Mr. Rangarajan is an entrepreneur in the digital media industry, he operated his business through, Moon Networks Limited (MNL). Rangarajan wanted to expand the business activities of MNL and for this he needed investment of about Rs 5 crore. He identified Mariam Equity Fund Limited, a Delhi based venture capital fund, as a potential source of investment. Mariam was interested but required MNL to meet certain conditions and standards. Rangarajan identified Hindustan Business Finance (HBF) which could give MNL a short-term loan. The HBF agreed to give a loan only if Rangarajan give a personal guarantee. Towards this, Rangarajan signed various documents including the Personal Guarantee and Indemnity, and Corporate Guarantee.

The relevant terms of the Personal Guarantee and Indemnity are as follows:
Clause 203: Advances: “The Loan shall be drawn down in a single sum (or such other sums as shall be agreed between the Parties) as soon as this agreement has been signed.”
Clause 204: Indemnity and Guarantee: “Without prejudice to the provisions of Clause 203, I (Rangarajan) shall indemnify and hold you harmless against the Loss and Cost that you may suffer or incur by reason of failure of the Borrower [MNL] to comply with any term of the Agreement”.
Clause 205: Declaration: “I agree that my liability hereunder shall not be affected by:
                                                                            I.           any indulgence granted or made by you to or with the Borrower or any Co-surety.
                                                                          II.           any variation to the Agreement and/or to any other document executed by any person in connection therewith.
                                                                        III.           any invalidity, illegality, unenforceability, irregularity or frustration of any actual or purported obligation of, or security held from, the Borrower or any other person.
And I shall be liable under this Agreement in every respect as a principal debtor.”
The MNL availed the loan of Rs. 1 crore from HBF on five instalments. When MNL defaulted on repayment, HBF pursued Rangarajan under the personal guarantee and indemnity. Rangarajan argued his liability was secondary to MNL’s and that the sums disbursed weren’t a valid loan.
Parties are in dispute as to liability on repayment of loan.

Question

Mr. Rangarajan is an entrepreneur in the digital media industry, he operated his business through, Moon Networks Limited (MNL). Rangarajan wanted to expand the business activities of MNL and for this he needed investment of about Rs 5 crore. He identified Mariam Equity Fund Limited, a Delhi based venture capital fund, as a potential source of investment. Mariam was interested but required MNL to meet certain conditions and standards. Rangarajan identified Hindustan Business Finance (HBF) which could give MNL a short-term loan. The HBF agreed to give a loan only if Rangarajan give a personal guarantee. Towards this, Rangarajan signed various documents including the Personal Guarantee and Indemnity, and Corporate Guarantee. 
   
 The relevant terms of the Personal Guarantee and Indemnity are as follows: 
 Clause 203:   Advances:  “The Loan shall be drawn down in a single sum (or such other sums as shall be agreed between the Parties) as soon as this agreement has been signed.” 
 Clause 204:   Indemnity and Guarantee:  “Without prejudice to the provisions of Clause 203, I (Rangarajan) shall indemnify and hold you harmless against the Loss and Cost that you may suffer or incur by reason of failure of the Borrower [MNL] to comply with any term of the Agreement”.  
 Clause 205:  Declaration:  “I agree that my liability hereunder shall not be affected by:  
                                                                              I.            any indulgence granted or made by you to or with the Borrower or any Co-surety. 
                                                                            II.            any variation to the Agreement and/or to any other document executed by any person in connection therewith. 
                                                                          III.            any invalidity, illegality, unenforceability, irregularity or frustration of any actual or purported obligation of, or security held from, the Borrower or any other person. 
 And I shall be liable under this Agreement in every respect as a principal debtor.” 
 The MNL availed the loan of Rs. 1 crore from HBF on five instalments. When MNL defaulted on repayment, HBF pursued Rangarajan under the personal guarantee and indemnity. Rangarajan argued his liability was secondary to MNL’s and that the sums disbursed weren’t a valid loan.  
 Parties are in dispute as to liability on repayment of loan.

Accepted Answer

It is clear from Clauses 204 and 205 that the liability of Rangarajan was primary, and he must pay the sum when demanded by HBF.

Answer

Although liability to indemnify follows from a failure of the Borrower. It is clear from Clauses 204 and 205 that Rangarajan is not primarily obliged for loss and costs for which the borrower is liable.

Answer

The Personal Guarantee given by Mr. Rangarajan in this case is regarded as a hybrid document in which some of the obligations are primary and some are secondary. Rangarajan is partly liable for MNL’s loan.

Answer

Personal Guarantee is a true guarantee, the principle of co-extensiveness applies in this case, and the Rangarajan is entitled to the benefit of any defences available to the guarantor under Clause 205. Therefore, he is secondary liable for MNL’s loan.

Crowdly

Mr. Rangarajan is an entrepreneur in the digital media industry, he operated his...

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