Supreme Court of India
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR.versusCANARA BANK & ORS.
- Citation
- 2009 INSC 1205
- Decided
- 28 October 2009
- Disposal
- Appeal(s) allowed
- Bench
- TARUN CHATTERJEE
Holding
The guarantee is a continuing guarantee; the guarantor’s legal representatives are liable, there is no novation, and the trust is estopped from denying liability.
Summary
Lokashikshana Trust (LST), a public trust engaged in publishing, incurred several loans to fund its operations, with the loans secured by hypothecation of trust property and a guarantee executed by the deceased surety, H.R. Basavaraj. After prolonged litigation, the trust's assets were taken over by a government‑appointed administrator under the LST Act. The bank sued the guarantor and his legal heirs for repayment, while the guarantor contended that the guarantee was void, that the contracts had been novated, and that the trust alone should bear liability. The Supreme Court held that the guarantee was a continuing guarantee, not revoked, and that the guarantor’s legal representatives remain liable; there was no novation or valid alteration of the contract, and the trust, as the sole beneficiary, is estopped from denying its liability. Consequently, the appeal was allowed, setting aside the High Court judgment and restoring the trial court's decree.
Issues considered
- Whether the deceased surety and his legal representatives are liable to repay the loan.
- Whether the conduct of the parties amounts to novation of the contract.
- Whether the Lokashikshana Trust alone is responsible for repayment of the loan.
- Whether the trust can be estopped from denying its liability.
Legislation cited
- Indian Contract Act, 1872s. 129, s. 130, s. 62, s. 70
- Indian Evidence Act, 1872s. 115
Subjects
public trustcontinuing guaranteesurety liabilityestoppelnovationcontract lawhypothecationreceivertrust managementLST Act
Judgment
\
[2009] 15 (ADDL) S.C.R. 504
A H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR.
v. ~ ....
CANARA BANK & ORS.
(Civil Appeal No. 233 of 2003)
OCTOBER 28, 2009
B
[TARUN CHATTERJEE AND AFTAB ALAM, JJ.]
Bombay Public Trust Act, 1950:
y
Trust - LST, a public trust engaged in publication
c workPublic
- LST running in loss and unable to properly manage
its affairs - Publication, printing rights and machineries
transferred to private limited companies - By order of court,
trust property vested in the administrator appointed by the ·
Government - Loan granted for proper functioning of trust and
D
hypothecation of properties of trust itself - Liability to repay ,.
the loan - Held: Trust would be liable to repay the loan - All
the transactions were entered into for running the trust - Even -..
appointment of receivers and the subsequent transactions "
entered into by the administrators was for furthering the
E business concerns of LST itself - Trust being the sole
beneficiary would not only be liable for the repayment but is
also estopped from denying its liability under the contract -
Principle of estoppel.
'.,-,
F Contract Act, 1872:
s. 129 - Continuing guarantee - Meaning of - Discussed
- On facts, agreement to the effect, that guarantee to continue
to all future transactions except when guarantor disclaimed
from his liability through a written document - Deed clearly
G mentioning that between the guarantor and borrower, the
guarantor is only a surety - Held: Liability of guarantor would ,._.,
be co-extensive to that of the boffower since between the bank
and the guarantor, the surety is the principal debtor -
H 504 ~
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 505
CANARA BANK & ORS.
Guarantee would thus stand and legal representatives of A
.., ~ deceased surety would be liable to repay the loan.
s. 62 - Alteration or variation in terms of contract can be B
only when both parties voluntarily agree to change terms of
agreement.
Doctrines/Principles:
Principle of estoppel - Applicability of - Discussed. c
Lokashikshana Trust (LST), a public trust was
engaged in publication work. In 1974, Board of trustees
of LST, entered into an agreement with KPP for transfer
of publication and printing rights and also to create lease
D
'f in building owned by the trust. Some interested persons
filed suit O.S.4/1977 praying for removal of trustees and
~
formulation of scheme for managing the affairs of trust.
During the pendency of the suit, KPP entered into an
agreement with M/s JKNP, appellant no.2 for transfer of
all its rights, interests and liabilities. There was a loan E
transaction between JKNP and the respondent-Bank.
Appellant No.1 alongwith the other office bearers of JKNP
allegedly executed a demand note. On the same day,
''
JKNP obtained overdraft facility of Rs.5 lacs. Appellant
No.1 alongwith the Executive Director of JKNP also F
.....
executed a hypothecation agreement to provide collateral
security to the bank. Subsequently JKNP and its
Executive Director executed a pronote for a term loan of
Rs.2.86 lacs.
