Directors Personal Guarantee Articles Director’s Personal Guarantee - A Void Agreement -27.11.14 Dir

� �r>Index to Parawise Contenr>1. Evolution of concept of legal entir>2. Effect of Incorporation: Company as a separate legal persr>3. Limited Liabilir>4. General Powers of Board���<br>5. Borrowbr>6. Finanbr>7. Directors as agebr>8. A member of an association registered as a company shall not be personally liable for any liabilities incurred in such businbr>9. A director shall not be personally responsible for any debts of the company unless the business of the company has been carried on for any fraudulent purpose and declared as such by the Tribunal under Section br>10. Directors, etc., with unlimited liability in limited compbr>11. Registration of charbr>12. Director�s personal guaranbr>13. What agreements are contrabr>13.1 "Free consent" defibr>13.2 Object is lawbr>14. "Undue Influenbr>14.1 Position of dominance necessary for presumption to arbr>14.2 Inequality of bargaining pobr>14.3 Judicial intervention for rescuing parties from unreasonable tebr>14.4 Agreement should be reasonable for the contract to be upheld lebr>14.5�Serious terms of a contract must be specifically brought to the notice of the parties�15. What considerations and objects are lawful, and what15.1 Defeat any15.2 Undercutting of Statutory PrivilConclu16. DRT Act, 1993 and SARFAESI Act, 17. SARFAESI Act, 18.�Conclusion and Recommendat19. DENA BANK - A CASE S>1. Evolution of concept of legal e>r>A division bench of Delhi High Court in J B Exports Ltd and another vs. BSES Rajdhani Power Ltd �(2006 134 Comp cas 106 Del. decided on 3.3.2006) observed that "the concept that a company is a distinct legal entity apart from its shareholders, vide Salomon� vs. Salomon This background is so important that it merits consideration in detail as �1.1 Delhi High Court further observed that "In every business there is a risk that the business may fail due to recession, competition, etc. Hence,� businessmen were reluctant to set up new industrial ventures out of fear that if it failed, recovery would be issued in respect of the loans they had taken and thereupon even their household and personal effects may be sold in connection with the recovery. Hence, businessmen were reluctant to take risks and start new industrial ventures. To get over this hurdle and to encourage industrialisation the legal principle was created that if a company is incorporated under the Act, the liability of the shareholders becomes limited because the shareholders, directors, etc., are legally treated as being different from the company. A company was held to be a distinct legal entity separate from its shareholders and directors. This legal principle gave protection to businessmen who were otherwise reluctant to start new industrial ventures due to the risk involved. Thus, this legal principle was of great help to industrialisation in Eurpoe (where industrialisation first began during the Industrial Revolution) and there after all over th "r>�<br>�2. Effect of Incorporation : Company as separate rson�As per Section 9 of the Companies Act, 2013 (Section 34 of the Companies Act, 1956) one of the characteristics of� a company is that it is an incorporated body of persons. It is constituted into a distinct and independent person in law and is endowed with special rights and privileges.�� Hon�ble Supreme Court in TELCO Vs. State of Bihar (1964) 34 Com Cases 458 : AIR 1965 SC 40� observelowsbr>��" .....The Corporation in law is equal to a natural person and has a legal entity of its own.� The entity of the corporation is entirely separate from that of its share holders;� it bears its own name and has a seal of its own; its assets are separate and distinct from those of its members;� it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members;� the liability of the members or shareholders is limited to the capital invested by them; similarly the creditors or the members� have no right to the assets of the corporation. This position is well established ever since the decision in case of Salomo Sal ...."��imitiability�Section 4(1)(d)(i) the Companies Act, 2013 provides that "the memorandum of a company shall state, in the case of a company limited by shares, that liability of its members is limited to the amount unpaid, if any, on the shares held by them". This means that no member can be called upon to pay anything more than the nominal value of the shares held by him, or so much thereof as remains unpaid; and if his shares be fully paid up his liability for business debe coy is nil.