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Friday, January 31, 2014

Limitation Act - Article 55 of the Limitation Act, 1963 - Section 29 the State Financial Corporation Act - suit against Contract of Indemnity arose only after execution of main contract of mortgage/hypothication as per sec.29 of State Financial Act and only after determination of balance due - Apex court held that the suit filed after ascertainment of balance due only cause of action starts but not from the date of recalling notice and as such the suit is within limitation - confirmed the orders of High court = Deepak Bhandari …..........Appellant(s) Versus Himachal Pradesh State Industrial Development Corporation Limited ….........Respondent(s) = 2014 (January part) judis.nic.in/supremecourt/filename=41189

Limitation Act - Article 55 of the  Limitation  Act,  1963 - Section 29 the  State  Financial
    Corporation Act -  suit against Contract of Indemnity arose only after execution of main contract of mortgage/hypothication as per sec.29 of State Financial Act and only after determination of balance due - Apex court held that the suit filed after ascertainment of balance due only cause of action starts but not from the date of recalling notice and as such the suit is within limitation - confirmed the orders of High court =

starting point of limitation for filing the suit for  recovery  by  the
    State Financial Corporations  constituted  under  the  State  Financial
    Corporation Act. =
whether  the
    limitation for filing the suit  would  start  on  21.5.1990,  when  the
    notice of recall was issued or the starting point would  be  31.3.1994,
    when the assets of the Company were sold and the balance amount payable
    (for which suit is filed) was ascertained on that date. =
 It  may  be  that  only  the  Corporation
    taking action under Section 29 and  on  their  taking  possession  they
    became deemed owners. The mortgage may have come to  an  end,  but  the
    contract of indemnity, which was an independent contract, did not.  The
    right to claim for the balance arose, under the contract of  indemnity,
    only when the sale proceeds were found to be insufficient. The right to
    sue on the contract of indemnity arose after the assets were sold.  The
    present case would fall under Article 55 of the  Limitation  Act,  1963
    which corresponds to old Articles 115 and 116  of  the  old  Limitation
    Act, 1908. The right to sue on a contract of indemnity/ guarantee would
    arise when the contract is broken.
    23.    Therefore, the period of limitation is to be  counted  from  the
    date when the assets of the Company were sold and not when  the  recall
    notice was given.
    

After adjusting the sale proceeds  against
    the outstanding debts of the Company, in proportion to the  term  loans
    advanced by the Corporation and Himachal Pradesh Financial Corporation;
    a sum of Rs. 68,96,564/- (Rupees Sixty Eight Lakhs Ninety Six  Thousand
    Five Hundred and Sixty Four only) still  remained  outstanding  against
    the Company.
 9. The Corporation preferred a Civil Suit No. 85  of  1995  on  26.12.1994
    titled as Himachal Pradesh  State  Industrial  Development  Corporation
    Limited v. M/s RKB Herbals Pvt. Ltd and Ors.,  for recovery of  sum  of
    Rs. 30,60,732/- (Rupees Thirty Lakhs Sixty Thousand Seven  Hundred  and
    Thirty Two only). The sum above mentioned was calculated as follows  by
    the Corporation:
|Recoverable amount on 31.5.1994                              |
|Principal Amount (Rs./-)             |5,16,582               |
|Interest                             |63,79,982              |
|Total                                |68,96,564              |
|Less Penal Interest                  |38,35,832              |
|Net Amount for which suit was filed  |30,60,732              |


    10.    The Civil Suit No. 85 of 1995  was  decreed  in  favour  of  the
    Corporation vide judgment and  decree  dated  6.6.2008  passed  by  the
    Single Judge of the High Court of Himachal Pradesh, granting  a  decree
    of Rs. 30,60,732/- (Rupees Thirty Lakhs Sixty  Thousand  Seven  Hundred
    and Thirty Two only) along with interest at the rate of  12%  from  the
    date of filing of suit till the realization of the said amount.
Before the learned Single Judge of the High Court a plea was  taken  by
    the defendants, including the appellant herein, that the suit was  time
    barred as it was filed beyond the period of 3 years from  the  date  of
    commencement  of  limitation  period. 
 To  appreciate  this   plea   we
    recapitulate some relevant dates:
|Date           |Event                                     |
|21.5.1990      |Recall notice sent by the Corporation,    |
|               |recalling the outstanding amount.         |
|10.7.1992      |Mortgage/ hypothecated assets of the      |
|               |Company taken over by the Corporation.    |
|31.3.1994      |The Mortgage/ hypothecated assets of the  |
|               |Company sold by the Corporation.          |
|21.5.1994      |Notice issued to all the three Directors  |
|               |of the Company for payment of outstanding |
|               |amount.                                   |
|26.12.1994     |Suit for recovery of the balance          |
|               |outstanding filed by the Corporation.     |