G
The appellants also executed an agreement of
4- guarantee to the tune of Rs.13 lacs. Respondent-bank
filed recovery suit against appellants which was decreed.
Meanwhile an interim order was passed in O.S.No. 4/1977
appointing JKNP as the receiver of the properties in its H
506 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A possession. O.S.No. 4/1977 was dismissed. On 9.9.1980,
Charity Commissioner was appointed as a new receiver. )... ~
Again the Court relieved Charity Commissioner of
receivership of property and instead appointed a retired
District Judge to be the receiver and manage the Trust
B Publication. Meanwhile LST Act was enacted which
aimed at taking over the management of trust by
Government due to prolonged litigation pending before
the courts. Accordingly trust properties came to be vested
in the administrator appointed by the Government. This ·;.1
c action of Government was validated by High Court.
The present appeal arose out of three different suits
filed by the lending banks in three different courts for
recovery of money. The alleged loan transactions took
place between the respondent bank and appellants
D between 1917 ·and 1981. The first loan was taken by KPP r
from respondent bank in 1977. The second loan was
-(
secured by JKNP in 1978 after it had purchased the rights
acquired by KPP in the trust properties. The third loan
transaction was between the administrator appointed by
E Government under the LST Act and Canara Bank in 1981.
Allowing the appeal, the Court
HELD: 1.1. There was absolutely no evidence to ..,
show that the bank had in fact exercised its dominant +-
F power to force the surety into entering the contract that
·'
he ultimately did. In view of the waiver of rights by the
guarantor, there can be no waiver of liability in exercise
of such rights. There was no explanation adduced at a
later stage explaining the reason for the surety not
.G
entering evidence on his behalf. [Paras 4 and 5] (515-C]
Provash Chandra Dalui v. Biswanath Banerjee AIR 1989 -~
SC 1834, relied on.
Shri RK Joshi & Ors v. State of Karnataka 1984 (1) KLJ
H
.I
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 507
CANARA BANK & ORS.
158, referred to. A
1.2. A reading of the agreement clearly shows that
the guarantee was to continue to all future transactions
except when the guarantor disclaimed from his liability
through a written document. The deed also clearly
mentions that while between the guarantor and borrower, B
the guarantor is only a surety; yet between the bank and
the guarantor, the surety is the principal debtor and his
liability would be co-extensive to that of the borrower.
[Para 6] (516-F]
c
Lachoo Mal v. Radhey Shyam (1971) 1 SCC 619; Sita
Ram Gupta v. Punjab National Bank & Ors (2008) 5 SCC 711,
relied on.
T. Raju Shetty v. Bank of Baroda AIR 1992
KARNATAKA 108, - affirmed. D
Halsbury's Laws of England, Vol 8, 3rd Edn., referred
)- to.
1.3. In the present facts and circumstances, the
concurrent findings of the High Court and of the trial E
Court are upheld on the point that the agreement
executed for the purpose of a continuing liability despite
the variation of terms of the contract and in the absence
of a specific written document by appellant-guarantor
(since deceased) revoking the guarantee, the guarantee F
stands and tlie legal representatives of the deceased are
liable to repay the loan. [Para 7] (517-F-G]
2.1. Section 62 of Contract Act, 1872 gives statutory
form to the common law principle of novation. The basic
principle behind the concept of novation is the G
substitution of a contract by a new one only through the
~. consent of both the parties to the same. Such consent
may be expressed as in written agreements or implied
through their actions or conduct. There was no record
H
508 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A to show that there were withdrawals from the loan
account of JKNP from which it could be inferred that the
Bank had permitted the receivers to withdraw money.
Only a withdrawal from the said loan account would
constitute acquiescence on behalf of the bank to a
B change in the liability by novation. Mere deposit of
amounts by a supposed third party towards liquidation
of an outstanding amount cannot ipso facto lead to the
novation of a contract. [Paras 8 and 9] [518-D-E; 519-B-
C]
C Lata Construction Ltd. v. Or. Rameshchandra & Anr.
(2000) 1 sec 586, relied on.
Scarf v. Jardine 1882 (7) App. Case. 345, referred to.
2.2. Alteration or variation in the terms of a contract
D under Section 62 of the Contract Act implies that both
parties have voluntarily agreed to the change in the terms
of the agreement. However, as can be gathered from the
facts and circumstances of the present case, the Bank
never had a say in .the matter at all. In fact, it was due to
E a decree of the Courts that the property in question was
entrusted in the hands of a receiver. The Bank never
had, in any of the dealings of its own volition, expressly
accepted the change of the hands of the property
ownership and thereby accepted a change in the liability.