�3.1� "The privilege of limited liability for business debts is one of the principal advantages of doing business under the corporate form of organization Cadman, THE CORPORATION IN NEW JERSEY , 327 (1949). " The company, being a separate person, is the owner of its assets and bound by its liabilities. Members, even as a whole, are neither the owners of the company�s undertaking, nor liable for its debts. Where the subscribers exercise the choice of registering the company with limited liability, the members� liability becomes limited or restricted to the nominal values of the shares taken by them or the amount guaranteed by them. No member is bound to contribute anything more than the nominal value of the shares held by him J.H. Rayner (Mincing Lane) Ltd V. Deptt. of Trade and Industry, (1989) 3 WLR 969 HL. In a partnership, on the other hand, the liability of the partners for the debts of the business is unlimited. They are bound to meet, without any limit, all the business obligations of the firm. The whole fortune of a partner is at stake, as the creditors can levy execution even on his private property. Speaking of the advantage of trading with limited liability, BUCKLEY J observed {London The statutes relating to limited liability have probably done more than any legislation of the last fifty years to further the commercial prosperity of the country. They have, to the advantage of the investor as well as of the public, allowed and encouraged aggregation of small sums into large capitals which have been employed in undertakings of great public utility largely increasinglth he country."�4. ral rs of Board����Sub Section (1) of Section 179 of the Companies 3 pres as follows:-�"The Board of Directors of a Company shall be entitled to exercise all such powers, and to do all such acts and things, as the Company is autto eise and do .>5. Borrowing�Section 179 (3) (d) of the Companies Act, 2013 provides that "(3) The Board of directors of a company shall exercise the following powers on behalf of the company by means of resolutions passedings of the Board namely:-(a)....................... ........................<..........................(......................(d) to borrow moneys;A company cannot borrow money unless it is so authorized by its memorandum. In the case of a trading company, it is not, however, necessary that the objects clause of its memorandum should expressly authorise it to borrow. As borrowing is incidental to trading, such a company has implied power to borrow. Other companies must have a borrowing power clecifin the memobr>�6. FinancesThe company� is the only medium of organising business which is given the privilege of raising capital by public subscriptions either by way of shares or debentures. Further, public financial institutions lend their resources more willingly to companies than to other forms of business organisation. The facility of borrowing and giving security by way of a floating charge is also an exclusive privilege of companies. In New Horizons Ltd. v Union of India, (1997) 89 Comp Cas 785 at 802 (Delhi) the hon�ble Delhi high court has observed that "Capital in many cases is the life-blood of a concern, and it is always a great misfortune where the development of a business is arrestetricby want of capital."br>7. Directors as agentsIt was clearly recognized as early as 1866 in Ferguson v Wilson (1866) LR 2 Ch LR 77: 36 LJ Ch 67 : 15 LT 230. that directors are in the eyes of law, a the company. The Court said:"The company has no person; it can act only through directors and the case is, as regards those directors, merely the ocase of principal and agent."The general principles of agency, therefore, govern the relations of directors with the company and of persons dealing with the company through its directors. Where the directors contract in the name, and on behalf of the company, it is the company which i on nd not the directors.���������� 8. A member of an association registered as a company shall not be personally liable for anities incurred in such businessSection 464 of the s Act, 2013 provides as follows"(1) No association or partnership consisting of more than such number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force: Provided that the number of persons which may be prescribed under this sun shnot exceed one hundred.<.......xxx.......xxx....�(3) Every member of an association or partnership carrying on business in contravention of sub-section (1) shall be punishable with fine which may extend to one lakh rupees and shall also be personally liable for allties incurred in such business. "<br>�������������������������������By necessary implication it follows that a member of an association registered as a company under the Companies Act shall not be personally liable for any liabilitiesd inh business by the company.