Case Note & Summary
This case involved an appeal by M/s. Housing Development and Finance Corporation (HDFC) against a judgment of the Delhi High Court that allowed the respondents, who were guarantors for a loan, to file their written statements after the trial court had decreed the suit in favor of HDFC. The appellant had initiated a suit under Order XXXVII of the Code of Civil Procedure, 1908, for the recovery of dues from the borrower and the guarantors after the borrower defaulted on loan repayments. The loan was sanctioned in 1997, and the defendants defaulted on payments, leading HDFC to invoke the guarantees. The trial court dismissed the respondents' applications to defend the suit, finding no substantial defense. However, the High Court reversed this decision, suggesting that the trial court erred in not recognizing a triable issue based on Section 139 of the Indian Contract Act, which the respondents claimed absolved them of liability. The Supreme Court disagreed, emphasizing that the liability of the guarantor is co-extensive with that of the borrower and that the stipulations in the guarantee executed by the respondents negated their claims. The Supreme Court restored the trial court's decree, allowing HDFC to recover the outstanding amount without costs.
Headnote
A) Contract Law - Guarantor's Liability - Co-extensive Liability - Indian Contract Act, 1872, Section 139 - The court held that the liability of the guarantor is equal to that of the borrower and cannot be avoided merely due to the execution of a promissory note or equitable mortgage. The High Court's finding that a triable issue existed based on Section 139 was erroneous as the stipulations in the guarantee clearly indicated the guarantors' acceptance of liability regardless of the borrower's actions (Paras 8-10).
Issue of Consideration
Whether the respondents (guarantors) could avoid liability based on the execution of a promissory note and equitable mortgage by the borrower.
Final Decision
The Supreme Court allowed the appeal, restoring the trial court's decree for recovery of dues against the respondents without costs.
Law Points
- Contractual liability of guarantors
- triable issues
- Order XXXVII CPC
- equitable mortgage
- promissory note
- Section 139 Indian Contract Act
- 1872
