LexCENTRAL BANK OF INDIA versus C. L. VIMLA & ORS.
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A B c (2015) 5 S.C.R. 200 CENTRAL BANK OF INDIA v. C. L. VIMLA & ORS. (Civil Appeal No. 4043 of2015) APRIL28, 2015 [J. CHELAMESWAR AND PINAKI CHANDRA GHOSE,JJ.] Auction: Mortgage of property to the appellant-bank for raising loan for family business- Default in repayment of loan - OA by bank before ORT - ORT referred matter for settlement before Lok Ada/at - Award passed whereunder D borrower agreed to pay Rs. 33.5 lacs as final settlement - Writ petition by first respondent-guarantor seeking setting aside of the award of Lok Ada/at on the ground that settlement was not within her knowledge as she had not signed the joint memo - Writ petition dismissed and writ appeal was permitted E to be withdrawn with liberty to approach Lok Ada/at for appropriate relief- Meanwhile auction was conducted- High Court Lok Ada/at held that guarantor not being a party to the joint memo, the decree was not binding on her - Auction purchaser filed writ petition challenging the inherent power F of Lok Ada/at, the action of the ORT in deciding interim applications filed by guarantor and possession by auction purchaser- High Court held that as the guarantor was not a party to the Joint Memo, the decree would not be binding on her; that as sale was not done as per mandate of sale G proclamation, the auction was not valid - On appeal, Held: In view of s. 128 of Contract Act, liability of the guarantor is co-extensive with that of the principal debtor- Therefore, first respondent cannot escape her liability as a guarantor- The son of first respondent who signed the joint memo and first H respondent resided in the same house and therefore there 200 CENTRAL BANK OF INDIA v. C. L. VIMLA& ORS. 201 is no reason why she would not know of the joint memo when A she knew about the proceedings - The conduct of respondent-borrowers showed that they were not willing to repay the loan amount - On the other hand, auction purchaser had deposited the money after bonafidely participating in auction and suffered for long time to pay price B by participating in auction proceedings - Since the auction purchaser has already paid the full amount of sale consideration and is in possession of the property in question for more than about 8 years, for equity and good conscience, his possession is not interfered with and the order passed by c the High Court is set aside - Contract Act - s. 128 - Equity. Allowing the appeals, the Court HELD: 1. The liability of the guarantor is co- extensive with that of the principal debtor unless it is D otherwise provided by the contract. In the present case, the first respondent cannot escape from her liability as a guarantor for the debt taken by the principal debtor. In the loan agreement, which is the contract, there was no clause to show that the liability of the guarantor is not E co-extensive with the principal debtor. Therefore Section 128 of the Indian Contract Act will apply here without any exception. [Paras 11, 12] [210-D-E] 2. There is no reason why the Joint Memo, which F states compromise arrived at between the appellant- Bank and the principal debtors, would not bind first respondent when under Clause (2) she has admitted that any judgment or award obtained by the Bank against the principal debtor would bind the parties. The G respondent, and her son, who had signed the join1t memo, were residing in the same house. There is no reason why the Respondent would not know of the joint memo, when she could have by reasonable means made herself aware of the proceedings. [Paras 14 and 15] [211- H E-F] 202 SUPREME COURT REPORTS [2015] 5 S.C.R. A 3. First respondent filed writ petitions one after the other. The said writ petitions were also dismissed by the High Court. She had life interest of 1/6th share in the property in question. She was residing with her son respondent No.3 and was under his care and custody B and said respondentNo.3 categorically stated before the S~te Legal Services Authority on his behalf and on behalf of other defendants, including his mother, first respondent in respect of the settlement. The Court on a number of occasions granted time to deposit the amount c to meet the liabilities of the bank by the respondents. But time and again, they failed to comply with the orders. Respondent Nos.3 to 8 who were actual owners of the property in dispute have remained ex-parte throughout, i.e. from the date of filing of petit
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