Ajoy Khanderia Vs. Barclays Bank and Ors. - (High Court of Delhi) (20 Jul 2021)

Pawnor, if not otherwise liable for the debt as a borrower or as a guarantor, does not merely from the act of pledging, become liable to pawnee, for anything more than the value of goods pledged

MANU/DE/1330/2021

Contract

The legal question arising for consideration, in present writ petition under Article 226 of the Constitution of India, is, whether by virtue of Section 176 of the Indian Contract Act, 1872, the pawnor, even if different from borrower or the principal debtor, becomes liable for payment of entire debt, even if has not furnished any guarantee for repayment of the entire debt i.e. over and above the value of the pawned goods.

The counsel for the Respondent no. 1 Bank has fairly admitted that, there is no document whereunder the Petitioner has undertaken liability as a borrower, in his personal capacity, or as a guarantor for repayment of the dues of the Respondent no. 2 Company to the Respondent no. 1 Bank.

Once from the documents, the Petitioner is not found to be liable, liability cannot be fastened on the Petitioner on the basis of the Advocate appearing for him as well as the Respondent no. 2 Company seeking time before the Recovery Officer, DRT to make the payment. It is not even the plea or argument that, the Advocate was authorised to by his word or writing make the Petitioner liable. For a statement to be construed as admitting liability, first it is to be established that there existed a liability, which was being admitted.

Banking transactions are formal in nature, with the banks having their standard form contracts and agreements, which they make the borrowers sign before extending any credit facilities. The banks are also known to, besides the borrower, make others also on whose surety/guarantee the said credit facilities are extended to the borrower, sign a plethora of documents, again in their standard form. From the conduct of the Respondent no. 1 Bank not making the Petitioner sign any such documents, the only inference is that, the Petitioner was not intended to be liable for dues of Respondent no. 2 Company save to the extent of the value of the shares pledged by the Respondent no. 2 Company.

Under Section 176 of the Contract Act, the pawnor, if not otherwise liable for the debt as a borrower or as a guarantor or otherwise, does not merely from the act of making a pledge, become liable to the creditor/pawnee, for anything more than the value of the goods pledged.

DRAT, in the impugned order, is found to have erred in holding the Petitioner as a pawnor become liable for the entire debt for which the pledge was made, even without being the borrower and even in the absence of having promised so. There is nothing on the basis of which liability for the debt owed by the Respondent no. 2 Company to the Respondent no. 1 Bank can be fastened on the Petitioner.

The impugned order of the DRAT and the order of the DRT are set aside. The order of the DRT is reviewed and it is held that on the basis of the pleadings and documents of the Respondent no. 1 Bank, the Respondent no. 1 Bank is entitled to recovery of the amounts found due, only from the Respondent no. 2 Company, with the liability of the Petitioner being restricted to the value of the shares pledged by the Petitioner with the Respondent no. 1 Bank. Petition allowed.

Tags : DEBT PAYMENT LIABILITY