Narendra Sharma

1. Introduction

Recently, a 2 judge bench of hon’ble Supreme Court in Sita Ram Gupta Vs. Punjab National Bank and Ors {(2008) 5 SCC 711, Appeal (civil) 1878 of 2008, Date of judgment: 10/03/2008} held as follows (in para 8):

“8…………we hold that in view of the nature of guarantee entered into by the appellant with the Bank, the statutory provision under Section 130 of the Act shall not come to his help. The findings arrived at by the High Court while deciding the first appeal were that the amount shown due in the accounts of the Bank against the appellant and the defendants was neither cleared by the defendants nor by the appellant. Therefore, even if a letter was written to the Bank by the appellant on 31st of July, 1980 withdrawing the guarantee given by him, it was contrary to the clause in the agreement of guarantee, as noted herein earlier. Therefore, it was not open to the appellant to revoke the guarantee as the appellant had agreed to treat the guarantee as a continuing one and was bound by the terms and conditions of the said guarantee.” (italics supplied)

It is respectfully submitted that the author is unable to agree with this judgment of hon’ble Supreme Court for the following reasons. Let us examine in brief the facts and the reasoning given by the hon’ble Court.

2. Facts in brief

This appeal arises out of the final judgment and decree dated 11th of May, 2006 passed by the High Court of Delhi at New Delhi in RFA No.71 of 1985 whereby the High Court had set aside the judgment and decree dated 12th of November, 1984 passed by the Additional District and Sessions Judge dismissing the suit filed against the appellant who was a guarantor in respect of loans advanced by the Punjab National Bank (in short ‘the Bank’) respondent no.1, to M/s Rangaa Trades and Exports Pvt. Ltd.  respondent no.2, in this appeal.  By the impugned judgment, the High Court affirmed the decision of the Additional District and Sessions Judge and held that the suit filed by the Bank be decreed against the original defendant Nos.1 to 4 for a sum of Rs. 42,874/- including interest at the rate of 19.5 per cent per annum with quarterly rests from the date of filing of the suit till realization. At this stage, we may note that the said decree against the defendant nos.1 to 4 has now become final as no appeal was preferred by the said defendant nos. 1 to 4 against the said decree. Feeling aggrieved by the aforesaid judgment of the High Court, the special leave petition was filed by the guarantor appellant before hon’ble Supreme Court.

3. Agreement of guarantee

We may look into the agreement of guarantee entered into by the bank with the appellant as guarantor, which reads as under:

“2. The guarantors hereby guarantee jointly and severally to pay the bank on demand all principal, interest, costs, charges and expenses due and which may at any time become due to the Bank from the borrower, on the accounts opened in respect of the said limits (hereinafter called the ‘said accounts’) down to the date of payment and also all loss or damages, costs, charges and expenses and in the case of legal costs, costs as between attorney and client occasioned to the Bank by reason of omission, failure or default temporary or otherwise in such payment by the Borrower or by the Guarantors or any of them including costs (as aforesaid) of enforcement or attempted enforcement of payment by suit or otherwise or by a sale or realization or attempted sale or realization of any security for the said indebtedness or otherwise howsoever or any costs (which costs to be as aforesaid) charges or expenses which the Bank may incur by being joined in any proceeding to which the Bank may be made or may make itself party either with or without others in connection with any such securities or any proceeds thereof.

3. The Guarantors hereby declare that this guarantee shall be a continuing guarantee and shall not be considered as cancelled or in any way affected by the fact that at any time the said accounts may show no liability against the Borrower or may even show a credit in his favour but shall continue to be guarantee and remain in operation in respect of all subsequent transactions till the accounts are closed.” (Emphasis supplied)

