AI Structured Summary
Not yet generated for this judgment
Judgment
Ranjit Singh, J
The O.A. filed by the respondent Corporation stands allowed holding the appellant guarantor liable for recovery of a sum of Rs. 1,12,07,771/-. The appellant has accordingly filed this appeal to challenge the order passed by the Tribunal below. This appeal is filed with the delay of 390 days. The delay in filing the appeal stands condoned and the appeal is now being heard on merit after disposal of the waiver application.
Though the appellant itself has filed this appeal with delay as already noticed, but has primarily raised the ground of delay on the part of the Corporation in filing the O.A., to challenge the order passed by the Tribunal below.
The facts leading to the passing of the impugned order noticed in brief are that the Corporation had filed Suit No. 548/1991 before the High Court of Delhi. This suit was transferred to the Tribunal on the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act).
The Corporation had disbursed a sum of Rs. 25 lac out of the sanctioned loan of Rs. 29 lacs to the principal borrower, namely, M/s. Century Metals Ltd. The principal borrower defaulted in making payment. On 15.6.1982, the Corporation issued a letter recalling the entire amount due with interest and other moneys. The Corporation demanded payment of Rs. 48,38,224.29 with interest calculated up to 31.5.1982. The principal debtor failed to pay the amount.
The Corporation thereafter invoked the guarantee deed dated 29.3.1973 executed by the appellant and respondent No. 2. On 13.1.1988 the Corporation called upon the appellant and respondent No. 2 to pay a sum of Rs. 80,40,089.69 calculated up to 31.12.1987 together with further interest, liquidated damages, cost, charges and expenses. When no reply was received, the Corporation filed petition under Section 30 of the Industrial Finance Corporation Act, 1948 against the company. This petition was decreed on 23.5.1989. As on 20.12.1990 a sum of Rs. 1,12,07,771.69 was due from the defendants. This amount was accordingly claimed on the ground that the appellant along with respondent No. 2 and others were jointly and severally liable to pay this amount with interest @ 11% p.a. inclusive of liquidated damages @ 2% p.a. with half yearly rests.
The appellant along with other defendants in the O.A. filed a joint written statement pleading that the Tribunal had no jurisdiction to entertain and try this O.A. As per the appellant, the Corporation had filed an application under Section 30 of the Industrial Finance Corporation Act against M/s. Century Metal Ltd. before the Delhi High Court for recovery of Rs. 49,13,715.29 with interest and other charges. The Corporation had not impleaded the guarantors including the appellant in that petition. The plea thus was that the Corporation relinquished and waived the claim against the guarantors. It was stated that the appeal filed against the judgment passed by the Delhi High Court was pending before Division Bench and so the proceeding in the present O.A. was required to be stayed as per Section 10, CPC.
The appellant had also pleaded that the O.A. was bad for non-joinder of principal debtor M/s. Century Metals Ltd. The appellant, therefore, would plead that they stood absolved and were not liable to pay the amount. Referring to Section 133 of the Contract Act, appellant sought discharge of his surety on account of variance in the terms of contract on the ground that only Rs. 25 lacs was disbursed against the sanctioned amount of Rs. 29 lacs.
The plea which was much emphasized and, in fact, has been pressed here in the appeal is that the O.A. was barred by limitation. To substantiate the same, it is sated that agreement is dated 19.8.1972 and the whole amount was payable in instalments between 20.5.1975 and 20.11.1984. The appellant accordingly had contended that the application should have been filed within 3 years from 20.11.1984. It was further alleged that the guarantee executed on 29.3.1973 was payable on demand. As per the appellant, the period of limitation started running from 29.3.1973 and thus any application for recovery could be filed before 29.3.1976 and the application filed after this date would be time-barred. It was stated that the Corporation had taken action to recall the loan on the principal debtor on 31.1.1979 and taking this date to be the starting point of limitation, the suit became time-barred on expiry of three years on 31.1.1982.
The appellant had further stated that the Corporation wrote a letter to the principal debtor on 15.6.1982 for recalling the loan and copy of this letter was issued to the guarantors as well. Even from this date, the starting point of limitation would be 15.6.1982 and the claim would become time-barred on 15.6.1985, as per the appellant. The appellant had also raised some other pleas in regard to some unauthorized cutting and interpolation on the documents rendering it inadmissible in evidence. It was urged that there was interpolation in the guarantee deed on which the signatures of the appellant was obtained in blank.
