NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

RANCHI

SUBJECT: - CONTRACT II

PROJECT TOPIC: CASE ANALYSIS OF UNION BANK OF INDIA VS. AVINAS P.

BHONSLE

SUBMITTED TO: SONI BHOLA SUBMITTED BY: VIBHA KUMARI

ASSITANT PROFESSOR SEMESTER II

CONTRACT SECTION: A

ROLL NO. 1145

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 Table of Contents
DECLARATION 3
ACKNOWLEDGEMENT 4
INTRODUCTION 5
SECTION 126 IN CONTRACT 5
SECTION 127 IN CONTRACT 5
FACT 6
ISSUE: 7
ARGUMENTS BY BOTH THE PARTIES 8
AS A RESULT, IT WAS THEN OBSERVED: 9
CONCLUSION 11

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 DECLARATION
I, Vibha kumari, a first-semester BALLB student of National University of Study and
Research in Law, Ranchi, hereby declare that the project titled ‘CASE ANALYSIS OF
UNION BANK OF INDIA VS AVINASH P. BHONSLE’ under the guidance of Soni Bhola
mam, faculty of contract is an original work. I have made sincere efforts to complete this
project and have not misrepresented facts or data.

I declare that the statements made and the conclusions drawn are the bona fide outcome of
the research work. I further assert that, to the best of my knowledge and belief, proper
references have been given and do not contain any work that has been submitted to other
universities.

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 ACKNOWLEDGEMENT

I, vibha kumari, would like to thank all those who helped me during the whole procedure

of doing this project and complete it.

Firstly, I would like to thank my teacher and mentor, Soni Bhola mam, who showed faith in

me by providing such a wonderful topic. Her constant guidance has played a vital role in the

completion of this project successfully. Her keen attention helped me deal with each problem

that I faced during this project successfully. Her keen attention helped me deal with each

problem that I faced during this project. My heartfelt gratitude to all the staff members and

administrators of NUSRL for providing me with a wonderful library. Their support cannot be

expressed in words.

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INTRODUCTION

SECTION 126 IN CONTRACT1

It establishes the guarantee contract. It defines a guarantee contract as a contract to fulfil a

promise or release a third party's duty in the event of his default.

The individual who provides the guarantee is referred to as "surety." The “Principal debtor”
is the individual to whom the guarantee is given in the event of default. The creditor is the
individual to whom the guarantee is given.

There are two sorts of guarantee contracts. It can be written or spoken. However, in order for
a contract to exist between the parties, there must be agreement, which means that all three
parties must be aware of the deal. A guarantee contract is a pledge to answer for the payment
of a debt that the principal debtor owes to the creditor or the fulfilment of a duty that the
principal debtor owes to the creditor.

In the event that the major debtor defaults, who is first obligated to pay or perform? As a
result, the principal debtor bears the primary obligation to pay. The Surety is responsible for
the secondary liability, which arises when the principal debtor fails to pay.

As a result, the purpose of the guarantee contract is to indemnify the major debtor if he fails
to keep his pledge. This indemnifies is not the same as the indemnification contract described
in ICA Section 124.

SECTION 127 IN CONTRACT 2

The consideration in a guarantee contract is discussed in this section. 2 The creditor or the
Principal Debtor may provide the surety with payment in exchange for his or her promise.

1 Section -126 of the Indian contract act, available at: https://www.latestlaws.com/bare-acts/central-acts-

rules/section-126-contract-of-guarantee-surety-principal-debtor-and-creditor/. (Last visited July 5 2021)
2 Section- 127 of the Indian contract act, available at: https://www.latestlaws.com/bare-acts/central-acts-
rules/section-127-consideration-for-guarantee/ (last visited July 5 2021)

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Although the surety may benefit from the consideration, the surety is not required to benefit
from the consideration in the guarantee contract.

The compensation, or any advantage gained by the principal debtor or creditor at the surety's
request, is discussed in this section.

In this section, the term "done" refers to a former benefit to the principal debtor that could be
deemed good consideration.

FACT
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The plaintiff's position was that on August 29, 1977, a loan of Rs. 37,000 was made to
defendants Nos. 1 and 2 for the purpose of acquiring one Tempo Matador Diesel Van to be
used in their business, as well as a cash credit limit of Rs. 7,500. The defendants Nos. 1 and 2
signed a promissory note and a hypothecation bond on August 29, 1977, for the sum of Rs.
37,500 in cash. On September 14, 1977, the third defendant executed a letter of guarantee
pledging himself to the amount of Rs. 45,000 plus interest in exchange for the plaintiff
agreeing to provide accommodation to the first and second defendants. Because no payments
were made, the plaintiff sought Rs. 60,221.95 plus interest at the rate of 17% per year from
March 1980. Due to the defendants Nos. 1 and 2's failure to attend, an ex parte 4 decree was
entered against them for the whole claim. The third defendant denied becoming a guarantor
for defendants Nos. 1 and 2 or being involved in the loan they were issued. On September 14,
1977, he claimed to have signed a letter of guarantee. He claimed that he signed the letter of
assurance due to misrepresentation, and that it could not be used against him because it was
signed without consideration. The learned trial judge agreed with the third defendant's
arguments and dismissed the case.