4. Guarantee issued by the appellant to the Bank was subsequently cancelled

Keeping the agreement of guarantee, as noted hereinabove, in mind, let us now look into the facts of the present case. It is an admitted position that the guarantee issued by the appellant to the Bank was subsequently cancelled by his letter dated 31st of July, 1980 written to the Manager of the Bank and in that view of the matter, the appellant sought to substantiate his case that since his guarantee had stood revoked before the loan was in fact taken by the defendants from the bank, in view of Section 130 of the Indian Contract Act, 1872 (in short “the Act”),  he was not liable to pay the loan taken by the defendants in respect of which the appellant was a guarantor. The trial court, as noted herein above, dismissed the suit against the appellant and in appeal by the Bank, the High Court had reversed the decree passed by the trial court and granted decree in favour of the Bank and against the appellant. Subsequent to the revocation of guarantee by the appellant, there were transactions in respect of the loan between the defendant Nos. 1 to 4 and 6 and the bank. The suit was filed for recovery of loan by the Bank against the appellant as well as the other defendant Nos. 1 to 4 and 6.

5. Section 130 of the Act – Revocation of continuing guarantee

Before we proceed further it would be appropriate to reproduce Section 130 of the Act, which reads as under: –

“Revocation of continuing guarantee: A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.”

Revocation becomes effective for the future transactions while the surety remains liable for transactions already entered into. Offord v. Davies {(1862) 6 LT 579, 133 RR 491; 142 ER 1336} is a suitable illustration:

The defendants guaranteed the repayment of bills to be discounted by the plaintiffs for Davies & Co. for 12 months not exceeding 600 pounds. The defendants revoked the guarantee before any bill was discounted. But the plaintiffs discounted the bills which remained unpaid.

The question was whether the surety had a right to revoke. The court said: “We are of opinion that they had and consequently they were not liable. In the case of a simple guarantee for a proposed loan, the right of revocation before the proposal has been acted on did not appear to be disputed.”

Hon’ble High Court of Himachal Pradesh in Anil Kumar and others Vs. Central Bank of India and others (AIR 1997 HP 5) has held (in para 16 and 17) that in the case of a continuing guarantee, every credit given is a separate transaction which makes the surety irrevocably liable, but he may free himself from further liability.

Hon’ble High Court of Madras in Hargopal Agarwal v. State Bank of India (AIR 1956 Mad 211) has held that where the directors of a company guaranteed the payment of company’s overdrafts and subsequently resigned their office and the bank was informed, it was held that the liability of the directors would be confined to the amount due up to the date of their resignation.

6. Whether the statutory provision under Section 130 of the Act shall override the agreement of guarantee

Hon’ble Supreme Court observed (in para 6) thus “this was an agreement entered into by the appellant with the Bank, which is binding on him. Therefore, the question arises whether the statutory provision under Section 130 of the Act shall override the agreement of guarantee. In our view, the agreement cannot be said to be unlawful nor the parties have alleged that it was unlawful either before the Trial Court or before the High Court. Let us, therefore, keep in mind that the agreement of guarantee entered into by the appellant with the Bank was lawful.”

7. Whether the appellant, having entered into such an agreement of guarantee with the Bank, had waived his right under the Act

Hon’ble Supreme Court further observed (in para 7) thus “the question is whether the appellant, having entered into such an agreement of guarantee with the Bank, had waived his right under the Act. In our view, the High Court has rightly held and we too are of the view that the appellant cannot claim the benefit under Section 130 of the Act because he had waived the benefit by entering into the agreement of guarantee with the Bank. In Shri Lachoo Mal Vs. Shri Radhey Shyam, [(1971) 1 SCC 619], this Court observed that the general principle is that everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity which may be dispensed with without infringing any public right or public principle………” (Emphasis supplied)

8. Difference between the term ‘Benefit’ and ‘Right’

As per P Ramanatha Aiyar’s the Law Lexicon, 2nd Edition 1997(Reprint 2007) the term “Benefit” means advantage, profit or gain of any kind. On the other hand at page 1687 the term “Right” means an interest which is recognised and protected by law. As it is recognised by law a man is entitled to have it. As it can be protected by law the possessor can enforce it by an appropriate action in a court. (Raj Rajendra Sardar Maloji Narsig Rao Vs. Shankar Saran, AIR 1958 All 775, 787).

