Case Note & Summary
The petitioners, who executed guarantee bonds for a loan advanced by respondent No.1 bank to respondent No.2 society, challenged the judgment of the Cooperative Appellate Court which upheld the Cooperative Court's decree holding them jointly and severally liable. The bank initially filed a recovery application before the Debt Recovery Tribunal (DRT) in 2004 only against the society, but withdrew it in 2008 as not maintainable. Thereafter, the bank filed a dispute before the Cooperative Court in 2010, initially only against the society. In 2012, the bank sought to amend the dispute to add the guarantors as opponents, which was allowed by the Cooperative Court in 2013. The guarantors challenged the amendment but the High Court in an earlier writ petition kept the limitation point open. The Cooperative Court framed a preliminary issue on limitation but was directed by the High Court to decide all issues together. After trial, the Cooperative Court decreed the dispute against the society and the guarantors jointly and severally. The appeals filed by the guarantors were dismissed by the Cooperative Appellate Court. The main legal issues were: (1) whether the claim against the guarantors was barred by limitation; (2) whether the dispute under Section 91 of the Maharashtra Cooperative Societies Act, 1960 was maintainable against the guarantors who were not members of the bank; and (3) whether the conversion of the term loan into a cash credit facility without the guarantors' consent discharged them. The High Court held that the limitation period under Section 92(2) of the Act is six years from the date of accrual of cause of action, and the amendment adding the guarantors relates back to the date of institution of the dispute, which was within limitation. The court also held that the guarantors, having executed guarantee bonds, are deemed to be nominal members under Section 73 of the Act, and thus the dispute under Section 91 is maintainable. Regarding the conversion of loan, the court found that the guarantors failed to prove that the conversion occurred without their consent. The High Court dismissed both writ petitions, confirming the liability of the guarantors.
Headnote
A) Cooperative Law - Limitation - Section 92(2) of Maharashtra Cooperative Societies Act, 1960 - Period of Limitation - The dispute was filed within six years from the date of accrual of cause of action as per Section 92(2) of the Act, which provides a period of six years for recovery of money due under a loan. The amendment adding guarantors relates back to the date of institution of the dispute. The Limitation Act, 1963 is not applicable as the special Act provides its own limitation. (Paras 12-14) B) Cooperative Law - Maintainability of Dispute - Section 91 of Maharashtra Cooperative Societies Act, 1960 - Dispute Against Guarantors - The dispute under Section 91 is maintainable against the guarantors as they are deemed to be nominal members under Section 73 of the Act, having executed guarantee bonds in connection with the loan. The guarantors are parties to the transaction and thus fall within the ambit of Section 91. (Paras 15-16) C) Contract Law - Discharge of Guarantor - Variance in Terms - Conversion of Term Loan to Cash Credit - The conversion of a term loan into a cash credit facility without the consent of the guarantors amounts to a variance in the terms of the contract, which may discharge the guarantors. However, in the present case, the guarantors failed to prove that such conversion occurred without their consent. (Para 17) D) Civil Procedure - Remand - Order 41 Rule 31 CPC - Duty of Appellate Court - The appellate court is required to frame points for determination and give reasons. However, failure to do so does not automatically warrant remand if the appellate court has otherwise considered the evidence and affirmed the findings. (Para 18)
Issue of Consideration
Whether the claim against the guarantors is barred by limitation; whether the dispute under Section 91 of the Maharashtra Cooperative Societies Act, 1960 is maintainable against the guarantors who are not members of the bank; whether conversion of term loan to cash credit without consent discharges the guarantors.
Final Decision
Both writ petitions are dismissed. The judgment and order dated 24-09-2021 passed by the Cooperative Appellate Court in Appeal No. 42/2019 and Appeal No. 53/2019 are confirmed. No order as to costs.
Law Points
- Limitation under Section 92(2) of Maharashtra Cooperative Societies Act
- 1960
- prevails over Limitation Act
- 1963
- Guarantors are liable as nominal members under Section 73 of the Act
- Amendment adding guarantors relates back to date of institution of dispute
- Conversion of term loan to cash credit without consent amounts to variance discharging guarantor
- Dispute under Section 91 is maintainable against non-members who are guarantors.
