Seeking a advice
CHANDRAKANT
(Querist) 24 January 2014
This query is : Resolved
Dear Sir,
Sub: Seeking legal advice
We are proprietary concern having credit facilities from M/s. Punjab National Bank. Our proprietor died around one month back and same was duly intimated to the bank with request to let us know the formalities to be complied with after the event. The new proprietor had taken over from the very day when the former proprietor expired. The change in the proprietor has been duly intimated to the income tax department, sales tax department etc. and receipted copies of all these departments were also submitted to the bank while informing them about death end switch over of new proprietor. However, bank had freezed our CC limit on the very day of the intimation. We had still not been advised anything from the bank and our accounts are still in freezed condition. Kindly advise legal formalities to be complied with by us in view of the above and oblige.
Sub.: Regarding Blocking of Our Cash Credit Account.
Sir, we are stunned to note that you have blocked our above referred Cash Credit Account without any prior notice to us. Without pre-intimation and without giving us an opportunity of being heard your unilateral action is against the natural justice. Sir, in spite of our written intimation to the bank on 13.12.2013 that after expiry of proprietor her elder grandson has taken over charge as new proprietor. We have also requested the bank to get all consequential formalities complied with from us. But bank has not intimated us for any formality to be complied with from us till the date. We painfully once again request the bank to release any restriction on our Cash Credit Account with immediate effect because it has created deadlock to our business. Sir we are enclosing here with copies of the intimations given regarding change of proprietor to various departments. Along with these input you are requested once again to release the account to avoid damages being caused to our business by your action or we request your good self to let us know under what regulation or provision of the Banking Act our account has been blocked. Your arbitrary action has caused serious damages to our good will and business as well which is even beyond our calculation.
Sir we were expecting co-operation from you at this crucial juncture, but your contemptuous action has caused us long lasting injuries to our business and it has prevented us to make our essential payments like tax payments etc.
We still urge bank to extend its helping hand in this crucial juncture of time being faced by us by releasing our CC A/c & oblige.
we wish to state again that branch has instructed us to execute all documents afresh which is not convincing to us due to following reasons.
1. All documents as per the law where executed before two days of the death of the proprietor.
2. Legal heir took over the charge of business from the same day on which the proprietor expired;
3. Consequential intimation for change of proprietor was communicated to all concern departments and receipted copies the same was deliver to the bank also.
4. The legal heir was appointed proprietor of the business as per the WILL of the deceased.
5. The copy of the WILL was also handed over to the bank.
6. legal opinion taken by the bank is based upon wrong notion and facts which are contradictory to the WILL;
7. opinion of the advocate is not discussing the provision and reasons as to high all documents executed to by us should be cancelled and new documents are to be executed afresh;
8. We expect that there should be some linking legal documents to be executed in this regard because lender, borrower, business and name of business is same except the proprietor wish to his legal heir of the deceased.
9. In view of above we seek perfect legal opinion form the legal department of the bank or from your set up in this regard in writing which will decide our course of action based upon that advice.
In this situation we once again entreat your office to give us your detailed advice in this regard referring back this matter to the branch is not going to serve the purpose of this email due to the reason as stated above.
Advocate. Arunagiri
(Expert) 24 January 2014
You say,
"However, bank had freezed our CC limit"
Whose account was closed. Old or new Proprietor's.
Devajyoti Barman
(Expert) 24 January 2014
It is tool long to read.
If you think bank is at fault there is no harm to go to consumer forum and seek your desired relief.
Devajyoti Barman
(Expert) 24 January 2014
It is tool long to read.
If you think bank is at fault there is no harm to go to consumer forum and seek your desired relief.
Rajendra K Goyal
(Expert) 25 January 2014
After the death of the proprietor of the firm the assets and liability of proprietor rest with all the legal heirs of the firm. Bank will not allow operation in old account as it can adversely effect Banks interest.
You should open new account of the firm with new proprietor and get new CC limit by completing all the formalities.
T. Kalaiselvan, Advocate
(Expert) 25 January 2014
I think expert Mr. Rajendra K Goyal's opinion on the subject seems to be justified. If the bank is insisting to open a new account and also a new legal opinion and demands the documents afresh as on the date of fresh application, it is obligatory to furnish the requirements, however, if there is no response despite fulfilling all the required formalities, then you may approach either Banking Ombudsman or consumer forum.
