RAM KISHAN
The expeditious summary
proceedings in various Debt Recovery Tribunals (DRTs) in the country
have rendered the guarantors an extremely worried lot. In decreed cases,
the personal assets of some of the guarantors are being disposed off
quickly, mercilessly and in many cases at throw-away prices. A new
machinery has come up solely for this purpose. The guarantors and their
lawyers are frantically searching for a suitable legal defence.
The suggested approach in
this article is based on fundamentals and principles of Law of Contract
combined with Law of Torts with due regard to justice, equity, and good
conscience. The solutions to the problems and the agony faced by the
guarantors are in-built in the progressive attitude of the apex court of
the country.
In the words of Chief Justice
Bhagwati “ We have to evolve new principles and lay down new norms
which will adequately deal with new problems which arise in a highly
industrialized economy. We can not allow our judicial thinking to be
constricted by reference to the law as it prevails in England or for the
matter of that in any foreign country. We are certainly prepared to
receive light from whatever source it comes but we have to build our own
jurisprudence. “ – M.C. Mehta vs Union of India, AIR 1987 SC 1086.
Advocates, therefore, may have
to carry out legal analysis based on the suggestions given here so that
proper case is made out before the judiciary. As stated by Lord Scarman
: “The function of the court is to decide the case before it, even
though the decision may require the extension or adaptation of a
principle or in some cases the creation of a new law to meet the justice
of the case. But whatever the court decides to do, it starts from a
base-line of existing principle and seeks a solution consistent with or
analogous to a principle or principles recognized. “ – Macloughin vs
O’Brian, (1982) 2 All ER 298 (310) (HL)
Let us examine
and analyze the process by which the nationalized Banks and All India
Financial Institutions (FIs) obtain the guarantee and then evolve
suitable legal defence for the guarantors.
Normally,
the creditors enter into contract of guarantee with the guarantors. The
terms and conditions of such contract in our country are governed by the
Indian Contract Act 1872 secs. 126 to 147. In this article, we have used
the terminology specified in sec. 126 of the said Contract Act. Here by
creditors,we mean the lending Banks and FIs. The contractual relation is
based on bonafide relation between the creditor and the guarantor The
contracting parties, however, are not authorized to vary those terms and
conditions later on without mutual consent. In other words any one-sided
variation in reasonable contractual relationship results into breach of
contract of guarantee.
Further
the said relation creates well defined duty of care on the part of
the creditor. Any violation of such duty creates great variation in the
original contractual relationship. Breach of contract of guarantee or
such illegal variations caused by the creditors result in discharge of
the guarantors. The secs. 133, 139, 142 and 143 of the said Contract Act
are relevant in respect of discharge of the guarantors. It is needless
to mention that when the guarantor is discharged, his property, if any,
mortgaged is also released accordingly.
Let us now examine the
scenario in the specific context of nationalized banks and financial
institutions as creditors. The said banks and institutions being
government owned are totally and statutorily governed by government
policies and Reserve Bank of India (RBI) Guidelines. Hence the guarantee
agreements are founded upon as well as governed by the said statutory
policies and guidelines at the time of execution of the guarantee
agreements as well as during their existence.
The framework of the law
enshrined in the said policies and guidelines aims at quickly detecting
warning signals for incipient sickness, quick remedial action to cure
the said incipient sickness, to take care of the various needs of the
borrowers, to provide and extend adequate and timely working capital
limits, to be a friend, philosopher and guide during difficult period to
expel the notion that banks are only fair weather friends, to ensure
proper duty of care, not to be negligent at any time etc. Thus the
conduct of the creditor and guarantor are also governed by the
provisions of the Law of Torts apart from legally valid contractual
terms and conditions of the guarantee at any point of time.
Such extensive, wide and
all pervasive grip of law creates enormous legal rights of the
guarantors and corresponding legal duties on part of the said Banks and
FIs. Any breach of such duties amounts to infringement of the said
rights of the guarantor resulting into his automatic discharge as
guarantor. Apart from his discharge, if there is any injury, he can
claim adequate damages and compensation.
It is well known
that the present beauracracy as well as its thinking in Banks and FIs
particularly after nationalization have been modelled on the pattern of
government departments. Hence in practice, operating staff at the branch
level in Banks and FIs commit numerous violations rendering their
guarantors discharged without any obligations. In most of the cases,
they are said to have indulged in malicious abuse of process of law as
well as malicious civil proceedings.
Under such realities,
the guarantors need not worry at all. When called upon by the court of
law, they must point out the above violations and hence seek their
automatic discharge from the point of time of the said violation. If
there is slight injury, they must claim adequate compensation.
It is
pertinent to note that many of the terms and conditions of the deeds of
the guarantee are one sided and hence such deeds are prima-facie
illegal. The said Banks and FIs commit willful legal default and hence
breach of statutory duties when they present such illegal documents
before the guarantors. They commit further default and breach of law
when they obtain their signatures. The highest level of default and
hence breach of law is committed when they present such illegal
documents before the court of law.
The injured guarantors must review all the above aspects and if there is
any illegal attachment or illegal disposal of their properties, they
must file injunction and damage suits based on the Law of Contract as
well as Law of Torts to claim return of their properties along with
adequate damages and compensation.
This kind of vigilance and alertness on part of guarantors will usher in
a new era in banking and finance. In that eventuality bankers will be
forced to pay attention to the real primary security i.e.
production, productivity and profit. The project appraisal will be
carried out with greater responsibilities. Day-to-day banking will
also improve considerably. As a result the incipient as well as
chronic sickness will also come down. . The worries of the guarantors
can also be virtually eliminated.
The writer i.e.
Mr. Ram Kishan of
DRT Legal Solutions has personal
experience of contesting cases pertaining to borrowers and guarantors based on the Law
of Torts. He can be contacted at :
ramkishan@drtsolutions.com
Our Client files damage suit of Rs. 1825 Crores against a bank and a
financial institution in Chandigarh:-
Our Client, an eminent Supreme Court Advocate (practice more than 25 years in Supreme
Court) has filed a damage suit of Rs. 1825 Crores in Chandigarh on 13.01.05 against a bank
and a financial institution. The said damage suit was drafted by us and it runs
in 118 pages having documents of 537 pages. In a video interview lasting more
than 30 minutes on 23.01.05, the said Mr. Malik appreciated our legal concepts, our drafting and our
knowledge and experience about application of law of torts to banking,
industrial sickness, drt, counter-claim, securitisation act and calculations of
damages.
