JUDGMENT MUHAMMAD SAIR ALI, J.- The respondent i.e. Trust Leasing Corporation Limited on 13.4.1998 filed suit No. 310/98 for recovery of Rs. 29,935,720/- before the learned Banking Court, Lahore against M/s. Sunshine Cloth Limited (Under Liquidation) through the joint official liquidators and the appellants, it was claimed in the suit that the company i.e. M/s. Sunshine Cloth Limited (UL) was ordered to be wound-up by the learned Company Judge of this Court in C.O. No. 75/97 and on respondent plaintiff's C.M. .No. 1128/98 leave of the Court was granted to prosecute the suit against the defendant No. 1 i.e. The company (UL). Appellants were sued therein as defendants Nos. 2 to 4 in their capaciuty as guarantors for repayment of the lease money, it was further pleaded by the respondent- plaintiff that under Equipment Lease Agreement dated 23.1.1993 finance of Rs.
23,000,000/-, in the form of equipment leading was gratued to the company (UL) for a period of five (5) years at a monthly rental of Rs. 570,569-. And the teased equipment and machinery was teeeived and installed ov the company (UL). The finance was secured through execution of demand promissory note dated 28.6.1993, joint personal guarantee dated 23.1.1993 by appellants and trust receipt dated 23.1.1993. And that upto 21.6.1995, rentals amounting to Rs. 5,706,023/- were paid and owing to non-payment of the overdue rentals, rescheduling was sought by and granted to the company (UL). And that rescheduling agreement in the form of Memorandum of Understanding dated 21.6.1995 was signed on behalf of the company (UL) by appellants Nos. 1 and 3 as chairman and chief executive thereto. And that despite enlargement of time and grant of moratorium etc., the company (UL) and the appellants failed to make any payment of re- scheduled amount of lease money as per the agreed rental arrangement thereby accumulating the outstanding to Rs. 29,935,720/- i.e. The suit amount.
2. On 14.5.1998, application for leave to appear and defend the suit was filed by the present appellants (defendants Nos. 2, 3 and 4 in the suit). No such application was filed by or on behalf of the company (UL); defendant No. 1 in the suit.
3. The learned Judge Banking Court No. II, Lahore, on 26.7.1999 dismissed appellants' PLA and proceeded to pass a decree for recovery of Rs. 23,510,720/- in favour of respondent No. 1 and against the defendants (the company and the appellants) after excluding a sum of Rs. 6,425,000/- paid during the pendency of the suit. After dismissal of PLA, appellants moved an application under Section 12(2), CPC for setting aside judgment and decree dated 26.7.1999. This petition was also dismissed by the learned Judge Banking Court No. II, Lahore on 25.9.1999.
4. On 22.9.1999, appellants (the defending guarantors in the suit) filed the present appeal only against judgment and decree dated 26.7.1999. The record of the Trial Court was requisitioned on 23.9.1999.It is noteworthy that no appeal on behalf of the company (UL) was filed to challenge the decree.
5. In support of the appeal, the learned counsel for the appellant guarantors claimed discharge of appellants' personal guarantee dated 23.1.1993 under Sections 133 and 135 of the Contract Act upon execution of Memorandum of Understanding dated 21.6.1995 between the leasing corporation and the company (UL) allowing variations in lease terms, monthly rentals and mark-up rate but without the consent/assent of the appellant guarantors, it was also argued that permissive clauses Nos. 7, 8 and 10 of the personal guarantee dated 23.1.1993 were inapplicable or otherwise invalid for offending against the express provisions of Section 135 of the Contract Act and for being against the public policy as per Section 23 of the Contract Act. A distinction was drawn in the word "Consent" as used in Section 133 from "Assent" as used in Section 135 of the Contract Act. Reliance was placed upon judgments discussed hereunder. And that the appellant's liability could at maximum be under the original Equipment Lease Agreement of 1993 for a period of two (2) years and not under the rescheduled Memorandum of Understanding which novated the previous agreement and since payments due under the original agreement prior to its novation, had been made therefore appellants were under no liability to make any further payment, it was also urged that restructuring Memorandum of Understanding provided for obtaining fresh personal guarantees from the directors but no such guarantees were obtained resulting in supersession of the joint personal guarantee of 1993.