R.V.RAO
(Expert) 30 January 2014
the owner and business establishment are same in a sole trader orgn.
the status is that of an proprietorship in bank records.
so you need to follow succession procedure as if it is an individual ,but not a firm or limited company.
if the legal heir of deceased, took over as successor, no problem .court can give you necessary legal support .otherwise it is a hassle.
atleast for future follow "either or survivor signatory and account operation policy ".
as of now approach senior officials of bank if you can open new account to facilitate on going business,till you get court clearance for the successor to operate.
courts will give priority in such situations as several families and statutory payments get to suffer.
CHANDRAKANT
(Querist) 03 February 2014
Delhi High Court
Kamal Gupta vs Bank Of India on 1 November, 2007
Equivalent citations: AIR 2008 Delhi 51
Author: M Sharma
Bench: M Sharma, S Khanna
JUDGMENT
Mukundakam Sharma, C.J.
1. In these appeals, the order dated 22nd August, 2007 passed by the learned Single Judge dismissing the writ petitions filed by the appellants herein is under challenge. The issue raised in these appeals being similar, we propose to dispose of these appeals by this common judgment and order.
2. The issue that was raised before the learned Single Judge and also before this Court is with regard to exact and intended meaning of the word "borrower" as defined under Section 2(f) read with Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002( hereinafter called 'the Act'). By referring to the aforesaid provisions of the Act it was submitted by the counsel appearing for the appellants that the definition of the word 'borrower' and the meaning given thereto would not and cannot extend to include legal representatives of the original borrower inasmuch as the said expression relates only to the person who availed of the loan or who was guarantor for the loan and it does not extend to his heirs, successors or legal representatives. The respondents however took a plea before us and also before the learned Single Judge that the said expression as used in Section 2(f) read with Section 13(2) of the Act would also include not only the person who originally took the loan but also his legal representatives and heirs as the aforesaid debt liability would pass on to the legal representatives/heirs as liability gets devolved on them.
3. One Smt. Parvati Devi, amongst others, stood as guarantor for the financial assistance to the extent of Rs.650 lacs taken by ROM Industries Limited from the respondent-Bank of India. Smt.Parvati Devi also created an equitable mortgage in respect of her immovable property situated at 16/73 Punjabi Bagh, New Delhi for repayment of the amount taken as loan. It is well known that banks while granting loan ask for mortgage of an immovable property to safeguard themselves and reduce their risk. In October, 1996 the account of ROM Industries was declared a non-performing asset by the respondent-bank. On 19th August, 2000 Smt. Parvati Devi passed away leaving behind Girdhari Lal Gupta and Asha Singla as her legal heirs. Unfortunately Girdharil Lal Gupta also passed away on 2nd May, 2004. Kamal Gupta and Rajan Gupta are the legal heirs of late Girdhari Lal Gupta. The residual interest in the mortgage property passed on to the hands of the legal representatives of late Smt. Parvati Devi.
4. In November, 2003, Bank of India filed a recovery application before the Debts Recovery Tribunal in respect of the aforesaid loan. Though Parvati Devi had expired when the recovery application was filed, she was made a party in the said proceeding. On an amendment sought by the bank, her legal representatives namely, Girdhari Lal Gupta and Asha Singla were substituted in her place. Later, on the death of Girdhari Lal Gupta, his legal representatives Kamal Gupta and Rajan Gupta were also substituted and brought on record.
5. On 5th October, 2005 the respondent-bank issued notices under Section 13(2) of the Act against Asha Singla, Kamal Gupta and Rajan Gupta in their capacity as legal representatives of Smt. Parvati Devi.
6. The said notice was under challenge before the learned Single Judge by filing three separate writ petitions, which were dismissed by the learned Single Judge by the impugned order dated 22nd August, 2007 holding that under the definition clause Section 2(f) the terms 'borrower' would mean the principal borrower and after his death, his/her legal representatives. It was further held that it cannot be argued that the word 'borrower' excludes legal representatives and legal heirs. Aggrieved by the said order, these three appeals have been filed on which we have heard the learned Counsel appearing for the parties.
7. In order to decide and adjudicate the contentions raised before us it is necessary to examine the language of Section 2(f), 2(zd) and 2(zf) and Section 13(2). The said provisions are reproduced below:
2. Definitions -(1) In this Act, unless the context otherwise requires,-
xxxxxxx
(f) "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance.
(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes-
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or
(iii) any other trustee holding securities on behalf of a bank or financial institution,in whose favor security interest is created for due repayment by any borrower of any financial assistance.
(zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favor of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31.
