w w w . L a w y e r S e r v i c e s . i n



State Bank of India, Represented By Its Branch Manager, Red Hills, Hyderabad v/s (1) D.V.S. Raju; (2) Messrs A.P. Carbides Limited (In Liquidation), Represented By The Official Liquidator, High Court of Andhra Pradesh, Hyderabad; (3) N.V. Janardhana Rao; (4) Industrial Development Bank of India, "Parishrama Bhavan", Fatehmaidan Road, Basheerbagh, Hyderabad; (5) Industrial Finance Corporation of India, Bank of Baroda Building, New Delhi; (6) Industrial Credit and Investment Corporation of India Limited, Bombay Reclamation Scheme, Mumbai; (7) Life Insurance Corporation of India, "Yogakshema", Jeevan Bhima Marg, Mumbai; (8) Unit Trust of India, Sir Vittaldas Thackerey Marg, Mumbai


Company & Directors' Information:- INDUSTRIAL INVESTMENT BANK OF INDIA LIMITED. [Under Liquidation] CIN = U65923WB1997GOI083429

Company & Directors' Information:- ANDHRA PRADESH INDUSTRIAL DEVELOPMENT CORPORATION LIMITED [Active] CIN = U74999TG1960SGC000862

Company & Directors' Information:- THE INVESTMENT TRUST OF INDIA LIMITED [Active] CIN = L65910MH1991PLC062067

Company & Directors' Information:- INDUSTRIAL INVESTMENT TRUST LIMITED [Active] CIN = L65990MH1933PLC001998

Company & Directors' Information:- THE INVESTMENT TRUST OF INDIA LIMITED [Amalgamated] CIN = U74999TN2015PLC100911

Company & Directors' Information:- THE INVESTMENT TRUST OF INDIA PRIVATE LIMITED [Active] CIN = U74999TN2015PTC100911

Company & Directors' Information:- THE INDIA INVESTMENT AND DEVELOPMENT TRUST LTD [Under Process of Striking Off] CIN = U67120UP1947PLC001717

Company & Directors' Information:- BOMBAY FINANCE INDIA PRIVATE LIMITED [Active] CIN = U65900MH2014PTC260301

Company & Directors' Information:- S H FINANCE & CREDIT PVT LTD [Active] CIN = U65999WB1991PTC053467

Company & Directors' Information:- HYDERABAD ROAD DEVELOPMENT CORPORATION LIMITED [Active] CIN = U74999TG2017SGC117679

Company & Directors' Information:- S M INDIA LTD [Strike Off] CIN = U26942ML1998PLC005541

Company & Directors' Information:- NEW INDIA INVESTMENT CORPN LTD [Active] CIN = L67120WB1936PLC008762

Company & Directors' Information:- NEW INDIA INVESTMENT CORPN LTD [Active] CIN = U67120WB1936PLC008762

Company & Directors' Information:- INDUSTRIAL DEVELOPMENT AND INVESTMENT CO PVT LTD [Active] CIN = U65990MH1941PTC003300

Company & Directors' Information:- BARODA INDUSTRIAL DEVELOPMENT CORPN LIMITED [Active] CIN = U73100GJ1957PLC000858

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- S R RECLAMATION PRIVATE LIMITED [Active] CIN = U25190PB2010PTC034132

Company & Directors' Information:- K V DEVELOPMENT AND INVESTMENT CO PVT LTD [Active] CIN = U65922MH1979PTC021155

Company & Directors' Information:- JEEVAN INVESTMENT AND FINANCE PVT LTD [Active] CIN = U65990MH1987PTC042947

Company & Directors' Information:- B M INVESTMENT TRUST PVT LTD [Strike Off] CIN = U65993WB1965PTC026631

Company & Directors' Information:- A.P. FINANCE LIMITED. [Amalgamated] CIN = U67120WB1986PLC040644

