Arun Vs Indian Bank (Madras High Court)
Father’s Loan Does Not Become Son’s Personal Debt: Liability Confined to Estate Inherited
Madras High Court distinguishes personal liability from liability as a legal heir
The Madras High Court, in Arun v. Indian Bank and Another, CRP No. 3007 of 2023, decided on 12 November 2026, clarified that a son cannot be made personally liable for the entire outstanding loan merely because he is the legal heir of a deceased borrower or guarantor. However, he may be impleaded in recovery proceedings where the bank seeks recovery only against the deceased’s estate inherited by him.
Justice R. Rajesh Vivekananthan accordingly declined to interfere with the rejection of the son’s application under Order VII Rule 11 of the Code of Civil Procedure, 1908. The Court expressly preserved his right to contest whether any particular property could be attached or proceeded against.
Background: Educational loan taken by daughter and father
Indian Bank sanctioned an educational loan of ₹4 lakh on 28 July 2007 to Aruna and her father. They jointly executed a promissory note agreeing to repay the amount with interest at 12.5% per annum with quarterly rests. An educational loan agreement provided for repayment in 60 monthly instalments of ₹9,000 each, following a moratorium of 36 months.
The parents also executed a guarantee agreement securing repayment. The daughter subsequently acknowledged the debt on different dates.
After the parents died, the bank instituted recovery proceedings against the daughter as borrower and impleaded her brother, Arun, as a legal heir of the deceased guarantor. The bank maintained that its claim against him was restricted to the estate of the deceased coming into his hands.
Son’s objection: Neither borrower nor signatory
Arun sought rejection of the plaint, contending that he had neither borrowed the money nor signed any loan document. The loan had been disbursed directly to the educational institution, and he had received no benefit from it.
He further relied on a settlement deed dated 25 October 2006, executed by his father in his favour before the loan transaction. According to him, the father had left no estate against which the bank could proceed. He alleged that his inclusion in the suit was intended to facilitate attachment of the property already settled upon him.
He also pointed out that another daughter, Shanthi, had not been impleaded. On these grounds, he argued that no cause of action arose against him.
Bank’s stand: Claim against inherited estate alone
The bank clarified that Arun had not been sued in his personal capacity. His inclusion was necessary to pursue the estate of the deceased guarantor, to the extent that such estate was held by him.
Consequently, the absence of his signature on the loan documents did not defeat the suit at its threshold. The bank submitted that questions concerning the settlement deed and the attachability of the property required consideration in the appropriate proceedings.
This distinction between personal contractual liability and liability confined to inherited estate formed the central basis of the High Court’s decision.
Court’s ruling: Legal heir status does not create unlimited liability
The Court held that Arun could be proceeded against only to the extent of the deceased’s estate inherited by him. His status as a legal heir, by itself, could not make him personally answerable for the entire loan without an independent legal basis.
The judgment referred to the Division Bench decision in State Bank of India v. Jayashri and Others, 2011 (2) CTC 465, concerning liability following the death of a guarantor.
Since the bank expressly confined its claim against Arun to the deceased guarantor’s estate in his hands, his contention that he had not signed the documents did not, by itself, justify rejection of the plaint.
A person may therefore be a proper party to recovery proceedings as a representative of the deceased’s estate without becoming personally liable for the debt.
Earlier settlement deed: No final ruling on attachment
The Court did not finally decide whether the property settled in 2006 could be attached for the subsequent loan liability.
It held that the settlement deed, the alleged absence of an inherited estate and the non-impleadment of another legal heir involved questions requiring consideration on the basis of pleadings and evidence.
Arun remained free to raise all legally available defences before the Trial Court. Significantly, the dismissal of his application was not to be treated as a determination of the bank’s entitlement to attach or recover money from any specific property.
The revision petition was dismissed without costs.
Author’s Comments
The decision should not be understood as holding that children must repay their parents’ loans from their own resources. Its precise effect is that a recovery suit may continue against a legal heir where the creditor seeks to reach the deceased’s estate held by that heir.