�9. A director shall not be personally responsible for any debts of the company unless the business of the company has been carried on for any fraudulent purpose and declared by the Tribunal under Section 339 Section 339 of aniet, 2013 provides as follows�"(1) If in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal, on the application of the Official Liquidator, or the Company Liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilitiescompas the Tribunal may direct:"����� By necessary implication it follows that a director, manager, or officer of the company shall not be personally responsible for any of the debts or other liabilities of the company incurred in such business by the company unless the business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose and declared as such by the Tribunal ctio9 of the Companies Act, 201r>�10. Registration of chargesSection 77(1) of the Companies Act, 2013 (hereinafter referred to as `thes reuced below for ready reference:�77. (1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with ttrarhin ty days of its creation:��10.1 The lenders always insist on some security and the only security that a company can give is to charge its assets. Any charge or mortgage created on certain specified assets of a company must be registered with the R of anies under Section 77 of the Act.�10.2 Section 83 ct iproduced below for ready reference:�83. Power of Registrar to make entries of satisfaction and release in absence of intimation from company. The Registrar may, on evidence being given to his sion with respect to any registered charge, -(a) that the debt for which the charge was giveen paid or satisfied in whole or in part; or(b) that part of the property or undertaking charged has been released from the charge or has ceased tort of the company's property or undertaking;enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company's property or undertaking, as the case may be, notwithstanding the fact that no in has been received by him from the company.By necessary implication it follows that any charge / mortgage�created by the Banks on the� Director's personal property / property of a third party, even if unconsciously registered by ROC, is illegal being without the auth the, and�therefore unenforceable at �11. Director�s personal guaranteeSince long the banks and public financial institutions (hereinafter collectively referred to as `the Banks�) have unilaterally and arbitrarily developed a practice, without the authority of law, to execute personal guarantee agreements with the directors of a company to secure the debts of the company. This view is supportedfollowing latest judgment of the Supreme Court.Recently, the Supreme Court in the case of Karnataka State Financial Corporation vs N. Narasimahaiah 18. Banking practice may enable a financial corporation to ask for a collateral security. Such security, we would assume, may be furnished by the Directors of a Company but furnishing of such security or guarantee is not confined to the Directors or employees or their close relatives. They may be outsiders also. The rights and liabilities of a surety and the principal bore different and distinct." (emphasis supplied)Therefore, it stands concluded, without any doubt, that the banks have developed the practice to execute personal guarantee agreements with the directors of a company to secure the debts of the company without the authority of law. This practice is against the principle of limited liability of the shareholders as well as directors of the company as provided in the Companies Act, 2013. Accordingly, it is clearly against the letter it of the Companies Act and thereawful.12. What agreements are contractsSection 10 of the Indian Contract Act, 1872 provides that - An agreement between two or more parties becomes ct when the following conditions are satisf����������� (1) .......................>����������� (2) ......................r>����������� (3) The parties� consent ibr><���������� (4) The parties�is lawful.�12.1 "Free consent" defined��� "Consent is said to be free when it iused by:����������� (1) ........................������� (2) undue influence, as definedion 16, or����������� (3) ................����������� (4) ................����������� (5) ........................Consent is said to be so caused when it would not have been given but for the existence of sciondue influence, fraud, misrepresenon or mistake."�12.2 Object is lawful�������������������� In P Ramanatha Aiyar�s The Law Lexicon 2nd Edition 2007 the term "Object" is defined "As a noun, the end aimed at; the thing sought to be accomplished (as) object aimed at; the aim or purpose (as) object not authy lahe thing sought to be attained (as) object of the law."