        As per the defendants cause of action for  filing  the  recovery
    suit  arose  on  21.5.1990  when  recall  notice  was  issued  by   the
    Corporation to the Company and the Guarantors. Therefore, the suit  was
    to be filed within  a  period  of  3  years  from  the  said  date  and
    calculated in this manner, last date for filing the suit was 20.5.1993.
    It was, thus, pleaded that the suit filed on 26.12.1994 was beyond  the
    period of 3 years from 21.5.1990 and,  therefore,  the  same  was  time
    barred. 
The Corporation, on the other hand, contended that  action  for
    selling the mortgage/ hypothecated properties of the Company was  taken
    under the provisions of Section 29 of the Act and  the  sale  of  these
    assets were fructified on 21.3.1994. 
It is on the realization  of  sale
    proceeds only, the balance amount payable by the  guarantors  could  be
    ascertained. 
Therefore, the starting point for counting the  limitation
    period is 31.3.1994 and the suit filed by the Corporation on 26.12.1996
    was well within the period of limitation.        
The learned Single Judge deciding in favour of the  Corporation,
    held the suit to be  well  within  limitation.  The  suit  was  decreed
    against all the defendants including the appellant herein, holding them
    to be jointly and severely liable  to  pay  the  decretal  amount.  The
    appellant herein preferred an intra court appeal against  the  judgment
    and decree dated 6.6.2008. The Division Bench has  also  negatived  the
    contention of the appellant affirming the finding of the  single  Judge
    and holding the suit to be within limitation.
          24.    The up-shot of the aforesaid discussion  is  to  hold  that  the
    present appeal is bereft of any merits. Upholding the judgment  of  the
    High Court, we dismiss the instant appeal, with costs.

             
2014  (January part) judis.nic.in/supremecourt/filename=41189
K.S. RADHAKRISHNAN, A.K. SIKRI

 [REPORTABLE]


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                         CIVIL APPEAL NO.1019/ 2014
      [Arising out of Special Leave Petition (Civil) No. 30825 of 2010]


    Deepak Bhandari
    …..........Appellant(s)


                                   Versus


    Himachal Pradesh State Industrial
    Development Corporation Limited
    ….........Respondent(s)




                               J U D G M E N T
    A.K. SIKRI, J.


 1. Leave granted.
 2. Present appeal raises an interesting question of law pertaining to  the
   
starting point of limitation for filing the suit for  recovery  by  the
    State Financial Corporations  constituted  under  the  State  Financial
    Corporation Act.
We make it clear at the outset itself that we are  not
    treading a virgin path. 
There are two judgments of this Court  touching
    upon this very issue.
At the same time it is also  necessary  to  point
    out that it  has  become  imperative  to  clarify  the  legal  position
    contained in two judgments and to reconcile the ratio thereof  as  well
    because of the  reason  that  they  are  contradictory  in  nature.  It
    necessitates wider discussion in order to avoid any  confusion  in  the
    manner such cases are to be dealt with.
    3.     With the  aforesaid  preliminary  introduction  to  the  subject
    matter of the present appeal, we now proceed to take note of the  facts
    which have led to the question of limitation that confronts us.
    4.      Respondent  No.  1  viz.  Himachal  Pradesh  State   Industrial
    Development Corporation Limited (hereinafter to  be  referred  as  'the
    Corporation') is a financial corporation under  the  State  Development
    Corporation Act (hereinafter to be  referred  as  the  Act).
It  is  a
    statutory  body  constituted  for  the  purpose  of  carrying  out  the
    objectives of the Act. It is a company incorporated under the Companies
    Act, 1956, engaged in  the  business  of  providing  financial  aid  to
    companies for setting up and commencing operations.
Respondent  No.  2
    (hereinafter to be referred as the 'Company') is the industrial concern
    which defaulted in repayment of the loan disbursed  by  the  Respondent
    No. 1. It is now under liquidation.
Respondent No. 3  is  the  official
    liquidator, who was appointed by  the  High  Court  of  Delhi  for  the
    purposes of winding up the Company.
Respondent Nos.  4  &  5  were  the
    Directors of the  Company  at  the  time  of  entering  into  the  loan
    agreements with the Corporation.
    5.     The appellant who was also a director  of  the  Company,  was  a
    Guarantor for the payment of loans  taken  by  the  Company  vide  loan
    agreements executed between Corporation and the Company.
The  following
    loan agreements were executed along with the corresponding amounts  and
    guarantees:
|Loan Agreement Date    |Amount      |Deed of Guarantee Date  |
|5.6.1985               |20.67 lacs  |5.6.1985                |
|7.4.1986               |8.73 lacs   |7.4.1986                |
|24.11.1986             |15.38 lacs  |24.11.1986              |
|28.7.1987              |7.76 lacs   |                        |
|Total                  |52.54 lacs  |                        |


