WRIT PETITION NO. 271 OF 2009

15th March 2019

Petitioner Counsel: Shri H.A. Khedikar Shri D.V. Chavan
Respondent Counsel: Shri Anand Parchure Shri Aniket Waghdhare Shri A. Kilor
Act Name: Maharashtra Cooperative Societies Act, 1960

HeadLine : Maharashtra Co-operative Societies Act (1960), S. 101 – Recovery of debt – Discharge of guarantors – Borrowers request for restructuring and reschedulement of loan and replacement of old guarantors with new guarantors was accepted by Bank – Fresh agreement post restructuring and reschedulement makes no reference to old guarantors – Discharge of old guarantors, proper.

Section :
Section 101 Maharashtra Cooperative Societies Act, 1960 Section 133 Indian Contract Act, 1872 Section 144 Indian Contract Act, 1872

Cases Cited :

JUDGEMENT

The petitioner ­ Shikshak Sahakari Bank Limited is a cooperative society duly registered under the Maharashtra Cooperative Societies Act, 1960 (“Act” for short), and shall be hereinafter referred to as “the bank”. The bank is assailing the order dated 31.10.2008 rendered by the Divisional Joint Registrar, Cooperative Societies, Nagpur in Revision 576 of 2007. By the order impugned dated 31.10.2008, the said authority dismissed Revision 576 of 2007 which was directed against two orders passed by the Deputy Registrar, Cooperative Society, City­1, Nagpur. By the first order dated 18.10.2006, the Deputy Registrar discharged respondents 3 and 4 from the proceedings under Section 101 of the Act. By the second order dated 22.5.2007, the Deputy Registrar restricted the recovery certificate to respondent 2­ M/s. Panchasheel Medical Stores Pvt. Ltd (hereinafter referred to as “the borrower”) and declined to issue recovery certificate against the discharged guarantors respondents 3 and 4 and respondent 5, who according to the bank, had mortgaged property to secure the dues of the borrower.

2. The prayer clause of the petition reads thus:­
“i. by appropriate writ, order or direction quash and set aside the order dated 31.10.2008 passed by the Divisional Joint Registrar, Cooperative Societies, Nagpur, respondent no. 1 in Revision No. 576 of 2007 (AnnexureN);
ii. hold and declare that the petitioner bank has every right in law to take recourse to the properties of respondent nos. 3 to 5 for recovery of the amount due under the recovery certificate issued in its favour in the proceedings under Section 101 of the Act;
iii. Allow the writ petition;
iv. grant any other relief which this Hon'ble Court deems fit and proper under the facts and circumstances of the present case”.
The bank has not incorporated prayer to quash or set aside the orders passed by the Deputy Registrar which were assailed in revision. The obvious defect notwithstanding, I have ventured to consider the petition on merits in view of the declaration sought that the bank is entitled to proceed against respondents 3 to 5.

3. The bank avers that the borrower, who is a member of the bank, vide application dated 11.12.1997 applied for cash credit limit of Rs. 67 lacs and term loan of Rs. 63 lacs. The bank vide sanction letter dated 10.1.1998, sanctioned cash credit limit of Rs. 63 lacs and term loan of Rs. 60 lacs. The credit facilities extended were secured, inter alia, by guarantees extended by respondents 3 and 4. The bank then contends that on 29.7.2000, the respondent 5 executed an equitable mortgage by depositing title deeds of the property to secure the credit facilities extended to the borrower.
Bank then avers that the borrower defaulted in payment of the installments and by application dated 19.1.2002 requested that the cash credit limit and the term loan be restructured and the repayment rescheduled. The request was favourably considered by the bank and by communication dated 28.3.2002, the credit facilities were restructured and rescheduled. The bank avers that on 30.3.2002 necessary documents were executed for reschedulement of the credit facilities. It is asserted that while the credit facilities were restructured and rescheduled, the transaction was not a fresh loan and was only a facility extended to the borrower. The borrower, notwithstanding the restructuring and reschedulement defaulted which impelled the bank to issue legal notices dated 30.6.2003 and 30.7.2003 calling upon the borrower and respondent 5 to pay the outstanding amount alongwith interest. The notices went unheeded and the bank initiated recovery proceedings under Section 101 of the Act which came to be registered as Dispute 10 of 2005.
The bank then states that respondents 3 and 4 moved an application dated 20.6.2006 seeking discharge on the ground that they are not parties to the restructuring or reschedulement of the credit facilities nor did they execute any document nor were they called upon to make payment of the amount allegedly recoverable from the borrower. Respondents 3 and 4 further contended that since the guarantees of Shri Vinay Ramnivas Nemani and Shri Aditya Ramnivas Nemani were accepted by the bank in place of respondents 3 and 4, they should discharged. Respondent 5 also moved an application dated 26.12.2006 seeking discharge inter alia contending that in view of the reschedulement and restructuring, to which respondent 5 was not a party, respondent 5 is entitled to discharge.
The view taken by the Deputy Registrar on the applications preferred by respondents 3, 4 and respondent 5 is already noted supra. The bank contends that although recovery certificate was issued against the borrower by order dated 22.5.21007, the bank was constrained to file a revision in view of the refusal of the Deputy Registrar to issue recovery certificate against respondents 3 to 5 herein.