The preamble of the Indian Contract Act, 1872 reads as follows:

“Whereas it is expedient to define and amend certain parts of the law relating to contracts; it is hereby enacted as follows“

It is respectfully submitted that the Act had been enacted to codify the rights and liabilities of the parties who have entered into a contract and not to confer any benefit in favour of respective parties. The Indian Contract Act, 1872 can not be called a ‘beneficent legislation’ by any stretch of imagination.

9. Express waiver of the rights conferred on a Guarantor by Sections 133, 134, 135, 139 and 141 of the Indian Contract Act

An extract of paragraph no. 4 of Agreement of Guarantee of Punjab National Bank is reproduced below for ready reference:

“…………..Though as between the borrower(s) and the guarantor(s), he is/they are guarantor(s) only, the guarantor(s) agree(s) that as between the Bank and guarantor(s) they are debtor(s) jointly with the borrower(s)  and accordingly he/they shall not as such be entitled to claim the benefit of legal consequences of any variation in the terms of the contract and to any of the rights conferred on a Guarantor  by Sections 133, 134, 135, 139 and 141 of the Indian Contract Act……………”

It is evident that paragraph no. 4 of Agreement of Guarantee does not include Section 130 of the Act, therefore, as per the facts of the case there is no express waiver of Section 130 of the Act by the Guarantor. In view of that, it is respectfully submitted that the Hon’ble Court by its observation (in para 7 of the judgment) has concluded a presumed waiver of Section 130 of the Act by the Guarantor by reason of the language used in clause 2 of agreement of guarantee with the Bank, reproduced in para 3 above. Now, therefore, in this context let us examine the earlier case laws as to whether there could be a presumed waiver of the provisions of the Act, keeping in view the fundamental right of equal protection of laws provided in Article 14 of the Constitution of India.

10. There could be no waiver of the fundamental right founded on Article 14 of the Constitution

Article 14 runs as follows: “The State shall not deny to any person equality  before the  law  or  the equal protection of the  laws within the territory of India.”

A 5 judge Constitution Bench of hon’ble Supreme Court in Basheshar Nath vs. The Commissioner of Income-tax, Delhi & Rajasthan & another {1959 AIR  149; 1959 SCR  Supl. (1) 528, Date of judgment 19/11/1958} held (Per Curiam) as follows:

“Per Das, C. J., and Kapur J.-There could be no waiver of the fundamental right founded on Article 14 of the Constitution and it was not correct to contend that the appellant had by entering into the settlement under s. 8A of the Act, waived his  fundamental right under that Article.  Article  14 was founded on a sound public policy recognised and valued all over  the civilised world, its language was the language  of command and it imposed an obligation on the State of  which no  person could, by his act or conduct, relieve it………….  “

Hon’ble Court further observed:

“Per  Bhagwati  and Subba Rao, JJ.-There could be  no  waiver, not only of the fundamental right enshrined in Art. 14  but also of any other fundamental right guaranteed by Part III of the Constitution. The Constitution   made  no distinction  between  fundamental  rights  enacted  for the benefit of the individual and those enacted in the  public interest  or on grounds of the public policy.  There  could, therefore,  be no  justification  for importing American notions or authority of decided cases to whittle  down the transcendental character  of  those  rights,  conceived  in public interest and subject only to such limitations as the Constitution had itself thought fit to impose.” (Emphasis supplied)

11. A waiver is an intentional relinquishment of a known right

A 2 judge bench of hon’ble Supreme Court in Associated Hotels Of India Ltd, Delhi Vs. S. B. Sardar Ranjit Singh {1968 AIR 933; 1968 SCR  (2) 548, Date of judgment: 07/12/1967} held as follows:

A waiver is an intentional relinquishment of a known right. There can be no waiver unless the person against whom the Waiver is claimed had full knowledge of his rights and  of facts  enabling him  to  take effectual  action  for the enforcement of such rights.  Assuming that the landlord can waive the requirement as to consent, it was not shown that the  respondent waived it.  It is said that the respondent knew of the sub-lettings as he frequently visited the hotel up to 1953 and he must have known of the occupation of some of the occupants.  But he came to know of the other lettings in 1958 only.  Moreover, the precise nature of the grant was never communicated to the respondent. See Dhanukdhari  Singh v. Nathima Sahu, [1907] 11 C.W.N. 852.” (Emphasis supplied)