�The Hon�ble �Supreme Court in the case of Gurmukh Singh v. Amar Singh ������(1991) 3 SCC� 79� has held that the word "object" would mean the purpose and design which is the object of the contract. If it is opposed to public policy which tends to defeat any provision of law or purpose of law, it becawfud thereby it is void under Section� 23 of the Contract Act.�Further, in P Ramanatha Aiyar�s The Law Lexicon 2nd Edition 2007 the term "lawful" �is defined� as "By lawful, it means not contrary to law, public policy or void ab-initio, or unlawfur 23le 3 C.P.C. S.G. Thim T. Anantha, AIR 1986 Kant 1, 4)�13. "Unuence"����������� Section 16 of the Contract Act provides that-����������� "(1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will oher and uses that position to obtain an unfair adover the other.����������� (2) ..................................����������� (3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lihe pn in a position to dominate the will of other." (Italics supp>�13.1 Position of dominance necessary for presumption to arise����������� The Privy Council in Raghunath Prasad v Sarju Prasad AIR 1924 PC 60 pointed out the conditions for presumption to arise. Referring to sub-section (3) of Section 1 provides for presumption of undue influence, Lord SHAW observed as follows:����������� "By this sub-section three matters are dealt with. In the first place, the relations between the parities to each other must be such that one is in a position to dominate the will of the other. Once that position is substantiated the second stage has been reached, viz., the issue whether the contract has been induced by undue influence. Upon the determination of this issue a third point emerges, which is that of onus probandi. The burden of proving that the contract was not induced by the undue influen lie upon the person who was in a position to dominate the will of the other.����������� Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered� is the relations of these parties. Were they to put one in sition to dominate the will of the (Italics supplied)�����������13.2 Inequality of bargaining power����������� The presumption of undue influence may also arise from the fact that there is such an inequality of bargaining power between the parties that one can cause economic duress to the other. The decision of the Court of Appeal in Lloyds Bank v. Bundy (1975)6. is a remarkable illustration of the concept of inequality of bargaining power.A� contractor borrowed a sum of money from a bank. He could not pay back in time. The banker pressed for payment or for security. He suggested that his father might mortgage the family�s only residential house. The bank officer visited the father and obtained his signatures upon readymade papers. The contractor still could not pay and the banker sought to enforce the mortgage which might have meant throwing out of the family from its only residence. Accordingly, Mr Bundy ron tnfair character of the mortgage. He was allowed to set aside the mortgabr>�13.3 Judicial intervention for rescuing parties from unreasonable termsIn Central Inland Water Transport Corpn vs. Brojo Nath Ganguly (1986 3 SCC 156, 206)� the Supreme Court has noted that the word "unconscionable" means something as shows no regard for conscience and which is irreconcilable with what is right or reasonable. The matter before the court was a service contract. A clause in the contract empowered the employer (a Govt. undertaking) to remove an employee by three months� notice or pay in lieu. The employee, who contested the validity of this clause, was removed by handing him over a three months� pay packet. The Supreme Court regarded the clause to be constitutionally as well as contractually void. The court added that any term which is so unfair and unreasonable as to shock the conscience of the court would be opposed to public policy therefore also void under section 23 of the Contract Act. The contract was not based upon a real consent. It was rather an imposition upon a needy person. The term was unconstitutional because it was so absolute that aer c be made a target irrespective of his conduct, good or bad.� (Italics supplied)�13.4��� Commenting upon this expanding power of the court to relieve a party from the consequences of his own contract, a learned writer J H Baker says that "freedom of contract turns out to be a misleading guide when so many contracts are not free in the economic sense. The notion of contract as private legislation appears less attractive when legislation is always drawn up one-sidedly. Judges are empowered to read in terms which are not there, or read out terms which are there. They are to impose reasonableness. Whatever is not reasonable is not law. If the parties have agreed to something unreasonable, they should be treated as if they have not agreed at all and released". (Emphasis supplied)Bakerom tityContract to Reasonable Expectation, Current Legal Problems 1979).