RFA/2/2009 of State Bank of India Vs Vivek Garg ORS on 24 May 2010

THE HIGH COURT 0F SIKKIM =-GANGTOK

(Civil Appellate Jurisdiction)

RFA No.02 of 2009

The State Bank of India,Gangtok Branch Office : M. G. Marg,Gangtok, East Sikkim.

..... Appellant

versus

Shri Vivek Garg,S/o Shri Saroj Garg (Agarwal)S/o Shri Saroj Garg (Agarwal)

Shri Saroj Garg,S/o Shri Laxmi NarayanS/o Shri Laxmi Narayan Shri Ganga Ram Sharma,S/o Lat:e Ram Prasad Sharma,S/o Lat:e Ram Prasad Sharma, All resident of - Bhardwaj Niwas,Diesel Power House,Gangtok, East Sikkim.Diesel Power House,Gangtok, East Sikkim.

..... Respond`ents

•:`L

For Appellant

: Mr. A. Moulik, Senior Advocate„ +

i.::-1-

with Mr. N. G. Sherpa, Mr.Manish Kr. Jain and Mr. LeonardGurung, Advocates.Manish Kr. Jain and Mr. LeonardGurung, Advocates.

For Respondents No.1 &2 : None present.

ForRespondentNo. 3 : Mr. B. K. Rai, Advocate with Ms.

Binita Thapa and Ms. KarishmaChettri, Advocates.Chettri, Advocates.

BEFORE : HON'BLE MR. JUSTICE S. P. WANGDI, JUDGE.

Last date of hearing : 17-05-2010

DATE OF JUDGMENT = 24-05-2010

J` U D G M E N T

Wangdi,I J.

This appeal is directed against the judgment anddecree dated 25-11-2008 passed by the District Judge, East and e-,a North Sikkim, at Gangtok, in Money Suit no.3 of 2005, by whichthe suit filed by the appellant-bank against the respondents forrecovery of Rs.5,05,336.73 was dismissed.

2,The case of the appellant in the suit is that therespondents had jointly applied to t:he appellant-bank for a termloan amounting Rs.3,54,000/- under the ``SBI Education LoanScheme" as financial assistance to the respondent no.1 Shri VivekGarg for undergoing 8. Tech (Degree course) in Sikkim ManipalInstit:ute of Technology, Mazitar, East Sikkim, which wassanctioned under agreed terms and conditions more specificallyprovided in the Agreement for Term Loan Exhibit-5 executed byand between the appellant bank and the respondents no. 1 and 2and other related documents. The respondent no.1 and his fatherrespondent no.2 were the principle borrowers wit:h the respondentno.3 as their guarantor and, t:here fore, they were ].ointly andseverally liable for t:he repayment of the loan with int:erest accruingthereon. As per the appellant, the respondent no.3 by a GuaranteeAgreement marked Exhibit 3 executed by him, had agreed to repaythe dues and payable by the borrowers, the respondents no. 1 and2, to the bank wit:h accrued interest, cost, charges, expenses, etc.,in the event they defaulted in doing so and also would indemnifyand keep the bank indemnified against all loss of the principle,interest and other moneys, etc. and that he would be treated asthe principle debtor to t:he bank for all payments against theprincipal borrowers and further that the guarant:ee would be a ca •--,1

continuing one. According to the appellant, the respondents hadapplied for the loan in the prescribed form (Exhibit 1) which alongwith the proposal form (Exhibit 2) and the arrangement letter(Exhibit 4) were duly signed by all of them.

3. Letter dated 17-02-2004 of t:he appellant-bank sent t:othe respondents no.1 and 2 through speed post demandingrepayment of the loan with interest was returned with the postalremark ``addressee left withoutlinformation". It was lat:er learnt bythe appellant-bank that the respondents no.1 and 2 had left theplace and address shown in the prescribed application form and inother related documents without any trace, whereupon they lodgeda FIR in the Sadar Police St:ation, Gangtok on 12-09-2004. Latercoming to learn of t:heir being at Naya Bazar, Kurseong, Dar].eeling,W.B., the appellant issued to them in that address a legal notice on17-11-2004 demanding repayment of the loan with accruedinterest but was also ret:urned by the postal authorities as\unserved. Similar notice issued to the respondent no.3 at hisaddress at Gangtok, was not responded to in spite of it beingreceived by him. Thereafter, notices were published in ``JanpathSamachar" (Hindi Newspaper) ,on 26-06-2005 with photographs ofthe respondents no.1 and 2 calling upon them to repay the dues ofthe appellant-bank, but that too failed to evoke any response. Thet:otal dues against the loan as on 10-08-2005 wit:h Interestcomputed @11.5% per annum was Rs.5,05,336.73, wlthoutprejudice to the future interest @11.5% untll recovery of the 9-0