12. A waiver means the forsaking the assertion of a right at the proper opportunity

A 2 judge bench of hon’ble Supreme Court in Provash Chandra Dalui & Anr. Vs. Biswanath Banerjee & Anr. {1989 AIR 1834;1989 SCR  (2) 401; 1989 SCC  Supl.  (1) 487 JT 1989  Supl. 92;  1989 SCALE  (1) 844, Date of judgment 03/04/1989 } held as follows:

“The essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right or 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. The first respondent  filed suit  at  the proper opportunity after the land  was  transferred to him, and no covenant to treat the  appellants  as Thika  tenants could be shown to have run  with  the  land. Waiver is distinct from estoppel in that  in waiver the essential  element is actual intent to abandon or  surrender right, while  in estoppel such intent is  immaterial. The necessary condition is the detriment of the other party by the  conduct  of the one estopped. An  estoppel  may  result though the party estopped did not intend to lose any  existing right.  Thus voluntary choice is the essence of waiver for which there must have existed an opportunity for a choice between the relinquishment and the conferment of the right in question. Nothing of the kind could be proved in this case to estopp the first respondent.” (Emphasis supplied)

13. Guarantor has not waived his rights under the relevant provisions of the Contract Act

A single judge bench of Hon’ble High Court of Himachal Pradesh in Anil Kumar and others Vs. Central Bank of India and others (AIR 1997 H P 5 ) held (in para 16 and 17) thus:

“(para 16) Under Clause 8 of Guarantee Deed (Ex. D-6), the guarantor was liable to pay the loan amount in case the principal debtors fail to discharge the liability of the bank. The relevant extract of the clause reads as under:-

‘…………..Though as between the principal/ principals and myself/ourselves, sureties only, I/We agree that as between yourself and me/us I / We am / are principal debtor / debtors jointly with him / them and accordingly I / We shall not be entitled to any of the rights conferred on sureties by Sections 133, 134, 135, 139 and 141 of the Contract Act.’

(para 17) A reading of this clause shows that guarantor has not waived his rights under the relevant provisions of the Contract Act.”

14. Guarantor is entitled to invoke the provisions of section 141 of the Indian Contract Act

A 3 judge bench of hon’ble Supreme Court in State Bank Of Saurashtra Vs. Chitranjan Rangnath Raja And Anr. {1980 AIR 1528; 1980 SCR  (3) 915; 1980 SCC  (4) 516, Date of judgment 30/04/1980} held as follows:

“Clause 7  provides for  non-discharge of surety even if the  creditor  Bank  enters  into  a  composition  with the principal debtor  and that  the surety would nonetheless be liable even  if the  Bank has guarantee, security or remedy, guarantees,  securities or  remedies            from  the  principal debtor. Upon a true construction of clause 7, the expression ‘any other  guarantee, security or remedy’ therein mentioned must be security other than the pledged goods. In an almost identical situation  with regard  to an identical clauses in Amrit Lal  Goverdhan Lalan v. State  Bank of Travancore and Ors, this Court after referring to clause 5 in the letter of guarantee which is in pari materia  with clause  7 of the letter of guarantee under discussion, held as under:

“On behalf  of the  respondent Bank  reference was made to  cl. 5  of Ex.  P-4 which has already been  quoted. It  was contended  that on account of this clause in  Ex. P-4  the appellant has opted out of the benefit  of s. 141 of the Indian Contract Act.  We are  unable to  accept the argument put forward by  the   Attorney  General on  behalf   of the respondent Bank.  In our  opinion, the  expression  “any security”  in cl.  5 of       Ex.P-4 should be properly construed as “any security other than the pledge  of   goods  mentioned     in   the   primary agreement, Ex. P-1 between the Bank and the firm.” We consider that there  is nothing  in cl.  5  of    Ex.P-4 to  indicate  that  the  appellant  is not       entitled to invoke the provisions of s. 141 of the Indian Contract Act.