4. The bank contends that unless specifically discharged respondents 3 and 4 continued to be guarantors and the Deputy Registrar erred in discharging them from the proceedings. It is further contended that discharge of respondent 5 is equally erroneous since by depositing title documents an equitable mortgage was created in favour of the bank and respondent 5 acted as a guarantor. The bank strenuously assails the view of the Deputy Registrar that the proceedings under Section 101 of the Act would not lie against a mortgagor.

5. Respondent 5 has filed return raising several issues, factual and legal. Respondent 5 contends that no valid equitable mortgage was created much less to secure the dues of the borrower. Respondent 5 emphasizes that the application for cash credit and term loan preferred by the borrower and the sanction letter refers to the properties which were offered as security. However, the bank permitted release of certain properties which enabled the borrower to alienate the same. The relevant averments in the return/affidavit­in­reply of respondent 5 read thus:
“4. In relation to paragraph no. 4, the respondent no. 5 submits that:
4.1. The petitioner bank has annexed an Annexure D which is the application submitted by the respondent no. 2­borrower to the petitioner bank dated 19.1.2002 in relation to the restructuring and rescheduling of the term loan and cash credit accounts. A bare perusal of the said application dated 19.1.2002 suggests that the shops of respondent no. 2–borrower situated at Medical Square and Dharampeth have been sold out with the permission of the petitioner bank. It is pertinent to note that the sanction letter dated 10.1.1998 issued by the petitioner bank to the respondent no. 2–borrower lists down that the securities the security inter alia in form of registered mortgage would be created over the properties situated at :(1) Head office at Dhantoli;(2) Dharampeth Branch; (3) Khamla Branch. Therefore, it is crystal clear that even after the date of execution of the 'Memorandum of Deposit of Title Deed', that is, 29.7.2000, the petitioner bank has allowed the creation of certain additional security by way of mortgage and has also allowed the release of certain properties in favour of the respondent no. 2–borrower to allow them to sell off certain properties belonging to the respondent no. 2 – borrower.
4.2. The above claim of the respondent no. 5 can also be evidenced from a 'Deed of Release of mortgaged Property' dated 5.8.2000 by which the petitioner bank has released mortgage over the property owned by Shri Ramniwas Jagannath Nemani situated at Farmland Ramdaspeth which was mortgaged to secure the loan advanced by the petitioner bank to respondent no. 2­borrower. A copy of the said 'Deed of Release of Mortgaged Property' dated 5.8.2000 is annexed herewith and marked as “Annexure R5–IV”.
4.3 Additionally, the respondent no. 5 submits that the respondent no. 2–borrower has entered into an Agreement for Sale of Shop with one Shri Pankaj Vrajlal Babaria, acting as purchaser for sale of the shop belonging to the respondent no. 2 situated in Dhantoli. A copy of the said Agreement for Sale of Shop is annexed herewith and marked as 'Annexure R5–V”.

6. It is further stated that the memorandum of deposit of title pertains to an unregistered and undated agreement of sale and building construction and the respondent 5 has not executed any document nor is a party to the original sanction or the restructuring or reschedulement. Sanctioned as would suggest that respondent 5 intended to secure or guarantee the credit facilities availed by the borrower. In the context of the contention that the document deposited is an unregistered and undated agreement of sale of undivided share in land and building construction, the following assertions in the return/affidavit­in-reply on behalf of respondent 5 may be noted:
“17.2. The respondent no.5 further submits that the mortgage on any of the properties owned by the respondent no. 5 was never created in the first place since she was/is not an owner of the properties mentioned in the 'Memorandum of Deposit of Title Deed dated 29.7.2000'. The said fact was very well in the knowledge of the petitioner bank and was aware about the status of the respondent no. 5 in relation to the properties mentioned therein that the respondent no. 5 was merely acting as a 'depositor' of the unregistered and undated 'Agreement to sale and Building Construction' and by no stretch of imagination can be lebelled as a mortgagor under the said document. As stated earlier, the said intention of the parties get crystal clear from the conduct of the petitioner bank and the respondent no. 2 ­borrower that even after the execution of Memorandum of Deposit of Title Deed dated 29.7.2000, the modifications in respect of the mortgage created to secure the loan amounts were never in the knowledge of the respondent no. 5 nor any consent was ever sought from the respondent no. 5, including the time when the reschedulement and restricting of the loan advanced by the petitioner bank to the respondent no.2”.