The appellant had challenged the rate of interest as allowed by the Tribunal after relying upon some orders passed by the Delhi High Court where different rate of interest had been allowed against the principal borrower. It was urged that the liability of the guarantor could not be more than the liability of the principal borrower and thus the action of the Tribunal below in allowing different rate of interest would be illegal.
The challenge was also made to the claim on the ground that compound interest was unjustified. It was pleaded that the statement of account was not correct. In addition, it was pointed that the assets of the principal debtor has been taken over by the Corporation through Receiver when petition under Section 30 was filed and that the Corporation never took any step to sell the mortgaged property. It was, therefore, urged that the Corporation was not entitled to charge any interest from September 1982. The appellant would also state that the management and all the powers and functions tantamounting to having control over the operation of the company was taken over by the Management Committee and the company was also declared a sick industrial unit. The appellant would thus plead that the Corporation was not entitled to charge any interest or other charges.
The Tribunal below having regard to the pleadings before it formulated six points for determination, which are as under:
"(1) Whether the OA is maintainable?
(2) Is not the application barred by limitation?
(3) Whether D1 to D3 had not executed the Guarantee Bond?
(4) Was there any breach of contract on the side of the applicant whereby the sureties got discharged?
(5) Is the applicant entitled to recover the amount claimed from D1 and D3?
(6) Relief."
The Tribunal considered all the issues so framed and after rejecting the pleas raised by the appellant allowed the O.A. as already noticed.
The Counsel for the appellant has pressed this appeal only on two grounds. The Counsel would first urge the ground of O.A. being barred by limitation and has pressed this plea rather hard. By referring to the fact that loan agreement was dated 19.8.1972 which was repayable till 20.5.1983, it is stated that the period of limitation of three years would commence from 20.5.1983. As per the appellant, each date fixed for repayment of the loan when defaulted would give a cause of action and thus the claim would be barred by limitation on expiry of three years from the last due date of repayment, which was 20.5.1975.
It is urged that guarantee deed was executed on 19.3.1973 and it was payable on demand. Any amount which was payable on demand has to be paid immediately and so the limitation would start on the execution of the document. The plea thus is that the claim against the appellant being guarantor could be filed on or before 29.3.1976. It is also submitted that the loan was recalled from principal debtor on 31.1.1979 and thus suit will be barred on 31.1.1982. The Corporation had sent a notice to the principal debtor demanding payment on 15.6.1982, copy of which was served on the guarantor and thus the suit will be time-barred by 15.6.1985.
While rejecting the contention, the Tribunal has referred to the relevant clause of the deed of guarantee. The terms of the guarantee deed would clearly show that the guarantors were to pay this amount on demand. The whole of such principal sum, interest and/or other moneys which was then become due to the Corporation was to be paid on demand.
The fact that the appellant was required to pay on demand is not in dispute. The record would show that the respondent IFCI had made a demand from the guarantors and when they failed to pay the amount demanded, the O.A. came to be filed. The plea that the amount was payable on the date of execution of the guarantee deed is totally misconceived and misplaced. Liability of the appellant could start only when demand was made. In view of the terms of the guarantee, the loan would become payable only on demand. The Corporation had recalled the entire loan amount on 15.6.1982. Merely because the loan was recalled on 15.6.1982 it would not mean that it could be taken as demand from the guarantors. The guarantee cannot be taken to have been invoked when this demand was made from the principal debtor.
The O.A. for recovery was filed on the basis of deed of guarantee. The respondent Corporation had called upon the appellant guarantor to pay the amount of Rs. 80 lac approx on 13.1.1988. Accordingly, the period of limitation would start running from 13.1.1988. The suit was instituted on 21.12.1990 and thus it was held to be within the period of limitation.
The submission by the Counsel for the appellant also is that where the debt had already become time-barred against the principal debtor, then the demand on the guarantor cannot be pressed as condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. In this regard, the Counsel has made reference to the case of Syndicate Bank v. Channaveerappa Beleri & Ors., III (2006) SLT 518 : II (2006) BC 579 (SC) : (2006) 11 SCC 506. The Hon'ble Supreme Court in this case was considering the meaning of words "payable when actually a demand for payment is made". The guarantee bond in the case had stated that the guarantors agreed to pay and satisfy the Bank 'on demand'. It was specifically provided that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. The Bank guarantee also provided that the guarantee would be continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee thus made it clear that the liability to pay would arise on the guarantors only when a demand to pay is raised.