 6. The Company defaulted on the repayments of the loan amount disbursed to
    it by the Corporation. The Corporation issued a Recall  Notice  bearing
    No. PAC 84/ 90/  6705  dated  21.5.1990  recalling  an  amount  of  Rs.
    77,35,607/-(Rupees seventy seven lakhs thirty five thousand six hundred
    and seven only) plus further interest to be accrued from 10.9.1990.
 7.  The  Company  failed  to  make  the  repayment  and  accordingly   the
    Corporation,  proceeded  under  Section  29  of  the  State   Financial
    Corporations Act, 1951 to take over the mortgaged/ hypothecated  assets
    of the Company. The assets of  the  Company  were  taken  over  by  the
    Corporation on 10.7.1992. The mortgaged/  hypothecated  assets  of  the
    Company were sold by the Corporation on 31.3.1994  for  a  sum  of  Rs.
    96,00,000/- (Rupees Ninety Six Lakhs only) by inviting offers by  means
    of publishing advertisements in the leading newspapers.
 8. Since the company was also indebted to HP Financial Corporation, amount
    realised from the sale of the company's assets was apportioned  between
    these two secured creditors. After adjusting the sale proceeds  against
    the outstanding debts of the Company, in proportion to the  term  loans
    advanced by the Corporation and Himachal Pradesh Financial Corporation;
    a sum of Rs. 68,96,564/- (Rupees Sixty Eight Lakhs Ninety Six  Thousand
    Five Hundred and Sixty Four only) still  remained  outstanding  against
    the Company.
 9. The Corporation preferred a Civil Suit No. 85  of  1995  on  26.12.1994
    titled as Himachal Pradesh  State  Industrial  Development  Corporation
    Limited v. M/s RKB Herbals Pvt. Ltd and Ors.,  for recovery of  sum  of
    Rs. 30,60,732/- (Rupees Thirty Lakhs Sixty Thousand Seven  Hundred  and
    Thirty Two only). The sum above mentioned was calculated as follows  by
    the Corporation:
|Recoverable amount on 31.5.1994                              |
|Principal Amount (Rs./-)             |5,16,582               |
|Interest                             |63,79,982              |
|Total                                |68,96,564              |
|Less Penal Interest                  |38,35,832              |
|Net Amount for which suit was filed  |30,60,732              |


    10.    The Civil Suit No. 85 of 1995  was  decreed  in  favour  of  the
    Corporation vide judgment and  decree  dated  6.6.2008  passed  by  the
    Single Judge of the High Court of Himachal Pradesh, granting  a  decree
    of Rs. 30,60,732/- (Rupees Thirty Lakhs Sixty  Thousand  Seven  Hundred
    and Thirty Two only) along with interest at the rate of  12%  from  the
    date of filing of suit till the realization of the said amount.
11. Before the learned Single Judge of the High Court a plea was  taken  by
    the defendants, including the appellant herein, that the suit was  time
    barred as it was filed beyond the period of 3 years from  the  date  of
    commencement  of  limitation  period. 
 To  appreciate  this   plea   we
    recapitulate some relevant dates:
|Date           |Event                                     |
|21.5.1990      |Recall notice sent by the Corporation,    |
|               |recalling the outstanding amount.         |
|10.7.1992      |Mortgage/ hypothecated assets of the      |
|               |Company taken over by the Corporation.    |
|31.3.1994      |The Mortgage/ hypothecated assets of the  |
|               |Company sold by the Corporation.          |
|21.5.1994      |Notice issued to all the three Directors  |
|               |of the Company for payment of outstanding |
|               |amount.                                   |
|26.12.1994     |Suit for recovery of the balance          |
|               |outstanding filed by the Corporation.     |