entire dues. Ultimately, t:he appellant-bank filed Money Suit no.23of 2005 against all the respondents in the Court of t:he DistrictJudge, East and North Sikkim at Gangtok on 23-08-2005 forrecovery of the aforesaid sum and other consequential reliefs.

4. During the course of t:he proceedings before the trialCourt, it appears that the notice of summons could not be servedupon the respondents no.1 and 2, requiring the appellant takingresort to substitut:ed service by publication in a local newspaper.The substit:uted service not having been responded t:o by therespondents no.1 and 2, they were proceeded ex parfe vide theorder of the trial Court dated 21-06-2006. From the proceedingsof t:he trial Court available on record, it is seen that it was only therespondent no.3 who appeared diligently in each date fixed by theCourt and contested the suit by filing written statement. It wouldnot be necessary to deal wit:h each and every averments containedin the written statement but suffice it to state that the respondentno.3 did not deny the factum of the respondents no.1 and 2 havingtaken the loan and him having stood as guarantor by executing thedeed of guarantee marked as Exhibit 3. The suit: was cont:ested byhim on the ground that since t:he appellant and the respondentsno.1 and 2 had made material variation in t:he manner ofdisbursement of the loan wit:hout his consent, in as much as, it wasdeposited directly in the personal account of the borrowers, i.e.,the respondents no.1 and 2, instead of the institution which wasthe agreed mode of disbursement, he stood discharged as a '®-a

'®-a

guarantor. It was further stated that vide the application for loanExhibit 1, the respondents no.1 and 2 had pledged an immovableasset, namely, ``Krishna Restaurant" having the declared value ofRs.2,50,000/- which the appellant-bank allowed the respondents-borrowers t:o part with. The appellant having varied the terms ofthe contract and having allowed the borrowers to part with thepledged security which as per the respondent no.3, was inconnivance with the borrowers, he stood discharged from theguarantee. In fact:, on coming to learn of the manner ofdisbursement in violation of and contrary to the agreed terms, therespondent no.3 vide his letter dated 05-07-2003 addressed to t:heAssistant Bank Manager, SBI (HQ), Gangtok, conveyed hiswit:hdrawal from t:he guarantee, but as per the respondent no. 3,the bank chose not to respond.

Based upon the pleadings for the purpose, the t:rialCourt framed the following issues:- ``1. Whether the suit is maintainable againstthe defendant No.3?the defendant No.3?

Whether the defendant No.3 is liable to re-pay the educational loan taken bydefendant Nos.1 and 2?pay the educational loan taken bydefendant Nos.1 and 2?

Whether the plaintiff alt:ered the t:erms ofthe cont:ract without the consent ofdefenda'nt No.3?the cont:ract without the consent ofdefenda'nt No.3?

4. Whether the plaintiff has violated the termsof guarantee agreement ent:ered betweenthe plaintiff, defendant Nos.1 and 2 and thedefendant No.3?of guarantee agreement ent:ered betweenthe plaintiff, defendant Nos.1 and 2 and thedefendant No.3?

5. Reliefs."

e-Q

6`The learned trial Court after considering the pleadingsand the evidence on record decided all the issues against theappellants and vide the impugned judgment came to a finding t:hatthe appellant-bank had alt:ered the terms of the contract and,therefore, neither the suit was maintainable against respondentno.3 nor was he liable to repay the loan taken by t:he respondentsno.1 and 2 thereby leading to the dismissal of the suit.

