Holding

The contractual clause creating a continuing guarantee binds the guarantor, waiving the benefit of Section 130, and the guarantor remains liable for the bank's loan.

Summary

The appellant, Sita Ram Gupta, had executed a guarantee with Punjab National Bank for loans advanced to certain borrowers. The guarantee expressly stated it was a "continuing guarantee" that would remain in force for all subsequent transactions, irrespective of the account status. Gupta later sent a letter revoking the guarantee before the loan was disbursed, invoking Section 130 of the Indian Contract Act which permits revocation of a continuing guarantee for future transactions. The High Court held Gupta liable, reasoning that the contractual clause overrode the statutory right, and the Supreme Court affirmed this view, stating that Gupta had waived the benefit of Section 130 by agreeing to the continuing guarantee. Consequently, Gupta was ordered to pay the decretal amount to the bank.

Issues considered

Whether Section 130 of the Indian Contract Act allowing revocation of a continuing guarantee can be invoked by a guarantor when the guarantee contract expressly provides that it is a continuing guarantee and not revocable.
Whether the contractual clause on a continuing guarantee overrides the statutory provision, thereby waiving the guarantor's right under Section 130.

Legislation cited

Indian Contract Act, 1872s. 130

Subjects

Continuing guaranteeRevocationSection 130Waiver of statutory rightBank loanGuarantor liabilityIndian Contract Act

Judgment

[2008] 4 S.C.R. 636

A SITA RAM GUPTA ...(--.-;,.
. II.
PUNJAB NATIONAL BANK AND ORS. ·
(Civil Appeal No. 1878 of 2008)
MARCH 10, 2008
B
(TARUN CHATTERJEE & HARJIT SINGH BEDI, JJ.)

Indian Contract Act 1872 Section 130: y-

Continuing guarantee - Revocation - . Guarantor -
c Liability of - Held: Agreement entered into between Bank and
Guarantor clearly providing that the Guarantee ·shall be
continuing guarantee and remain in operation in respect· of
subsequent transaction - The Agreement was lawful - Letter ·
written by the guarantor to Bank withdrawing guarantee was of
D no effect in terms of guarantee clause in the agreement -
Hence, High Court rightly held that the guarantor cannot claim
benefit of the provisions uls. 130 of the Act on groun.d that it ~
was waived by him.
The question which arose for consideration in this
E appeal was that in view of the statutory provision under
s. 130 of the Indian Contract Act as to whether the High
Court' was ju~tified in holding that the appellant-guarantor
was liable to pay the decretal loan amount as advan·ced
by the Bank to defendant Nos. 1 to 4 even when he had
F revoked the guarantee before such loan was actually paid ,._
by the bank to defendants, when the suit was already filed y J

long back by the bank against the defendants for recovery 1-
of such loan.
Dismissing the appeal, the Court
G
HELD: 1.1 The High Court was perfectly justified in
holding that the appellant was liable to pay the decretal
amount to the Bank in view of the clause in the agreement r-
of guarantee itself. The agreement of guarantee clearly
H 636
I
l
SITA RAM GUPTA v. PUNJAB NATIONAL BANK AND 637
ORS.

provides that the guarantee shall be a continuing A
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 a guarantee and remain in operation in respect of all B
subsequent transactions. This was an agreement entered
into by the appellant with the Bank, which is binding on
him. (Para - 6) [641-E-H]
1.2 The agreement cannot be said to be unlawful nor
the parties have alleged that it was unlawful either before C
the Trial Court or before the High Court. Therefore, the
agreement of guarantee entered into by the appellant with
the Bank was lawful. (Para - 6) [642-A-B]
1.3 The High Court has rightly held and that the
appellant cannot claim the benefit under Section 130 of D
the Indian Contract Act because he had waived the benefit
by entering into the agreement of guarantee with the Bank.
(Para - 7) [642-B-C]
Shri Lachoo Mal vs. Shri Radhey Shyam, (1971) 1 SCC E
619; Brijendra Nath Bhargava and Anr. vs. Harsh Wardhan
and Ors. (1988) 1 sec 454 and Bank of India and Ors. vs.
O.P.Swamakar & Ors. (2003) 2 SCC 721 - referred to.
Halsbury's Laws of England, Vol. 8, 3rd Edn. - referred to.
F
1.4 The appellant had clearly agreed that the
guarantee that he had entered into with the Bank was a
continuing guarantee and the same was to continue and
remain in operation for all subsequent transactions.
Having entered into th~ agreement in the manner as G
indicated it was, therefore, not open to the appellant to
turn around and say that in view of Section 130 of the Act,
since the guarantee was revoked before the loan was
advanced to defendant Nos. 1 to 4 and 6, he was not liable
to pay the decretal amount as a guarantor to the Bank as . H
638 SUPREME COURT REPORTS (2008] 4 S.C.R