Equally, refusal to reject a plaint is not a recovery decree. The bank must still establish its claim and the availability of property legally answerable for that claim. The earlier settlement deed remains a defence for adjudication; this order does not invalidate it or automatically authorise attachment.
The crucial distinction is between inheriting an estate burdened by an enforceable liability and becoming personally indebted merely through a family relationship.
Cases Discussed
1. State Bank of India v. Jayashri and Others (Madras High Court); 2011 (2) CTC 465; Date: Not verified; AY: Not Applicable. Discussed in paragraph 13 on the liability of a deceased guarantor’s estate. A dedicated TaxGuru judgment URL was not verified; therefore no misleading case-page link is inserted.
FULL TEXT OF THE ORDER OF MADRAS HIGH COURT
This Civil Revision Petition has been filed challenging the order passed in I.A. No. 1 of 2021 in O.S. No. 15 of 2019, dated 25.11.2022, on the file of the III Additional District and Sessions Court, Tiruppur District.
2. The petitioner herein is the second defendant in the suit, the first respondent herein is the plaintiff, and the second respondent herein is the first defendant in the suit.
3. For the sake of convenience, the parties shall be referred to as per their ranking before the Trial Court.
4. The case of the plaintiff is that, at the request of the first defendant and her parents, the plaintiff Bank sanctioned an educational loan of Rs.4,00,000/- to the first defendant and her father on 28.07.2007 and the first defendant and her father jointly executed a promissory note in favour of the plaintiff for the said sum, agreeing to repay the loan with interest at 12.5% per annum with quarterly rests, on demand by the plaintiff or its order. On the same day, they also executed an educational loan agreement, agreeing to repay the loan in 60 monthly installments of Rs.9,000/- each, after a moratorium period of 36 months.
5. The parents of the first defendant jointly executed a guarantee agreement in favour of the plaintiff on 28.07.2007, guaranteeing repayment of the sum of Rs.4,00,000/-. The first defendant also executed acknowledgements of debt in favour of the plaintiff on 16.07.2010, 13.07.2013 and 19.05.2016. The parents of the first defendant subsequently died, leaving behind their daughter / the first defendant, and their son / the second defendant, as their legal heirs. Hence, the second defendant was impleaded as a party to the suit. According to the plaintiff, the defendants are liable to repay the outstanding loan amount. Despite repeated demands, the defendants failed to discharge the liability. Hence, the suit was filed.
6. The second defendant filed an application under Order VII Rule 11 of the Code of Civil Procedure, 1908, seeking rejection of the plaint. The principal contention of the second defendant is that the educational loan was availed of by the first defendant and her father, and that he was neither a party to the loan agreement nor a signatory to any of the loan documents. It is further contended that the loan amount was directly disbursed to the educational institution and that the allegation that the defendants benefited from the loan is false. According to the second defendant, the loan was obtained on 28.07.2007 by the first defendant and her father. Even prior to the said loan transaction, the father had executed a settlement deed dated 25.10.2006 in favour of the second defendant. The father died on 22.09.2010, and the mother died on 22.05.2016.
7. The second defendant further contended that, although the plaintiff had impleaded him as a legal heir of his deceased parents, another daughter of the parents, namely, Shanthi, had not been impleaded as a party to the suit. It was alleged that the second defendant had been impleaded only with the intention of attaching the property settled in his favour by his father. He also contended that the first defendant had married according to her own wishes and that he had no connection with her educational loan. According to him, since he had neither availed of the loan nor executed any document in favour of the plaintiff, no cause of action arose against him and he was not a necessary party to the suit. Hence, he sought rejection of the plaint.