F The receiver being a public appointed servant cannot
bring about a change in the said contract so as to affect
the legal consequences for the borrower or the
guarantor. The administrator appointed by the
Government had indeed secured a loan towards the
G facilitation of running of the publications but had not
created any new charge on the property. [Para 10] [519-
E-H]
2.3. The exhibited document marked p-14 clearly
showed that there was a list of machinery which stood
H
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 509
CANARA BANK & ORS.
-~ ..( hypothecated to the bank not only against the initial sum A
of Rs.2,86,000/- forwarded to the borrower but also
'
r
towards any other sum which might have been borrowed
by JKNP subject to a limit of Rs.75,00,000/-. As rightly
held by the High Court, there was no need to look into
the question as to which of the machineries were B
specifically hypothecated to the Bank. But the facts in
this case are enough to show that a charge was in fact
y created on the said machinery by JKNP and which had
reverted back to the original owner LST in the chain of
circumstances. Nevertheless there is enough evidence c
on record to show that there was indeed a hypothecation
of the said machinery. [Para 11] [520-C-E]
3. The Board of Trustees was competent to take any
loan, which would be considered to be loan taken by the
" Trust. In such a case, any loan taken by administrator D
>-- appointed by the State shall also be deemed as loan
taken by the trust and, hence, the trust would be liable
to repay the loan. [Para 12] [521-E]
Satyabrata Ghose v. Muneeram Bangur & Co. 1954 E
SCR 310; Indian Finance Corp. of India Ltd. v. Cannanore
Weaving and Spinning Mills Ltd. 2002 (5) SCC 54, referred
to.
k'
4.1. The principle of estoppel is only applicable in
F
cases where the other_party has changed his position
relying upon the representation thereby made. Estoppel
is different from contract both in its nature and
• consequences. But the relationship between the parties
must also be such that the imputed truth of the statement
is a necessary step in the constitution of the cause of G
action. But the whole case of estoppel fails if the
statement is not sufficiently clear and unqualified. [Para
131 [522~0; 523-A]
....
- Lord Denman, in Pickard v. Sears 6 Ad. & E. 469; B.L. H
510 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A Shreedhar v. K.M. Munireddy (dead) & Ors. (2003) 2 SCC
355, referred to.
.,
).._ ..
4.2. In the present case, the Bank has granted the
loan for proper functioning of the trust and on
hypothecation of the properties of the trust itself. From
B
the very beginning, all the transactions which had been
entered into had clearly been for the sake of the running
of the publications of the "Samyukta Karnataka" and
~
other periodicals like the "Kasturi". In fact, first KPP and
then JKNP, both private limited companies were formed
c for the sole purpose of the management of the running
of the business of LST. These companies were formed
because LST was running in loss and unable to properly
manage its affairs. Even the appointment of receivers and ':'.
the subsequent transactions entered into by the 'i
D administrators appointed under the LST Act was for the
purpose of furthering the business concerns of LST -4,'
itself. [Para 14] [523-8-0]
S. Shanmugam Pillai v. K. Shanmugam Pillai AIR 1972
E SC 2069, relied on.
Depuru Veeraraghava Reddi v. Depuru Kamalamma
AIR 1951 Mad. 403, referred to. f
~
5. There are three classes of estoppels that may arise
F for consideration being: (1) that which is embodied in
Section 115 of Evidence Act, (2) election in the strict
-
sense of the term whereby the person electing takes a
benefit under the transaction and (3) ratification i.e.
agreeing to abide by the transaction. It might be said that
G the action of the trust falls under the third category
whereby it ratified all actions taken by others and )...
benefiting from the same. Hence, the trust being the sole
beneficiary is not only liable for the repayment but is also
estopped from denying its liability under the contract.
H [Para 15] [523-F-H; 524-A]
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 511
CANARA BANK & ORS.
Case Law Reference: A
j.
1984 (1) KLJ 158 referred to Para 2
AIR 1989 SC 1834 relied on Para 5
AIR 1992 KAR. 108 affirmed Para 6
B
(1971) 1 sec 619 relied on Para 6
(2008) s sec 111 relied on Para 7
. ...,.~
(2000) 1 sec 586 relied on Para 8
c
1882 (7) App. Case. 345 referred to Para 8
1954 SCR 310 referred to Para 12
2002 (5) sec 54 referred to Para 12
6 Ad. & E. 469 referred to Para 13 D
'
,.. (2003) 2 sec 355 referred to Para 13
AIR 1951 Mad. 403 referred to Para 14
1972 SC 2069 relied on Para 15 E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 233
of 2003.
t
-4; From the Judgment & Order dated 29.9.2000 of the High
.