A his guarantee had already stood revoked. (Para - 8) -'I ·•I
[643-A-C]
1.5 Even if a letter was written to the Bank by the
appellant' withdrawing the guarantee given by him, it was
contrary to the clause in the agreement of guarantee.
B Therefore, it was not open to the appellant to revoke the
guarantee as the appellant had agreed to treat the
guarantee a~· a continuing one and was bound by the
terms and conditions of the said guarantee. (Para - 8)
[643-E-F]
c CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1878
of 2008.
From the final Judgment and Order dated 11.05.2006 of
the High Court of Delhi at New Delhi in RF.A No. 71 of 1985
D
Rishi Maheshwari, R.K. Maheshwari and Raj Kµmar
Kaushik for the Appellant.
Dhruv Mehta, Yashraj Singh Deora and Harshvardhan Jha
(for M/s. K.L. Mehta & Co.) for the Respondents.
E The Judgment of the Court was delivered by
TARUN CHATTERJEE, J. 1. Leave granted.
2. This appeal arises out of the final judgment and decree
dated 11th of May, 2006 passed by the High Court of Delhi at
F 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
G 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 fried by the Bank be decreed against the.original defendant
H Nos.1 to 4 for a sum of Rs.42,874/- including interest at the rate .
\
J

SITA RAM GUPTA v. PUNJAB NATIONAL BANK AND 639
ORS. [TARUN CHATTERJEE, J.]
.,, ~
of 19.5 per cent per annum with quarterly rests from the date of A
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, this special leave petition has been B
filed by the guarantor appellant in respect of which leave has
already been granted.
-..y
3. The only question that was raised on behalf of the
appellant was that in view of the statutory provision under section
130 of the Indian ContractAct, 1872 (in short i§theAct(), whether c
the High Court was justified in holding that the appellant who
was a guarantor of the loan advanced to the defendant nos. 1 to
4 was liable to pay the decretal amount on the ground that the
appellant had revoked the guarantee before such loan was
actually paid to the defendant Nos. 1 to 4 and long before the D
suit was filed by the bank against the defendants for recovery of
--"(
such loan.
4. In order to decide the question raised by the learned
counsel for the appellant, we may look into the agreement of
guarantee entered into by the bank with the appellant as E
guarantor, which reads as under:

"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 F
" 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 G
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 H
,.
;~
'
I

640 SUPREME COURT REPORTS [2008] 4 S.C.R.

A 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
B connection with any such securities or any proceeds
thereof.
The Guarantors hereby declare that this guarantee shall --t-
be a continuing guarantee and shall not be considered
as cancelled or in any way affected by the fact that at any
c 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."
(Emphasis supplied)
D
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
E 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 Act, he was not liable to pay the loan taken
F by the defendants in respect of which the appellant was a !'>
guarantor. The trial court, as noted herein above, dismissed the 'r
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
G
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.