Before this Court, it was submit:t:ed by Mr. A. Moulik,senior advocate, appearing on behalf of t:he appellant-bank, thatthe findings of the trial Court in respect of issues no.3 and 4 weregrossly erroneous and in total disregard to the various clauses ofthe Guarantee Agreement Exhibit 3 and that the issues no.1, 2 and5 having been decided on the basis of the findings on issues no.3and 4 in holding that the suit against t:he respondent no.3 as aguarantor was not maintainable, was also untenable in law and thefacts and circumstances of the case and, therefore, the impugnedjudgment was liable to be set aside. The learned senior counselsubmitted that the relationship between the appellant-bank andt:he guar.antor respondent no.3 was the creation of the GuaranteeAgreement Exhibit 3 executed by and bet:ween them and,therefore, his responsibility to the bank had to be considered in thelight of the terms and conditions prescribed therein,notwithstanding the fact t:hat the respondent no.3 along with therespondents no.1 and 2, had also signe.d on t:he other documents e-@

e-@

being the application for loan - Exhibit 1, the proposal form -Exhibit 2 and the arrangement letter - Exhibit 4. Laying emphasison t:he various clauses of the Guarantee Agreement, it wassubmitted t:hat even if t:he respon.dent no.3 had acquired the legalright to be discharged from t:he surety for the reasons st:at:ed byhim, such right stood waived by him.

8`It was submitted by Mr. Moulik that by the applicationof Section 137 of the Indian Contract Act, 1872, the responsibilityof respondent no.3 as a guarantor could not be discharged evenassuming that there was forbearance, omission or any otherindulgences by the bank shown in favour of the borrower which asper the learned senior counsel, had also been categorically agreedupon in terms of clause (2) of the Guarantee Agreement. It waspointed out that by clause (11) of t:he Guarantee Agreement:, therespondent no.3 had consented, amongst others, to any variat:ionthat may be effected in the terms of the loan arrangement of anycomposition between the bank and the borrower, and in event ofsuch variation, the guarantor would not be released or dischargedfrom his obligations under the Guarantee Agreement:. Having thusagreed by executing the Guarantee Agreement Exhibit 3 which wasto be a continuing one in terms of clause (7) and, having agreedto be treat:ed as the principle debtor to t:he bank for allpayments guaranteed by him as per clause (6) therein, therespondent no.3 was bound to discharge his obligations underthe Guarantee Agreement. In other words, those were the terms of a legal and valid concluded contract entered between theappellant-bank and the respondent no.3 and that being so, neitherof the parties could resile there from.

9. In support of his submission, Mr. Moulik referred to the

c.ase Of Sita Ram Gupta vs. Punjab National Bank & Ors. ..

92008J 5 SCC 7ZI, paragraph 8 of which .reads as under:- "8. The question is whether the appellant,having entered into such an agreement of guaranteewith the Bank, had waived his right under the Act. Inour view, the High Court has rightly held and we tcoare of the view that the appellant cannot: claim thebenefit under Section 130 of the Act because he hadwaived the benefit by entering into the agreement ofguarantee with the Bank. In Lachoo Mal v. RadhevShvam this Court: observed that the aeneral DrinciDleis that evervone has a riaht to waive and to aaree towaive the advantaae of a law or rule made solelv forthe benefit and Drotection of the individual in hisprivate capacity which may be dispensed with withoutinfringing any public right or public Principle. InHalsbury's Laws of England, Vol. 8, 3rd Edn., it hasbeen stated in para 248 at p.143 as under:- ``248. Contracting out.- As a generalrule, any person can enter into a bindingcontract to waive the benefits conferred uponhim by an Act of Parliament, or, as it is said,can contract himself out: of the Act, unless itcan be shown that such an agreement is in thecircumstances of the particular case contrary topub//c po//ay, Statutory conditions may,however, be imposed in such terms that theycannot be waived by agreement, and, in certaincircumstances, the legislature has expresslyprovided that any such agreement shall bevoid." (emphasis supplied)"

[emphasis supp[ied]

ZO, Next, reliance was placed upon in the case of I. Ra/-u

Setty vs. Bank of Boroda -. AIR 1992 Karnatalka 108, .in whiicht:he Division Bench of Karnataka High Court in paragraph 11 heldas follows:- im

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"11. We are of the view tliat as the provisionscontained in Chapter VIII of the Act relate toindemnity and guarantee, they deal with one subjectand they are to be read together. The liability of t:hesurety as stated in general terms in S. 128 of the Actis no doubt co-ext:ensive with that of the principaldebtor, but this liability is also subject to the terms ofthe contract; because S. 128 of the Act itselfsDecificallv Drovides that the liabilitv of a surety is co-ext:ensive with that of the DrinciDal debtor unless it isotherwise Drovided bv the contract. Thus the liabilitvof the suretv is subiect to the terms of the contract asmav be arrived at between the Darties. The words"unless it is otherwise Drovided in the contract"occurrina in Section 128 of the Act will also ciovemth: e other Drovisions contained in ChaDt:er VIII of theAct and enable the suretv to aive uD the riahtsavailable to him under Sections 133, 134, 135, 139and 141 of the Act I:emphasis sL]pp]ied]