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- THE INDUSTRIAL CREDIT COMPANY LIMITED [Active] CIN = U65921DL1930GOI000216

Company & Directors' Information:- R N B J INVESTMENT AND DEVELOPMENT PVT LTD [Strike Off] CIN = U65990MH1982PTC028451

Company & Directors' Information:- S P INVESTMENT AND DEVELOPMENT COMPANY PVT LTD [Strike Off] CIN = U67121ML1988PTC003133

Company & Directors' Information:- HYDERABAD FINANCE PVT LTD [Strike Off] CIN = U65910TG1987PTC007966

Company & Directors' Information:- M M FINANCE & CREDIT PVT LTD [Under Process of Striking Off] CIN = U67120WB1992PTC053974

Company & Directors' Information:- BARODA INVESTMENT CO PVT LTD [Strike Off] CIN = U65993WB1940PTC007488

Company & Directors' Information:- JEEVAN INSURANCE INDIA PRIVATE LIMITED [Under Process of Striking Off] CIN = U67200TN2004PTC053392

Company & Directors' Information:- RECLAMATION DEVELOPMENT (INDIA) PRIVATE LIMITED [Strike Off] CIN = U45200MH2004PTC150345

Company & Directors' Information:- S K INDUSTRIAL AND CREDIT COMPANY LTD [Strike Off] CIN = U65993WB1985PLC038641

Company & Directors' Information:- DVS INDIA PRIVATE LIMITED [Active] CIN = U72200DL1999PTC097938

Company & Directors' Information:- BARODA FINANCE AND INVESTMENT INDIA LTD [Strike Off] CIN = U65921PB1989PLC008943

Company & Directors' Information:- NEW INDIA FINANCE AND INVESTMENT LIMITED. [Strike Off] CIN = U67120JK1997PLC001613

Company & Directors' Information:- N.V. INVESTMENT PRIVATE LIMITED [Strike Off] CIN = U65910UP1993PTC015747

Company & Directors' Information:- INDUSTRIAL TRUST LIMITED [Strike Off] CIN = U74999RJ1943PLC000118

Company & Directors' Information:- N.V. CREDIT PVT. LTD. [Strike Off] CIN = U65993WB1990PTC048421

Company & Directors' Information:- BOMBAY INVESTMENT CO PVT LTD [Strike Off] CIN = U99999MH1942PTC003736

Company & Directors' Information:- NEW FINANCE AND CREDIT CORPORATION PVT LTD [Active] CIN = U65921PB1959PTC002274

Company & Directors' Information:- DVS FINANCE AND INVESTMENT PRIVATE LIMITED [Strike Off] CIN = U65921TN1996PTC036110

Company & Directors' Information:- DEVELOPMENT TRUST PRIVATE LIMITED [Active] CIN = U45101UP1942PTC001109

Company & Directors' Information:- B S INDUSTRIAL FINANCE LTD. [Strike Off] CIN = U65992WB1990PLC048828

Company & Directors' Information:- NEW (INDIA) INVESTMENT LTD. [Strike Off] CIN = U65929OR1989PLC002187

Company & Directors' Information:- B H N INDUSTRIAL FINANCE PVT LTD [Strike Off] CIN = U67120WB1980PTC033236

Company & Directors' Information:- FINANCE AND INDUSTRIAL CORPORATION PRIVATE LIMITED [Strike Off] CIN = U65921PB1956PTC001918

Company & Directors' Information:- YOGAKSHEMA FINANCE PRIVATE LIMITED [Strike Off] CIN = U65990MH1977PTC020020

Company & Directors' Information:- INVESTMENT AND CREDIT CORPN PVT LTD [Strike Off] CIN = U65993WB1952PTC020670

Company & Directors' Information:- LIFE INVESTMENT & CREDIT CO PVT LTD [Strike Off] CIN = U65920AS1974PTC001558

Company & Directors' Information:- RAO FINANCE PRIVATE LIMITED [Strike Off] CIN = U65923GJ1990PTC013919

