Shri R Sankaran vs BANK of Baroda on 28 October 2026

ORDER

1. This Appeal is filed against the order passed in SA 83/2019 on 07.12.2020 by the Learned Presiding Officer, DRT-I, Chennai.

2. Appellant assailed Possession Notice dated 25.01.2019 issued by the 1st Respondent, contending that it was not issued in conformity with the provisions of SARFAESI Act and the Rules made thereunder. The Appellant is a guarantor to the loan availed by the partnership firm, M/s. Uma Medicals, in which Respondents 3 and 4 are the partners. Appellant gave his house property as a collateral security for availing Cash Credit facility to the tune of Rs.5.00 lakhs by the 2nd

Respondent firm M/s. Uma Medicals. Another Rs.4.00 lakhs loan facility was extended to the 2nd Respondent firm. Appellant deposited original documents of title with the 1st Respondent Bank in support of the loan transactions. On the borrower’s failure to clear the loan amount, Bank proceeded under the SARFAESI Act for recovery of debt due. After contest, the aforesaid SA was dismissed. Therefore, this Appeal.

3. It is the submission of the Learned Counsel for the Appellant that originally Respondents 3 and 4 are alone partners in the 2nd Respondent firm. When 5th Respondent was sought to be introduced as a partner, on the retirement of 3rd Respondent from partnership, that was strongly opposed by the Appellant. It is evident from the letter of the Bank dated 31.05.2011, sent to 4th Respondent that Bank had clearly indicated that a) retiring partner has not given any letter to the Bank b) guarantor has not consented for the reconstitution of the firm.

3.1 It was also referred that Appellant had raised serious objections for reconstitution of the firm and issued two legal notices on 29.04.2011 and 18.05.2011 for returning the original documents. Therefore, Bank directed the 4th Respondent to provide another collateral security of equivalent value in lieu of existing collateral security in the name of the Appellant. This has not been done by the partners of the 2nd Respondent firm. It is further submitted that the Demand Notice dated 28.11.2012 was sent only to the Appellant and not sent to the borrowers.

3.2 The Appellant had only submitted the original document of title but has not created any mortgage on the basis of deposit of documents of title. Alleged mortgage was not registered with Central Registry as required under Section 26(D) of the SARFAESI Act. Without considering these aspects, Learned Presiding Officer has dismissed the Securitisation Application. Thus, the Learned Counsel for Appellant seeks to set aside the order of Learned Presiding Officer and allow this Appeal.

4. In reply to the submissions of the Learned Counsel for the Appellant, the Learned Counsel for the 1st Respondent Bank submitted that the Appellant is a guarantor for the loan availed by 2nd Respondent to the tune of Rs.5 lakhs and 4 lakhs, totaling Rs.9 lakhs. Appellant executed guarantee document and offered his property as collateral security for due repayment of the loan. The reconstitution in the 2nd Respondent partnership firm was made without the knowledge and consent of the Bank. Reconstitution made without the consent of the Bank, will not exonerate the liability of borrower and guarantor, especially, the liability of the guarantor occasioned prior to the reconstitution of the partnership firm. Appellant sent several notices disowning the liability on the ground of reconstitution of partnership firm without the consent, and it was rightly objected and answered by the 1st Respondent Bank by sending replies. The borrower not paid the loan amount, and that necessitated initiation of measures under SARFAESI Act, 2002, with issuance of Sections 13(2) and 13(4) Notices. The 1st Respondent has followed the

SARFAESI measures after meticulously observing the mandatory requirements and procedure. Therefore, the Learned Presiding Officer has rightly dismissed the Securitisation Application. So stating, Learned Counsel for the 1st Respondent Bank prayed for dismissal of this Appeal.

5. Considered the rival submissions and perused the records.

6. The reading of the Securitisation Application filed shows that the Appellant admitted his long friendship and acquaintance with the partners of the 2nd Respondent firm, and out of friendship, in good faith and trust, he offered his property as collateral security for the loan availed by the 2nd Respondent from the 1st Respondent Bank to the tune of Rs.5 lakhs on 20.06.2001, subsequently enhanced to Rs.9 lakhs by extending loan facility by another Rs.4 lakhs.

7. It is not in dispute that, to start with, the partners of 2nd Respondent were (i) Mr. Madhavan and (i) Mrs. Chitra

Srinivasan. Subsequently, the partnership was reconstituted on the retirement of Mrs. Chitra Srinivasan. It is the specific case of the Appellant that the reconstitution of the partnership firm without the consent of the Appellant, therefore, the liability of the Appellant, i.e. the personal guarantee and collateral security offered for the loan availed by the 2nd Respondent, come to an end. In that case, the SARFAESI measures taken against the Appellant’s property is illegal.

8. It is pertinent to note that the Appellant sent a letter to the 1st Respondent on 29.04.2011 informing about the guarantee and collateral security provided by him for the loan availed by 2nd Respondent, non discharge of loan by the borrower, there was a request to release the original documents and the collateral security. On 18.05.2011, another letter was sent to the Bank informing about the release of Mrs. Chitra Srinivasan from the partnership and questioning the continuance of overdraft account after dissolution of the partnership.

8.1 First Respondent Bank sent a letter dated 31.05.2011 to the partners and the Appellant, informing about the letter of Mr. Madhavan dated 27.05.2011 stating the retirement of partner Mrs. Chitra Srinivasan with effect from 31.03.2011 and reconstitution of partnership firm with new partner. The Bank pointed out that i) the retiring partner has not given any letter to the Bank ii) the guarantor has not consented for reconstitution. It was also informed that the Appellant guarantor raised serious objection for reconstitution of the firm through notices dated 18.05.2011 and 29.04.2011. Mr. Madhavan was asked to provide another collateral security of equivalent value, in lieu of the existing collateral in the name of the guarantor to enable the Bank to proceed in the matter.