    12.    As per the defendants cause of action for  filing  the  recovery
    suit  arose  on  21.5.1990  when  recall  notice  was  issued  by   the
    Corporation to the Company and the Guarantors. Therefore, the suit  was
    to be filed within  a  period  of  3  years  from  the  said  date  and
    calculated in this manner, last date for filing the suit was 20.5.1993.
    It was, thus, pleaded that the suit filed on 26.12.1994 was beyond  the
    period of 3 years from 21.5.1990 and,  therefore,  the  same  was  time
    barred. 
The Corporation, on the other hand, contended that  action  for
    selling the mortgage/ hypothecated properties of the Company was  taken
    under the provisions of Section 29 of the Act and  the  sale  of  these
    assets were fructified on 21.3.1994. 
It is on the realization  of  sale
    proceeds only, the balance amount payable by the  guarantors  could  be
    ascertained. 
Therefore, the starting point for counting the  limitation
    period is 31.3.1994 and the suit filed by the Corporation on 26.12.1996
    was well within the period of limitation.
    13.    The learned Single Judge deciding in favour of the  Corporation,
    held the suit to be  well  within  limitation.  The  suit  was  decreed
    against all the defendants including the appellant herein, holding them
    to be jointly and severely liable  to  pay  the  decretal  amount.  The
    appellant herein preferred an intra court appeal against  the  judgment
    and decree dated 6.6.2008. The Division Bench has  also  negatived  the
    contention of the appellant affirming the finding of the  single  Judge
    and holding the suit to be within limitation.
14. We have already taken note of the stand of the parties on either  side.
    It is apparent from the above that the main issue is as to whether  the
    limitation for filing the suit  would  start  on  21.5.1990,  when  the
    notice of recall was issued or the starting point would  be  31.3.1994,
    when the assets of the Company were sold and the balance amount payable
    (for which suit is filed) was ascertained on that date. We have already
    pointed out in the beginning that there are two judgments of this Court
    which  have dealt with the aforesaid issue. First judgment is known  as
    Maharashtra State Financial Corporation v. Ashok K. Agarwal & Ors. 2006
    (9) SCC 617. In that case the  appellant  Maharashtra  State  Financial
    Corporation had sanctioned Rs. 5 lakhs in  favour  of  a  Company.  The
    Respondents were directors of  the  said  borrower  company  and  stood
    sureties for the loan. When the company failed to  repay  the  loan,  a
    notice dated 8.3.1983 was issued calling upon the borrower to repay its
    due. On 25.10.1983, an application under Ss. 31 and  32  of  the  State
    Financial Corporations Act, 1951  was  filed  by  the  Corporation.  On
    11.6.1990 the attached properties of the borrower company were  put  to
    sale. There was a shortfall in the amount realised  and  hence  notices
    dated 27.1.1991 were sent to respondent sureties claiming Rs. 16,79,033
    together with interest at the rate  of  14.5.%  p.a.  On  2.1.1992  the
    appellant Corporation filed an application under Section  31(1)(aa)  of
    the Act for recovery of the said balance amount.  The  respondent  took
    various  objections  including  that  of  limitation,  contending  that
    Article 137 of the Limitation Act was applicable and not  Article  136.
    According to the respondents, Article 137 of  the  Limitation  Act  was
    applicable and as per that provision such an application could be  made
    within a period of three years. Article 137 applies in cases  where  no
    period of limitation is specifically prescribed. It was submitted  that
    as no period of limitation  is  prescribed  for  an  application  under
    Sections 31 and 32 of the Act, Article 137 would apply. The  additional
    District Judge  upheld  the  contention  of  the  respondents  and  the
    application of the Corporation was dismissed as barred  by  limitation.
    The appellant Corporation filed an appeal against the said order in the
    High Court of Judicature at Bombay, Bench at  Panaji.  The  appeal  was
    dismissed by the High Court by the impugned order dated 22.7.1998.  The
    High Court upheld the  reasoning  of  the  Additional  District  Judge.
    This Court affirmed the order of the High Court  holding  that  Article
    137 of the Limitation Act would apply and the  suit  was  to  be  filed
    within a period of three years. Contention of the Financial Corporation
    predicating its case on Article 136 of the Limitation Act on the ground
    that application under Section 138  was  in  the  nature  of  execution
    proceedings and, therefore, period of 12 years  for  execution  of  the
    decrees is available to the Financial Corporation, was repelled by  the
    Court. The Court categorically held that Section 31  of  the  Act  only
    contains a legal fiction and at best  refer  to  the  procedure  to  be
    followed,  but that would not mean that there is a decree or order of a
    Civil Court, stricto sensu, which is to be  executed,  in  as  much  as
    there is no decree or order of the Civil Court being executed.
    15.    From the reading of the aforesaid judgment, one thing is  clear.
    The Court was concerned with the proceedings under Section  31  of  the
    Act and the issue was as to whether limitation period would be 3  years
    as per Article 137 of the Limitation Act or it would  be  12  years  as
    provided under Article 136 of the Limitation Act.  While  dealing  with
    that issue the Court, in the process also  dealt  with  the  nature  of
    proceedings under Section 31 of the Act namely whether this would be in
    the nature of a suit or execution of  decree.  The  Court  answered  by
    holding that for such proceedings Article 137  of  the  Limitation  Act
    would apply meaning thereby, period of limitation is 3 years. From  the
    reading of this judgment, it becomes abundantly clear that the issue to
    which would be the starting date for counting the period of limitation,
    was neither raised or dealt with. Obviously,  therefore,  there  is  no
    discussion or decision on this aspect in the said judgment.
    16.    We would like to refer to the law laid down  by  this  Court  in
    Oriental Insurance Co. Ltd. vs. Smt. Raj Kumari  and  Ors.;  2007  (13)
    SCALE 113. In the said case, well  known  proposition,  namely,  it  is
    ratio of a case which  is  applicable  and  not  what  logically  flows
    therefrom is enunciated in a lucid manner. We would like to  quote  the
    following observations therefrom:-
           10. Reliance on the decision without looking  into  the  factual
           background of the case before it  is  clearly  impermissible.  A
           decision is a precedent on its own facts. Each case presents its
           own features. It is not everything said by a Judge while  giving
           a judgment that constitutes a precedent. The  only  thing  in  a
           Judge's decision binding a party is the principle upon which the
           case is decided and for this reason it is important to analyse a
           decision and isolate from it the ratio decidendi.  According  to
           the well-settled theory of precedents, every  decision  contains
           three basic postulates - (i) findings of material facts,  direct
           and  inferential.  An  inferential  finding  of  facts  is   the
           inference which the Judge draws from the direct," or perceptible
           facts; (ii) statements of the principles of  law  applicable  to
           the legal problems disclosed by the facts;  and  (iii)  judgment
           based on the combined effect of the above.  A  decision  is  an,
           authority for what it actually decides. What is of  the  essence
           in a decision is its  ratio  and  not  every  observation  found
           therein nor what logically flows from the  various  observations
           made in the judgment. The enunciation of the reason or principle
           on which a question before a Court has  been  decided  is  alone
           binding as a precedent.(See: State of Orissa v. Sudhansu  Sekhar
           Misra and Ors. (1970) ILLJ 662 SC and Union of India and  Ors.v.
           Dhanwanti Devi and Ors. (1996) 6 SCC 44. A case is  a  precedent
           and binding for what it explicitly  decides  and  no  more.  The
           words used by Judges in their judgments are not to be read as if
           they are words in Act of Parliament. In Quinn v. Leathern (1901)
           AC 495 (H.L.), Earl of Halsbury LC observed that every  judgment
           must be read as applicable to the  particular  facts  proved  or
           assumed to be proved, since the generality  of  the  expressions
           which are found there are not intended to be exposition  of  the
           whole law but governed and qualified by the particular facts  of
           the case in which such expressions are found and a case is  only
           an authority for what it actually decides.