Company & Directors' Information:- BOMBAY TRUST CORPORATION LTD. [Liquidated] CIN = U99999MH1920PTC000827

Company & Directors' Information:- INVESTMENT TRUST LIMITED [Dissolved] CIN = U99999MH1925PTC001168

Company & Directors' Information:- INVESTMENT TRUST LIMITED [Dissolved] CIN = U99999MH1929PTC001468

Company & Directors' Information:- INVESTMENT TRUST AND INSURANCE CORPORATION LIMITED [Not available for efiling] CIN = U99999MH1937PTC002595

Company & Directors' Information:- BOMBAY FINANCE CORPORATION LIMITED [Dissolved] CIN = U99999MH1946PTC005247

Company & Directors' Information:- NEW INDIA INVESTMENT TRUST LIMITED [Dissolved] CIN = U99999MH1946PLC007664

Company & Directors' Information:- BOMBAY CREDIT CORPORATION LIMITED [Under Liquidation] CIN = U99999MH1952PLC008955

Company & Directors' Information:- HYDERABAD INDUSTRIAL CORPN PVT LTD [Strike Off] CIN = U99999TG1944PTC000218

Company & Directors' Information:- NEW INDIA INVESTMENT TRUST LTD. [Not available for efiling] CIN = U99999DL2000PTC002758

Company & Directors' Information:- CREDIT AND FINANCE PVT LTD [Strike Off] CIN = U65929DL1955PTC002538

Company & Directors' Information:- ANDHRA PRADESH CARBIDES LTD. [Under Liquidation] CIN = U99999AP2000PTC905806

    Ra-16/2002 (Oa-457/1999-Drt, Hyderabad)

    Decided On, 28 January 2004

    At, Debt Recovery Appellate Tribunal At Chennai

    By, A. SUBBULAKSHMY (CHAIRPERSON)

    K.S. Sundar, T.V. Ramanujam, D. Gopinath



Judgment Text


The Order of the Court was as follows :

1. The Original Application (OA) was decreed by the PO, DRT, Hyderabad, as against the other defendants except Defendant No.3 and the OA was dismissed as against D3 by Order dated 18.6.2002. Aggrieved against this dismissal Order as against D3 the appellant Bank has come forward with this appeal.

2. Counsel for the appellant Bank submits that D3 is also liable for the Suit claim since he executed the guarantee and the decree has to be passed as against D3 also. Counsel for the 1st respondent 3rd defendant submits that D3 resigned from his Directorship in the year 1981 and he was no longer the Director and he had no more claim over the 1st defendant Company and all the loan transactions were done by the next set of Directors and not by this respondent and the 1st respondent is not liable and the Order passed by the PO, DRT, is not to be interfered with.

3. Counsel for the appellant Bank very much relies upon the guarantees executed by the 1st respondent, other Directors and the 1st defendant Company and the Counsel for the appellant Bank submits that as per the guarantee executed the 1st respondent is liable since it is a continuing guarantee. He relies upon the guarantees Exs.A3 to A5. Ex.A3 is the Deferred Payment Guarantee executed on 22.6.1978 between the Bank and the D1 Company. The guarantee shall remain in force until 30.4.1989 unless a Suit or action to enforce a claim under the guarantee is filed within three months from that date. Exs.A4 & A5 are the Counter Guarantees dated 22.6.1978 executed by the D1 Company and the three Directors viz. N.V. Janarthana Rao, K. Srinivasa Rao & D.V.S. Raju.