���13.5Serious terms of a contract must be specifically brought to the notice of the parties�The Bombay High Court in Road Transport Corpn Vs. Kirloskar Bros Ltd ( AIR 1981 Bom 299 ) said that it is for the carrier to plead and prove that the print on the receipt was brought to the notice of the consignor and that he had agreed to and accepted the same. The Court held that it is necessary that serious terms of a contract must be specifically brought to the notice of the parties whose rights are sought to be curtailed. In Oriental Fire and General Ins Co Vs. New Suraj Transport Co (AIR 1985 All 136) the consignment note was not even signed by the booking party or his agent, the Allahabad High Court held that the consignor was not bound by a printed term about the exclusive jurisdiction. The Court said that s morst be done than merely printing the terms on consignment documents. (Italics supplied)�13.6��� In Road Transport Organisation of India vs. Barunai Powerloom Weaver�s Coop Society Ltd ( 1994 84 Cal LT 174 ) the Calcutta High Court held that the law requires that before making a person bound by any such term ( a clause in a consignment note as to exclusive jurisdiction ) it must be proved that the same was brought to the knowledge of the consignor in such a way that it should seem to be the result of a mutual assent. In Grandhi Pitchaiah Venkatraju subject to Calcutta jurisdiction",� the Andhra Pradesh High Court ignored it since it was not one to which the plaintiff assented.� Following these principles in East India Transport Agency vs. National Insurance Co ( AIR 1991 AP 53 FB ) the Andhra Pradesh High Court came to the conclusion that a term as to the place of suit was not binding on the insurer who had paid out the consignee and who was� then suing the carrier for the negligent loss of goonless it could be proved that the insurer too was made or was otherwise aware of the terms.��13.7��� The law plays in this respect the role of a parent. It has been opined by the learned author Anthony T Kronman, in Paternalism and the Law of Contracts, (1988) 32 Yale Law Journal 763 "A person who would give away too much of his own liberty must be protected from himself, no matter how rational his decision or compelling the circumstances." Therefore, it is expected that the DRT / Courts shall take suo motu cognizance of the legal gimmick being played by the Banks in drafting their documents regarding Director�s personal guarantee agreement and if the borrower / director has agreed to something unreasonable, he should be treated as if he has not agreed at allease. H. Baker, From Sanctity of Contract to Reasonable Expectatrent Legal Problems 1979).�14. What consid and objects are lawful, and what not����������� SectioContract Act provides as follows- consideration or object of an agreement is lawful, unless-����������� it is forbidden br����������� is of such a nature that, if permitteuld defeat the provf any law; or����������� .............................................."14.1 Defeat any Law����������� Sometimes the object of, or the consideration for, an agreement is such that though not foren by law, it would, if permitted, defeatvisions of any law. Such an agreement is also void.�14.2 Undercutting of Statutory Privileges����������� A term in a contract of carriage requiring that notice of loss must be given within 30 days of the arrival of the goods has been held by the Supreme Court to be contrary to and defeating Section 10 of the Carriers65, which prescribes a period of six months for the purpose. {(M. G. Bras v Prasad Textiles, (1983) 3 SCC 61.}����������� In V. Raghunadha Rao v State of A. P., (1988) 1 Andh. LT 461. It was held that - the clauses in question were an attempt to relieve the State of its liability andrt sthat a Stat free to impose arbitrary or unjust clauses in a public contract. (Italics s�Conclusion����������� In view of above discussion the following inferences may be drawn.����������� (1) The Companies Act provides that the directors of a company are not liable for the debts of the company. This view has been upheld by Delhi High Court in Indian Overseas Bank v. R. M. Marketing and Services Pvt Ltd (2001 107 Comp Cas 606) and subsequently by a Division Bench of DelCourt in J B Exports Ltd and another vs. BSES Rajdhani Power Ltd (2006 134 Comp cas 106 Del. decided on 3.3.2006).