11. The third case relied upon by Mr. Moulik was t:he caseoF Central Bank of India vs. M/s. Multi BIock Private Ltd. &Ors. : AIR 1997 Bombay log, in which paragraph 27 reads asfollows:- "27. The defendants have waived their rightsconferred under Sections 133, 134, 135, 139 and 141of the Contract Act. But, in my view, the said waiverwill not affect the validity and efflcaay of thetransaction of advancement of loan and furnishing ofthe guarantee by the guarant:ors. Section 23 of theIndian Contract Act is mainly concerned with theconsideration or object of the agreement of guarant:eeor consideration of the contract and the riahtsavailable under ChaDter VIII in Indian Contract Actcan be waived bv the auarantors and such waiver willnot defeat anv Drovision of law. It is not possible tosay and view lthe various clauses in the guaranteebond are such which are opposed to public policy ortainted with immorality. On the other hand, the Dublicpolicy should be that one should not allow to defeatthe debt of the creditor .......... " [emphasis supp[ied]

12. It was further submitted by Mr. Moulik that in so far asthe respondent no.3 is concerned, it was necessary to consider t:heGuarantee Agreement executed by him as regards his liability to

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the bank while necessarily excluding the other document:s executedby the respondents including t:he respondent no.3 who was theguarantor. The Guarantee Agreement const:ituted a separate,distinct and independent contract between the bank and theguarantor and that it is independent of the main agreemententered between the appellant-bank and the respondents no.1 and2. Reference in this regard was made to the case of fJi-ndrusfan Construction Co. Ltd. vs. State of Bihar & Ors. .. AIR 1999 SC3710, particularly to the following portion of paragraph 20:- ``20. As pointed out above, Bank Guaranteeconstit:uted a separate, dist:inct: and independentcont:ract. This contract is between the Bank and thedefendants. It is independent of t:he main contractbetween the HCCL and the defendants.

13. On the other hand, Mr. 8. K. Rai, advocate appearingon behalf of the respondent no.3, submitted that the respondentno.3 had agreed to be the guarantor only aft:er being satisfied ofthe t:erms and conditions contained in all t:he documents beingExhibit 1, Exhibit 2, Exhibit 3, Exhibit 4 and Exhibit 5. As per him,all those documents had to be read together as that formed thebasis of his agreeing to be .the guarantor and not in exclusion ofeach ot:her as was being contended on behalf of the appellant. Itwas his case that in the Agreement For Term, Loan Exhibit 5, themanner of disbursement had been clearly set out in clause (2)thereof as per which the disbursement of loan would be madedirectly to the institution towards payment of tuition fees and thatonly such part of the loan necessary towards purchase of books for

the prosecution of studies of the course undertaken would be paidto t:he student from t:ime to time on the condition that he producesthe related receipts evidencing purchase of the books before thebank within a reasonable t:ime from the disbursement: of theamount made to him. Mr. Rai also drew the attention of this Courtto clause (10) of the arrangement letter Exhibit 4 in terms of whichin sub-clause (a) the very term provided in clause (2) of theagreement` for term loan Exhibit 5 had been stipulated. On thestrength of t:hese clauses, Mr. 8. K. Rai submitted that those beingthe essential conditions of the contract of loan, it was necessary forthe parties to have strictly complied with them, which was notdone. Contrary thereto, the appellant had made material variationin t:he said terms in connivance wit:h the principal borrowers, i.e.,respondents no.1 and 2, and got the major portion of t:he loantransferred in the account of the borrowers directly except a sumof Rs.77,300/- that was paid to t:he institution directly. Mr. Raifurther submitted that on coming to learn of this fact, therespondent no.3 by his letter dated 05-07-2003, addressed to theAssistant General Manager, SBI (HQ), Gangtok (Exhibit 82),conveyed his wit:hdrawal as the guarant:or. It was argued that theway in which the appellant and the respondents no.1 and 2 hadconduct:ed themselves after the loan had been sanctioned and t:hedocuments executed by the respondent no.3, clearly indicated theirfraudulent intention and that in order to succeed in t:heir fraud theyhad mis-represented the facts to the respondent no.3 and, on suchmis-representat:ion the loan documents including the Guarantee Agreement were got execut:ed by him. It was, therefore,submit:ted that by application of the provisions of Sections 142 and143 of the Contract Act the Guarantee Agreement entered into byhim was rendered invalid and was a nullity in t:he eye of law. Itwas further submitted that even assuming that the GuaranteeAgreement remains valid, he cannot be held responsible for morethan the amount of the first: disbursement that was made in duecompliance of t:he terms of the agreement. In other words, as thefirst instalment of Rs.77,300/- had been disbursed as per theagreed terms and conditions, he would be liable only to that extentand nothing further. In support of his submission, Mr. Rai referredto the case Of State Maharashtra vs. Dr. M. N. Kaul (dead) byhis legal representatives & Anr. .. AIR 1967 SC 1634 .ir\paragraph 6 of which it has been held as under:- "6. The question is whether this guarantee isenforceable. That depends upon the terms underwhich the guarantor bound himself. Under the law heccarmot be made liable for more than he hasundertaken,