Contrarily, the learned counsel for respondent No. 1 i. e. Trust Leasing Corporation Limited stated that none of the above grounds were raised by the appellants in their petition for leave to defend the suit. Instead, appellants opted not to specifically answer any of the allegations contained in the plaint. And that they only generally denied to be guarantors for the-company (UL) but did not ever plead idscharge of guarantees upon restructuring of the finance or otherwise by novation of agreement. Inconsistent to para 5 of their PLA, appellants in para 3 and ground (B) of the appeal admitted to be guarantors. And that the guarantee of 1993 as executed by appellants specifically permitted extending of time, concessions, compositions and even variations wherefore the said guarantee continued to bind the appellants. And that in all the stated precedents subsequent rescheduling of agreement by a bank was held not to discharge the guarantors under similar guarantees as variation, composition and time enlargement etc. Were allowed under the terms of the personal guarantee, it was also stated by the learned counsel that appellants themselves applied for, obtained, executed and signed rescheduling Memorandum of Understanding.
6. We have attended to the arguments of the learned counsel for the parties and have also examined the record, it has not been denied by the appellants that Finance in the form of leasing of equipment and machinery was obtained by their company i.e. Sunshine Cloth Limited (UL) and Equipment Lease Agreement dated 23.1.1993 was signed between Trust Leasing Corporation Limited and Sunshine Cloth Limited. This agreement was signed by signatory of the plaint, i.e. Raja Allahdad Khan and Chaudhry Muhammad Younas on behalf of the leasing corporation and by appellants Nos. 1 and 3 for and on behalf of Sunshine Cloth Limited. The leased equipment and machinery was also installed and put in operation. Only some rentals were paid. Owing to non-payment of the overdue rentals, rescheduling was sought by and was granted to the company (UL). Rescheduling Agreement dated 21.6.1995 in the form of Memorandum of Understanding was signed on behalf of the company (UL) by appellants Nos. 1 and 3 as chairman and chief executive thereto. Despite enlargement of time and grant of moratorium etc., the company (UL) failed to make any payment of re-scheduled amount of lease rentals.
Upon inability of the company (UL) to pay its loan, it was ordered to be wound-up in C.O. No. 75/97 by the learned Company Judge of this Court but leave was granted to Trust Leasing Corporation Limited to file, pursue and prosecute suit for recovery against the company (under liquidation). On 13.4.1998, suit No. 310/98 for recovery of Rs. 29,935,720/- was filed by respondent No. 1 against the company (UL) through its liquidators and against the appellants in their capacity as guarantors for repayment of the lease money in terms of joint personal guarantee dated 23.1.1993. In this suit, application for leave to defend the suit was filed on 14.5.1998 only by the appellants (defendants Nos. 2, 3 and 4 in the suit). No such application was filed by or on behalf of the company (UL). The learned Judge Banking Court No. II, Lahore, on 26.7.1999 dismissed present appellants' PLA and proceeded to pass a decree for recovery of Rs. 23,510,720/- in favour of respondent No. 1 and against the defendants (the company and the appellants) after excluding a sum of Rs. 6,425,000/- paid during the pendency of the suit. Appellants moved an application under Section 12(2), CPC before the learned Banking Court No. II, Lahore for setting aside judgment and decree dated 26.7.1999. This petition was also dismissed on 25.9.1999 by the learned Judge Banking Court No. II, Lahore.
On 22.9.1999 appellants (the defending guarantors in the suit) filed the present appeal only against judgment and decree dated 26.7.1999. No appeal on behalf of the company (UL) was however filed to challenge the decree.