8. The plaintiff filed a counter affidavit opposing the application. It was contended that the educational loan had been availed of by the first defendant and her father and that the parents had executed a guarantee agreement in favour of the plaintiff. The suit had been instituted against the first defendant in the capacity of borrower and against the estate of the deceased guarantor, which is in the hands of his legal heirs. The plaintiff further contended that the second defendant, being one of the legal heirs of the deceased guarantor, was liable to the extent of the estate inherited by him from the deceased. The contention relating to the settlement deed and the property settled in favour of the second defendant could be raised in the appropriate proceedings, including the application for attachment before judgment, and did not constitute a ground for rejection of the plaint under Order VII Rule 11 CPC. Hence, the plaintiff prayed for dismissal of the application.
9. Heard the learned counsel appearing for the petitioner and the respondents and perused the materials available on record.
10. The learned counsel for the second defendant submitted that the educational loan was admittedly availed of by the first defendant and her father. The second defendant was neither a party to the loan agreement nor a signatory to any of the loan documents, and he had not derived any benefit from the loan. It was further submitted that the loan amount had been directly disbursed to the educational institution and that the father had executed a settlement deed dated 25.10.2006 in favour of the second defendant, prior to the loan transaction. According to the learned counsel, the father had not left any estate liable to be proceeded against after his death, and the second defendant had been impleaded only to attach the property settled in his favour. Hence, the learned counsel prayed that the order passed by the Trial Court be set aside.
11. Per contra, the learned counsel appearing for the plaintiff submitted that the first defendant and her father had availed of the educational loan and that the parents had executed a guarantee agreement securing repayment of the loan. It was further submitted that the second defendant had not been sued in his personal capacity but had been impleaded as a legal heir of the deceased guarantor, in order to proceed against the estate of the deceased guarantor in his hands. Therefore, according to the learned counsel, the suit was maintainable and the Trial Court had rightly dismissed the application seeking rejection of the plaint.
12. The fact that the first defendant and her father availed of the educational loan is not in dispute. The execution of the guarantee agreement by the parents of the first defendant is also not disputed. The only question to be considered is after the death of the father of the defendants, the liability exists or not and such liability fastened on the estate of the deceased.
13. The Division Bench of this Court in State Bank of India v. Jayashri and Others, reported in 2011 (2) CTC 465, considered the liability arising out of a guarantee upon the death of the guarantor and held that the death of the guarantor, the liability exceeds and such liability cannot be fastened on the estate of the deceased being inherited by the legal heirs and the creditor can recover the difference out of the estate of the deceased.
14. In the present case, the father of the defendants jointly executed the promissory note and the other loan documents and also executed a guarantee agreement in connection with the educational loan. The second defendant, being one of the legal heirs of the deceased, may be proceeded against only to the extent of the estate of the deceased, inherited by him. The second defendant cannot, merely by reason of his status as a legal heir, be made personally liable for the entire loan amount in the absence of an independent legal basis for such liability.
15. The learned counsel for the plaintiff has categorically submitted that the second defendant has been impleaded in his capacity as a legal heir of the deceased guarantor and that the claim against him is confined to the estate of the deceased guarantor in his hands. In view of the said submission, the contention that the second defendant is not a signatory to the loan documents does not, by itself, warrant rejection of the plaint, particularly when the plaintiff seeks to proceed against the estate of the deceased guarantor.
16. The further contentions of the second defendant that another legal heir, namely, Shanthi, has not been impleaded and that the property sought to be proceeded against had been settled in his favour by his father under a settlement deed dated 25.10.2006, prior to the loan transaction, involve matters that require consideration on the basis of the pleadings and evidence.
17. The second defendant is at liberty to raise all legally available defences before the Trial Court. The dismissal of the application for rejection of the plaint shall not be construed as a determination of the plaintiff’s entitlement to attach or recover the amount from any specific property, except the ground as stated above.
18. In view of the foregoing discussion, this Court finds no ground to interfere with the order passed by the Trial Court dismissing the application filed by the second defendant under Order VII Rule 11 CPC. The Civil Revision Petition is accordingly dismissed, and the order passed in I.A. No. 1 of 2021 in O.S. No. 15 of 2019 on the file of the III Additional District and Sessions Court, Tiruppur District, is confirmed. There shall be no order as to costs. Consequently, connected miscellaneous petition is closed.