.................,..,....... To this there are someexceptions. In case of ambiguity when all other rulesof construction fail, the courts interpret the guaranteecontra proferentem that is, against the guarantor oruse the recitals to control the meaning of t:heoperative part where that is possible. But whateverthe mode employed, the cardinal rule is that theauarantor must not be made liable bevond the termsof his enaaaement." [emphasis supp]ied]

]4. It was further urged by Mr. 8. K. Rai that there was aserious negligence on the part of the appellant-bank in not havingsecured the assets pledged by the borrowers, i.e., respondentsno.1 and 2, which consisted of one-seventh of joint ancestral

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property in Kurseong worth about Rs.50 lacs, M/s. KrishnaRestaurant, NH-31A, Gangtok valued at Rs.2.5 lacs and LIC policyno.451159 for Rs.50,000/- and that instead of liquidating thoseassets belonging to the borrowers, they chose to remain idle andallowed the borrowers to part with them. Therefore, as per thelearned counsel by application of Section 141 of the Contract Actthe respondent no.3 was discharged to the extent of t:he securitywhich in any case was more than the value of the loan and theamount which is now due and payable t:o the appellant. Therefore,the District Judge having considered all these aspects of t:he case,had rightly passed the impugned judgment dismissing the suit filedby the appellant and, therefore, the appeal ought to be dismissedfor the same reasons.

]5. Having considered the rival contentions and uponperusal of the records of the case and the evidence of the parties,the question that needs det:ermination for the purpose of t:hisappeal appears to be a limited one. It was an admit:ted posit:ion ofthe parties that emerged during t:he course of hearing of the appealthat the primary question to be answered for the disposal of theappeal is as to whether having regard to the terms and conditionsof the Guarantee Agreement Exhibit 3, is t:he respondent no.3discharged from his obligation as the guarantor by application ofSection 133 of the Cont:ract Act? For this purpose,.it is immaterialto go through the evidence adduced by the parties as it can bedecided on the basis of the documents, more particularly, the Guarantee Agreement filed in the case. We may consider clauses 2, 6, 7, 8, 9 and 11 of the said Guarantee Agreement Exhibit 3:-

``2. The Bank shall have the fullest libertywithout affecting this guarantee topostpone for any time or from time to timeto enforce or forbear to enforce anyremedies or securities available to the Bankand the Guarantor(s) shall not be releasedby any exercise by t:he Bank of its libertywit:h reference to the matter aforesaid orany of them or by reason of time beinggiven to t:he Borrower or any ot:herforbearance act or omission on the part ofthe Bank or any other indulgence by theBank to t:he Borrower or by any othermatter or thing whatsoever which underthe law relating to sureties would but fort:his provision have the effect of soreleasing the Guarantor(s).without affecting this guarantee topostpone for any time or from time to timeto enforce or forbear to enforce anyremedies or securities available to the Bankand the Guarantor(s) shall not be releasedby any exercise by t:he Bank of its libertywit:h reference to the matter aforesaid orany of them or by reason of time beinggiven to t:he Borrower or any ot:herforbearance act or omission on the part ofthe Bank or any other indulgence by theBank to t:he Borrower or by any othermatter or thing whatsoever which underthe law relating to sureties would but fort:his provision have the effect of soreleasing the Guarantor(s).