·~ Court of Karnataka at Bangalore in R.F.A. No. 205 of 1995. F
M.N. Rao, TVS Raghavendra Sreyas, Nikhil Nayyar, Vikas
j
Rajipura, Sangeeta, E.C. Vidya Sagar, V. Sudeer, M.B.R.S.
Raju, S. Sunita, Rama Subba Raju, S. Srinivasan, Ashoka
-t
Kumar Thakur, Anil K. Chopra for the appearing parties.
G
The Judgment of the Court was delivered by
TARUN CHATTERJEE, J.1. This appeal is directed
against the judgment and final order dated 29th of September,
H
512 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A 2000 of the High Court of Karnataka at Bangalore in R.F.A No.
205/1995 whereby, the High Court had dismissed the appeal
filed by the appellants herein.
2. The relevant facts, which would assist us in appreciating
the controversy involved, are narrated in a nutshell, which are
B
as follows:
Lokashikshana Trust (LST) was a public Trust registered
under the Bombay Public Trust Act, 1950 which was engaged
~,.. '
in the publication of a Kannada daily "Samyukta Karnataka" and
c some other periodicals. In 1974, the Board of Trustees entered
into an agreement with Mis Karnataka Patrika Pvt. Ltd.
(hereinafter referred to as "the KPP") for the transfer of
publication and printing rights and machineries as also to
create a lease in the buildings owned by the Trust. Some
D interested persons filed a suit being O.S. No. 4/1977 before
the Principal District Judge, Dharwad, praying for removal of
trustees, scheme for management of the trust, etc. While this 4-
suit was pending, the KPP entered into an agreement with M/
s. Jaya Karnataka News and Printers Pvt. Ltd. - appellant J.--
E No.2 (hereinafter referred to as "the JKNP") for transfer of all
its rights, interest and liabilities. There was a loan transaction
between JKNP and the respondent bank whereby a loan of
Rs.15 lakhs was sanctioned to the former at an interest of 15%
f
p.a. by open cash credit compounded quarterly. Appellant No.1 .,.. f
along with other office-bearers of the said company allegedly \,
F ~-
executed a demand note. On the same day, JKNP through its ;
Executive Director requested for an Over draft facility of Rs.5 .·I
lakhs which was granted on an on-demand promissory note with t:..
an interest of 15% p.a. compounded quarterly. This loan was
secured by book debts and appellant no. 1 Basavaraj (since
G
deceased) along with the Exec-utive Director of JKNP also
executed a hypothecation agreement to provide collateral
>-
sequrity to the bank. Subsequently, JKNP and its Executive
Director executed a pro-note for a term loan of Rs.2,86,000/-
at the same interest rate as before. The appellants herein also
H
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 513
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
executed an agreement of guarantee to the tune of Rs.13 lakhs A
J. with a maximum of Rs.30 lakhs as seen from Exhibit P-16.
""' JKNP became a public limited company on 28th of September
1978. The respondent bank filed a suit being O.S. No 119/1984
against the appellants for recovery of the loan amount.
Appellant? contested the suit and denied material allegations. B
O.S. No 119/1984 was decreed by the Principal Civil Judge,
Hubli at the Trial Court level on 1st of August 1994 directing
the appellant to pay Rs.19,97,839.51 with future interest at 17%
~,,..
p.a. and other reliefs and costs.
Meanwhile, an interim order was passed in O.S.No.4/1977
c
appointing JKNP as the receiver of the properties in its
possession subject to the conditions mentioned in the order.
On 9th of September, 1980, the ·Charity Commissioner,
Belgaum was appointed the new receiver. Again the Court at
~
Dharwad relieved the Charity Commissioner of receivership ?f D
the property and instead appointed a District Judge to be the
~
receiver and manage the Trust publication and moveable
...,......
properties. Meanwhile, the Governor of Karnataka had issued
the Lokashikshana Trust (Taking over of management)
E
... Ordinance in 1991 which was later replaced by the
Lokashikshana Trust (Taking over of management) Act
(hereinafter referred to as "the LST Act"). The LST Act was
aimed at taking over the management of the Trust by the State
-(
Jir Government due to the prolonged litigation pending before the
Courts at first for two years and extendable to the extent of five F
years. Accordingly, the trust properties came to be vested in
the Administrator appointed by the Government. This action of
the Government was validated by a Division Bench of the High
Court of Karnataka in Shri RK Joshi & Ors v. State of
Karnataka [1984 (1) KLJ 158] which held that the management G
of the public trust was a matter of public concern and hence
' ..I within the ambit of the State Government's powers. Only the
\
..lj explanation to Section 2(c) of the LST Act was declared to be
in\la\id in as much as the· same related to tile properties sold
• .., by the Trust to KPP and which were in the possession of the H
514 SUPREME COURT REPORTS (2009] 15 (ADDL.) S.C.R.
A receiver and, hence, arbitrary. The suits in the High Court were
related to three different loan transactions that Mad taken place ).;.
