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2011 (8) TMI 1331 - HC - Indian LawsLiability to Repay the loan - Jointly and Severally - “letter of comfort” is wrongly interpreted and treated as “letter of guarantee” - Appellant executed a “letter of comfort” as per exhibit P14 - Respondent No. 2 committed default and did not repay the amount as agreed - HELD THAT:- The apex court in the case of State of Maharashtra v. Dr. M.N Kaul [1967 (3) TMI 107 - SUPREME COURT], while dealing with the aspect of the enforceability of the guarantee has observed: ''That depends upon the terms under which the guarantor bound himself. Under the law he cannot be made liable for more than he has undertaken.'' It is clear that the contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. If the entire document in question, i.e, exhibit P14 is read as a whole, the same nowhere reveals that the appellant has entered into a contract or an agreement with respondent No. 1 to discharge the liability of respondent No. 2 herein (principal debtor) in case of its default. All through, respondent No. 1 as well as other parties including the appellant has understood the document exhibit P14 as a “letter of comfort”, plain and simple. In the cross-examination of PW1 witness for respondent No. 1), he has clearly admitted that the appellant has not undertaken under exhibit P14 that he would repay the amount in case respondents Nos. 2 to 4 herein commit default in payment of the loan. In the light of clear admission of PW1 and having regard to the language employed in exhibit P14, it is clear that the appellant has not undertaken that it would repay the loan amount in case of default by respondents Nos. 2 and 4 herein. Definition of “letter of comfort”, as found in P. Ramanatha Aiyar's Advanced Law Lexicon, which reads thus: “Letter of comfort - A document that indicates one party's intention to try to ensure that another party complies with the terms of a financial transaction without guaranteeing performance in the event of default.” Therefore, it is clear that the letter of comfort merely indicates the appellant's assurance that respondent No. 2 would comply the terms of a financial transaction without guaranteeing performance in the event of default. Since we find that the appellant has not bound himself for repaying the loans due to first respondent corporation in the event of default by respondents Nos. 2 and 4, the impugned order in so far as it relates to fixing liability on appellant is liable to set aside. Accordingly, the same is set aside. Rest of the order passed against respondents Nos. 2 to 4 continues to remain. Appeal is allowed-in-part accordingly.
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