INTERNAL ASSESSMENT – I

LAW OF CONTRACTS (IRAC)

NAME – ASHAM SHARMA

DIV -E

ROLL NO-491

PRN : 17010126491
IRAC: CENTRAL BANK OF
INDIA VERSUS CL VIMALA
& ORS.

FACTS:

 Respondent, C.L. Vimala is the respondent aged 85 years is the surety

(guarantor) in this case whereas, Appellant, Central Bank of India is the bank
to whom the property was mortgaged
 Property is a residential house
 The property involved in this case was purchased by C.L Narsimhaiah Shetty,
husband of C.L. Vimala under a sale deed on 10th June 1997
 C.L Narsimhaiah Shetty, made a will on 31st May 1995 to transfer his
undivided share to his sons and granted life interest in favour of C.L. Vimala
 C.L. Vimala had 1/6 of property rights was the guarantor for the mortgage
loan took by her sons for business purposes. Total amount of loan was
17,50,000
 Business suffered loss, as a result, sons were unable to pay the mortgage loan
amount
 Bank, filed a petition to Debt Recovery Tribunal for the recovery
 DRT referred the case to Lok Adalat for settlement
 Now, C.L. Vimala founds that there was a joint memo filled by her son N
Surya Bhagavan and advocate but she hasn’t signed that memo
 It was on 5th April 2006, when she got the fact that the property has ordered to
be sold by auction
  She filed a writ petition in Karnataka High Court

ISSUES : (1) As the guarantor hasn’t signed the joint memo, so whether the guarantor escape
his/her liability in this case?

(2) Will Section 128 of Indian Contract Act would be apply here?

RULE :

LAW OF CONTRACT: SECTION 128

128. Surety’s liability.—The liability of the surety is co-extensive with that of the principal
debtor, unless it is otherwise provided by the contract. —The liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise provided by the contract."
Illustration A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is
dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and
charges which may have become due on it. A guarantees to B the payment of a bill of
exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the
amount of the bill, but also for any interest and charges which may have become due on it."

APPLICATION/ANALYSIS

The facts showed that C.L. Vimala was the respondent and Central Bank of India were
appellants. Due to business losses, the sons of the respondent were unable to pay the
mortgage loan amount. There was a joint memo signed by the Principal Debtors and the
advocate of the respondent, but the respondent had no knowledge of it, so she demanded to
set aside the sale of the house. She didn’t knew that the court had ordered the property to be
sold by the auction, She found this fact on 5th April 2006. The High Court of Karnataka, in
the reproved judgment, has managed the issues separately. The Court had confined issues on
the inalienable energy of the Lok Adalat, the activity of the Debt Recovery Tribunal (DRT) in
choosing the break applications documented by the underwriter and the ownership by the
bartering buyer and installment of solatium to the Central Bank of India. On the issue of the
characteristic energy of the Lok Adalat, the High Court in the wake of depending on various
choices held that as the underwriter was not a gathering to the Joint Memo, the
pronouncement would not tie on her. With respect to legitimacy of the deal, the High Court
held that the deal was not done according to the command of the deal declaration which said
that the deal was to be directed part by part and ceased when the pronouncement sum was
figured it out. In this way, the High Court held that the closeout was violative of Order 21
Rule 64. It additionally dismissed the request for pay of 20% of the Central Bank of India.
However, an insignificant reality can't be such a substantial ground. The respondent C.L.
Vimala and her child N Surya Bhagavan who marked the joint notice were living in a similar
house. So it appears to be no reason that the respondent is uninformed about the joint update,
she could have utilized sensible intends to make herself mindful about the joint notice and
alternate actualities including offer of the property by the closeout. Also the court ordered the
respondents many times to meet the liabilities of the bank, but they failed to do so. Court has
held in United Bank of India v. Bengal Behar Construction Company Ltd. and others, (1998)1
that the Clauses in the letter of guarantee are binding on the guarantors as follows:

“In view of the above, the question regarding confirmation of the decree against the
guarantors now needs to be settled. ……………… we see no reason why the guarantors
should not be made liable under the letters of guarantee, the terms whereof clearly stipulate
that on the failure of the principal debtor to abide by the contract, they will be liable to pay
the amount due from the principal debtor by the appellants. Clause 15 of the letter of
guarantee, in terms states that any action settled or stated between the bank and the principal
debtor or admitted by the principal debtor shall be accepted by the guarantors as conclusive
evidence. In view of this stipulation in the letter of guarantee, once the decree on admission is
passed against the principal debtor, the guarantors would become liable to satisfy the decree
jointly and severally. In SBI v. Saksaria Sugar Mills Ltd. 1986 2this Court while considering

1
8 SCC 653
2
2 SCC 145
the provisions of section 128 of the contract act held that liability of a surety is immediate
and can’t be deferred until the creditor exhausts his remedies against the principal debtor. n
the case of Ram Kishun (supra)3, the Court has also stated that it is the prerogative of the
Creditor alone whether he would move against the principal debtor first or the surety, to
realize the loan amount. This Court observed:

“Therefore, the creditor has a right to obtain a decree against the surety and the principal
debtor. The surety has no right to restrain execution of the decree against him until the
creditor has exhausted his remedy against the principal debtor for the reason that it is the
business of the surety/guarantor to see whether the principal debtor has paid or not. The
surety does not have a right to dictate terms to the creditor as to how he should make the
recovery and pursue his remedies against the principal debtor at his instance”. At last the
court held that Accordingly, we set aside the order passed by the High Court and hold that
since the auction purchaser has already paid the full amount of sale consideration and is in
possession of the property in question for more than about 8 years, for equity and good
conscience, we do not intend to interfere with his possession and we, therefore, set aside the
order passed by the High Court, and allow these appeals.

CONCLUSION: After analysis all the facts and issues of the case of Central Bank of India
vs C.L. Vimala, the conclusion which came is that the liability of the surety/guarantor is co-
extensive and the surety can’t escape liability for just a mere fact. According to me, this is the
right judgement made by the apex court as in the loan agreement, which is the contract there
is no clause which shows that the liability of the guarantor is not co-extensive with the
principal debtor. Therefore Section 128 of the Indian Contract Act will apply here without
any exception.

3
11 SCC 511
 BIBLOGRAPHY

The following sources were used in this IRAC Assessment:-

1. Indian Kanoon
2. Indian Contract Act, 1872 Textbook (Avatar Singh)
3. Bare Act
4. SCC Online
5. Others (Google, Lawnotes etc)