between the respondent Banks and tlfe appellants between •
1977 and 1981. The first out of thes~ have been taken by. the
KPP in 1977, the second by JKNP in 1978 and.the third loan
8 was taken by the administrator appointed by the Government
under the LST Act. The subject matter of these appea!S has
been to decide as to who should be liable to p~y .the loan
amounts. 0. S. No. 4/1977 was dismissed by the District Court,
Dharwad. The first set of appeals in the High Court had been ~,..
c against the decree of the Trial Court, which was passed against
KPP and JKNP regarding a loan of Rs.90,000/~ from Syndicate
Bank where three different appeals were filed by KPP, JKNP
and the Bank sep~rately. The issues gone into by the High
Court were multifarious and not required to be delved into at
this point of time.
D
3. We have heard the learned counsel appearing on behalf ~
of the parties and examined the materials on record. The ~
issues which we have framed to deal with while disposing of ....,...
this appeal are listed as follows:
E
i. Whether the deceased surety and his Legal
Representatives are liable to repay the disputed loan
amount?
I
ii. Whether the conduct of parties amounts to novation of -j- ?
F the contract between the parties?
iii. Whether the Lokashikshana trust alone is responsible
to repay the disputed loan amount being the beneficiary
of the same?
G
iv. Whether the LST having benefited from the loan
transaction disputed herein can be estopped from denying
}-
its liability?/
4. As regards the first issue that is with respect to the
H liability of the appellant guarantors Basavaraj (since deceased) t-
I
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 515
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
,4 and his legal heirs, the argument made on behalf of the A
JJ..
appellants was that the original surety, Basavaraj did not have
the chance to verify the documents he had signed at the time
of his entering into an agreement to become a surety. It was
submitted that the dates mentioned in Exhibits p·19 and p-20
were in fact inserted at a later date after the forms were signed B
by the surety. The arguments regarding the practice of the banks
to make persons sign blank acknowledgments from
beforehand in order to extend the time of limitation at the time
-~
of filing of suits seems to be without merit. Even if we
acknowledge the fact that banks might be in a dominant c
position, there was absolutely no evidence to show that the
bank had in fact exercised its dominant power to force the surety
into entering the contract that he ultimately did. If the appellant
i had been interested in insisting upon this matter then the least
,. he could have done was to have entered the witness box and
D
facilitated a method of clearing the air about it. Nor was there
~- any explanation adduced at a later stage explaining the reason
for the surety not entering evidence on his behalf. In the absence
of any conclusive evidence to point to the entering of dates at
a later stage, we cannot find any difficulty in rejecting the
aforesaid contentions of the appellants. E
5. The learned counsel for the appellants also sought to
~ argue for the discharge of sureties that the agreement executed
---1 >;-
was between JKNP, KPP and the Bank had the effect of as if
sanctioning new loans to JKNP but retaining KPP as the F
guarantor. In such circumstances, the appellant guarantor
cannot be held liable for the loan. But the learned counsel for
the appellants had failed to produce any evidence on behalf of
the appellant to satisfy the court in support of his argument.
Instead they contended that the bank was in possession of G
...1..·
such documents and was suppressing it. It is highly
unimaginable that when parties are entering into contracts for
the purpose of seriously conducting some businesses, that
there would not be multiple copies of the executed agreement
or at least one copy with either of the appellants. Thus, this H
516 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A contention of the appellants does not inspire any confidence.
~
We, therefore, find no difficulty in rejecting the same. As the );.
respondent has rightly contended that in view of the waiver of
rights by the guarantor, there can be no waiver of liability in
exercise of such rights. The observations of this court in
B Provash Chandra Da/ui vs. Biswanath Banerjee (AIR 1989
SC 1834) at Para 21 might be useful to recollect at this point
of time. It runs as follows :-
'The essential element of waiver is that there must be a ~-
voluntary and intentional relinquishment of a known right or
c such conduct as warrants the inference of the
relinquishment of such right. It means the forsaking the
assertion of a right at the proper opportunity"
6. An examination of the agreement executed between the t
D appellant Basavaraj (since deceased) and the Bank would
clearly show it to be one of a continuing guarantee. Section 129
of The Indian Contract Act, 1872 (hereinafter referred to as "the _,.