7. By order dated 18.10.2006, the Deputy Registrar allowed the application preferred by respondents 3 and 4 seeking discharge from the proceedings. The reasoning of the Deputy Registrar may now be noted. The Deputy Registrar notes that irrefutably respondents 3 and 4 (who are non­applicants 2 and 3 in the original proceedings) were guarantors to the term loan and cash credit facility originally extended. However, in the application dated 19.1.2002, the borrowers sought restructuring and reschedulement and requested that respondent 3 Rajesh Gupta be replaced as guarantor by Shri Aditya Nemani. Similarly, in the subsequent application dated 21.1.2002, the borrower offered the guarantees of Shri Vinay Nemani and Shri Aditya Nemani. The said application makes no reference to respondents 3 and 4 nor have respondents 3 and 4 signed or executed any document as regards the restructuring or reschedulement. The Deputy Registrar then notes that the bank accepted the personal guarantees of Shri Vinay Nemani and Shri Aditya Nemani and the sanction to restructuring and reschedulement calls upon the borrower to execute a fresh agreement as is evident from sanction letter dated 28.3.2002. In every document executed post restructuring and reschedulement, Shri Vinay Nemani and Shri Aditya Nemai are shown as guarantors and respondents 3 and 4 are not parties thereto. Considering the entire material, the Deputy Registrar recorded a finding that since the bank accepted guarantees of Shri Aditya Nemani and Shri Vinay Nemani and the fresh agreement post restructuring and reschedulement makes no reference to respondents 3 and 4 as guarantors, they are entitled to discharge from the proceedings under Section 101 of the Act. The view taken by the Deputy Registrar has found favour with the revisional authority.

8. On hearing the learned counsel Shri A.H. Khedikar for petitioner and learned counsel Shri Aniket Waghdhare for respondent 5 and on scrutiny of the material on record, this Court finds that no error is committed by the Deputy Registrar in discharging respondents 3 and 4 from the proceedings under Section 101 of the Act. It is irrefutable from record that the borrower sought restructuring and reschedulement of loan. In place of respondents 3 and 4, the borrower offered personal guarantees of Shri Vinay Nemani and Aditya Nemai which were accepted by the bank. The borrower made a specific request to substitute Shri Rajesh Gupta with Shri Aditya Nemani as guarantors while applying for restructuring and reschedulement. Although it is not clear from record whether such a request was also made with reference to respondent 4–Smt. Snehalata Rungtha, the fact that the bank executed fresh documents and accepted the personal guarantees of Shri Vinay Nemani and Aditya Nemani in place of respondents 3 and 4 conclusively establishes that both respondents 3 and 4 were substituted as guarantors. Pertinently and concededly, the bank did not issue legal notices to respondents 3 and 4 for recovery of dues of the borrower which is suggestive that even according to the bank, respondents 3 and 4 were substituted by Shri Vinay Nemani and Aditya Nemani as guarantors. In this view of the matter, the revisional order is unexceptionable and no error is committed in affirming the view of the Deputy Registrar that respondents 3 and 4 are entitled to discharge from the proceedings.

9. In so far as the refusal of the Deputy Registrar to issue recovery certificate against respondent 5, the reasons recorded by the Deputy Registrar are thus:

