M/S H.D.F.C.versusGAUTAM KUMAR NAG & ORS.

                        [2012) 1 S.C.R. 430


 A                          MIS H.D.F.C.
                                 v.
                  GAUTAM KUMAR NAG & ORS.
                  (Civil Appeal No. 137 of 2007)
                        JANUARY 20, 2012
B
     [AFTAB ALAM AND RANJANA PRAKASH DESAI, JJ.]

       Contract Act, 1872: s.139 - Liability of the guarantor -
  Held: Is equal to and co-extensive with the borrower -
C Guarantor cannot avoid his liability simply on the basis of the
  promissory note made out or an equitable mortgage created
  by the borrower in favour of the lender.

      According to the appellant Corporation, defendant
0 No.1, the owner of a plot of land was sanctioned loan for
  constructing a house on the plot. Defendant No.1
  executed the Loan Agreement and a promissory note in
  favour of the appellant. In addition, defendant No.1 also
  created an equitable mortgage in favour of the appellant
E by depositing the title deeds of the plot in question. The
  other two defendants-respondents stood guarantee for
  repayment of the land and executed the letters of
  guarantee on December 9, 1997.

       The defendants defaulted in payment of the
F installment amount and as a result, a large sum was
  outstanding against them. The appellant invoked the
  guarantees and intimated the respondents that in case
  of failure to make the payment, legal proceedings would
  be instituted against them. However, the respondents did
G not pay the outstanding amount and the appellant
  instituted the suit for realization of its dues. Defendant
  No.1 did not appear in the suit despite notice. The
  respondents, however, appeared before the trial court
  and filed separate applications under Order 37 Rule 3(5),
H                             430
     H.D.F.C. v. GAUTAM KUMAR NAG & ORS.               431


CPC for permission to defend the suit. The respondent A
contended before the trial court that since the plaintiff-
appellant had got a promissory note executed in its
favour by the borrower-defendant No.1 and had further
made the borrower create an equitable mortgage in its
favour by depositing of title deeds, they would be B
absolved of their liability in terms of Section 139 of the
Contract Act. The trial court held that none of the pleas
raised by the defendants gave rise to any substantial
defence against the claim of the appellant and dismissed
the petitions of respondents. On appeal, the High Court c
set aside the order of the trial court and directed it to
 allow the defendants-respondents to file their written
 statement and proceed to try the suit from that stage. It
 further held that the trial court fell into error in holding
 that Section 139 of the Contract Act had no application
                                                              0
 to the facts of the case. The instant appeal was filed
 challenging the order of the High Court.

     Allowing the appeal, the Court

     HELD: 1. The High Court was completely wrong in E
holding that the respondents were able to make out a
triable issue on the basis of Section 139 of the Contract
Act. It is well established that the liability of the guarantor
is equal to and co-extensiye with the borrower and it is
highly doubtful that the guarantor can avoid his 1:ability F
simply on the basis of the promissory note made out or
an equitable mortgage created by the borrower in favour
of the lender. However, in the facts of this case, this
question did not even arise. A reference to the deed of
guarantee executed by the two respondents would have· G
made the position completely clear but unfortunately the
attention of the High Court was not drawn to the relevant
 clauses in the deed of guarantee. In light of the
 expressed stipulations, in the guarantee, any reliance on
 Section 139 of the Contract Act was evidently futile and H
 of no avail. Therefore, the impugned judgment of the
    432       SUPREME COURT REPORTS               [2012] 1 S.C.R.