Act") defines a continuing guarantee as "A guarantee which
extends to a series of transactions ·is called a "continuing ·
E guarantee"." Section 130 of the Act says that "A continuing
guarantee may at any time be revoked by the surety, as to
future transactions, by notice to the creditor." A reading of the
agreement clearly shows that ·the guarantee was to continue to
t
all future transactions except when the guarantor disclaimed 7--.
from his liability through a written statement. The deed also
F
clearly mentions that while between the guarantor and borrower,
the guarantor is only a surety; yet between the bank and the ,_
guarantor, the surety is the principal debtor and his liability would
be co-extensive to that of the borrower. Accordingly, the
guarantor himself waived off his rights under Chapter VIII of the
G
Act which is conferred on a surety. This court is in respectful
agreement with the decision of Karnataka High Court in the )..
case of T. Raju Shetty v. Bank of Baroda [AIR 1992
KARNATAKA 108] whereby the High Court held that in surety
agreements, the surety can waive his rights available to him
H
>
·1
H.R. BAS'AVARAJ (DEAD) BY HIS L. R. S & ANR. v. 517
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
under the various provisions· of Chapter VIII of the Act It is in A
.... ;,(
T
line with long established precedents that anyone has a right
to waive the advantages offered by law provided they have
been made for the sole benefit of an individual jn his private
capacity and does not infringe upon the public rights or public
policies. This can be inferred from a reading of the Ha/sbury's B
Laws of England, Vol 8, 3rd Edn. at page 143 which reads as
follows:-
-.,__ "As a general rule, any person can enter into a binding
contract to waive the benefits conferred upon him by an
Act of Parliament, or, as it is said, can contract himself out
c
of the Act, unless it is shown that such an agreement is in
the circumstances of the particular case contrary to public
policy."
~ This principle was reiterated in Lachoo Mal v. Radhey D
Shyam [(1971) 1 sec 619] .
...,._
7. On the principles of continuing guarantee, the position
was cleared by a decision of this court in Sita Ram Gupta v.
Punjab National Bank & Ors [(2008) 5 SCC 711] whereby it
E
was held that it was not open to a party to revoke a guarantee
when he had agreed to it being a continuing one and thus would
be bound by the terms and conditions of the agreement
~
~
executed at the time of entering into the guarantee. In the
present facts and circumstances, we, therefore, do not find any
F
difficulty in affirming the concurrent findings of the High Court
and of the trial Court on the point that the agreement executed
for the purpose of a continuing liability despite the variation of
terms of the contract and in the absence of a specific written
document by Basavaraj (since deceased) revoking the
guarantee, the guarantee stands and the legal representatives G
J, of the deceased are liable to repay the loan.
8. With regard to the second issue, the learned counsel
""""' for the appellants contended that the contract between JKNP,
the Bank and the guarantor Basavaraj had been substituted by H
518 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.
A a fresh contract by which LST was required to liquidate the lo.;
)o
amount outstanding. The learned counsel based this on two
facts mainly~ One was the transfer of the loan accounts from
JKNP to LST and the other factor was the deposit of amounts
by the receivers appointed by the Court in 0.S. no 4/1977 for
B liquidation of outstanding amounts of money indeed gives rise
to substitution by a new contract. The respondents on the other
hand contended that substitution of an old contract by a new
one under Section 62 of Act would require the express consent
on behalf of both the parties. Now let us examine Section 62 .~
c the Act which reads as follows:-
of
"62. Effect of novation, rescission, and alteration of
Contract- 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 be performed."
D ~
This Section gives statutory form to the common law
principle of novation. The basic principle behind the concept --"(
of novation is the substitution of a contract by a new one only
through the consent of both the parties to the same. Such
E consent may be expressed as in written agreements or implied
through their actions or conduct. It was defined thus by the
House of Lords in Scarf v. Jardine [1882 (7) App. Case. 345]
-
•1
"That there being a contract in existence, some new
F contract is substituted for it, either between the same
parties (for that might be) or between different parties; the
consideration mutually being the discharge of the old
contract."
G It might be useful at this juncture to turn to the decision of
this Court in Lata Construction Ltd. v. Dr. Rameshchandra &
_:)...
Anr. ((2000) 1 SCC 586] whereby this court held that if the rights
under the old contract were kept alive even after the second
agreement and rights under the first agreement had not been
H rescinded, then there was no substitution of contracts and,
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 519
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
--..,
,
}/( hence, no novation. A
"
9. From the facts and circumstances of this case, however,
we are unable to uphold the contentions of the learned counsel
for the appellaQt. There was no record to show that there were
withdrawals from the loan account of JKNP from which it could
B
be inferred that the Bank had permitted the receivers to
withdraw money. We agree with the High Court in recognizing
the fact that only a 'withdrawal from the said loan account would
constitute acquiescence on behalf of the bank to a change in
the liability by novation. Mere deposit of amounts by a supposed
third party towards liquidation of an outstanding amount cannot b
ipso facto lead to the novation of a contract.