A bare perusal of clause 13 would show that it provides for continuing the guarantee  where the principal debtor is an  association of  persons  and  for continuance  of the guarantee in  the event of death, retirement, etc. of one of such association  of  persons  or  the guarantee  remaining intact and effective and legally enforceable irrespective of some defect  arising from  the internal management of    such association of   person. We fail to see how it can render any assistance to the Bank.

First security,  namely, the  pledged goods are lost to the Bank  and the  concurrent finding again incontrovertible is that the pledged  goods were  lost on  account  of the negligence of  the creditor  Bank. Whole of the security was lost and,  therefore  the  surety  would  be  discharged  in entirety because  it is crystal clear that  the  principal debtor had  agreed and had in fact pledged 5,000 tins of oil which even  if sold  at the  then current market price would have satisfied the Bank’s entire claim.  Accordingly, the surety would be discharged in entirety.

It is  difficult to  entertain a contention that s. 141 would  not   be attracted  and the  surety  would  not  be discharged even if it is found  that a  creditor has taken more than  one security on the basis of  which advance was made and  the surety  gave personal  guarantee on  the good faith of  other security  being offered  by  the  principal debtor which  itself may  be a consideration for the surety offering his  personal guarantee and the creditor by its own negligence lost one of the securities. Acceptance of such a contention would tantamount to putting a  premium  on the negligence of  the creditor to the  detriment of the surety who is usually described  as a preferred debtor. Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable?”  (Emphasis supplied)

15. An offer of guarantee may be revoked even before it is accepted

A 2 judge bench of hon’ble Supreme Court in Bank of India & Ors. v. O.P. Swarnakar etc. {2003 2 SCC 721 / 2003 SCC (L&S) 200, Date of judgment: 17/12/2002} observed that in Anson’s Law of Contracts it is stated at page 51:

“(a) Revocation of the Offer: The law relating to the revocation of an offer may be summed up in two rules;

(1) an offer may be revoked at any time before acceptance, and

(2) an offer is made irrevocable by acceptance.

(i) Revocable before acceptance:   The first of these rules may be illustrated by the case of Offord v. Davies (supra):

D made a written offer to O that, if he would discount bills for another firm, they (D) would guarantee the payment of such bills to the extent of Pound 600 during a period of twelve calendar months.  Some bills were discounted by O, and duly paid, but before the twelve months had expired D, the guarantors, revoked their offer and notified O that they would guarantee no more bills.  O continued to discount bills, some of which were not paid, and then sued D on the guarantee.

It was held that the revocation was a good defence to the action.  The alleged guarantee was an offer, for a period of 12 months, of promises for acts, of guarantees for discounts.  Each discount turned the offer into a promise, pro tanto, but the entire offer could at any time be revoked except as regards discounts made before notice of revocation.” The learned author, as noticed from the passage quoted herein before, clearly stated that an offer may be revoked even before it is accepted.

16. Mistake as to nature of promise

Section 13 of the Act has defined “Consent” – Two or more persons are said to consent when they agree upon the same thing in the same sense.

Section 20 of the Act has defined “Mistake” – Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Explanation.- An erroneous opinion as to the value of  the  thing which forms the subject-matter of the agreement is not to be deemed  a mistake as to a matter of fact.

If a mistake as to nature of promise is common to both parties, the agreement is void under section 20, the parties being mistaken about the very nature of the promise. But more frequently a mistake of this kind is brought about by the fraud of one party. One of the parties, being under a duty to do so, fails to disclose to the other the true nature of the document and thereby induces him to sign the same under the belief that he is signing some other instrument of a different nature. In such a case there is no real agreement as the consent is nullified by the mistake. This distinction has been indorsed by hon’ble Supreme Court in following case …………….(not reproduced here).

(Source: The Book ‘Law of Contract and Specific Relief’ by Dr. Avtar Singh).

17. Fraudulent misrepresentation as to the contents of the document

It is pertinent to note here that the Dictionary meaning of the word “fraudulent” is “to Defraud”. As per P Ramanatha Aiyar’s “The Law Lexicon” 2nd edition 2007 at page no. 511 the word “Defraud” means to deprive of some right, interest, or property by deceitful devices.

