2011 (8) TMI 1331

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....rch 6, 1996, was executed by respondent No. 2 and respondent No. 1. The third and fourth respondents herein executed surety agreement dated March 6, 1996, giving collateral security of Schedules I and II properties. The appellant executed a "letter of comfort" dated March 2, 1996, as per exhibit P14. Respondent No. 2 committed default and did not repay the amount as agreed. Hence, respondent No. 1 invoked surety agreement dated March 6, 1996, given by respondents Nos. 3 and 4 by issuing notice dated 16/9/1998. Respondents Nos. 3 and 4 did not pay the amount despite the notice. Thus, a petition came to be filed by respondent No. 1 herein under sections 31(1)(aa) and 32(1) of the State Financial Corporations Act, 1951 ("the SFC" Act), for a d....

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....s used in the said document amply reveal that the appellant has undertaken to repay the loan of respondent No. 2, in case of non-payment of loan by respondent No. 2 or respondents Nos. 3 and 4 herein. 4. In order to decide this matter, the relevant document to be considered is exhibit P14 which read thus: "We understand you have sanctioned a corporate loan of Rs. 75 lakhs (rupees seventy five lakhs only) vide your letter ACCTS/CL/7842/95-96, dated February 29, 1996, to M/s. Dominion Chemical Industries Ltd., Hosur Road, Bommanahalli, Bangalore-560068. M/s. Dominion Chemical Industries Ltd., is one of our associate companies. We hereby confirm that it our normal practice to see that all our associates companies meet their financial and ....

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....more in the nature of recommendatory letter. If a person has not stood as guarantor or surety, he cannot be treated a guarantor or surety without there being a specific undertaking by him that he would discharge the liability of the third person, in case of his default. In this context, it is relevant to note the provisions of section 126 of the Indian Contract Act, 1872, which read thus: "126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor'.-A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal ....

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....23 at page 33; AIR 1935 PC 21 at page 24 and M.S Anirudhan v. Thomco'S Bank Ltd. ., [1963] 33 Comp Cas 185; [1963] (Supp) 1 SCR 63 at page 77; AIR 1963 SC 746 at page 752. To this there are some exceptions. In case of ambiguity when all other rules of construction fail the courts interpret the guarantee contra proferentem, that is, against the guarantor or use the recitals to control the meaning of the operative part where that is possible. But whatever the mode employed, the cardinal rule is that the guarantor must not be made liable beyond the terms of his engagement." (emphasis supplied) 9. From the above, it is clear that the question as to whether the deed in question is a deed of guarantee or not depends upon the terms under whi....