6. In order t:o give effect to the guaranteeherein contained the Bank shall be entitledt:o act as if the Guarantor(s) was theprincipal debtor to the Bank for allpayments guaranteed by him / them asaforesai'd to the Bank.herein contained the Bank shall be entitledt:o act as if the Guarantor(s) was theprincipal debtor to the Bank for allpayments guaranteed by him / them asaforesai'd to the Bank.

7. The guarantee herein contained is acontinuing one for all amounts due to theBank by the Borrower under or in respectof the aforesaid advance granted asaforesaid as also for all interest costs andother moneys which may from t:ime to timebecome due and remain unpaid to t:he Bankhereunder.continuing one for all amounts due to theBank by the Borrower under or in respectof the aforesaid advance granted asaforesaid as also for all interest costs andother moneys which may from t:ime to timebecome due and remain unpaid to t:he Bankhereunder.

The guarantee shall be irrevocable andenforceable against t:he Guarantor(s)notwithstanding any dispute between theBank and Borrower.enforceable against t:he Guarantor(s)notwithstanding any dispute between theBank and Borrower.

The guarantee herein cont:ained shall beenforceable against the Guarantor(s)notwithstanding the student at any timeleaving the said S.i.k.k.i.in...M.a.p.ip.a.I...In.S.I..... 9.f|§.€b...... (name of t:he institution) and / orgiving up the st:udies for the course of.B...I.e.c.b. or changing the said course tosome other course.enforceable against the Guarantor(s)notwithstanding the student at any timeleaving the said S.i.k.k.i.in...M.a.p.ip.a.I...In.S.I..... 9.f|§.€b...... (name of t:he institution) and / orgiving up the st:udies for the course of.B...I.e.c.b. or changing the said course tosome other course.

11. It is agreed by the Guarantor(s) thatnotwithstanding any variat:ion made in theterms of the aforesaid arrangements of anycomposition between the Bank and theBorrower or any promise given by the Bankto the Borrower to give time t:o or not t:osue or the Bank parting with any of thesecurities given by the Borrower, theGuarantor(s) shall not released ordischarged of his / their obligations underthis guarant:ee and in the event of suchvariation, composition, promise or partingwith security the Guarantor(s) shall bedeemed to have consented to the same."notwithstanding any variat:ion made in theterms of the aforesaid arrangements of anycomposition between the Bank and theBorrower or any promise given by the Bankto the Borrower to give time t:o or not t:osue or the Bank parting with any of thesecurities given by the Borrower, theGuarantor(s) shall not released ordischarged of his / their obligations underthis guarant:ee and in the event of suchvariation, composition, promise or partingwith security the Guarantor(s) shall bedeemed to have consented to the same."

]6, As can be seen from the above, clause (11) clearlystipulates, t.nfer a/f.a, that notwithstanding any variation made inthe terms of the arrangement of any composition bet:ween thebank and t:he borrower, the guarantor shall not be relieved ordischarged of his obligations under the guarantee and, in the eventof such variation or composition or promise the guarant:or shall bedeemed to have consented the same. The quest:ion that wouldthen arise would be as to whether by having agreed in the manneras stated above, has the guarant:or, the respondent no.3, waivedhis right that was available to him under Sect:ion 133 of theContract Act and result in him being discharged as the guarantor?±n the case Of Corporation Bank vs. Mol.andas Baliga .. ILR1993 K4R 201, t:his very quest:ion was came up for considerationbefore a Division Bench of the Karnataka High Court. The Courtafter considering a cat:ena of decisions of various High Courts andthe Supreme Court, held as follows:- ``11. We are of t:he view that as the provisionscontained in Chapter VIII of the Act relate toIndemnity and Guarantee, t:hey deal with one sub].ect

