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Guarantors not liable for dues prior to guarantee document

Central Bank Of India vs Virudhunagar Steel Rolling Mills ... on 29 December, 2015, Respondent No.1 which is the company which received various credit facilities from the Appellant Bank, of a total amount of [pic]12 lacs against security of moveable as well as raw materials. These facilities were subsequently secured in favour of the Appellant Bank by means of continuing guarantee by the Directors of the Respondent Company, who are Respondent Nos. 2 to 4 herein, in terms of Promissory Notes, Letters of Guarantee, Letters of Hypothecation and Letters of Continuity all dated 30.8.1974. On 30.6.1977 and again on 31.12.1977, by means of separate letters from the Respondent Company to the Appellant Bank, the entire balance due, stood confirmed. Eventually, the Appellant filed a suit on 2.5.1980 for recovery of [pic]3,94,805.42 with future interest at the rate of 14 per cent per annum.

Trial Court and High Court decided that the liabilities prior to 30.8.1974 were not recoverable from Defendant Nos. 2 to 4.

The Hon'ble Supreme Court also accepting the decision of the lower courts recorded that the bank while executing the Deed of Guarantee should have mentioned prior dues.

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