13. Enforcement of security interest:
(1) xxxxxxxx
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any Installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4)
8. As observed by the learned Single judge in the impugned judgment dated 22nd August, 2007, the definition Section 2 of the Act begins with the expression 'in this Act, unless the contest otherwise requires'. Therefore, while construing and interpreting and applying the definition clause, the court has to keep in mind the legislative mandate and intent and also consider whether the context requires some other interpretation. (See: Youaraj Rai and Anr. v. Chander Bahadur Karki (2007) 1 SCC 770). A definition provision prefaced with the expression "unless otherwise required by the context" is not to be read in isolation. The definition clause must be given a meaningful application. Where the context requires a definition to be given a different meaning than the one prescribed by the definition clause, courts are not powerless to give a different meaning to a defined word, looking into the context, collocation and the object of the said word in a provision. Courts can always depart from the meaning given in the definition clause where the definition clause itself is not exhaustive and permits departure when the context of the subject matter requires a different interpretation. (See: Ramesh Mehta v. Sanwal Chand Singhvi and Ors. ). It is equally well settled that a literal meaning ought not to be allowed to prevail, when plain construction leads to anomalies and absurdities. The construction put forward by the appellants will lead to irrational results and is contrary to the object of the statute, with legal representatives, for no justifiable reason and cause, being left out of the term 'borrower'.
9. Chapter III relates to enforcement of security interest. Section 13(2) refers to security agreement and the right of the secured creditor to proceed against any security interest on the charge created in favor of the secured creditor in terms of the said section and to exercise rights under Sub-section (4) to Section 13. For the purpose of proceeding against the security interest for repayment of the secured debt or any installment thereof, notice is required to be issued to the 'borrower'. The word 'borrower' as appearing in Section 13(2) of the Act is to be interpreted and understood in this context. If we examine the definition of the term 'borrower' in Section 2(f) keeping in mind the provisions of Section 13 of the Act, it is clear that the said word will include the person who had created any mortgage or pledge as well as his legal representatives. Keeping in view the object and purpose of the Act it cannot be said that legal representatives should be excluded from the word 'borrower'. The relationship between the borrower and the bank or the financial institution is created by a contract under the Indian Contract Act, 1872. Promise made by the promisor is binding on his representatives in case of his/her death, unless a contrary intention appears from the contract. Promise to perform an obligation under contract is not personal to the contracting party but is also binding on his representatives. Legal representatives under law is liable for the debts of their predecessor to the extent of any property inherited by them from their predecessor in interest. Legal representatives are not personally liable for the liability but the liability is to the extent of the estate of the deceased inherited by them. Section 37 of the Contract Act, 1872 reads:
37. Obligation of parties to contracts: The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.
Promises bind the representatives of the promisor in case of the death of such promisors before performance, unless a contrary intention appears from the contract."
Illustration: (a) A promises to deliver goods to B on a certain day, on payment of Rs.1,000/- A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the Rs.1,000/- to A's representatives.
(b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representatives or by B.
10. Salmond on Jurisprudence (10th Ed.) has examined the question of right and liabilities of a dead man and has observed as under"
The rights which a dead man thus leaves behind him vest in his representative. They pass to some person whom the dead man, or the law on his behalf, has appointed to represent him in the world of the living. This representative bears the person of the deceased, and therefore has vested in him all the inheritable rights, and has imposed upon him all the inheritable liabilities of the deceased. Inheritance is in some sort a legal and fictitious continuation of the personality of the dead man, for the representative is in some sort identified by the law with him whom he represents. The rights which the dead man can no longer own or exercise in propria persona, and the obligation which he can no longer in propria persona fulfill, he owns, exercises, and fulfills in the person of a living substitute. To this extent, and in this fashion, it may be said that the legal personality of a man survives his natural personality, until, his obligations being duly performed, and his property duly disposed of, his representation among the living is no longer called for.
The representative of a dead man, though the property of the deceased is vested in him, is not necessarily the beneficial owner of it. He holds it on behalf of two classes of persons, among whom he himself may or may not be numbered. These are the creditors and the beneficiaries of the estate. Just as many of a man's rights survive him, so also do many of his liabilities; and these inheritable obligations pass to his representative, and must be satisfied by him. Being, however, merely the representative of another, he is not liable in propria persona, and his responsibility is limited by the amount of the property which he has acquired from the deceased.
11. The indemnity bond executed by Smt.Parvati Devi records as under:
xxx.
Mrs. Parbati Devi has deposited original sale deed dated 28th June, 1971 in favor of herself, a site plan of the property in question and latest Municipal Tax receipts in favor of herself with the bank for the purpose of creating equitable mortgage with Bank of India for securing advance granted to M/s. ROM Industries Limited by Bank of India.