The Hon'ble Supreme Court has added a caveat here by holding that when demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. As per the Hon'ble Court, if the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantee would not arise. The Court has further observed that when the demand is made against the guarantor, if the claim is alive claim, i.e. a claim which is not barred, against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. The view further is that where guarantor becomes liable in pursuance of demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. The Counsel for the respondent Corporation would seek support from this part of the law laid down by the Apex Court. As per the Counsel, these observations made by the Supreme Court would stand in support of the respondent rather than supporting the plea raised on behalf of the appellant.
In this case, the demand was made on the appellant on 13.1.1988. The suit was instituted on 21.12.1990. From the date of demand the suit was well within limitation. It is now required to be seen if the debt had become time-barred against the principal debtor or not on this date. As already observed, the repayment of this loan was up to 20.11.1984. The suit being a mortgage suit, could be instituted within 12 years of the cause of action. Even if it is taken that the loan was recalled on 15.6.1982 and the claim under Section 30 was filed on 17.9.1982, the debt was not barred, limitation being 12 years. Thus, on the date when this demand was made, on the appellant on 13.1.1988, the debt had not become time-barred against the principal debtor. The Counsel for the respondent is justified in stating that the claim was alive against principal debtor when the demand was made on the guarantor.
One can also not lose sight of the fact that this loan was secured by mortgage. Even if it is taken that loan was recalled on 15.6.1982, the limitation for filing a mortgage suit would be 12 years and so could be filed up to June, 1994. The suit was instituted on 21.12.1990 and thus cannot be said to be beyond the period of limitation.
The Counsel for the appellant has also referred to the judgment in the case of State of U.P. & Anr. v. Vinod Kumar Srivastava, (2006) 9 SCC 621. The Court in this case, while considering Article 137 of the Limitation Act has held that when Article 137 is applied, the application moved by the Corporation on 2.1.1992 for proceeding against the sureties was clearly barred by time and the Courts below was correct in holding so under Article 137 of the Limitation Act. These observations were made by Hon'ble Supreme Court in regard to fact-situation in the said case. The present one is a case which is regulated by the provisions of the RDDBFI Act. One may have also to keep in mind that the guarantor is included in the definition of the borrower for the purpose of the recovery proceedings and in this background certain observations even if made in such cases relied upon by the Counsel for the appellant may not have much relevance.
The Counsel for the appellant has also placed before me certain other judgments to urge that once the suit against the principal debtor is dismissed for default and the decision become final, no liability thereby is survived against the principal debtor and this will have the liability of the surety terminated. This is urged on the basis of decision in the case of M/s. Kurnool Chief Funds (P) Ltd. v. P. Narasimha & Ors., III (2008) BC 575 : AIR 2008 AP 38. Even in the case of Anil Kumar v. Haryana Financial Corporation & Ors., I (2013) BC 629, it is held that liability of the surety which is co-extensive with that of principal debtor should terminate when liability against principal debtor stood crystallized on completion of winding up proceedings. That is not the issue which arose before the Court below. Accordingly, I find that nothing may depend upon the judgments relied upon by the Counsel for the appellant.
Similarly, the plea that the interest allowed by the Tribunal below has to be in consonance with the order passed by the Hon'ble Delhi High Court in the application cannot be accepted. The Corporation had claimed interest at contractual rate. The Single Judge of the Hon'ble Delhi High Court had granted interest @ 9% compounded as per terms of Clause 3.2 of the agreement, while decreeing the application under Section 30 filed against the principal debtor. The Tribunal below rather has passed an order benefiting the interest of the appellant by allowing interest only at 6% p.a. The reasons given in this regard are that the amount claimed in the O.A. is majorly consisting the interest element and hence granted reduced rate of interest while holding the Corporation entitled to recover the amount claimed. The plea that the Division Bench had made certain observations against the order passed by the Single Judge is not noticed by the Tribunal below. These may be on record but fact remains that the liability of the appellant who is a guarantor has to be determined on the basis of guarantee agreement. Even if the company has gone into liquidation, the liability of the appellant being a guarantor would be independent. The discretion of the Tribunal to allow interest considered appropriate is not in question, as otherwise, the Corporation had claimed interest at the rate which was agreed in the contract. The Tribunal has thus awarded the interest at concessional rate which is even less than the rate of interest allowed by the High Court. No cause is, therefore, made out for interference in this regard. There is thus no merit in the appeal and the same is accordingly dismissed.