A 2 judge bench of hon’ble Supreme Court in Smt. Dularia Devi Vs. Janardan Singh & Ors. {1990 AIR 1173;1990 SCR  (1) 799; 1990 SCC  Supl.  216; JT 1990 (1) 417; 1990 SCALE  (1) 431, Date of judgment: 02/03/1990} observed that in Ningawwa  v. Byrappa & 3 Ors., {(1968) 2 SCR 797;1968 AIR  956}, this  Court referred  to the well-established principle that a  contract or  other  transaction induced or tendered by fraud  is not void, but only voidable at the option of the party  defrauded. The transaction remains valid until it was avoided. This Court then said:

“The legal position will be different if there is a fraudulent misrepresentation not merely as to the contents of the document but as to its character. The authorities make a clear distinction between fraudulent misrepresentation as to the character of the document and fraudulent misrepresentation as to the contents thereof. With reference to the former, it has been held that the transaction is void, while in the case of the latter, it is merely voidable. In Foster v. Mackinon, [1869] 4 CP 704, the action was by the endorsee of a bill of exchange. The defendant pleaded that he endorsed the bill on a fraudulent representation by the acceptor that he was signing a guarantee. In holding that such a plea  was admissible, the Court observed: It (signature) is invalid not merely on the ground of fraud, where  fraud exists, but on the ground that the mind of the signer did not accompany the signature; in other words, that he never intended to sign, and therefore in contemplation of law never did sign, the contract to which his name is appended……  The defendant never  intended to sign that contract or any such  contract. He never intended to put his name to any instrument that then was  or  thereafter might become negotiable.  He was deceived, not merely as to the legal effect, but as to the ‘actual contents’ of the instrument.” (Emphasis supplied)

18. Law declared by Supreme Court to be binding on all Courts

Article 141 of the Constitution provides that “the law declared by the Supreme Court shall be binding on all Courts within the territory of India.” Now let us examine the concept in detail as held by the Supreme Court in its various decisions (Source: The Book ‘Shorter Constitution of India’ by D.D.Basu, 11th edition 1994 Pp 475-479)

All courts in India are bound to follow the decision of the Supreme Court even though they are contrary to the decisions of the House of Lords or of the Privy Council.

‘Law declared’ – In case of conflict between decisions of the Supreme Court itself, it is the latest pronouncement which will be binding upon the inferior courts; unless the earlier was of a larger bench. If the later decision is that of a larger bench the previous decision will be deemed to have been overruled and completely wiped out. This rule is followed by the Supreme Court itself.

19. Judiciary is competent to make a right or wrong determination

In the exercise of judicial functions courts are required to determine the scope of the fundamental rights vis-a vis a legislative action. Unless their power to perform that function is excluded or restricted by the Constitution or any other law, they are competent to make a right or wrong determination. A wrong determination in such a case does not constitute a breach of any fundamental right by the court. It is a genuine mistake which it is competent to, though it must not, make. The remedy against such a mistake is not to allege a violation of the fundamental rights and approach the courts under Article 32 or 226, but to allege that the determination of the court is not consistent with the fundamental rights and approach the appropriate court with such allegation in appeal. In case the determining court is the highest court i.e. Supreme Court then the only remedy is to invoke its review jurisdiction. This position has been amply clarified and maintained by the Supreme Court in A.R. Antuley v. R.S. Nayak and Anr. {1988 AIR 531;1988 SCR  Supl. (1)1; 1988 SCC  (2) 602;JT 1988 (2) 325} (Source: The Book ‘V.N. Shukla’s Constitution of India’, 9th edition 1994 Pp 28)

20. Conclusion

20.1 As detailed above, hon’ble Supreme Court in Provash Chandra Dalui & Anr (supra) has held that the essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right or 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.

Further, hon’ble Supreme Court in Smt. Dularia Devi (supra) observed that in Ningawwa  v. Byrappa & 3 Ors (supra) this  Court said the legal position will be different if there is a fraudulent misrepresentation not merely as to the contents of the document  but  as to its character. The authorities make a clear distinction between fraudulent misrepresentation as to the character of the document and fraudulent misrepresentation as to the contents thereof. With reference to the former, it has been held that the transaction is void, while in the case of the latter, it is merely voidable.