and they are to be read together. The liabilitv of thesurety as stated in General terms in Section 128 ofthe Act is no doubt co-extensive wit:h that of theDrinciDal debtor, but this [iabilitv is also subiect to theterms of the contract: because Section 128 of the Actitself specifically provides that the liability of a suretyis co-extensive with that of the principal debtor unlessit is otherwise Drovided bv the contract. Thus theliability of the surety is subject to the terms of thecontract as may be arrived at between the parties.The words "unless it is otherwise provided in thecontract" ocourring in Section 128 of the Act will alsogovern the other provisions contained in Chapter VIIIof the Act and enable the suretv to aive uD the riahtsavailable to him under Sections 133, 134, 135, 139and 141 of the Act. It is a settled legal position of lawthat a legal right can be given up provided suchgiving up of legal right under any contract is not hitbv Section 23 of the Act. Section 133 of the Actmakes it clear th.at any variance made in the contractbetween the principal debtor and the creditor withoutthe consent of the surety, discharges the surety as totransactions subsequent to variance. This consent ofth: e surety can be obtained either at the time ofcontract is made between the principal debtor and thecreditor to which the surety gives the guarantee formaking any change or alt:eration in the cant:ract to bemade or not to claim any right or benefit underChapter VIII of the Act. In other words. in the suretybond/guarantee-bond itself the surety can agree towaive his rights available to him under the variousprovisions contained in Chapter VIII of the Act. Suchwaiving of his right by the surety is permissible underSection 133 read with Section 128 of the Act.

Public

policy is not to defeat the debt of the creditor, it is toensure that the money of the creditor is secured andis recoverable in accordance with law and the debtoror the surety is not absolved from his liability todischarge the debt except: in accordance with law.

20. Thus from the aforesaid Decision it isclear that the provisions contained in Sections 23,128, 133, 134, 135, 139 and 141 of the Contract Acthave been considered and it has been held that theagreement of surety is also like any other agreement,it is open to the Person to give uD his right under acontract or under any law. Similarlv, the surety alsocan give uD his right and the act of giving up of theright arising under the provisions of the Contract Actby a surety, does not amount to an act contrary toSection 23 of the Contract Act and as such it wouldnot be oDDosed to public policy. While deciding theaforesaid question in Raju Setty's case, reliance has

also been placed on the Decisions in (1) Union ofIndia, Ministry ;of Food and Agriculture (Department ofFood) New Delhi v. Pearl Hosiery Mills and Ors.MANU/PH/008F/1961 (2) Citibank N.A. New Delhi v.Juggilal Kamalapat Jute Mills Co. Ltd., KanpurMANU/DE/0004/1982 Hodges and Anr, v. Delhi &London Bank Ltd. Law Report:s 27 Indian Appeals168; (4) A.R. Krishnaswami Ayyer and Anr. v.Travancore National Bank Ltd AIR 1940 Madras 437;and (5) Smt:. R. Lilavati v. Bank of Baroda and Ors.MAN U/KA/0097/1987. " [emphasis supplied]

We may also refer to the case oF Krishan Lal vs. State of J& K : (]994) 4 SCC 422 with regard to the above legal position.

±7. The position of law that emerges from the above is thatthe rights of the surety as laid down under Chapter VIII of theContract Act can be varied by entering into a contract and wouldbe sub].ect to I:he t:erms of such contact:. The surety by anagreement can give up the rights available to him under Sections133, 134, 135, 139 and 141 of the Contract Act provided that it isnot hit by Sect:ion 23 thereof; Such consent can be obtained fromthe surety at the time when the contract is being entered intobetween the principle debtor and t:he creditor. In other words, thesurety can waive his rights available t:o him under the variousprovisions contained in Chapter VIII of the Contract Act by makingprovisions in the cont:ract agreement to that effect. Such anagreement would not be opposed to public policy because publicpolicy is not t:o defeat the debt of the creditor but to ensure thatthe money of the credit:or is secured and recoverable in accordancewith law. As held in the case of fachoo "a/ vs. Radbey Shyamrelied upon by the Apex Court in the case of St-£a Ram Gupra ws.

-'0

Punjab Wa£/-ona/ BanA. (supraJ cited by Mr. Moulik, everyone hasa right to waive and agree to waive the advantage of a law or rulemade solely for the protection of the individual in his privatecapacity which may be dispensed with without infringing any publicright or public principle.

