Punjab National Bank vs Rajni Timbers Pvt. Ltd. And Ors

S. Ravi Kumar, J

This Appeal is preferred against judgment dated 05.03.2010 in Original Application (O.A.) No. 13/2005 on the file of Debts Recovery Tribunal, Nagpur (the Tribunal below). Appellant herein filed above referred O.A. against six Defendants for recovery of Rs. 57,73,802/- with interest @ 16% per annum. Defendants remained ex parte and O.A. was allowed vide judgment dated 12.12.2006 against all the Defendants. Thereafter Defendant No. 3 filed M.A. to set aside ex parte judgment against him and the said application was dismissed. As against that order Defendant No. 3 preferred Misc. Appeal No. 191/2007 before this Tribunal and that Appeal was allowed and the ex parte Recovery Certificate (R.C.) passed against Defendant No. 3 was set aside. Thereafter, Defendant No. 3 filed Written Statement (W.S.) and on consideration of contentions and rival contentions of both parties, Tribunal below dismissed the O.A. as against Defendant No. 3, challenging said order present Appeal is filed by applicant bank.

Heard both sides.

Advocate for Appellant submitted that the Guarantee Agreement executed by Defendant No. 3 is a continuing guarantee and once money is disbursed, the guarantor has no right to withdraw it. It is further submitted even according to Section 130 of the Indian Contract Act, revocation will be operative only for future transaction and the guarantor cannot be absolved for past transactions. He submitted that Tribunal below wrongly applied Section 55 of the Limitation Act and the said provision is applicable only in cases of breach of contract, therefore, interpretation given by the Ld. P.O. is not legal.

On the other hand, Advocate for Defendant No. 3 submitted that when the Guarantor revoked guarantee through letter dated 14.08.2001, right to sue against Guarantor commenced from that date and as the O.A. is not filed within three years from that date, the Tribunal below was right in recording a finding that claim is barred by time against Defendant No. 3. He submitted the period of limitation so far as Defendant No. 3 is concerned would run from the date of notice and the Tribunal below rightly applied Article 55 of the Limitation Act and that there are no grounds to interfere.

I have perused material papers and the impugned order dated 05.03.2010. It is not in dispute that Defendant No. 1 company approached Appellant Bank for Cash Credit Facility on or about 26.09.1998 for a sum of Rs. 50 Lakhs for carrying out timber business. The Bank agreed to advance Cash Credit Facility and the first Defendant and other Defendants including Defendant No. 3 executed necessary documents and thereafter Defendant No. 1 availed the said facility. When Defendant No. 1 failed to clear outstanding, the Bank obtained fresh set of documents including Balance Confirmation Letters dated 17.05.2001 and 13.05.2003 and thereafter filed the O.A. Admittedly, Defendant No. 3 has not signed fresh set of documents and on the other hand on 14.08.2001 Defendant No. 3 informed the Bank through the letter that he is withdrawing the Guarantee. The Bank issued reply to the said letter dated 14.08.2001 on 23.08.2001. It may be relevant to read said reply which is as follows:

"Your letter dated 14.03.2001, to my client Punjab National Bank, Bharat Nagar, Nagpur, has been placed in my hands by my client, with instructions and authority to reply the same as under:

At the outset my client states that it has already issued a notice upon you calling upon you to regularize the account of Rajni Timber Pvt. Ltd. You are therefore, once again called upon to regularize the said account.

My client denies the contentions of your letter under reply. Please note that your past, present and future liability to my client as a Director and Guarantor in the a/c Rajni Timber Pvt. Ltd. cannot be discharged.

Your liability to liquidate the dues of Rs. 53,66,844.11 as on 20.7.2001 is coextensive with the liability of the Rajni Timber Pvt. Ltd.

Kindly, therefore, take note and liquidate the dues of the a/c Rajni Timber Pvt. Ltd."

From the above reply it is clear that Bank requested Defendant No. 3 to regularize Account of Defendant No. 1 and called upon Defendant No. 3 to liquidate a sum of Rs. 53,66,844.11 found due as on 20.07.2001. So there is a specific demand from Appellant to Defendant No. 3 to liquidate money after Defendant No. 3 informed revocation of Guarantee. As rightly pointed by Advocate for Defendant No. 3, right to sue against Defendant No. 3 would start from this date and if the O.A. is not filed within three years from this date, the right to fasten liability against Defendant No. 3 would be lost. Advocate for Respondent No. 3 referred to judgment of Madras High Court in Tamil Nadu Industrial Investment Corporation Ltd. V/s. M/s. Sudarsanam Industries & Ors. reported in AIR 2009 Madras 15 wherein it is observed that even in case of continuing Guarantee it can be revoked by the surety by issue of notice to the creditor and once such a notice is issued the liability of that surety would fasten only upto that date and not thereafter. In that case surety issued notice on 20.04.1987 for which demand was made from the creditor on 27.12.1991. The creditor filed O.A. in the year 1997. Madras High Court held the claim against surety who gave notice of 20.04.1987 is time barred and they have to be relieved of the liability. He also relied on judgment of Hon'ble Supreme Court in Mrs. Margaret Lalita Samuel V/s. Indo Commercial Bank Ltd. reported in AIR 1979 SC 102, wherein it is held limitation would run only from the date of breach under Article 115 of the Schedule to the Limitation Act, 1908. In the above referred decision Hon'ble Supreme Court clarified in case of continuing guarantee period of limitation would only start from the breach and when there is no refusal on the part of the Guarantor to carry out the obligation, the period of limitation for a suit would run only from the date of breach under Article 115 of the Schedule to the Limitation Act, 1908. As Guarantor revoked Guarantee, there is a breach and the limitation runs against him from the date of breach.

Here in our case, as already referred to above Defendant No. 3 revoked Guarantee through letter dated 14.08.2001 for which by way of reply Bank issued a demand notice on 23.08.2001, but the O.A. is not filed within three years thereafter, therefore, contention of Bank that as it is a continuing guarantee, the claim would survive as it is within time against principal borrower cannot be accepted in view of the decision (relied on by Respondent No. 2) referred to above. This is the only point involved in this case and the Tribunal below rightly held on the point of limitation.

One of the contentions of Advocate for Appellant that Section 55 of the Limitation Act is not applicable, as it is in respect of claiming compensation for breach of contract. Even if argument of Advocate for Bank is accepted, as per Article 113 which is a residuary clause for the claims for which specific provision is not provided, period of limitation would start from the date when the party accrues rights. In this case the bank accrued right to claim against Defendant No. 3 the date on which the Defendant No. 3 revoked Guarantee, for which reply is given and the demand is made to regularize the Account of the Borrower and also to liquidate money due as on 20.07.2001. So this demand notice gives cause of action to the Bank to proceed against Defendant No. 3 and right is accrued for the Bank to proceed against Defendant No. 3 from that date and from which date period of limitation runs. Admittedly, the O.A. is filed on 24.03.2005 which is beyond three years from 23.08.2001, the date on which the Bank called upon Defendant No. 3 to regularize the Account and to liquidate the amount due. So even if Article 55 is not applicable, as per Article 113 also the claim is time barred. Tribunal below elaborately considered every aspect and came to a right conclusion and I do not find any illegality in the judgment of the Tribunal below, therefore, I am of the view that there are no grounds to interfere with judgment dated 05.03.2010 and the Appeal is devoid of merits.

For the reasons stated above, Appeal is dismissed as devoid of merits, but under the circumstances without costs.

All Miscellaneous Applications, if any, are dismissed as infructuous.