3 https://www.legitquest.com/case/union-bank-of-india-v-avinash-p-bhonsle/2DCD8#
4 done with respect to or in the interests of one side only or of an interested outside party.

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ISSUE:

This appeal by the original plaintiff is intended against the decision dismissing the claim
insofar as it was filed against defendant No. 3, who is said to have been a guarantee for the
plaintiff's loan to defendants Nos. 1 and 2, a decree was entered against defendants Nos. 1
and 2 in the amount of Rs. 60,221.95 plus interest at the rate of 17% per annum from March
18, 1980.

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Under Union section 127, everything done or promised for the advantage of the principal
debtor may be sufficient consideration for the surety to give the guarantee.

The learned Counsel for the appellant argued that there was no proper pleading on the plea
because no specifics of the alleged misrepresentation were provided, and the case that his
signature was obtained on the letter of guarantee by telling him that he would be identifying
the plaintiff was an afterthought.

It is clear that the defendant claimed nothing more than that his signature on the letter of
guarantee was obtained by deceit in his written statement. In all cases where the party
pleading relies on any misrepresentation, fraud, breach of trust, willful default, or undue
influence, and in all other cases where particulars may be necessary beyond those
exemplified in the forms aforesaid, particulars with dates and items, if necessary, shall be
stated in the pleading, as required by Order VI Rule 4 of the Criminal procedure code.

The trial of the learned While allowing evidence to be presented at the trial, the judge failed
to observe this legal necessity. The third defendant claimed that he had never signed the
plaintiff's bond, but that the second defendant, Sharad Paranjape, had met him and told him
that he needed a man from his acquaintance in Panaji and that he should come to the Bank.
When Sharad led him to the bank's manager, the manager just inquired if he knew Sharad,

5 Available at: https://indiankanoon.org/doc

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and when he said yes, he was asked to sign a piece of paper, which happened to be the letter
of guarantee on which the plaintiff relied.

The third defendant, admittedly, is the owner of three fishing travellers purchased since 1964,
for which he obtained a loan from the Fisheries Department as well as the Syndicate Bank,
for which he had to provide a guarantee to the Bank. Though he stated that he did not speak
English, it is difficult to believe that he would go to the Bank and sign a document simply
because it was asked of him and without even asking the Manager what the document was
about. D.W. Prakash, a journalist, also spoke about the second defendant telling him that he
was taking a loan from the Bank and that he was taking the third defendant for identification
to the bank.

Given the clear evidence to the contrary provided by Bank Manager Francis Heredia, it is
impossible to believe these two witnesses' self-serving narrative. P.W. 1 Francis testified that
the third defendant told him in the Bank that he would sign the bond letter before the loan
was disbursed, and that the second defendant was there at the time.

He disputed to the third defendant that he lied to him that his signature was being sought in
order to identify the defendants. The learned trial Judge failed to notice that there is no
appropriate pleading and that the evidence presented by the third defendant in support of the
misleading plea was completely untrustworthy.

ARGUMENTS BY BOTH THE PARTIES

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On the second question, the trial court concluded that no consideration had passed at the
time of the letter of guarantee on September 14, 1977, and that the plaintiff could not rely on
section 127 of the Contract Act in light of the decision in (Ram Narain v. Lt. Col. Hari
Singh and another) ,The learned Single Judge, disagreeing with the Division Bench in
(Ghulam Husain Khan v. Faiyaz Ali Khan) held that the contract of guarantee was
without consideration because no consideration qua the principal debtor had passed from the
creditor at the time of execution of the document and nothing was done for his benefit on that
day.

6 Available at: https://indiankanoon.org/docfragment/1399287/?formInput=air%201918%20pc%20226%20

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Mrs. Agni, learned Counsel for the third defendant, argued that nothing done or promised
could be interpreted to mean that something done or promised had reference to something
done in the past, i.e., prior to the guarantee contract, and could be considered sufficient
consideration for the surety to give the guarantee. She referred to the following area for help:

A sell and delivers items to B.C, and then agrees to pay for them in the event that B fails
to do so. The contract is null and invalid.