18. When we consider clause (11) of the GuaranteeAgreement the irresist:ible conclusion is that t:he respondent no.3,the guarant:or, has waived his rights provided under Section 133 bywhich he would have been entitled to be discharged from hisobligations as a guarantor. By use of the expression "theguarantors shall be deemed to have consented to the same"contained in clause (11) of the Guarantee Agreement, there can beno manner of doubt that the guarantor had agreed to waive hisrights available under Sections 133, 137, 139 and 141 of t:heContract Act when read with clauses 2, 6, 7, 8, 9 reproducedabove. As held in the case of A. A. Kf7-sAnaswam/-A)/)/er & Anr.vs` Travancore National Bank L±d. .. AIR 1940 Madras 437,such an agreement would amount to consent within the meaning ofthe aforesaid Sections of the Contract Act.

]9. The position of law that has been discussed would alsoapply with equal force to t:he ot:her part of the argument on behalfof t:he respondent no.3 that the appellant had lost or parted withthe security in the form of the one-seventh share in the jointancestral property of the borrowers having the value of Rs.50 lacs,a rest:aurant Rs.2.5 lacs and one LIC policy for Rs.50,000/-thereby entitling him to be discharged from the guarantor. The decisionscit:ed by Mr. Moulik, learned seriior counsel for the appellant, alsosupport this view. The principle of law laid down in the case of M.N. Kaul (supra) placed by Mr: 8. K. Rai, the learned counsel forthe respondent no.3, is a well-Settled one but has no application inIthe facts and circumstances of the case.

20, The trial Court whil,e deciding issues no.3 and 4 whichform the basis for deciding issues should be 1, 2 and 5, appears tohave completely lost sight of t:he above legal position and venturedinto areas that are obviously irrelevant for a just decision in thesuit and misdirected itself in passing the impugned ].udgment anddecree.

21. As regards the plea of fraud and mistake alleged tohave been committed on him,by the appellant-bank allegedly inconnivance with the borrowers/the respondents no,1 and 2 isconcerned, it is found that it has neither been pleaded nor provedby the respondent no.3 before the trial Court. It is a settledposition of law t:hat allegations of fraud and mistake beingquestions of fact, require specific pleading and proof. Since this isfound wanting in the presenti,case, the plea accordingly standsrejected.

22. There is no doubt,that the respondent no.3 has beenseverely let down by the resporidents no.1 and 2 on whom he had/reposed complete faith and had accordingly agreed to be the a --a,i guarant:or with the pious ob].ect to help t:he respondent no.'1 inattaining higher education. But then, we are governed by the Ruleof Law and in law there is no place for sympathy but only ].ustice.It is, however, observed that t,he respondent no.3 is not bereft ofany redress as he has the right to sue the borrowers, respondentsno.1 and 2, for recovery of the amount which he hto pay to the appellant under a Guarantee Agreement.iiiE._

iiiE._

23. Before parting, it may be observed with a sense ofi~CDtryvrfvrfuA<.tht the pleadings of the parties and the=^=i!l#;e.eJP__e_fxp::06i' evidenEle on record clearly reflect the recalcitrant and casual-10attitude of the appellant-bank with respect to the transactions inquestion and is found grossly wanting in sincere performance of itspart of the contract:. Before venturing to transfer the balanceamount of the loan directly in the account of the borrowers whichwas in clear variance to t:he agreed mode of transfer, it had anobli.gation to seek the consent of the guarantor/respondent no.3 inview of the consequences that he would be required to face in theevent of the loan going bad having regard to the stringentcondit:ions of the Guarantee Agreement. But they chose to ignorehim completely resulting in the borrowers absconding. For theappellant-bank there was nothing to lose as it had t:he convenientremedy under the Guarantee Agreement Exhibit 3 of fixing theliability upon the respondent no.3. There can be no manner ofdoubt t:hat had this document not been there, he would have beenentitled to be discharged from his obligations thereunder. Theappellant-bank being a public body has the obligation to act with more responsibility. Considering the facts and circumstances ofthe case and the position of law discussed above, this courtexpresses its helplessness in dealing with the situation. It is onlyhoped, as is expected of thenT, that the concerned authorities ofthe appellant-bank will take due not:ice of these observations anddeal appropriately with those who are responsible for thedereliction with the necessary seriousness it deserves inaccordance with law.

24. In the result:, the appeal is allowed.

25. The impugned judgment and decree passed by the District Judge, East and North Sikkim is set aside.

26. Decree be drawn accordingly.

27`No order as to cost:s.

28. Records of the trial Court be returned forthwith.

Z9.A copy of t:his ].udgment be transmitted to the Court of the District Judge, East and North Sikkim at Gangtok for its duecompliance.