Refusing to reject bank’s recovery suit, the Madras High Court has held that while a legal heir who has not executed loan or guarantee documents cannot be made personally liable for the debt, the creditor is entitled to proceed against the estate of a deceased guarantor inherited by such legal heir. Therefore, a plaint seeking recovery from the inherited estate cannot be rejected merely because the legal heir was not a party to the original loan transaction.
Emphasising that a creditor can continue recovery proceedings against the estate left behind by the deceased guarantor, the Court said that a legal heir’s non-signatory status is not a ground to reject the plaint when the bank seeks recovery from the deceased guarantor’s estate in the heir’s hands.
Briefly, the dispute arose from an education loan of Rs. 4 lakhs sanctioned by Indian Bank to the borrower (daughter) and her father in 2007. The borrower and her father executed the loan documents, while the borrower’s parents also executed a guarantee agreement securing repayment of the loan. After the death of both parents, the bank filed a recovery suit against the borrower and impleaded her brother, Arun, as a legal heir of the deceased guarantor.
The brother sought rejection of the plaint under Order VII Rule 11 CPC. He argued that he was neither a borrower nor a guarantor, had not signed any loan documents, and had not benefited from the education loan. He further contended that his father had already settled property in his favour through a settlement deed executed before the loan transaction and that another legal heir had not been impleaded in the suit. According to him, no cause of action existed against him personally.
The bank opposed the application, contending that the brother had not been impleaded in his personal capacity but only as a legal heir representing the estate of the deceased guarantor. The bank maintained that its claim against him was restricted to the extent of any estate inherited from the deceased guarantor.
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A Single Judge Bench of Justice R. Rajesh Vivekananthan noted that there was no dispute regarding the education loan transaction or the execution of the guarantee agreement by the parents of the borrower. The real issue was whether liability arising from the guarantee could be enforced after the guarantor’s death and, if so, against whom.
The Bench observed that the death of a guarantor does not extinguish the liability arising under the guarantee. However, such liability can be enforced only against the estate left behind by the deceased guarantor and inherited by the legal heirs. The Court also clarified that a legal heir cannot be made personally liable for the entire debt merely because of his status as a legal heir. His liability is limited to the extent of the assets or estate inherited from the deceased guarantor.
The Court further observed that issues relating to the prior settlement deed, the nature of the property sought to be proceeded against, and the non-impleadment of another legal heir were factual matters requiring evidence and adjudication during trial. Such questions could not be decided at the stage of an application seeking rejection of the plaint.
