Guarantor Cannot Disown Lawful Acts of Power Agent: Madras High Court Restores Bank’s Right to Proceed Against Guarantor for Mortgage Executed via Power of Attorney

“Once a Guarantor Authorises a Power Agent to Mortgage and Guarantee, He Is Bound by the Execution”— Madras High Court delivered a significant ruling in the realm of contract and banking law by allowing Civil Revision filed by Axis Bank Ltd., and quashing concurrent findings of the Debts Recovery Tribunal (DRT) and Debts Recovery Appellate Tribunal (DRAT). The Division Bench comprising Chief Justice Manindra Mohan Shrivastava and Justice G. Arul Murugan held that a guarantor who has lawfully authorised a power agent to execute mortgage and guarantee on his behalf cannot subsequently repudiate the liability arising from such execution, especially when the language of the power of attorney is clear, absolute, and unambiguous.

The case arose from the refusal of both the DRT and DRAT to enforce a mortgage and personal guarantee executed by the guarantor’s wife under a general power of attorney, on the premise that the power agent could not bind the principal in securing a loan for a third party. Dismissing this reasoning as a “misreading of the power of attorney and a misapplication of legal principles,” the High Court ruled that “the mortgage executed by the power agent is valid, binding, and enforceable under the Indian Contract Act.”

“Liability of the Guarantor Is Co-extensive with the Borrower Under Section 128, Unless Contract Provides Otherwise”

The dispute involved financial assistance extended by Axis Bank to a partnership firm—Respondents 1 to 6—to the tune of ₹1.25 crores. The seventh respondent, who was not a partner but had executed a General Power of Attorney in favour of his wife, was named as a guarantor and mortgaged two of his properties through his wife acting as his agent. When the borrowers defaulted, Axis Bank filed an original application before the DRT seeking joint and several recovery from all respondents. While the DRT granted recovery against the borrowers, it held the mortgage and guarantee executed by the wife of the seventh respondent invalid, and this decision was later confirmed by the DRAT.

Rejecting this, the High Court emphasised: “The power of attorney executed by the seventh respondent explicitly authorised his wife to mortgage, guarantee, and receive consideration on his behalf. The express recitals cannot be nullified by strained interpretation or equitable concerns.”

The Court further declared: “As per Section 128 of the Indian Contract Act, the liability of the guarantor is co-extensive with that of the principal debtor unless the contract states otherwise. The bank has the discretion to proceed against the borrower, the guarantor, or both. The suggestion that the bank must first exhaust remedies against the borrower is legally untenable.”

“Tribunals Misread the Document and Delivered Findings Based on Sympathy, Not Law”—Court Finds Orders Perverse and Unsustainable

The seventh respondent’s main argument was that his wife had acted beyond her authority, as the mortgage and guarantee were not for his benefit but for third parties. The DRT had accepted this argument, interpreting the power of attorney narrowly. The DRAT went a step further, stating that although the guarantor had committed a lapse, the bank’s conduct in “soft-pedalling” recovery from the borrowers made it “unbecoming of a bank,” and on that ground upheld the DRT’s findings.

The High Court took strong exception to such reasoning:

“The Tribunals interpreted the document against its clear terms and ventured into moral assessments that have no place in a contractual dispute. Findings based on misplaced sympathy or vague assumptions about who benefited from the transaction cannot override legal obligations.”

Referring to the express language of the power of attorney, the Court noted that it:

“Conferred absolute authority on the agent to execute documents of sale, mortgage, guarantee, and to receive consideration. No limitation or restriction was placed on such authority, and therefore, the acts of the agent bind the principal.”

“Execution of Guarantee by Agent Is Valid—Guarantor Is Bound Even If He Did Not Sign Personally”

The seventh respondent’s counsel had also contended that the personal guarantee in favour of the bank was invalid as it was not signed by the respondent himself, but by his wife as power agent. The High Court rejected this outright:

“The seventh respondent did not dispute the factum of execution of the power of attorney. He cannot now avoid liability on the ground that the guarantee was not signed personally. When lawfully authorised, the signature of the agent binds the principal.”

The Court also dismissed the argument that the bank ought to have first pursued recovery from the borrower’s assets:

“The law does not mandate such a sequence. The guarantor’s liability is not conditional on the bank exhausting remedies against the borrower.”

Supreme Court's Umadevi Nambiar Judgment Inapplicable—High Court Clarifies Legal Position on Authority of Power Agent

The guarantor relied on the Supreme Court decision in Umadevi Nambiar v. Thamarasseri Roman Catholic Diocese, (2022) 7 SCC 90, to argue that acts of the power agent beyond the terms of the power of attorney are not binding. However, the High Court distinguished that case:

“In Umadevi Nambiar, the power agent had no authority to sell; here, the document expressly authorises the agent to mortgage and guarantee. The principle laid down is not applicable to the facts of this case.”

“Sympathy Is No Substitute for Contractual Clarity”—Court Allows Bank to Proceed Against Guarantor

Ultimately, the High Court allowed the civil revision petition and restored the bank’s claim against the guarantor, setting aside the findings of both the DRT and DRAT as:

“Perverse, contrary to the record, and based on erroneous interpretation of the document and the law.”

The Court held: “Once the power of attorney authorised the execution of a mortgage and guarantee, the act of the agent in doing so is binding on the principal. There is no allegation of fraud, coercion, or misrepresentation. The seventh respondent cannot now evade liability.”

Date of Decision: 28 October 2025