20.2 As per the facts of this case it is an admitted position that the guarantee issued by the appellant to the Bank was subsequently cancelled by his letter dated 31st of July, 1980 written to the Manager of the Bank. It appears that the mistake as to nature of promise was brought about by the fraudulent misrepresentation as to the contents of agreement of guarantee by the Bank, being under a duty to do so, failed to disclose to the guarantor the true nature of the agreement of guarantee and thereby induced him to sign the same under the belief that he is signing an agreement of guarantee, which is fair to both the parties, but on the contrary it was having one sided monopolistic conditions absolutely in favour of the Bank. In such a case, there is no real agreement as the consent is nullified by the mistake. The essential element of waiver is that there must be a voluntary and intentional relinquishment of a known right. It means the forsaking the assertion of a right at the proper opportunity.

In the case in hand, as soon as the guarantor came to know the true nature of the agreement of guarantee he subsequently cancelled his guarantee by his letter dated 31st of July, 1980 written to the Manager of the Bank and in that view of the matter, since his guarantee had stood revoked before the loan was in fact taken by the defendants from the bank, in view of Section 130 of the Act, he was not liable to pay the loan taken by the defendants in respect of which the appellant was a guarantor. The guarantor asserted his right of revocation of his guarantee, as per Section 130 of the Act, at the proper opportunity.

In view of that, it is respectfully submitted that the Hon’ble Court by its observation (in para 7 of the judgment) has erred in concluding a presumed waiver of Section 130 of the Act by the Guarantor by reason of the language used in clause 2 of agreement of guarantee by the Bank, which is a legal gimmick played by the Bank against the legitimate rights of the Guarantor. It is respectfully submitted that the determination of the Hon’ble Court is not consistent with the fundamental right enshrined in Article 14 of the Constitution.

20.3 A 5 judge Constitution Bench of hon’ble Supreme Court in Basheshar Nath vs. The Commissioner of Income-tax, Delhi & Rajasthan & another (supra,  Date of judgment 19/11/1958) held (Per Curiam) that there could be no waiver of the fundamental right founded on Article 14 of the Constitution.

Further, a 3 judge bench of hon’ble Supreme Court in State Bank Of Saurashtra Vs. Chitranjan Rangnath Raja And Anr. (supra, Date of judgment 30/04/1980) has held that it is  difficult to  entertain a contention that section 141 would  not   be attracted  and the  surety  would  not  be discharged even if it is found  that a  creditor has taken more than  one security. Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable ?

It is respectfully submitted that aforesaid judgments, being of larger bench of 5 Judges and 3 Judges respectively, are binding on this hon’ble 2 Judge bench. It appears that aforesaid judgments were not taken into the notice of the hon’ble  Court. It is expected that in the interest of justice the hon’ble Court will suo motu take up a review of this judgment at the earliest.

20.4 At last, but not the least, it is submitted that the legality (or illegality) of the construction of such contents of Agreement of Guarantee by every Bank and Financial Institution in the country (without even a single exception) is certainly questionable. Due to urgent working capital requirements by the enterprise concerned, an innocent Guarantor induced by undue influence, is constrained to execute such cunningly constructed Agreement of Guarantee.

Note: The views expressed are my personal and a view point only.

(Author:  Author can be reached at Mobile-9229574214, E-mail: nkdewas@yahoo.co.in)

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0 responses to “Beg to Differ – SC Judgment in Sita Ram Gupta Vs Punjab National Bank & Ors”

  1. Narendra Sharma says:

    This judgment, in ignorance of judgments of larger bench of 5 Judges and 3 Judges, is PER INCURIAM. I have pointed out the error, therefore, it is expected that at least in future injustice may be prevented from being caused due this judgment.

  2. A P Agrawal says:

    The judgement is debatable. Section 130 is not to protect a private right as against a public right as the Legislature has provided for the areas where the parties have a leeway through agreement or consent. Further, interpreting the provision in the manner done by the Hon’ble court amounts to legislating as it means that a party in superior bargaining power may denude the weaker party from all statutory protection.

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