7. In para 3 and ground (B) of the memorandum of appeal, appellants conceded to be guarantors on behalf of the company (UL) although they had denied this fact in their petition for leave to appear and defend the suit. Appellants' application dated 11.5.1995 before the learned Judge Banking Court No. II, Lahore seeking comparison of signatures of appellant No. 3 also shows that appellants, particularly appellant No. 3, denied having executed and signed personal guarantee dated 23.1.1993. The admission of appellants in the memorandum of appeal of sets their denial in PLA. This matter therefore does not require any further discussion. This admission by appellants in the memorandum of appeal has however been made with the reservation that "the appellants were guarantors under Equipment Lease Agreement dated 23.1.1993 and not under the rescheduled agreement (MOU) dated 21.6.1995"; material variations wherein without the consent of the appellants discharged them from their legal obligations under guarantee dated 23.1.1993.
8. It is significant to note that the appellants in their petition for leave to appear and defend the suit had not raised the question of discharge of their obligations as guarantors upon rescheduling agreement and raised this question only after the decree against them by filing an application under Section 12(2), CPC before the learned Banking Court No. II, Lahore or in the present appeal, in our considered view, since the appellants failed to seek leave to defend the suit on this ground, they cannot and should not be allowed to agitate this ground in appeal before us or in their petition under Section 12(2), CPC before the learned Banking Court No. II, Lahore who validly dismissed the same on 26.7.1999. This order of dismissal has neither been assailed in appeal nor have any arguments been addressed thereagainst at the bar.
The learned counsel for the appellants stated that having denied being guarantors in para 5 of the PLA, appellants had raised therein the question of release as well. This argument is self-defeative.
To plead discharge from a guarantee, its existence has to be essentially admitted. General denial of guarantee (as stated hereinabove) cannot be taken to mean that guarantee was once in existence but later stood revoked. Thar requires specific pleadings as to execution of guarantee, its revocation, cancellation or discharge, in our opinion such ground had to be seriously and plausibly pleaded to be a serious, plausible and bona fide ground for leave, in terms of Section 9 of Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, the then applicable law.
A question can be considered "serious" only if it reveals a substantial issue requiring resolution through a process of adjudication/trial upon administration of proof thereto. Assertions of general, bald and vague nature do not and cannot give rise to a serious issue.
"Plausible" or "bona fide" is a term of psychological connotation, employed in legal diction as a prism to a person's conduct. Plausibility entails righteousness, consistency, honesty, .Fairness and credence. Nonplausibility is the antonym of plausibility reflecting a mala fide, belying, inconsistence and non-credible conduct. There is no objective test to determine plausibility or bona fide. Facts of each case read in the particular case perspective provide clue to litigants' good or bad conduct. To show and prove such conduct, facts must be definitely specified and particularly pleaded to be plausible and confidence inspiring, in the present case denial of appellants to be guarantors (para 5 of PLA) was purportedly on the basis of non-execution of personal guarantee dated 23.1.1993. This fact was contradicted by the appellants themselves in their appeal upon clear admission to be guarantors per guarantee dated 23.1.1993. As such effort of the appellants at equating non-execution and non-existence of guarantee with that of the discharge of guarantee, is far from being bona fide, honest, consistent and plausible to be a ground for grant of leave to appellants. Their leave petition was thus validly dismissed by the learned Banking Court.
9. Though we have held that question of discharge of guarantee upon restructuring of finance, was not raised by appellants in their PLA, yet, this issue as raised and argued in appeal needs to be attended to in the present judgment.
The argument of the learned counsel for the appellants is that upon execution of the rescheduling agreement dated 21.6.1995 granting moratorium and extension of time to the company (ULh appellants were released of their obligations under guarantee dated 23.1.1993 because the rescheduling was without their consent/assent. The contrary argument of the learned counsel for respondent No. 1 is that the appellants had themselves waived their right of consent/assent or prior notice under clauses 2, 7, 8 to 10 of their guarantee to the grant of any composition or extension or concession etc. By the leasing corporation to the company (UL). The guarantee dated 23.1.1993 therefore continues to bind them under the rescheduled arrangement as well.
