Jyoti Dastidar, Dinesh Mathur, Rameshwar Prasad Goyal
for the Appellant.                                                 F

     T. Archana, K. K. Mani, P.. B. Suresh, Vipin Nair, Prithu
Garg, Mis. Temple Law Firm for the Respondents.

     The Judgment of the Court was delivered by                    G

      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       H
66        SUPREME COURT REPORTS                   [2015] 12 S.C.R.

                                                      ;

A   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
  I

    Respondent Company, who are Respondent Nos. 2 to 4 herein,
B in terms of Promissory Notes, Letters of Guarantee, L~tters of
    Hypothecation and Letters of Continuity all dated 30.8.1974.
    On 30.6.1977 and again on 31.12.1977, by means of separate
    letters from the Respondent Company to the Appellant Bank,
    the entire balance due, stood confirmed. Eventually, the
C 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
D 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
E 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
F 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 lndi-a AIR 1976 MAD 211 and D. K.
  Mohammed Ehiya Sahib v. R.M.P.V. Valliappa Chettiar AIR
G 1976 MAD 536. In the latter case it was held that if there is
  <1:1ny variation in the original contract the legal consequence
  would be that the surety stood absolved.

      3. The impugned Judgment notes that the main
H submission on behalf of the Appellant Bank was that all the
 CENTRAL BANK OF INDIA v. VIRUDHUNAGAR STEEL                             67
     ROLLING MILLS LTD. [VIKRAMAJIT SEN, J.)

documents executed by the Respondent Company, including A
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 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 B
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
30.8.197 4. The High Court also returned the finding that there C
was no cogent evidence to establish that the claims raised in
the suit pertained to advance or credits made subsequent to
30.8.197 4, the date on which Respondent Nos. 2 to 4 had
executed the documents relied upon by the Appellant Bank.
                                                                D
      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                  E
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   F
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 G
facilities including cash credit, etc. It is not in dispute that of
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· H
68        SUPREME COURT REPORTS                   [2015] 12 S.C.R.


A 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
  $52, the ratio of which appears to be that a creditor is not
  bound to volunteer to a surety information as to the state of the
B principal debtor's account; and that a creditor is entitled to
  appropriate payments received subsequent to the execution
  of a guarantee bond, even so far as a pre-existing debt of
  which the surety had no knowledge; that there can be no
  presumption that the surety will be efficacious for prior as well
C as current and future debts. We note that in the case in hand,
  ~he Letter of Guarantee signed on 30.8.1974 by Respondent
  Nos. 2 to 4 makes no mention of any old transactions, although
  it specifically records that the liability of the guarantors cannot
D exceed 12 lacs. The Letters of Guarantee could easily have
  recorded the liabilities outstanding against the Respondent
  Company on 30.8.1974 with an affirmation from Respondent
  Nos. 2 to 4 that they were guaranteeing these outstandings.
  Woefully for the Appellant Bank, there is no such
E acknowledgment or assumption of liability in the subject
  <$uarantee. 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
F r¢gard still persisted, they stood dispelled by the testimony of
  D. W.1, who 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
  r~gard to debts subsequent to 30.8.1974. This very witness
G 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
H Bank (2008) 5 SCC 711 is of no advantage to the Appellant
   CENTRAL BANK OF INDIA v. VIRUDHUNAGAR STEEL                       69
       ROLLING MILLS LTD. [VIKRAMAJIT SEN, J.]

 Bank. That decision concerns the possibility of a guarantor A
 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. 8.197 4.
 Our attention was also drawn to B. G. Vasantha v. Corporation B
 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 C
 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 D
  executed by Respondent Nos. 2 to 4 on 30.8.197 4 rendered
  them personally liable for any transactions or advances made
  by the Appellant Bank to the Respondent Company after
  30.8.197 4. There is also no controversy whatsoever that the
  Bank account lay dormant after this date, all dealings having E
  been transacted much prior thereto. Such being 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 F
  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.                                            G

       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.

 Devika Gujral                                   Appeal dismissed.   H