����������� (2) It stands concluded that the agreement of personal guarantee of a director being executed by the banks as a prerequisite, amounts to making the liability of a unlimited towards the debts of a company, which is absolutely prohibited by the provisions of Companies Act, 2013.����������� (3) Further, the consent of a director is not free being obtained by the banks by undue influence, because the company is in need of funds for its working capital requirements and the banks have made the executgreement of personal guarantee by a director a prerequisite for obtaining the working capital limits from the banks.(4) Section 23 of the Contract Act provides that every agreement of which the object or consideration is unlawful, is void. Therefore, the agreement of personal guarantee executed by ar isoid agreement, because its object is unlawful as it defeats the ns oe Compa, 2013. (END)r>Note:�the views expressed are my person view point only.�Author:<br>Narendra Sharma,Cotant (Arbitration, DRT, Sation)Expert (Direcrsonuarantee)�Mobile: 9229574214/8982321310Land line: (07272) 421309Ekdewas@yahoo.co.in�(Now let us examine some provisions of the DRT Act, 1993 and Securitisation Actr>. Recovery Of Debts Due To Baninancial Institutions Act, 1993 (hereinafter referred to as `the DRT Act� )�Act to have overriding effect.Section 34. (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith c in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) , the Sick Industriaies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)].15.1 Section� 2 (g) of the DRT Act provides as follows: "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any tration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application; �Admity thtter and spirit of the DRT Act, 1993 it means `a d is due from a company and not from its director or promoter.���15.2 When does the overriding effect operate: �As per the rules of interpretation the provisions of an Act are to be interpreted keeping in view the object of enactment of that Act. The important aspect to notice is that the overriding effect of the provisions of the Act, scheme or rules made thereunder� would be that� only when there is anything inconsistent� in the said Act or rules or scheme vis-a-vis the other laws or provisions. If the rules or schemes made under the Act are silent on any particular subject matter and the other law requires any particular action being taken in respect there of, such a law would have to be complied with. As held by Hon�ble Supreme Court in the important decisions rendered in�� Karunanidhi� vs. UOI (1979) 3 SCC 431; Hoechst Pharmaceuticals Ltd� vs. State of Bihar�� AIR (1983) SC 1019 and other cases, the material test of inconsistency is that both the provisions under consideration should not be able to stand together� i.e., if one is followed, the other, in the result,� would be violated. This may arise by reason of direct conflict or indirectly by the later law occupying the same field, as the earlier one. It is in this context that in several schemes of the BIFR where fresh issue of share capital in case of merger or other cases is envisaged, the approval oe Coller of� Capital Issues earlier required under the Capital Issues (Control) Act, 1947� has been specifically put out of the way.��15.3 Hon�ble Supreme Court in Maharashtra Tubes Ltd. Vs SICOM� (1993) 78 Comp Cas 803 (SC), held that the special legislation SICA, 1985 was to prevail over the provisions of the earlier special legislation State Financial Corporations Act, 1950. Therefore, be a case of misdirecting oneself, if he assumes that DRT Act,1993 shall override each and every law for the time being in force in India.<hould you loved this short article and you would like to receive more information relating to Salomon shoes assure visit our own web site. �15.4 For example the mandate of Section 22 (1) of SICA,1985 had always� an overriding� effect on the initiation or continuance of� proceedings before DRT under the� DRT Act ,1993, whereas the DRT Act,1993 is a later special Act than SICA,1985 and also has a non-obstante clause in section 34 of DRT Act, 1993. It is pertineo nohat subsequently SICA, 1985 has been included in section 34 (2) of DRT Act, 1993 by the Amendment Act, 2000 with effect from 17-01-2000.��16. The Securi Andonstruction Of Financial Assets and Enforcement Of Security Interest Act, 2002 (hereinafter referred to as `the Securitisation Act, 2002� )�Section 2(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 strun company consequent upon acquisition by it ofhts or� interest of any bank or financial institution in relation to such financial assistance;������������ �������Section 17. Right to Appeal.