Hindi Font

*vtZnkj cWadszP;k orhus l quko.kho sGh vl s izfriknu dj.;kr vky s dh xSjvtZnkj d z 4 ;kauh cWadsyk izLrqr dtZizdj.kkr ekyeRrk xgk.k d;u fny syh vkg s- R;keqGs xSjvtZnkjkyk izLrqr izdj.kkrwu oxGrk ;s.kkj ukgh o R;k aP;kfo:n/k ol qyh izek.ki= ns.;kph fou arh d syhe- l- l aLFkk vf/kfu;e 1960 p s dye 101 varxZr /kudk sus nk[ky dsy sY;k y s[kk fooj.k i=kp s vk/kkjs ol qyh izek.ki= ns.;kps i zko/kku vkg s- rlsp dtZnkjkP;k orhus dtkZlkBh l qjf{krrk Eg.kwu fny sys xgk.k vFkok rkj.k i zLrqr dyek varxZrP;k dk;Zokghr xSjykxw Bjrs- dkj.k dtZnkjku s dtZ ?k smu ijrQsM u d sy sY;k Fkdhr jde sP;k ol qyhlkBhp izek.ki= fuxZehr djrk ;sr vlY;kus o lnjgw i zek.ki=kr dtZnkjkdMwu cWad sl ns.ks vly sY;k jdek apk ri'khy egRoiw.kZ vkg s o v'kk jdesph olwyh cWadsus d'kk in/krhus djkoh gk loZLoh cWad spk n`”Vhdk su vlY;ku s dtkZP;k ijrQ sMhP;k gehlkBh dtZnkj] tkehunkj fd aok vU; bPNqd O;DrhdMwu xgk.k vFkok rkj.k fLod`r djhr vlrs- i zLrqr izdj.kkr xSjvtZnkj d z 4 ;kus lnjgw izdj.kk'kh l ac a/khr dk s.kR;kgh dkxni=koj mnk- opu fpBBh (i zkehljh uk sV)] tkehui=] dtkZps djkjukes (yk su vWxzhesaV)] bR;knh aoj Lok{kjh d syh ulY;ke qG s e- l- l aLFkk vf/kfu;e 1060 p s dye 101 vrxZr Fkdhr jde sP;k ijrQsMhlkBh R;kl tckcnkj /kjrk ;s.kkj ukgh- rl sp xSjvtZnkj d z 4 ;kus cWad sl dk s.kR;kgh ekyeRr sp s xgk.k d:u fny s vlY;kl R;kp s fo#/n ;ksX; R;k i zkf/kdk&;kiw< s dk;Zokgh dj.;kps cWadsps vf/kdkj vckf/kr vkg sr- R;ke qG s xSjvtZnkj d z 4 ;kaps ukokl izLrqr dk;Zokghrwu oxG.;kr ;sr vkg s

The reasoning is two fold. The first reason is that since respondent 5 (impleaded as respondent 4 in the proceedings) did not sign any document, he can not be proceeded against under Section 101 of the Act and the second reason is that assuming that respondent 5 did create an equitable mortgage, it is open to the bank to proceed against the mortgaged property before the appropriate forum. This Court is not inclined to disturb the ultimate conclusion of the Deputy Registrar for reasons more than one. Admittedly, respondent 5, who according to the bank is mortgagor, has not signed any document pre or post restructuring except for the memorandum of deposit of title deeds. Be it noted that even according to the bank, he did not create the equitable mortgage contemporaneously with the original sanction and deposited the title deeds in the year 2000. It is not in dispute that respondent 5 has not signed or executed any document other than the memorandum of deposit of title deeds and that too on certain parts thereof. Several contentious issues involving elaborate inquiry and adjudication of disputed facts would arise which would be difficult to be adjudicated in a summary inquiry under Section 101 of the Act. One of the issues which would arise is whether a mortgage could have been created by depositing an agreement of sale of undivided share in land and building construction. Irrefutably, such document does not transfer or convey title in property and at best is an inchoate document of title. Moreover, the respondent 5­borrower is vehemently disputing that he intended to secure the repayment of the credit facilities extended to the borrower and is emphasizing that the relevant and important parts of the document are not signed by respondent 5. In such a situation, although, not for reasons recorded by the Deputy Registrar, this Court is satisfied that the ultimate conclusion reached ought not to be interfered with in exercise of writ jurisdiction. It may be noted that the case of respondent 5 appears to be, although, not spelt out in so many words, that since the bank permitted the borrower to alienate the properties which were offered as security when the loan was initially sanctioned, respondent 5, even if he is assumed arguendo to have acted as a guarantor, is discharged in view of the provisions of Section 133 read with Section 144 of the Contract Act. This question and the further question whether the restructuring and reschedulement is a novation of contract or a fresh contract as would impair the rights of the surety are questions which in the facts of the case ought to be looked into in an elaborate inquiry and not in a summary manner.

10. In the light of the view which is taken by this Court, the decisions cited by the respective counsel on whether the restructuring or reschedulement operates to discharge the surety or is only a facility extended to the borrower are not considered.

11. The petition is without substance and is rejected.

Petition rejected.