10. The learned counsel for the appellant further argued
that if not a novation, there was at least an alteration in the terms
~
of the original contract when the bank had let the court D
y appointed receivers to deal with the hypothecated property. In
........ fact, the bank had also given another loan against the very
same property which had been hypothecated also for the first
-E loan. Alteration or variation in the terms of a contract under
Section 62 of the Act implies that both parties have voluntarily E
agreed to the change in the terms of the agreement. In this case
however, as can be gathered from the facts and circumstances
., of the present case, the Bank never had a say in the matter at
J.::
all. In fact, it was due to a decree of the Courts that the property
in question had been entrusted in the hands of a receiver. The F
Bank never had, in any of the dealings of its own volition,
expressly accepted the change of the hands of the property
ownership and thereby accepted a change in the liability. It
might also be useful to recognize at this point of time, that the
receiver being a public appointed servant cannot bring about
G
j
a change in the said contract so as to affect the legal
'
consequences for the borrower or the guarantor .. The
administrator appointed by the Government had indeed
secured a loan towards the facilitation of running of the
publications but had not created any new charge on the
H
';
520 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A property. ,,-
);.
<
11. The learned counsel for the appellants also sought to
argue that the machinery hypothecated to the bank on account
of the agreement between JKNP and the Bank as security for
repayment of the loan was not identifiable specifically on
B
account of lack of evidence. By this, the learned counsel meant
that the list of annexures produced or proved at the trial stage
did not mention the list of any specified machinery
hypothecated to the bank. The exhibited document .marked p- :l-
14 clearly shows that there is a list of machinery which stood
c hypothecated to the bank not only against the initial sum of
Rs.2,86,000/- forwarded to the borrower but also towards any
other sum which might have been borrowed by·JKNP subject
to a limit of Rs. 75,00,000/-. As rightly held by the High Court at
present, there is no need to look into the question as to which
D of the machineries were specifically hypothecated to the Bank. ~
But the facts in this case are enough to show that a charge was
-"(
in fact created on the said machinery by JKNP and which had
........
reverted back to the original owner LST in the chain of
~
circumstances. Nevertheless there is enough evidence on
~
E record to show that there was indeed a hypothecation of the
said machinery. Hence, we find no difficulty in rejecting the
argument of the appellant. Accordingly, we affirm the decision
of the High Court as the plea of JKNP regarding the novation
t
of a contract was found to be unsustainable and, ther~fore, the "f.
F liability of LST to pay the amount involved in the suit would not
stand either except to the extent that LST holds any of the
hypothecated machineries.
12. The learned counsel for the appellant submitted that
JKNP was deprived of the possession, management and
G
control of the suit property by an interim order of the court
passed in OS No. 4/1977 and never regained the same. It was ).. I
further contended that the loan obtained by the appellant was
for and on behalf of the trust and, hence, JKNP can not be held
liable for repayment of the same. There is no doubt that LST
H
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 521
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
, being the beneficiary of the loan is liable to repay the loan A
JI(
amount under Section 70 of the Act; but the question here is
whether it is alone responsible to pay the same. The Courts
below held that LST was liabl~ for payment of the suit claim,
but the learned counsel for respondent claimed that once take-
over of the trust property was declared invalid, any liabilities B
incurred in the intervening period of time including actions by
the State would also be unenforceable against it. However, the
High Court failed to consider that LST was liable to repay the
-;.
loan on the principle of Section 70 of the Contract Act inasmuch
as it was LST who had been benefited from the loan, which c
JKNP had secured. Section 70 of the Act reads as follows:-
"70. Obligation of person enjoying benefit of non-
gratuitous act- Where a person lawfully does anything for
~
' another person, or delivers anything to him, not intending
I 'I-
to do so gratuitously, and such other person enjoys the D
~
)'-
benefit thereof, the latter is bound to make compensation
to the former in respect of, or to restore, the thing so done
or delivered. "
We, therefore, agree with the views expressed by the trial E
Court and disapprove the finding of the High Court on this count.