10. We feel that the above-referred clauses Nos. 2, 7, 8, 9 and 10 of the letter of guarantee dated 23.1.1993, being pertinent, should be reproduced. These clauses read as under:-- "(2) The guarantee shall not be discharged or prejudiced by any partial payment or by settlement of accounts or the existence of any credit balance of the Lessee at any time or by discharge of the Lessee by operation of law or for any other reason.
(7) You shall in any case be at liberty, and without my/our further assent or knowledge at any time to grant to the Lessee or any person liable with or for him/them, whether as guarantor or otherwise, any time or indulgence, and to determine, enlarge or vary his/their credit, and to vary, exchange or release any other securities held or to be held by you for or on account of the moneys intended to be hereby secured or any part thereof and to compound or make any other arrangements with him/them or any person so liable with or for him/them, as you may think fit.
(8) You shall be at liberty to release or discharge any of us from the obligations under this guarantee or to accept any composition from or make any other arrangements with any of us without thereby prejudicing or affecting your rights and remedies against the other or others of us.
(9) This guarantee is irrevocable and all claims made under this guarantee shall be forthwith paid to you without any recourse to the Lessee.
(10) That this guarantee shall be valid and remain in force till such time as the original of this guarantee is duly cancelled/discharged by you and returned to me/us. Notwithstanding that prior to such cancellation/discharge and return of the guarantee we have made payment in respect of any claim/claims made by you under this guarantee."
The object of above clauses in the guarantee thus was to obtain release from the prior consent of the guarantors to any changes, variations, concessions, re-arrangements, alterations and modifications subsequently agreed upon between the Leasing Corporation and the company (UL).
These clauses were meant to allow and protect such subsequent changes, without effecting release of guarantors in terms of Sections 133 and 135 of the Contract Act, 1872. Can such an effect be successfully gained or not is the question requiring resolution. The relevant provisions thereto are Sections 133 and 135 of the Contract Act, 1872, w'. Ch provide as under:- "133. Any variance, made without the surety's consent, in the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.
135.A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time, or not to sue, the principal debtor discharges the surety, unless the surety assents to such contract."
11. From surveying judgments quoted by the learned counsel for the parties, the settled rule appears to be that if variation or composition of the loan or time etc. As to its repayment was allowed by the creditor to the borrower and consent/assent in advance thereto was given by the guarantor in the letter of guarantee, suosequent to the date of guarantee, such variation, composition, extension, change or indulgence being within the contemplation of the parties at the time of execution of guarantee did not effect discharge of the surety/guarantee from obligations under the guarantee. And as such surety continued to be bound by the terms of the guarantee despite moratorium, enlargement of time, composition and variations between the creditor and principal borrower.
In the case of Ram Ranjan Rakshit v. The Chief Administrator, Rehabilitation Finance Administration, New Delhi and others (AIR 1960 Calcutta 416), discussing Section 135 of the Contract Act, the rule laid down was that a guarantor "cannot claim discharge of his guarantee on the ground of indulgence alleged to have been granted" by the creditor to the borrower, if the guarantee provided for grant of time or other indulgence to the borrower by the creditor subsequently and such grant of time and indulgence was met by the very terms of the letter of guarantee.
In the case of Chakkunny v. Viswa natha Iyer decided by Kerala High Court (AIR 1961 Kerala 312), upon consideration of number of judgments on Section 135 of the Contract Act, the test laid down was that on terms of the bond if an indulgence or compromise was not excluded and matter was within such terms, the surety bond remains un-discharged.
