1.This regular appeal has been filed as against the order dated 23rd September, 2005 passed in Original Application No. 648 of 1999 by D.R.T.-I, Chennai.
2. The" Original Application filed by the appellant for the recovery of the amounts was decreed as prayed for. But, however, it was held that, the responsibility of the defendant No. 6, being a guarantor, was only to the extent of the value of the portion/share of the schedule mortgage property in his possession, and he is not personally liable, and the said finding is under challenge in this appeal.
3. The defendant No. 1-company is a partnership firm represented by its partners defendant Nos. 2 to 5 and they have availed certain loan facilities from the appellant Bank, for which defendant Nos. 4 to 6 stood as guarantors and they have executed personal guarantee in favour of the applicant Bank, and they have also executed mortgage extension letter by creating a valid equitable mortgage in favour of the appellant Bank in respect of the properties set out in the schedule to the Original Application. Based upon the relevant documents, Original Application was filed.
4. The defendant No. 6 resisted the claim by contending that the defendant No. 1-firm was reconstituted on 25th September, 1998 and there was a change in the contract of guarantee, by which the defendant Nos. 7 and 8 also became the partners of the defendant No. 1-company, and in view of the change in the constitution of the defendant No. 1 -company, he was not liable. But, however, he had stated that if at all he is liable, his liability is restricted only to his share in the item No. 1 of the property set out in the schedule to the Original Application.
5. The Tribunal, after taking into consideration all of the aspects of the case, came to the conclusion that the guarantee executed by the defendant No. 6 was a personal and individual guarantee for securing the loan availed by the defendant No. 1-firm and he also agreed that his liability is joint and several. The guarantee executed by the defendant No. 6 is also a continuing guarantee, and therefore, even if there is any variation in the loan amount due or loan limits increased or decreased or to make any other arrangement with defendant No, 1 -firm, that will not discharge the defendant No. 6 in any manner affecting his loan liability under the guarantee. But, however, the Tribunal held that the defendant No. 6, being not a partner of the defendant No. 1-firm, there could be no personal decree, against him, except the value of the property/security mortgaged by him, as he was one of the joint owners of the schedule mentioned mortgaged property, and the said finding alone is questioned in this appeal.
6. The point that arises for the consideration of this Tribunal is whether the defendant No. 6, who is not a partner of the firm, can be made personally liable to the amount due to the appellant Bank.
7. The deed of guarantee executed by the defendant No. 6 along with defendant Nos. 4 and 5 is not in dispute and the said guarantee reads that, "In consideration of your opening (or continuing) an account with or issuing of Bank guarantee to Salem Steel Industries...hereby jointly and severally agree to pay (emphasis supplied) and satisfy to your two days after demand upto the amount, hereinafter mentioned all moneys and liabilities already advanced, paid or incurred on such account/Bank guarantee or which you may at any time advance, pay or incur to or for the use, or accommodation of or on the credit of the customer...together with all interest, discount commission and other Banking charges, etc...."The guarantee deed further reads that, "This guarantee shall be a continuing guarantee and in full force until three calendar months after each of us shall have given or sent to you notice in writing of our intention to discontinue and determine the same...."As such, it is made out that the guarantee executed by the defendant No. 6 was not only joint and several and it was also a continuing guarantee. The continuing guarantee is a guarantee which extends to a series of transactions. The liability of the surety, as set forth in Section 128 of the Indian Contract Act, 1872, is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. But, however, the said continuing guarantee could be revoked as provided under Section 130 of the Contract Act, which states, "A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor." As such, it cannot be said that the continuing guarantee would be alive forever and it has got its own limitation i.e. it can be revoked as provided under Section 130 of the Contract Act. In fact, in the guarantee deed itself, it is stated that, "This guarantee shall be a continuing guarantee and it will be in full force until three calendar months after each of us shall have given or sent a notice in writing of our intention to discontinue and determine the same...." When there is nothing on record to show that the defendant No. 6 has revoked the continuing guarantee, it can easily be concluded that the guarantee is a continuing guarantee, and it continues till the debt is discharged.
8. The defendant No. 6 further contended that two new partners were inducted into the defendant No. 1 firm, and therefore, there was a change in the contract of guarantee and hence, he is not liable. It is true that new partners were inducted into the defendant No. 1-company, but it was not informed to the appellant Bank. Even otherwise, the appellant has not given any consent for the variance of the contract and the original contract remains intact. In fact, even the induction of the new partners were not informed to the appellant, Bank, and as a matter of fact, the new partners were made as parties only after filing of the Original Application. That shows that the induction of the new partners were not brought to the notice of the appellant. Even otherwise, as long as the original contract was not varied, the liability of the surety continues. In fact, the defendant No. 6 has not chosen to revoke his guarantee and, as such, his contention that just because two new partners were inducted into the defendant No. 1 partnership firm, his liability would come to an end, cannot at all be accepted.
9. In fact, the Tribunal came to the conclusion that, the defendant No.6's guarantee shall be continuing one and it would be in full force.
But, having held so, it had committed an error in holding that, the defendant No, 6, not being a partner of the defendant No. 1 firm, there can be no personal decree against him, except the value of the property mortgaged by him, and the said finding is liable to be set aside, and accordingly it is set aside. It is needless to point out that the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract, and the continuing guarantee is one, which would be in force unless it is revoked by the surety, or it would come to an end on the death of the surety, or the guarantor would be discharged if there is any variance made in the contract without the surety's consent. None of these things have taken place in our case, and therefore, the defendant No. 6 is also jointly and severally liable along with other defendants.