A specific reference was made to the sequence and it was argued that a sale that had occurred
earlier, even if it resulted in the delivery of goods but no payment of the price, would not be
considered consideration for the subsequent guarantee contract. Section 106 deviates from
section 101. The latter, with its, establishes the general norm that the prosecution bears the
burden of proof in criminal cases, and section 106 is not meant to relieve it of that
responsibility. On the contrary, it is intended to address certain exceptional circumstances in
which the prosecution would find it impossible, or at least disproportionately difficult, to
establish facts that are particularly within the knowledge of the accused and which he could
prove without difficulty or inconvenience. The phrase "preeminently" or "exceptionally"
emphasizes this, implying that facts are "preeminently" or "exceptionally" within his grasp."

AS A RESULT, IT WAS THEN OBSERVED:

Court decide that the third defendant failed to show that his signature on the letter of
guarantee was obtained via deception. The Manager of the Bank Francis showed that paper,
and based on the evidence, we have no doubt that the third defendant signed the document
fully aware of its contents. Because there is a difference of opinion on this issue, the
provisions of sections 126 and 127 of the Contract Act must be referred to. A contract of
guarantee, according to section 126, is a contract to perform a third person's commitment or
discharge his liability if he defaults. The surety is the person who gives the guarantee, the
major debtor is the person in whose default the guarantee is given, and the creditor is the
person to whom the guarantee is given.

A guarantee might be given orally or in writing. According to Union section 127, everything
done or promised for the principal debtor's benefit may be sufficient consideration for the
surety to give the guarantee. It was argued that the guarantee was being provided according to

7 https://www.legitquest.com/case/union-bank-of-india-v-avinash-p-bhonsle/2DCD8

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an earlier arrangement, but this would make no difference in terms of the surety's duty,
because he had not been a party to the previous agreement and was only obligated by the
provisions of section 127 of the Contract Act. There is nothing in this judgement that will
benefit the third defendant.

This section of the letter of assurance would not be conclusive in a court of law because
the following sentence reads:

Court jointly and severally guarantee to the Bank the timely payment and discharge of all
current and future advances liabilities, bills and promissory notes, whether made, incurred or
discounted before or after the date hereof to or for the principal alone or jointly with any
other person or persons, and also of bills, two days after demand, promissory notes of
guarantees held by the Bank with his signature or of all current and future indebtedness and
liabilities of the principal to the Bank from time to time in any manner, combined with all
associated interest commission and other Banking costs, including legal charges and
expenses.

There must be an agreement between the surety and the creditor under which the surety
guarantees the obligation, and the money for that agreement may come from the creditor, the
principal debtor, or both. If those are the only contracts, however, the matter becomes one of
indemnity. A third contract, in which the major debtor directly or implicitly begs the surety to
act as surety, is required to form a contract of guarantee. It is impossible to determine the
surety's rights and duties under the Contract Act unless that feature is present. Even though
the contracts were made on two occasions, it is clear that the guarantor took it upon himself
to discharge the liability of the principal debtor through the letter of guarantee, and even the
evidence of the third defendant shows that he went to the Bank at the request of the second
defendant. As a result, it is evident that the contract's three requirements have been met in this
case, and the third defendant will be bound by the contract.

On a simple reading of the instrument before us, we determine that there was consideration
for the contract of guarantee by what the major debtor had done, namely, receiving the
benefit of a term loan and cash credit facility, in accordance with the terms of section 127 of
the Contract Act.

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The argument that the letter of guarantee was issued without thought or as a result of
misrepresentation, and that it would not bind the third defendant, is thus without merit. The
third defendant is obligated under the letter of assurance to pay any sum not exceeding Rs.
45,000/- plus interest, and it follows that the appellant's whole claim can be pursued against
the third defendant. The third defendant's final issue is that, despite the revision to the written
statement stating that the plaintiff failed to take advantage of the opportunity to collect the
loan amount and lost the security in terms of the hypothecation or charge of the vehicle No.
and Even if no issue had been posed by the trial Court and the third defendant had no
opportunity to adduce evidence on this point, the third defendant was liable to be relieved of
his liability. To begin with, the question of gross negligence and allowing the security to be
lost would be a factual issue on which an issue should have been framed so that evidence
could be presented on the point, and if it is a question of waiver, which is also a factual issue,
it should have been raised before the Court below.

So, court send the case back to the trial court to frame proper issues on these two grounds
and decide those issues after giving the parties an opportunity to adduce evidence, because
the trial court did not consider them even though they were material.

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CONCLUSION

As a result, He grant the appeal, set aside the decree dismissing the claim
against the third defendant, and direct the trial court to frame proper issues on
the last point raised on behalf of the third defendant, record his findings, and
dispose of the suit in accordance with law after giving the parties an opportunity
to adduce evidence. None of the issues decided in this appeal shall be re-argued
in front of the trial court." Court order the third defendant to pay the appellant's
costs and carry his own since the third defendant did not ask the trial court to
frame an issue on the matter at the right stage and now is attempting to lead
evidence on that point.

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