H 5. The learned counsel appearing for the appellant, relying
',
SITA RAM GUPTA v. PUNJAB NATIONAL BANK AND 641
ORS. [TARUN CHATTERJEE, J.]
~ ~
on Section 130 of the Act, sought to argue that in view of the A
fact that Section 130 clearly provides for revocation of a
continuing guarantee as to future transactions by notice to the
creditor and as in the present case, the guarantee was revoked
long before the loan was given and the suit filed, the appellant
was not liable to pay the decretal amount to the Bank. B
Accordingly, he submitted that the High Court was not justified
in reversing the judgment of the trial court and in decreeing the
'"--¥ suit against the appellant. This submission of the learned
counsel for the appellant was seriously contested by Mr. Dhruv
Mehta, the learned counsel appearing on behalf of the Bank. c
According to Mr. Mehta, the submission of the learned counsel
for the appellant cannot be accepted in view of the clause in the
agreement of guarantee itself, as noted herein earlier. Before
we proceed further and in order to decide the submissions
made on behalf of the parties before us, it would be appropriate
D
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."
6. We have carefully examined the submissions made on E
behalf of the parties and also the relevant clauses in the
agreement of guarantee. In our view, the High Court was perfectly
justified in holding that the appellant was liable to pay the decretal
~
amount to the Bank in view of the clause, as mentioned herein
i ·earlier, in the agreement of guarantee itself. The agreement of F
guarantee clearly provides that the 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 a guarantee G
and remain in operation in respect of all subsequent
--. transactions. 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 H
642 SUPREME COURT REPORTS [2008] 4 S.C.R.
' )

...j. ~
A 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.
B 7. 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 "f-
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
c the benefit by entering into the agreement of guarantee with the
•Bank. In ShriLachooMa/Vs. ShriRadheyShyam, [(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
D protection of the individual in his private capacity which may be
dispensed with without infringing any public right or public
principle. In Halsbury's Laws of England, Vol. 8, 3rd Edn., it has
been stated in para 248 at page 143 as under: -
"As a g_eneral rule. any 11.erson can enter into a binding_
E contract to waive the benefits conferred u11.on him by an
Act of Parliament. or, as it is said can contract himself
1

out of the Act. unless it can be shown that such an )
ag_reement is in the circumstances of the 11.articular case
contrary to 11.ublic 11.olicy. Statutory conditions may,
F however, be imposed in such terms that they cannot be
waived by agreement, and, in certain circumstances, the
r•
legislature. has expressly provided that any such
agreement shall be void." (Emphasis supplied)
In Brijendra Nath Bhargava and anr. Vs. Harsh
G Wardhan and ors. [(1988) 1 SCC 454], it has been observed
at page 461 in para 10 that if a party had given up the advantage
he could take of a position of law, it was not open to him to )--
change and say that he could avail of that ground. The same
principle has been followed in Bank of India and Ors. Vs.
H ·O.P.Swarnakar & Ors. [(2003) 2 SCC 721].
•)
SITA RAM GUPTA v. PUNJAB NATIONAL BANK AND 643
ORS. [TARUN CHATTERJEE, J.]

.. ~
8. Keeping this principle in mind, we now look at the clause A
in the agreement of guarantee, as noted herein earlier. There
. cannot be. any dispute that the appellant had clearly agreed that
the guarantee that he had entered into with the Bank was a
continuing guarantee and the same was to continue and remain
in operation for all subsequent transactions. Having entered into B
the agreement in the manner indicated ab9ve, in our view, it
was, therefore, not open to the appellant to turn around and say
that in view of Section 130 of the Act, since the guarantee was
revoked before the loan was advanced to defendant Nos. 1 to
4 and 6, he was not liable to pay the decretal amount as a c
guarantor to the Bank as his guarantee had already stood
~ revoked. In this view of the matter, we are not in a position to
accept the submissions of the learned counsel for the appellant
and we hold that in view of the nature of guarantee entered into
by the appellant with the Bank, the statufory provision under
D
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 E
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
.
'-1
as a continuing one and was bound by the terms and conditions F
of the said guarantee. For this reason, it is difficult to accept the
submissions of the learned counsel for the appellant that in view
of the statutory provision under Section 130 of the Act, after the
revocation of the guarantee by the appellant, he was not liable
to pay the decretal amount to the Bank. No other point was raised G
by the learned counsel for the appellant. Accordingly, there is
no merit in this appeal. The appeal is thus dismissed. There will
be no order as to costs.

S.K.S. Appeal dismissed.
H