4. Counsel for the 1st respondent pointed out this Ex.A5 guarantee was executed by the Directors only in their capacity as Directors and they never executed personal guarantee and after ceasing from the Directorship they are no longer responsible. Clause (b) of Ex.A5 Counter Guarantee states "The Bank shall be at liberty to debit the Current Account maintained by us at the Bank's Red-Hills Branch with any amount paid or payable by the Bank pursuant to Clause (a) of this Counter-guarantee." Clause (c) of the Guarantee states that "It is further agreed that this Counter-guarantee will remain in force until the Bank if finally discharged of the liabilities under the said guarantee and has obtained confirmation in writing thereof from the Beneficiary and received therefrom the said Guarantee duly redeemed." Clause (b) in this guarantee reveals that the Bank is at liberty to debit the Current Account maintained at the Bank's branch with any amount paid or payable by the Bank. Only in their capacity as Directors they have executed this guarantee. Admittedly, the 1st respondent resigned from his Directorship in the year 1981. So, after he resigned from the Directorship since he is no longer the Director of the Company, he cannot be held liable for any subsequent dealings or for the amount due to the Bank and only the next set of Directors will be liable. After his resignation, D3 cannot be held responsible for any amount due to the Bank because he executed the guarantee only in his capacity as Director of that Company.

5. It appears that the other two Directors who also executed the guarantee Ex.A5 are no more and their LRs are not added as parties in the Suit. Counsel for the 1st respondent submits that when the other guarantors died and no LRs have been added and as the Suit has been abated as against those guarantors, this respondent is also absolved of his liability under that guarantee. He relies upon the decision in Vol.I (2003) Banking Cases Page-555 (SC) (Zahirul Islam Vs. Mohd. Usman & Ors.) wherein it has been held that "Judgment pronounced against defendant notwithstanding death of Defendant No.2 shall have same force and effect as if judgment pronounced before death took place: Permission contemplated under Order 22 Rule 4 not obtained from Court exempting plaintiff from bringing on record L.R. of the deceased defendant No.2: Order under record unsustainable."

6. The non-joinder of LRs of the deceased has resulted in the loss of valuable right of subrogation available to the 1st respondent. Even though the 1st respondent has executed the guarantee, since he has executed the guarantee in his capacity as the Director and as he also resigned from the Directorship in the year 1981, the 1st respondent cannot be held liable. Further, there is also variation in that contract and the loan account was converted into Cash Credit Account after ten years and the Suit has been filed as against this erstwhile Director the 1st respondent and for that variation of contract also the 1st respondent cannot be held responsible. So, viewed at any angle it is crystal clear that the 1st respondent cannot be held liable for the Suit claim. The 1st defendant Company availed the loan facility. Even in the plaint the Bank has clearly accepted that in or about April, 1982 there was a change in the management of the 1st defendant Company and the defendants 2 & 3 ceased to be the Managing Director and Director respectively and the other Director K. Srinivasa Rao who executed the personal Counter guarantee alongwith the other guarantors D2 & D3, has expired. It is further recited in the plaint that the management of the Company also appear to have abandoned their efforts to resuscitate the industry and at the request of the present management and with a view to safeguard the properties, the plaintiff and other financial Institutions are providing the 1st defendant necessary finance from time to time to pay salaries to the security staff and these sums are being debited to the 1st defendant Company's account. It is also recited in the plaint that at the request of the 1st defendant, the amounts were initially debited to the Cash Credit Account maintained at the T.I.F. Campus (Kurnool) Branch and the outstanding debits were then re-transferred to the account maintained at the Red Hills (Hyderabad) Branch, as that branch was handling these transactions. These things clearly establish that there was variation in the contract and there was change in the management of the 1st defendant Company even in the year 1982 and the 1st respondent ceased to be the Director and he was never in the management of that Company and after the new management has taken over the responsibility the erstwhile Director the 1st respondent cannot be held responsible for the amount due to the Company after so many years after his resignation in the year 1981.