8.2 First Respondent Bank’s Advocate sent a reply to the Appellant’s notice on 08.06.2011 reiterating the guarantee given by the Appellant and that the Appellant is liable to make payment and cannot seek return of documents. Appellant was asked to either to pay the amount or give alternative property as security.

8.3 Thereafter, the Bank issued the Demand Notice dated 28.11.2012 under Section 13(2) of the SARFAESI Act, 2002. There were series of notices sent by the Appellant dated 27.04.2018, 15.05.2018, and 18.12.2018, reiterating the case set up earlier in the previous notice and for release of original documents in respect of the property offered as collateral security. These notices were appropriately replied by the Bank denying the case of the Appellant.

8.4 Possession Notice dated 25.01.2019 was issued for taking possession of the secured asset. The Possession Notice was published in the newspaper in English and vernacular language and affixed on the secured assed. Absolutely there is no dispute with regard to the receipt of Demand Notice and Possession Notice issued under Sections 13(2) and 13(4) of the SARFAESI Act, respectively. The 1st Respondent Bank has produced the proof of service of Demand Notice, Possession Notice by producing acknowledgement cards for the receipt of

Demand Notice and Possession Notice and the copies of paper publication and affixture of Possession Notice.

9. The Securitisation Application mainly canvassed the reconstitution of the partnership firm. The case of the Appellant is that the Appellant is not liable to pay loan in view of the reconstitution of the partnership firm without his consent. There is no specific plea taken with regard to any acts of commission and omission or defects in the measures taken under SARFAESI Act, on issuance of Demand Notice and Possession Notice, service or non-service etc. As already stated, 1st Respondent has proved the service of the Demand Notice and Possession Notice by producing relevant documents. The only question that has to be decided is whether the Appellant, on reconstitution of the partnership firm, without his consent, can claim that his liability ceases as a guarantor and mortgagor?

10. The 1st Respondent Bank produced the letter of guarantee given by the Appellant. This letter of guarantee shows that guarantee offered by the Appellant is a continuing guarantee. Clause 19 of the guarantee letter stipulates that “…….this guarantee shall remain effective notwithstanding any death, retirement, change, accession, or addition, as fully as if the person or persons constituting or trading or acting as such body, committee, firm, partnership, trustees or debtor on joint account at the date of the principal's default or at any time previously was or were the same as the date hereof.” Thus, the letter of guarantee shows that the Appellant has consented for being a continuing guarantor to continue the guarantee, irrespective of change of partners. The letter dated 18.02.2010 is produced to show that the existing mortgage is extended. Therefore, the claim of the Appellant that the Appellant has not created mortgage cannot be accepted

11. Reconstitution is entirely an internal structural alteration governed by the mutual consent of the partners under the Indian Partnership Act, 1932. After the firm is reconstituted without the guarantor's consent, it significantly impacts the guarantor's liability, discharging them from future

liabilities or making the new arrangement unenforceable against them under the Indian Contract Act, 1872. Under Section 38 of the Indian Partnership Act, 1932, a continuing guarantee is automatically revoked as to the future transactions from the date of any change in the constitution of the firm. Section 38 of the Partnership Act reads as follows:-

38. Revocation of continuing guarantee by change in firm.—

A continuing guarantee given to a firm or to a third party in respect of the transactions of a firm, is in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitutions of the firm

12. Section 133 of the Indian Contract Act, 1872, any material variance made to the terms of the contract between the principal debtor and the creditor without the guarantor's consent, discharges the guarantor from all transactions subsequent to the variance. Section 133 of the Indian Contract Act 1872, reads as follows:- “133: Discharge of surety by variance in terms of contract.

Any variance, made without the surety’s consent, in the terms of the contract between the principal 1[debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.”

However, this benefit will not come to the aid of the guarantor for the transactions held prior to the reconstitution of the partnership firm.

13. In Bhagyalaxmi Co-operative Bank Ltd. Vs. Babaldas Amtharam Patel, INSC 205, dated 27.02.2016, the Hon’ble Supreme Court reiterated this proposition and held that, a surety, who has not consented to a variation in the contract is discharged only in respect of transactions subsequent to that variation, and not necessarily from the entire guarantee liability.

14. In Industrial Investment Bank of India Ltd. Vs. Biswanath Jhunjhunwala, by Hon’ble Supreme Court of India, held that the liability of guarantor and the principal debtor is co-extensive and not in the alternative, and therefore, the Bank can proceed against the guarantor without first exhaust its remedies against the principal borrower.

15. The legal propositions stated above clearly expounds the position that the Appellant’s liability is co-extensive with that of the principal borrower and that the Bank is empowered to proceed against the Appellant even without proceeding against the principal debtor. Appellant can disown only the transactions effected subsequent to the reconstitution of the firm, and not the transactions which had taken place prior to the reconstitution of the firm.

16. In this view of the matter, this Tribunal finds that the Appellant has no merits in this Appeal, and the order passed on 07.12.2020, by the Learned Presiding Officer, DRT-I, Chennai, in SA 83/2019, is confirmed.

17. In the result, the Appeal in RA (SA) 44/2021 is dismissed. Both the parties shall bear their own costs. All pending IAs, if any, stand closed.

[Dictated to Athistamani, PS, transcribed by her, corrected and signed by me this 28th October, 2026]

[Justice G. Chandrasekharan] CHAIRPERSON