[ State Bank of India & Anr. v. Mrs. Jayanthi & Ors., AIR 2011 Mad. 179]
One late N.P.S. Mahendran was running two establishments under the name of M/s. Aarthi Bala Tea Plantations and M/s. Sanjay Bala Tea Plantations. The deceased availed loan from the appellant bank and deposited the title deeds by way of collateral security and also executed various documents in order to secure due payment of loan. After the death of the said N.P.S. Mahendran, the respondents petitioners (wife and sons) became liable to pay Rs.1,14,86,428.32, which was outstanding in several loan accounts. The 1st respondent, widow, liquidated the entire outstanding dues lying in the account. The bank, after acknowledging the same, issued ‘No Due’ certificate in her favour. The respondents, then, requested the appellant bank to return the title deeds relating to the properties, which were deposited with the bank by Late N.P.S. Mahendran. In spite of repeated requests, the documents were not returned. The respondents-petitioners approached the bank on many occasions requesting for return of documents, but the same were not returned.
The appellant bank contended that the bank was exercising a general lien on the title documents standing in the name of Late N.P.S. Mahendran, who stood as a guarantor for other facilities and liabilities outstanding against M/s. Somerset Tea Plantation. It was contended by the bank that such cash credit facilities were availed from another branch of the bank, by one M/s. Somerset Tea Plantation and the deceased, husband of the 1st respondent, stood as a guarantor for the said facilities. The said firm had committed default and more than Rs.2.03 crores was due from the said firm. Hence, the bank had initiated a proceeding against the firm and the guarantor and after the death of N.P.S. Mahendran, the present respondents have been impleaded as legal representatives.
The Court observed that the liability under the guarantee is not revoked or extinguished on the death of the guarantor. Section 131 of the Contract Act clearly provides that in case of death of guarantor, the date of guarantee/continuing of the guarantee executed in favour of the bank stands revoked in respect of future transactions. It is well settled that on the death of the guarantor, the liability exists and such liability can be fastened on the estate of the deceased being inherited by his legal heirs, and the creditor can recover the dues out of the estate of the deceased.
The borrower, (late) N.P.S. Mahendran, had admittedly deposited the title deeds of the property to secure a loan transaction availed in respect of two plantation companies. This fact had not being disputed by the appellant bank. Therefore, the contract/mortgage, had been created by the deceased borrower for a specific purpose and for a specific loan and the contract was self-contained and the terms and conditions were binding upon both the borrower as well as the bank. When such is the situation, the bank cannot contend that they could hold the documents for a balance due in a different loan account where the said N.P.S. Mahendran was not a borrower. Further, the language of section 171 of the Act is explicit to the fact that the bankers are entitled to retain as a security for a ‘general balance account’. Admittedly, it was not the case of the appellant bank that the amount, which was now said to be due on account of the borrowings of M/s. Somerset Tea Plantation, was a general balance account of the deceased borrower N.P.S. Mahendran.
Therefore, this agreement/mortgage has to be construed as a ‘contract to the contrary’ and therefore, held that the bank could not claim these documents by invoking the power of general lien u/s.171 of the Indian Contract Act, 1872. The bank was directed to return of title deeds.