7. Counsel for the appellant Bank submitted that because D3 the 1st respondent executed the Counter Guarantee, the 1st respondent is liable for the Suit claim. He relies upon the decision reported in (1969) I Supreme Court Reports Page-622 (Bank of Bihar Ltd. Vs. Damodar Prasad & Anr.) wherein it has been held that "It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under S. 140 of the Indian Contract Act, and he may then recover the amount from the principal and the very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety." But in the case on hand, the 1st respondent has resigned from his Directorship and subsequent dealings by the Bank were done only with the new Directors and D3 has nothing to do with these transactions and D3 after his resignation cannot be held liable. Since D3 resigned in the year 1981 and subsequent contract has been entered into by the new Directors and all the dealings have been done by the new Directors, D3 cannot be held liable on the guarantee executed by him.

8. Even in the Written Statement, the 3rd defendant 1st respondent has set out that the signatories to the Counter guarantee dated 22.6.1978 have ceased to be associated with the 1st defendant Company as from April, 1982 to the knowledge of the plaintiff and the plaintiff has by its conduct and the subsequent Agreement entered into with the new Directors absolved this defendant of all the liabilities under the Counter guarantee. It has been agreed by the plaintiff Bank itself that there was a change in the management and the plaintiff has dealt with the 1st defendant with the new Directors and extended further loans and they were looking forward only for the new Directors for the fulfillment of the obligations. So, it is evident that the liability of the 1st respondent under that guarantee was discharged immediately on resignation by this respondent.

9. The significant factor is that before filing of the Suit, no notice was given to the 1st respondent at all. Ex.A17 Notice was sent only to the new set of Directors Mr. Sudheekar Reddy and the Managing Director. Ex.A17 was given only to Mr. Sudheekar Reddy and the Managing Director and not to the 1st respondent. Only Mr. Sudheekar Reddy and the Managing Director have been asked to arrange for payment of that amount immediately to the Bank for the dues. Even for the amount due in 1981 by the 1st defendant Company, only Mr. Sudheekar Reddy and the Managing Director have been asked to pay that amount under Ex.A17. No notice has been sent to the 1st respondent at all before filing of the Suit directing that the 1st respondent pay that amount. The sending of the Notice to the new Directors in Ex.A17 clearly reveals that the Bank itself accepts that only the new set of Directors are liable for the Suit claim and not the old Director. The fact that the Bank did not give any notice to the 1st respondent for repayment of that amount before filing of that Suit also clearly reveals that the Bank is well aware that the 1st respondent 3rd defendant is not liable for the Suit claim. The applicant State Bank of India is fully aware of the new promotional Agreement and the change in management which has been clearly set out in the plaint. The new co-promoters Mr. Sudheekar Reddy and Mr. George Reddy were to take over all obligations and liabilities and they also undertook to discharge earlier co-promoters from all liabilities by giving fresh guarantees. The new co-promoters had given fresh guarantees and the appellant State Bank of India is aware of the change of management and permitted the change of management and the State Bank of India is aware that the old Directors of the Company had ceased to be co-promoters of that Company.

10. It is also evident that the appellant Bank has changed the hypotheca which was originally hypothecated, without the knowledge and consent of D3. So, it is evident that D3 was not concerned after his resignation in 1981. The granting of time to the D1 Company by the applicant Bank in the matter of Bills under the Deferred Payment Guarantee (DPG) without the consent of D3 has attracted the provisions of Section-135 of the Contract Act, which entitles D3 for discharge from the original contract. The act of the applicant Bank in merging DPG instalments into the Cash Credit Account of the Company has resulted in variation of the terms of contract. The applicant Bank entered into agreement with the new Directors. So, it is crystal clear that only the new Directors will be liable and D3 cannot be held liable for the Suit claim. Because of the variation in the terms of contract, the resignation of D3 from the Directorship in the year 1981 and the entering into contract by the new Directors of the D1 Company with the applicant Bank, it can be safely concluded that D3 the 1st respondent cannot be held liable for the Suit claim. The PO, DRT, rightly considered this point and dismissed the OA as against the 3rd defendant. I see no ground to interfere in the Order passed by the PO, DRT, Hyderabad.