12. In terms of the indemnity bond, late Smt.Parvati Devi had admitted having mortgaged the property in favor of the respondent No-1 bank and had admitted existence of mortgagor and mortgagee relationship between her and the respondent-bank. The terms 'mortgage', 'mortgagor' and 'mortgagee' have not been defined under the Act and in terms of Section 2(2) of the Act, words and expressions used and defined in Transfer of Property Act, 1882 can be referred to and relied upon. The expressions 'mortgagor' and 'mortgage' has been defined in Section 58 of the Transfer of Property Act, 1882 as under:
58. xxxxxxx A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may given rise to a pecuniary liability.
The transferor is called a mortgagor, the transferee a mortgagee, xxxxxx.
13. However, Section 59A of the Transfer of Property Act 1882 reads as under:
59A. Reference to mortgagors and mortgagees to include persons deriving title from them: Unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees shall be deemed to include references to persons deriving title from them respectively.
14. The said section therefore clarifies that reference to mortgagor and mortgagee would include persons deriving title from them. A conjoint reading of the aforesaid provisions of the Contract Act, 1872, Transfer of Property Act, 1882 and the Act make it clear that the word 'borrower' as defined in Section 2(f) would mean the original borrower and after his death his legal representatives. The legal representatives to the extent they have inherited the estate from the deceased become a 'borrower' for the purpose of Section 2(f) of the Act. The legal representatives steps into the shoes of the predecessor in title who had mortgaged the property (refer : Samarendra Nath Sinha and Anr. v. Krishna Kumar Nag ). The present case is not one of casus omissus but one where on interpretation of the relevant provisions the word 'borrower' as used in Section 2(f) and Section 13(2) would include not only the original mortgagor but also his legal representatives. There is no presumption of casus omissus and language permitting, Courts should avoid creating a casus omissus. [See: Ramesh Mehta v. Sanwal Chand Singhvi (supra)]
15. We may also state here that the learned Single Judge has referred to contract of guarantee and concept of continuing guarantee with reference to clauses in the guarantee deed. This reference to the said provisions and clauses of the guarantee have been made so as to support the interpretation given above. Agreement of Guarantee and Mortgage may be separate contracts and Section 13(2) notice relates to the agreement of mortgage but the two agreements are inter-connected and inter-twined with the agreement granting loan. In the present case, the letter of guarantee records as under:
This guarantee shall be a continuing security to you, and shall not be determined except at the expiration of three calendar month's written notice given to you of intention so to do by each of us or his legal representatives and in the event of the death of any one or more of us or any one or more of us coming under a disability, the liability of the survivor or survivors and the legal representatives of the person or persons so dying or coming under any disability and of the estate of any of us so dying or coming under disability shall continue under the expiration of three calendar month's notice in writing given to you of the intention of such survivors or survivor and legal representatives to determine the guarantee.
Reference to the said provisions and clauses in no way supports the case of the appellants or contradicts the claim made under Section 13(2) by the respondent No. 1.
16. Therefore, from whatever angle we examine the issue it is apparent that the legal representatives and legal heirs of Smt.Parvati Devi would also be liable and their liability do not get absolved on her death. The mortgage and the letter of guarantee executed by the predecessor in interest of the appellants would not loose their force on the death of the executrix Smt.Parvati Devi.
17. In our considered opinion the learned Single Judge has correctly interpreted the provisions of law which fell for his consideration and also appreciated the facts in the proper and right manner. On going through the records we find that there was neither any misreading nor any misconstruction of the documents on record or of the legal issues involved. The findings recorded by the learned Single Judge are found to be legal and valid.
18. We find no merit in these appeals and the same are accordingly dismissed.
R.V.RAO
(Expert) 03 February 2014
you took lot of trouble in collecting old case law. This case law and the single judge judgement proved that legal heirs also liable for secured debts of the deceased.the liability is not personal. but the estate which the heirs inherited is liable .
ok now that it is agreed that legal heirs are liable ,this is a settled principle of law.
now come to the execution part of the law.
the lenders have set procedures, like redocumentation by the legal heir, of the deceased to continue the secured loan liability.
instead of challenging same ,we need to comply with bank procedures in the continued interest of the business,the employees,creditors,lenders,etc...
as the legal heir continues to protest the redocumentation,lenders minds will get doubts.so better redocument the loan and continue the business as usual.