A High Court is unsustainable and is fit to be set aside. The
  order and decree passed by the trial court is restored.
  [Paras 8, 1OJ [435-C-E; 436-F-G]
      Mis Mechelec Engineers & Manufacturers v. Mis Basic
B Equipment Corporation, 1997 (1) SCR 1060: (1976) 4 SCC
  687 - referred to
                         Case Law Reference:
          1997 (1) SCR 1060       Referred to          Para 7
C        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 137
    of 2007.
        From the Judgment & Order dated 09.08.2005 of the High
    Court of Delhi at New Delhi in RF.A. Nos. 513-514 of 2005.
D         Subramonium Prasad for the Appellant.
          Rajiv Nanda for the Respondents.
        The Judgment of the Court was delivered by
        AFTAB ALAM, J. 1. This appeal is directed against the
E judgment and order dated August 9, 2005, of the Delhi High
  Court by which it allowed the appeals of the two respondents
  (defendant Nos.2 and 3 respectively before the trial court), set
  aside the judgment and decree passed by the trial court and
  permitted the appellants to file their written statements within
F four weeks from the date of the judgment, directing further that
  the trial court would then proceed with the suit and dispose it
  of in accordance with law.
       2. The appellant M/s. Housing Development and Finance
G Corporation (in short "HDFC") instituted a suit under Order
  XXXVll of the Code of Civil Procedure, 1908, for realisation of
  its dues against defendant No.1 (the borrower; not before this
  Court) and the two respondents (defendant Nos.2 & 3) who
  were the guarantors to the loan. According to the case of the
  appellant-plaintiff, defendant No.1 who was the owner of a plot
H
     H.D.F.C. v. GAUTAM KUMAR NAG & ORS.                     433
                  [AFTAB ALAM, J.]
of land approached the appellant-plaintiff for a loan for A
constructing a house on the plot. The loan was sanctioned on
October 29, 1997, and on December 9, 1997, defendant No.1
executed the Loan Agreement and a promissory note in favour
of the appellant. In addition, defendant No.1 also created an
equitable mortgage in favour of the plaintiff by depositing the B
title deeds of the plot in question. The other two defendants,
respondents before this Court, stood guarantee for repayment
of the loan and executed the letters of guarantee on December
9, 1997. On the execution of the necessary documents the loan
was disbursed to defendant No.1 in two instalments.             C
     3. The loan amount, along with interest at the rate of 15%
per annum was to be repaid in equalised monthly instalments
over a period of 180 months and in case of default, according
to the terms of the loan, the outstanding would attract additional
interest @ 18% per annum.                                            D
     4. The defendants defaulted in payment of the EM ls and
as a result, a large sum was outstanding against them. The
defendants did not pay the instalments despite letters and
reminders. Hence, the plaintiff invoked the guarantees vide          E
letter dated October 22, 1998, and intimated the two
respondents that in case of failure to make the payment, legal
proceedings would be instituted against them. Despite the
aforesaid letter and legal notices sent on behalf of the
appellant, the defendants did not pay the outstanding amount         F
of Rs.4,37,350/-, and the plaintiff was thus left with no option
but to institute the swt for realisation of its dues.
      5. Defendant No.1 did not appear in the suit despite
 notice. The two defendants-respondents, however, appeared
 before the trial court and filed separate applications under G
 Order XXXVll Rule 3 sub-rule (5) of the Code of Civil Procedure
 for permission to deferd the suit.
      6. The defendants' applications were based on a number
 of grounds but we may only advert to the one that seems to have
 weighed with the High Court. It was contended on behalf of the      H
     434      SUPREME COURT REPORTS                    [2012] 1 S.C.R.

