Case Note & Summary
The dispute arose from a writ petition filed by two retired partners of M/s. Srishti Components, a partnership firm, challenging orders of the Debts Recovery Tribunal (DRT) and Debts Recovery Appellate Tribunal (DRAT) that held them liable for a bank loan. The firm had obtained a term loan of Rs. 35,00,000 and an overdraft facility of Rs. 5,00,000 from Canara Bank in 2008, with the petitioners and another partner as guarantors. The petitioners retired from the firm in February 2009 due to health reasons, before the first loan installment was due in April 2009. The firm was reconstituted with new partners, and the bank was informed via a letter in November 2009. The bank subsequently executed fresh composite hypothecation and guarantee agreements with the new partners in April 2009. When the firm defaulted, the bank filed an original application before the DRT, which in 2016 held the petitioners and new partners jointly and severally liable for the loan amount. The DRAT in 2025 dismissed the petitioners' appeal but limited their liability to the original loan and overdraft facility, excluding an enhanced overdraft facility granted after their retirement. The core legal issue was whether the petitioners, having retired before the first installment and with reconstitution acknowledged, remained liable. The petitioners argued they were relieved per the reconstitution deed, while the bank contended no formal release was given. The High Court analyzed the facts, noting the bank's execution of fresh agreements with new partners and lack of formal exoneration of the petitioners. The court found no jurisdictional error or perversity in the DRT and DRAT orders, emphasizing that the bank had not released the petitioners from liability. Consequently, the writ petition was dismissed, upholding the petitioners' liability for the original loan and overdraft, but not for the enhanced facility.
Headnote
A) Banking Law - Loan Recovery - Liability of Retired Partners - Indian Partnership Act, 1932 - Petitioners retired from partnership firm before first loan installment due date and reconstitution deed acknowledged relief from commitments - Bank executed fresh hypothecation and guarantee agreements with new partners but did not formally release petitioners - Held that petitioners remain liable for original loan and overdraft facility as bank did not exonerate them, though not liable for enhanced overdraft facility granted after retirement (Paras 1-10). B) Civil Procedure - Writ Jurisdiction - Scope of Articles 226 and 227 - Constitution of India, Articles 226, 227 - Writ petition filed to set aside DRT and DRAT orders holding petitioners jointly and severally liable for loan - Court examined factual matrix and legal provisions - Held that no jurisdictional error or perversity in impugned orders warranting interference under writ jurisdiction (Paras 1-12).
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Issue of Consideration: Whether the petitioners, who retired from the partnership firm before the first loan installment was due, are liable for the loan amount despite reconstitution of the firm and execution of fresh agreements by new partners with the bank
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Final Decision
Writ petition dismissed; impugned orders of DRT and DRAT upheld; petitioners liable for term loan of Rs.35,00,000 and overdraft facility of Rs.5,00,000 with interest, but not for enhanced overdraft facility of Rs.9,00,000