(1)��������� Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may� make an application, along with suas may be prescribed, to the Debts Recovery Tribunal� having jurisdiction� in� the matter wity-fdays from the� date� on which such measure had been taken.Sub-section (2) to (6)......................................................................��(7) Save as otherwise provided in this Act (i.e. `the Securitisation Act, 2002 �), the Debts Recovery Tribunal shall, as far as may be, disphe application in accordance with the provisions of the Recoverts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder.".16.2.�� �����Section 37. Application of other laws not barred -����������� The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities ExchaBoar India Act, 1992 (15 of 1992), the Rof Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the ti in force. ��17.�� Conclusion and Recommendations����������� From a combined reading of paras 15 and 16 above �the following inferences may be drawn.(1) The DRT, while hearing appeals under section 17 of the Securitisation Act, 2002, can not override provisions contained in any other law for the time being in force, as the DRT has to act in accordance with Section 17(7) of titisation Act, 2002, which provides �"Save as otherwise provided in this Act". And Section 37 of the Securitisation Act, 2002 provides "Application of other laws not barred".(2) The director should immediately file a declaratory suit in a Civil Court to get cancelled the director�s personal guarantee, because Section 2(f) ofuritisation Act, 2002 provides that� "borrower" means any person who has been granted financial assistance� by any bank or financial institution or who has given� any guarantee.(3) Similarly, the director should immediately file an application before the Registrar of Companies to get cancelled the charge created on the �personal property of director / any third party, because Section 2(f) of the Securitisation Act, 2002 provides that� "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 as per Section 139 of the Companies Act, 1956 the� Registrar has power to enter in the register of chargesandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company's property.����������� (4) However, some grounds of defence may also be raised by the guarantors as per the latest judgment of the Supreme Court in the case of Karnataka State Financial Corporation vs N. Narasimahaiah ........... Apart from the defences available to a principal borrower under the provisions of the Indian Contract Act, a surety or a guarantor is entitled to take additional defence. Such additional defence may be taken by the guarantor not only against the corporation but also against the principal debtor. He, in a given situation, would be entitled to show that the contract of guarantee has come to a not. Ordinarily, therefore, when a guarantee is sought to be enforced, the same must be done through a court having approprisdiction. In the absence of any express provision in the statute, a person being in lawful possession cannot be deprived thereof by reason of default on the part of a principal borrower."(5) The Supreme Court in the latest judgment in the case of Karnataka State Financial Corporation vs N. Narasimahaiah 30. Right of property, although no longer a fundamental right, is still a constitutional right (Article 300A). It is also hut. In absence of any provision either expressly or by necessary implication, depriving a person therefrom, the court shall not construe a provision leaning in favour of such deprivation.""31. A surety may be a Director of the Company. He also may not be. Even if he is a close relative of the Director or the Managing Director of the Company, the same is not relevant. A Director of the Company is not an industrial concern. He in his capacity as a surety would certainly not be. A juristic person is a separate legal entity. Its veil can be lifted or pierced only in certain situations. [See Salomon v. Salomon and Co. [1897 AC 22], Dal Chand and Others v. Commiof Income Tax, Punjab (1944) 12 ITR 458, Juggilal Kamlapat v. Commissioner of Income Tax, U.P. (1969) 1 SCR 988 = 1969 (73) ITR 702 and Kapila Hingorani v. State of Bihar (2003) 6 SCC 1]"����������� (6) Law declared by Supreme Court to be binding on all courts- Article 141 of the Constitution of India provides that "the law declared by the Supreme Court shall be binding on all courts within the territory of India." Therefore, the ratio of the judgment of Supreme Court in Karnataka State Financial Corporation vs N. Narasimahaiah & Ors. (2008 AIOL 348 Civil Appeal No. 610-612 of 200d on 13/03/2008) given above, in para 4 and 5, is binding on the Debts Recovery Tribunals and other authorities under the DRT Act, 1993 and the Securitisation Act, 2002 respectively. (END)