In the case of ADBP v. Pak Green Fertilizer Company Limited (2000 M LD 1066) it was held that when the intention of the guarantor was manifest from the document there was no reason why it should not be enforced. And that there was no cavil about the principle of law laid down in Seth Partap Singh Moholabahi v. Keshavial Hariiai (AIR 1935 PC 21) that "a surety cannot be held bound to something for which he had not contracted unless he had assented to the new terms". And that since defendants had expressly given their advance consent in clear terms to be bound by any variation in the terms of the loan. Therefore, having unequivocally expressed their consent to variation with full knowledge of its implications, they could not contend that the variation was without their consent and consequently they were discharged from the obligations. And Section 133 of the Contract Act was held to be not applicable as the variation in the contract was made with the clear consent of the guarantors given in the letter of guarantee.
A Division Bench of Karnataka High Court in the case of T. Raju Setty v. Bank of Baroda (reported as AIR 1992 Karnataka 108), dissenting from judgment in the case of Pearl Hosiery Mills (reported as AIR 1961 Punjab 281), held waiver of rights by a guarantor under Sections 133, 134, 135, 139 and 141 of the Contract Act not to be opposed to public policy.
Furthermore, upon elaborate discussion of the case- law in paragraphs 10.1, 11 and 11.1 of the judgment in Bank of Baroda case (AIR 1992 Karnataka 108), the rule was pronounced as under:- 10.1. In Citibank N.A. New Delhi v. Juggiial Kamaiapat Jute Mills Co. Limited, Kanpur (AIR 1982 Delhi 487), differing from the view expressed in the aforesaid Pear! Hosiery Mills case (AIR 1961 Punj. 281), it has been held that it was not necessary for the legislature to provide the words 'in the absence of any contract' in Section 133 or 135 or 141, because the sections themselves speak of consent of the surety regarding variance in the terms of the contract between the principal debtor and the creditor and composition with the principal etc. It has also been further held that in the presence of the words 'without the surety's consent', the words 'in the absence of any contract to the contrary' would have been surplus. Therefore, following a decision of the Privy Council in Hodges v. Delhi and London Bank Ltd. (1900) 27 Ind. App. 168 and A.R. Krishnaswani Ayyer v. Travancore National Bank Ltd. (AIR 1940 Mad. 37), it has been held that the rights conferred on the surety under Section 133, 135 or 141 of the Act could be waived bv specific agreement in the deed of guarantee; that as a matter of fact, such an agreement would amount to consent within the meaning of the aforesaid sections of the Act.
11.------------------------- The words "unless it is otherwise provided in the contract" occurring in Section 128 of the Act will also govern the other provisions contained in the Chapter VIU of the Act and enable the surety to give up the rights available to him under Sections 133, 134, 135 and 141 of the Act. It is a settled legal position of law that a legal right can be given up provided such giving up of a legal right under any contract is not hit by Section 23 of the Act Section 133 of the Act makes it clear that any variance made in the contract between the principal debtor and the creditor without the consent of the surety, discharges the surety as to transactions subsequent to variance. This consent of the surety can be obtained either at the time of the contract is made between the p 'incipal debtor and the creditor to which the surety gives the guarantee, for making any change or alteration in the contract to be made or not to claim any right or benefit under Chapter VHI of the Act. In other words, in the surety-bond/guarantee-bond itself the surety can agree to waive his rights avajlable to him under the various provisions contained in. Chapter VHI of the Act. Such waiving of his right by the surety is permissible under Section 1 33 read with Section 1 28 of the Act.