CHANDRAKANT
(Querist) 04 February 2014
my legal opinion would be as under:
a) It appears from the records available that the “Deed of Mortgage” and “Supplementary Agreement for End Use Verification in CC/OD Accounts is case of Inter SOL Payments in CBS Branches” which have been executed between the bank and borrower itself have already included the legal heirs of the deceased which I think the bank has not noticed & has mistaken while adopting deviated course of action relating to the operation of the account of the firm and instructing the firm to execute documents afresh. I my opinion bank should again go through the above both deeds of the mortgage minutely and find whether it includes legal heirs of the deceased or not. If yes, then again in my opinion there is no need to execute all documents afresh.
b) Section 2(f) read with Section 13(2) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 includes not only the person who originally took the loan but also his legal representatives and heirs as the aforesaid debt liability would pass on to the legal representatives/heirs as liability gets devolved on them. Hence Bank should not need to execute fresh documents.
c) If both the legal heirs of the deceased as nominated under the abovementioned “WILL” execute document relating to their personal guarantee the bank would be at advantageous position as will encircle their personal assets too in addition to the property mortgaged by the deceased.
d) Both the legal heirs of the deceased should execute affidavit duly notarized that they assume liability and loan taken by the deceased and want to continue the same for the purpose of the business financed by the bank to make the security of the bank more explicit.
Therefore in my opinion and experience and based upon the above mentioned ruling of the Honorable High Court of Delhi I can spell out that after executing the above legal document bank would be in better secured. It is my personal opinion based upon the facts and law discussed above. However if bank has still any kind of deviation in its opinion, it is left at bank’s emancipation and liberty for having a diverse course of action which it thinks fit.
I personally after observing whole case to express my view that legislature has enacted in the law with regard to exact and intended meaning of the word "borrower" as defined under Section 2(f) read with Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(hereinafter called 'the Act'). The expression as used in Section 2(f) read with Section 13(2) of the Act would also include not only the person who originally took the loan but also his legal representatives and heirs as the aforesaid debt liability would pass on to the legal representatives/heirs as liability gets devolved on them. The residual interest in the mortgage property passed on to the hands of the legal representatives of late Smt. Sushilarani Goyal.
Thus Keeping in view the object and purpose of the Act it cannot be said that legal representatives should be excluded from the word 'borrower'.
The relationship between the borrower and the bank or the financial institution is created by a contract under the Indian Contract Act, 1872. Promise made by the promisor is binding on her representatives in case of her death, unless a contrary intention appears from the contract. Promise to perform an obligation under contract is not personal to the contracting party but is also binding on her representatives. Legal representatives under law are liable for the debts of their predecessor to the extent of any property inherited by them from their predecessor in interest. Section 37 of the Contract Act, 1872 reads:
“Obligation of parties to contracts: The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisor in case of the death of such promisors before performance, unless a contrary intention appears from the contract."
a. Therefore, from whatever angle we examine the issue it is apparent that the legal representatives and legal heirs of Smt. Sushilarani Matram Goyal would also be liable and their liabilities do not get absolved on her death. The mortgage and the letter of guarantee executed by the predecessor would not lose their force on the death of the executrix Smt. Sushilarani Matram Goyal. It further has transpired from the records available that the “Deed of Mortgage” and “Supplementary Agreement” executed between the bank and borrower have already included the legal heirs of the deceased. Bank has not noticed the same which I think Bank should respect the sanctity of the documents already executed because these documents themselves carry sufficient legal protection to the interest of the bank. This itself signifies that there appears no need of the executing all documents afresh.
b. Further the family has appointed, elder legal heir as per WILL, Shri Deepesh R. Goyal as proprietor of the firm that is also in line with the intention of the WILL. This fact has also been intimated to the bank with copy the WILL.
c. Further Section 2(f) read with Section 13(2) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 includes not only the person who originally took the loan but also his legal representatives and heirs as the aforesaid debt liability would pass on to the legal representatives/heirs as liability gets devolved on them. Hence there further appears that Bank does not need to execute all documents afresh.
d. I coincide with the opinion of the advocate Shari Pramod M. Hingu (Advocate) that “If both the legal heirs of the deceased as nominated under the abovementioned “WILL” execute document relating to their personal guarantee the bank would be at advantageous position as will encircle their personal assets too in addition to the property mortgaged by the deceased.”
e. The advocate further seems right in opining that “Both the legal heirs of the deceased should execute affidavit duly notarized that they assume liability and loan taken by the deceased and want to continue the same for the purpose of the business financed by the bank to make the security of the bank more explicit.”
Thus in my opinion the above should suffice the Bank to have simple & explicit course of action. However, bank is at its full liberty for having other opinion if it deems fit to do so.