           11.Courts  should  not  place  reliance  on  decisions   without
           discussing as to how the factual situation fits in with the fact
           situation  of  the  decision  on  which  reliance   is   placed.
           Observations of Courts  are  neither  to  be  read  as  Euclid's
           theorems nor as provisions of the statute and that too taken out
           of their context. These observations must be read in the context
           in which they appear to have been stated.  Judgments  of  Courts
           are not to be construed as statutes. To interpret words, phrases
           and provisions of a statute, it may become necessary for  judges
           to embark into lengthy discussions but the discussion  is  meant
           to explain and not to define. Judges interpret statutes, they do
           not interpret judgments. They interpret words of statutes; their
           words are not to be interpreted as statutes. In  London  Graving
           Dock Co. Ltd.v. Horton 1951 AC 737 Lord Mac Dermot observed:
           The matter cannot, of course, be settled merely by treating  the
           ipsissima vertra of Willes, J as though they were part of an Act
           of  Parliament  and  applying  the   rules   of   interpretation
           appropriate thereto. This is  not  to  detract  from  the  great
           weight to be given to the language actually used  by  that  most
           distinguished judge.
       The aforesaid principle was reiterated in Government of Karnataka and
       Ors. vs. Smt. Gowramma and Ors. 2007 (14)  SCALE  613,  wherein,  the
       Court observed as under:-
           “10. Courts should  not  place  reliance  on  decisions  without
           discussing as to how the factual situation fits in with the fact
           situation  of  the  decision  on  which  reliance   is   placed.
           Observations of Courts  are  neither  to  be  read  as  Euclid's
           theorems nor as provisions of the statute and that too taken out
           of their context. These observations must be read in the context
           in which they appear to have been stated.  Judgments  of  Courts
           are not to be construed as statutes. To interpret words, phrases
           and provisions of a statute, it may become necessary for  judges
           to embark into lengthy discussions but the discussion  is  meant
           to explain and not to define. Judges interpret statutes, they do
           not interpret judgments. They interpret words of statutes; their
           words are not to be interpreted as statutes. In  London  Graving
           Dock Co. Ltd. vs. Horton 1951 AC 737, Lord Mac Dermot observed:
           The matter cannot, of course, be settled merely by treating  the
           ipsissima vertra of Willes, J as though they were part of an Act
           of  Parliament  and  applying  the   rules   of   interpretation
           appropriate thereto. This is  not  to  detract  from  the  great
           weight to be given to the language actually used  by  that  most
           distinguished judge.”