11.1. -------------------------------------------------------------------- The- rights available____ tc JT- surety under Chapter VIU n.f tUcTV-:, :.s already pointed out, o<*n_bc - '.i . Co by the surety. Therefore, such waiving of right by the surety is neither intended to defeat nor does it defeat any provisions of law. Therefore, it is also not possible to hold that the consideration and the object of the agreement of guarantee have the effect of defeating any provisions of law. A recital in the surety bond in question that surety will not be entitled to any of the rights conferred by Sections 133, 134, 135, 139 and 141 of the Act cannot be held to defeat the provisions of Chapter VIII of the Act. The rights conferred on the surety under Chapter VHI are not inalienable rights nor those rights have anything to do with the public policy as such. Those rights relate to the contracts entered into by individuals, it is not the case of defendant-3 that the aforesaid recital in the surety bond has been obtained either fraudulently or it involves or implies injury to the person or property of another, it is also not possible to view such a recital as immoral or opposed to public policy. Public policy is not to defeat the debt of the creditor, it is to ensure that the money of the creditor, it is to ensure that the money of the creditor is secured and is recoverable in accordance with law; and the debtor or the surety is not absolved from his liability to discharge the debt except in accordance with law. Therefore, we are of the view that it is not possible to agree with the view as extracted above, expressed in Pearl Hosiery Mills' case (AIR 1961 Punj. 281) by the High Court of Punjab. We agree with the aforesaid view expressed in Citibank's case (AIR 1982 Delhi 487) by the High Court of Delhi and also approve the view expressed by Kulkarni, J. In R. Lilavati's case (AIR 1987 Kant. 2).
12. In the present case also appellant guarantors had expressly given their consent as per above reproduced clauses 2, 7, 8, 9 and 10 of the letter of guarantee dated 23.1.1993 and had assented to any subsequent composition of debt, enlargement of time and other variations between the leasing corporation and the company (UL). The guarantee was a continuing guarantee, permitting the creditor and the principal debtor to vary the terms of the leasing agreement. The appellant guarantors had waived their prior right of consent or assent to such variance, in our opinion, contracting parties had a right to contract out of the privilege of release or discharge by executing an agreement of waiver of prior consent/assent in the guarantee. Rescheduling Memorandum of Understanding dated 21.6.1995 was within contemplation of above clauses and, therefore, did not affect discharge of appellants from their guarantee obligations, it will be hair-splitting to state that provisions of Section 133 or 135 of the Contract Act visualize consent or assent of the guarantor at the time of variance only and the same cannot be waived by the guarantors in advance. The judgment of the learned Single Judge of Delhi High Court in the case of State Bank of India v.
Machine Well Industries (1983 5 CC 880) relied upon by the learned counsel for the appellants is almost on the same principles as the case of Pearl Hosiery Milts (AIR 1961 Punj. 281) which has been dissented from by the learned Division Bench of Karnataka High Court in above referred case of T.A.
Raju v. Bank of Baroda (AIR 1992 Karnataka 108). We in principle agree with the ratio of the case of Bank of Baroda.
13. Furthermore, even if. Some of the terms of original contract can be stated to have been novated by Memorandum of Understanding of 21.6.1995, such novation still did not in any way absolve the appellant guarantors of their obligations under the joint guarantee of 23.1.1993 as they had themselves consented in the letter of guarantee to variance of the original agreement between the leasing corporation and the company (UL). The Privy Council in the case of Partap Singh Mohoiabahi v. Keshavlal Harilal (AIR 1935 PC 21) also held that only in absence of a surety's consent, a surety shall not be bound for the obligations under the novated agreement.
14. We are also of the opinion that appellants Nos.
1 and 3, upon signing rescheduling agreement had even otherwise given their assent to such rescheduling. The Memorandum of Understanding was signed by appellants Nos. 1 and 3 in their capacity as directors and/or chief executive and chairman of the Company. Guarantee dated 23.1.1993 was also made and executed by them in the same capacity, it cannot therefore be argued* that consent/assent of said guarantors was separately required at the time of execution by them of the rescheduling agreement. Appellant No. 2, being were of appellant No. 1 and mother of appellant No. 3, cannot be presumed to be unaware of or unwilling to the rescheduling arrangement signed by appellants Nos. 1 and 3 for and on behalf of the company (UL). It was obviously for this reason that none of the abovesaid appellants had expressly pleaded in their PLA, discharge of their joint guarantee.
15. In view of the above discussion, the present appeal is dismissed with costs. .