Liability of Legal Heirs for Deceased Guarantor’s Debt – Delhi HC Judgment Review

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When Inheritance Comes with a Price Tag: Delhi HC on Legal Heirs’ Liability for a Deceased Guarantor’s Debt

In a significant ruling on 4 August 2025, the Delhi High Court reaffirmed a principle that often surprises legal heirs: inheriting property from a deceased guarantor can also mean inheriting their debt — at least to the extent of the property’s value. The Court, in Mrs. Suman Srivastava v. Union Bank of India & Ors., dismissed a writ petition challenging an order of the Debt Recovery Appellate Tribunal (DRAT), holding that legal heirs who were parties to Debt Recovery Tribunal (DRT) proceedings cannot escape the mandatory pre-deposit requirement when appealing.

Case Background

The story begins in February 2013, when Mr. Prakash Srivastava mortgaged his residential property in Gurgaon (A-3, South City-1) as security for a loan taken by M/s Green World International Pvt. Ltd. from the Union Bank of India. He acted as a guarantor, backing the borrower’s repayment obligations.

Just four months later, in June 2013, Mr. Srivastava passed away. His property was inherited by his wife Mrs. Suman Srivastava (the Petitioner in this case) and their two sons — Anurag and Anuj.

Over time, the loan slipped into default. On 30 January 2016, the account was classified as a Non-Performing Asset (NPA), and the bank issued a SARFAESI Act Section 13(2) demand notice on 29 February 2016.

From DRT to DRAT: The Procedural Journey

The Union Bank initiated proceedings before the DRT, filing Original Application No. 30 of 2017 on 16 December 2016 to recover ₹10.42 crore plus 15% interest per annum. The DRT passed ex parte final orders on 25 August 2017 against the borrower and the guarantor’s legal heirs.

In subsequent years, the bank pursued recovery proceedings (TRC No. 155 of 2022). By 3 July 2024, the DRT had formally impleaded Mrs. Srivastava and her sons as parties — recognizing them as legal heirs to the deceased guarantor.

Appeals were filed before the DRAT (Misc. Appeal Nos. 39 and 40 of 2025), but these were dismissed on 28 February 2025 because the appellants failed to make the mandatory pre-deposit under Section 21 of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). The DRAT gave them four weeks to comply, but they did not.

Petitioner’s Arguments

Mrs. Srivastava challenged the DRAT’s dismissal before the Delhi High Court. Her main points were:

1. No role as borrower or guarantor
   She argued she was neither the borrower nor the guarantor, and therefore Section 21’s pre-deposit requirement did not apply to her.
2. Improper service of SARFAESI notices
   She claimed that the mandatory SARFAESI Rule 3 notice under Section 13(2) was never served on her or her late husband’s heirs, making the recovery proceedings invalid.
3. Lack of liability
   She contended she could not be held personally liable for her late husband’s debts.

The Bank’s Response

Union Bank’s counsel pointed out that:

• Mrs. Srivastava inherited the mortgaged property and, as such, inherited the liability attached to it.
• She and her sons had received various notices in 2017 and 2022 but failed to inform the bank or the DRT about Mr. Srivastava’s death or participate meaningfully in the proceedings.
• The claim of ignorance was unfounded; the sale proclamation notice served on 31 July 2024 was not the first time she learned of the proceedings.

Court’s Key Findings

1. Inheritance Brings Encumbrances

The Court reiterated a settled principle: when you inherit mortgaged property, you inherit it subject to the mortgage. You can’t enjoy ownership without accepting the debt obligation tied to it.

“Legal heirs stepping into the shoes of the deceased guarantor inherit both the property and the liability attached thereto.” – Delhi HC Bench of Justices Subramonium Prasad & Harish Vaidyanathan Shankar

2. Duty to Disclose Death of Guarantor

The legal heirs had a duty to inform the bank about Mr. Srivastava’s death. Failure to do so, coupled with their later challenge, amounted to concealment of material facts.

3. Mandatory Pre-Deposit Under Section 21

The Court held that Section 21 of the RDB Act applies to any appellant against a DRT order, including legal heirs impleaded in the proceedings. The DRAT rightly dismissed the appeal when the pre-deposit was not made.

4. No Clean Hands

The Court noted that the petition was not filed with “clean hands,” as the Petitioner had participated in the proceedings yet later claimed ignorance.

Relevant Legal Provisions

Section 21, Recovery of Debts and Bankruptcy Act, 1993
Requires an appellant to deposit 50% of the debt amount determined by the DRT before the DRAT hears the appeal. The DRAT may reduce this to 25%, but cannot waive it completely.

Section 13(2), SARFAESI Act, 2002
Allows secured creditors to issue a 60-day demand notice to the borrower or guarantor before taking possession or selling secured assets.

Liability of Legal Heirs
Under Section 50, CPC and the Indian Succession Act, legal heirs are liable for a deceased person’s debts only to the extent of the property inherited.

Supporting Precedents

• ICICI Bank v. Official Liquidator of APS Star Industries Ltd. (2010) 10 SCC 1
  Successors inherit property with existing encumbrances.
• R.K. Jain v. State Bank of India (Delhi HC, 2013)
  Legal heirs liable to the extent of property inherited from a deceased guarantor.
• Shri Vallabh Glass Works Ltd. v. Union of India (1984) 3 SCC 362
  Encumbrances remain attached to property despite change in ownership.

Final Judgment

The Delhi High Court dismissed the writ petition, upholding:

1. The DRAT’s requirement for pre-deposit was valid and binding.
2. Legal heirs impleaded in DRT proceedings cannot escape liability simply by claiming they weren’t the original borrower or guarantor.
3. Mrs. Srivastava and her sons, having inherited the mortgaged property, were liable to the extent of the property’s value.

The Court also noted a fresh Section 13(2) notice issued on 18 May 2025, giving 60 days to discharge the liability.

Practical Takeaways

For Banks

Always implead legal heirs if a guarantor dies during recovery proceedings. Ensure notices are served at the inherited property’s address to avoid procedural challenges.

For Legal Heirs

Inheriting property from a guarantor means inheriting the liability — at least up to the property’s value. Ignoring DRT/SARFAESI notices can lead to adverse orders that are difficult to overturn.

For Lawyers

Examine whether the heir was served notices and participated in proceedings — this is crucial for liability arguments. Be upfront with the court about timelines, death of parties, and service of notices to maintain credibility.

Decoding the Power Trio of Debt Recovery: SARFAESI — DRT — DRAT

1. DRT – Debt Recovery Tribunal

What it is: A special tribunal for banks and financial institutions to recover debts of ₹20 lakh or more through a faster, simplified judicial process.

2. DRAT – Debt Recovery Appellate Tribunal

What it is: The appellate forum to challenge DRT orders. Appeals usually require a pre-deposit before the appeal proceeds.

3. SARFAESI Act (2002)

What it is: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Empowers lenders to seize and sell secured assets of defaulting borrowers without first obtaining a court order.

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How they connect

1. Step 1 — SARFAESI: Banks commonly start here to recover dues directly by taking possession of secured assets (after giving statutorily required notice).
2. Step 2 — DRT: If SARFAESI action is legally challenged, or the bank opts for judicial recovery, the matter goes to the DRT.
3. Step 3 — DRAT: If either party is dissatisfied with a DRT decision, an appeal can be filed before the DRAT.

In essence, the Delhi HC’s ruling is a cautionary tale for heirs who think property inheritance is all gain and no pain. If the property is tied to a guarantor’s obligation, the debt comes as part of the package. And if you plan to challenge recovery orders, be ready to comply with the statutory pre-deposit — or risk your appeal being dead on arrival.