A respondents that since the plaintiff-appellant had got a
   promissory note executed in its favour by the borrower-
   defendant No.1 and had further made the borrower create an
  equitable mortgage in its favour by deposit of title deeds, they
   would be absolved of their liability in terms of Section 139 of
B the Contract Act. According to the respondents, their plea gave
  rise to a triable issue and they, accordingly, sought permission
  to file their written statements and contest the suit. The trial court
  by its judgment and order examined all the pleas, including the
  one based on Section 139 of the Contract Act and found and
C held that none of the pleas raised by the defendants gave rise
  to any substantial defence against the claim of the plaintiff.
  Accordingly, it dismissed the petitions filed by the defendants-
  respondents by order dated April 29, 2005, and proceeded to
  decree the suit of the appellant-plaintiff for a sum of
D Rs.4,54,669/- along with cost and pendente lite and future
  interest @ 10% per annum on the decretal amount from the
  date of filing of the suit till the date of realization.
         7. In appeal the Delhi High Court, as noted above, set
   aside the order and decree passed by the trial court and
E directed it to allow the defendants-respondents to file their
   written statement and proceed to try the suit from that stage.
   The High Court noted that relying upon Section 139 of the
  Contract Act, a contention was raised by the respondents that
  for recovery of its loan from defendant No.1, the principal
F borrower, the plaintiff should have taken recourse first by either
  seeking to give effect to the promissory note or by enforcing
  the equitable mortgage. Neither of these remedies which were
  open to the plaintiff were taken recourse to and the recovery
  was sought to be made straightaway from the appellants. The
G High Court further held that the trial Judge fell into error in holding
  that Section 139 of the Contract Act had no application to the
  facts of the case. According to the High Court, this was beyond
  the scope of deciding an application for leave to defend. The
  High Court observed that the question was not about the
H correctness or otherwise of the defence raised by the
      H.D.F.C. v. GAUTAM KUMAR NAG & ORS.                     435
                   [AFTAB ALAM, J.]
appellants and what was required to be looked into by the trial A
Judge was whether a triable issue was made out or not. If a
triable issue was made out, then leave to defend ought to have
been granted and thereafter the defence raised by the
appellants could have been adjudicated on merits. The
correctness of the defence raised by the defendants could not B
have been looked into by the trial Judge at the time of deciding
the application for leave to defend. In support of its view, the
High Court relied upon a decision of this Court in Mis
Meche/ec Engineers &Manufacturers v. Mis Basic Equipment
 Corporation, (1976) 4 SCC 687.                                  C
     8. In our view, the High Court was completely wrong in
holding that the respondents were able to make out a triable
issue on the basis of Section 139 of the Contract Act. It is well
established that the liability of the guarantor is equal to and co-
extensive with the borrower and it is highly doubtful that the        D
guarantor can avoid his liability s.imply on the basis of the
promissory note made out or an equitable mortgage created
by the borrower in favour of the lender. However, in the facts of
this case, this question does not even arise. A reference to the
deed of guarantee executed by the two respondents would               E
have made the position completely clear but unfortunately the
attention of the High Court was not drawn to the relevant
clauses in the deed of guarantee.
    9. The two respondents executed identical deeds of
guarantee of which clauses (2) and (3) read as follows:-              F
     "(2) I hereby accord my consent to the terms of the said
     Loan Agreement and/or any instrument or instruments that
     may hereafter be executed by the Borrower/s in your favour
     as aforesaid, being by mutual consent between you and G
     him/them in any respect varied or modified without
     requiring my consent or approval thereto and I agree that
     my liability under this Guarantee shall in no manner be
     affected by such variations and modifications and I
     expressly give up all my rights as surety under the H
    436       SUPREME COURT REPORTS                   [2012) .1 S.C.R.


A         provisions of the Indian Contract Act, 1872 in that behalf.
           (3) You shall have the fullest liberty without in any way
           affecting this Guarantee and discharging me from my
           liability thereunder to postpone for any time or from time
          to time the exercise of any power of (sic.) powers reserved
B         or conferred on you by the said Loan Agreement or any
          instrument or instruments that may hereafter be executed
          by the Borrower/s in your favour and to exercise the same
          at any time and in any manner and either to enforce or
          forbear to enforce payment of principal or interest or other
c         monies due to you by the Borrower/s or any of the
          remedies or securities available to you or to grant any
          indulgence or facility to the Borrower/s AND I SHALL not
          be released by any exercise by you of you (sic.) liberty with
          reference to the matters aforesaid or any of them or by
D         reason of time being given to the Borrower/s or of any
          other forbearance, act or omission on your part or any
          other indulgence by you to the Borrower/s or by any other
          matter or thing whatsoever which under the law relating to
          sureties would but for this provision have the effect of so
E         releasing me AND I hereby waive all suretyship an (sic.)
          other rights which I might otherwise be entitled to enforce
          or which but for this provision have the effect of releasing
          me."
                                                  (emphasis added)
F
        10. In light of the expressed stipulations, in the guarantee,
  any reliance on Section 139 of the Contract Act is evidently
  futile and of no avail. In our view, therefore, the impugned
  judgment of the High Court is unsustainable and is fit to be set
G aside. We, accordingly, set aside the impugned judgment of
  the High Court and restore the order and decree passed by
  the trial court.
        11. In the result the appeal is allowed but in the facts of
  the case, there will be no order as to costs.
H D.G.                                              Appeal allowed.