LexM/S H.D.F.C. versus GAUTAM KUMAR NAG & ORS.
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A B [2012) 1 S.C.R. 430 MIS H.D.F.C. v. GAUTAM KUMAR NAG & ORS. (Civil Appeal No. 137 of 2007) JANUARY 20, 2012 [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, 1 OJ [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 appe
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