K.V. Ganapathi Subramania Ayyar vs Essen and Co. Ltd.

Kunhamed Kutti, J.—The Plaintiff in the Court below is the Appellant. He filed the suit, out of which this appeal arises, for recovery of a sum of Rs. 60,772, being the balance of principal and interest due on a promissory note, dated 2nd December 1950 for Rs. 67,601, repayable with interest at six per cent per annum executed by one S.N.N. Sankaralinga Iyer for and on behalf of the first Defendant Messrs. Amer Hind Manufacturers, Ltd., of which Essen and Co. Ltd., the second Defendant was the managing agents. On the same date as the promissory note Sankaralinga Iyer who was also the managing director of Defendant 2, for and on behalf of the said company passed a letter to the Plaintiff guaranteeing repayment by the first Defendant of all the sums of money under the promissory note. On 14th March 1952, a sum of Rs. 3,951 was paid towards interest and the same was endorsed on the promissory note under the signature of Sankaralinga Iyer. As no further payment was made, the Plaintiff sent a letter to the first Defendant giving six months notice to discharge the loan. There was no response. On 12th November 1952, the Plaintiff is said to have caused a lawyer''s notice to be sent to the two Defendants followed by another notice, dated 10th September 1953, demanding payment. Only two payments of Rs. 10,000, each were made on 22nd October 1954 and 7th December 1954. The Plaintiff, therefore, filed the suit to recover the balance amount due as aforesaid.

The second Defendant was impleaded as guarantor of the first Defendant''s liability, alleging that the guarantee executed by them was a continuing one irrespective of the change of constitution of the first Defendant company; and reliance was placed on the endorsement made by Sankaralinga Iyer on 14th March 1952, to have limitation against both the Defendants.

The first Defendant allowed the suit to proceed ex parte. The second Defendant, through its director, one K.S. Narayanan filed a written statement pleading inter alia that the aforesaid endorsement was not valid in law and would not save limitation, that the letter of guarantee did not create any liability and that even so the Plaintiff, by his conduct, had lost his right to proceed against the surety.

The learned Subordinate Judge decreed the suit against the first Defendant and dismissed it with costs as against the second Defendant.

The short point for determination is whether the dismissal of the suit as against the second Defendant is unsustainable.

The learned Subordinate Judge took the view that the endorsement by Mr. Sankaralinga Iyer, marked as exhibit A1(a), being as agent of the first Defendant according to the evidence, could save limitation only as against that Defendant but not as against the second Defendant. According to the learned Judge, an acknowledgment of liability will save limitation only against a principal debtor and not as against the surety; and he repelled the contention urged on behalf of the Plaintiff that the cause of action against the second Defendant arose only on the expiration of six months of the date of the promissory note stating that even if it were so the suit having been filed more than three years after the said date, namely, 2nd June 1951, is barred by limitation.

Pending this appeal, the Plaintiff filed Civil Miscellaneous Petition No. 5668 of 1958, for amendment of the plaint by adding to paragraph 9 of the plaint that,

the cause of action against the second Defendant arose on 18th September 1952, 12th November 1952 and 10th September 1953 on which dates notices were issued to the second Defendant calling on them to pay the Plaintiff the money remaining due to him on the suit promissory note; the suit is in time as against the second Defendant having been filed within three years from even the earlier of the said two dates and further is saved against any time bar by reason of two cheques issued for Rs. 10,000 each referred to in paragraph 5b and signed by S.N.N. Sankaralinga Iyer and also by the reply letter, dated 19th October 1953 written, by K.S. Narayanan under the authority of his father S.N.N. Sankaralinga Iyer to the Plaintiff''s Advocate acknowledging the liability in respect of the suit claim.

We allowed this amendment as the same was not opposed. No request was made for filing any additional written statement.

It appears to us, however, that the liability of the second Defendant company has to be determined with reference to the guarantee letter, exhibit A-2 which is as follows:

Dear Sir,

In consideration of your advancing a sum of Rs. 67,601 to Messrs. Amer Hind Manufacturers Ltd., under a promissory note, dated 2nd December 1950 executed by consolidating the amounts advanced by you to them, we, Essen and Co., the managing agents of Messrs. Amer Hind Manufacturers, Ltd., do hereby guarantee to you the repayment by the aforesaid Messrs. Amer Hind Manufacturers, Ltd. (principal debtor) of all sums of money due under the aforesaid promissory note within six calendar months of the service of notice in writing on us of any default on the part of Messrs. Amer Hind Manufacturers, Ltd. (the principal debtor). The guarantee given by this letter will be a continuing guarantee and no change in the constitution of Messrs. Amer Hind Manufacturers, Ltd., the principal debtor, shall impair the liability of the guarantor here under.

For Essen and Co. Ltd., (Signed) S.N.N. Sankaralinga Iyer.

It is clear from the above letter that the liability of the second Defendant is a continuing one, co-existent with the liability of the first Defendant, the only condition for enforcing the same against the former, if at all, being a notice in writing of the default on the part of the latter. The undertaking is that on intimation of such default in writing, the second Defendant would within six calendar months of such intimation see to the payment of all sums of money due under the promissory note. Notice of demand was served on the first Defendant as per the original of exhibit A-3, dated 19th September 1952. There was no compliance and the first intimation of default on the part of the first Defendant was sent to the second Defendant on 12th November. 1952. The specific averment in paragraph 6 of the plaint that notices demanding payment were sent to both the Defendants on the aforesaid date has not been controverted in the written statement of the second Defendant. In the ordinary course, the second Defendant should have received this notice in a day or two; and having regard to the terms of the guarantee letter the second Defendant was bound to repay the amount within six calendar months of the receipt thereof. There was yet another notice as per exhibit A-5 and this was received by Sankaralinga Iyer himself on 11th September 1953, so that the cause of action as against the second Defendant should be deemed to have arisen only from the date of service of either the first or the second notice. In either case the suit against the second Defendant would be in time provided the debt was alive and enforceable, as against the principal debtor, the first Defendant.

No doubt, Sankaralinga Iyer signed the endorsement, exhibit A1(a), without disclosing his capacity either as managing agent of the first Defendant or the managing director of the second Defendant company. But the fact is not denied that, at the time, he held both the capacities. The unrebutted evidence of P.W. 1 is that he signed the endorsement in his capacity as managing agent of the first Defendant and this evidence has been accepted and acted upon by the learned Subordinate Judge. The position, therefore, is this: on the date of suit, the debt was alive as against the first Defendant. The second Defendant was liable for the same in view of the continuing or co-existing liability undertaken by the said Defendant. Its liability could be deemed to have arisen only on intimation of default given by the Plaintiff as per notice, dated 12th November 1952. The claim against the second Defendant, was, therefore, not barred by time and so we are satisfied that the dismissal of the suit as against the second Defendant is unsustainable and has to be set aside.

This appeal, is therefore, allowed, the decree of the learned Subordinate Judge dismissing the suit against the second Defendant is set aside and the suit is decreed as against the said Defendant as well with costs here and in the Court below.