The Board of Trustees was competent to take any loan, which
~ j
would be considered to be loan taken by the Trust. In such a
.\r case, any loan taken by administrator appointed by the State
. shall also be deemed as loan taken by the trust and, hence,
the trust would be liable to repay the loan. At this juncture, it
F
would be pertinent to observe that we find no rationale
applicable to this case in the cases referred to us by the learned
counsel for the appellant at the bar namely Satyabrata Ghose
\
v. Muneeram Bangur &Co. (1954 SCR 310] which deals with
G
the doctrine of frustration and the scope of Section 56 of the
,..j
Act as well as 'impossible contracts' and also in Indian
Finance Corp. of India Ltd. v. Cannanore Weaving and
Spinning Mills Ltd. [2002(5) SCC 54] at page 71 ( Paras 28
and 29) which talk about the meaning of a written covenant to
H
522 SUPREME COURT REPORTS (2009] 15 (ADDL.) S.C.R.
A be drawn from the exact words used and where such promised
undertaken are found to be impossible to perform at a "
subsequent period of time. This Court finds no applicability of
the rationale of above mentioned cases to the present facts at
hand.
B
13. The fourth and final issue that needs to be decided is
the question as to whether LST having benefitted from the loan
transactions and being the ultimate beneficiary can be .-.,-
estopped from denying its liability. This question, of course, is
intricately linked to the previous. But first, we have to determine
c the concept of estoppal for the purpose of a fruitful discussion.
In general words, estoppal is a principle applicable when one
person induces another or intentionally causes the other person
to believe something to be true and to act upon such ·belief as
to change his/her position. In such a case, the former-shall be '(
D estopped from going back on the word given. The principle of >'
estoppel is, however, only applicable in cases where the other ~
party has changed his position relying upon the representation
thereby made. As stated by Lord Denman, in Pickard v. Sears
[6 Ad. & E. 469) at Page 474 and discussed in B.L Shreedhar
E v. K.M. Munireddy(dead) & Ors. (2003) 2 SCC 355, estoppal
said to be based on the maxim, allegans contrarir non est
audiendus (a party is not to be heard to allege the contrary)
and is that species of presumption juries et de jure (absolute· •
-j,
or conclusive or irrebutable presumption), where the fact
F presumed is taken to be true, not as against all the world, but .
against a particular party, and that only by reason of some act
done; it is in truth a kind of argumentum ad hominem. Estoppal
_is a complex legal notion, involving a combination of several
essential elements, namely, statement to be acted upon, acting ·~
G on the faith of it, resulting detriment to the actor. Estoppal is
often described as a rule of evidence, as indeed it may be so ).,
described. But the whole concept is more correctly viewed as
a substantive rule of law. Estoppal is different from contract both
in its nature and consequences. But the relationship between
H the parties must also be such that the imputed truth of the
H.R. BASAVARAJ (DEAD) BY HIS L. R. S & ANR. v. 523
CANARA BANK & ORS. [TARUN CHATTERJEE, J.]
statement is a necessary step in the constitution of the cause A
~ ,,rl.
of action. But the whole case of estoppal fails if the statement
is not sufficiently clear and unqualified.
14. In the present case, the Bank has granted the loan for
proper functioning of the trust and on hypothecation of the
8
properties of the trust itself. From the very beginning, all the
transactions which had been entered into had clearly been for
the sake of the running of the publications of the "Samyukta
")_ Karnataka" and other periodicals like the "Kasturi". In fact, first
KPP and then JKNP, both private limited companies were
formed for the sole purpose of the management of the running
c
of the business of LST. These companies had been formed
because LST was running losses and unable to properly
manage its affairs. Even the appointment of receivers and the
subsequent transactions entered into by the administrators
~
appointed under the LST Act had been for the purpose of D
!!;) 'f- furthering the business concerns of LST itself. It would be useful
, to refer in this connection to the case of Depuru Veeraraghava
--- Reddi v. Depuru Kamalamma [AIR 1951 Mad. 403] where
Vishwanatha Sastri, J. (as His Lordship then was) observed:
E
"An estoppal though a branch of the law of evidence is also
capable of being viewed as a substantive rule of law in so
~
far as it helps to create or defeat rights· which would not
~ exist and be taken away but for that doctrine."
- 15. In S. Shanmugam Pillai v. K. Shanmugam Pillai (AIR
1972 SC 2069), it was observed that there are three classes
F
of estoppels that may arise for consideration; being: (1) that
which is embodied in Section 115 of the Evidence Act, (2)
•
(
\ election in the strict sense of the term whereby the _person
G
.... '
_,/,
electing takes a benefit under the transaction, and (3)
ratification i.e. agreeing to abide by the transaction. It might be
said that the action of the trust 'falls under the third category
whereby it ratified all actions taken by others and benefiting
from the same. Hence, the trust being the sole beneficiary is
H
1
524 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.
A not only liable for the repayment but is also estopped from
denying its liability under the contract.
16. In the light of the afore-mentioned reasons, the appeal
is alloVl[ed and the judgment of the High Court is set aside and
that of trial court is restored. There will be no order as to costs.
8
D.G. Appeal allowed.
....
...
)
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