    17.    Other case of this Court, which is relied upon by the High Court
    as well, is the decision dated 18.12.2003 in  C.A.  No.  1971  of  1998
    titled as HP Financial Corporation v. Pawana & Ors. In that case recall
    notice was given to the defaulting Company on 4.1.1977;  possession  of
    mortgage/  hypothecated  assets  of  the  Company  was  taken  over  on
    25.10.1982 in exercise of powers under Section 29  of  the  Act;  these
    assets were sold on 29.3.1984 and  14.3.1985;  notice  for  payment  of
    balance amount was issued to the guarantors on 22.5.1985 and  suit  for
    recovery of the balance amount was filed on 15.9.1985.
    18.    A single Judge of the Himachal Pradesh High Court held that  the
    period of limitation for such a suit started after the  sale  and  when
    balance was found due and, therefore, suit was  within  the  period  of
    limitation. However, when the suit reached hearing before another Judge
    of the High Court he disagreed with the earlier view and  referred  the
    matter to a larger Bench. The Division Bench of the High Court answered
    the question by holding that the suit for balance amount was filed as a
    result of the non- payment of debt by the principle  debtor  which  was
    the date when cause of action arose. Therefore, the  suit  should  have
    been filed within 3 years from the date of recall notice. The suit was,
    thus, dismissed as time barred. This Court reversed the judgment of the
    High Court. While doing so, it referred to clause  7  of  the  mortgage
    deed which was to the following effect:
           “Without prejudice to the above rights and  powers  conferred  on
           the Corporation by these presents and by Section 29 and 30 of the
           State Financial Corporations Act, 1951, and as  amended  in  1956
           and 1972 and the special remedies available  to  the  Corporation
           under the said Act, it is hereby further agreed and declared that
           if the partners of the industrial concern fail to  pay  the  said
           principal sum with interest and other moneys due from  him  under
           these rpesents, to the Corporation  in  the  manner  agreed,  the
           Corporation shall be entitled to realise tis dues by sale of  the
           mortgaged properties, the said fixtures and  fittings  and  other
           assets, and if the sale  proceeds  thereof  are  insufficient  to
           satisfy the dues of the Corporation, to recover the balance  from
           the partners of the industrial concern and the  other  properties
           owned by them though not included in  this  security.”  (emphasis
           supplied).


    19.    On the basis of the aforesaid clause the Court found fault  with
    the approach of the High Court in as  much  as  clause  7  specifically
    provided that the Corporation could filed recovery proceedings  against
    the partners of the Industrial concern if  the  sale  proceeds  of  the
    assets of the industrial concern were insufficient to satisfy the  dues
    of the Corporation.
    20.    Mr. Dhruv  Mehta,  learned  Senior  Counsel  appearing  for  the
    appellant tried to distinguish this judgment by vehemently arguing that
    the aforesaid case was based on  interpretation  of  clause  7  of  the
    mortgage deed which was executed between the parties and in the present
    case such a clause is conspicuously absent. Had the  judgment  of  this
    Court rested solely on clause 7 of the  mortgage  deed,  the  aforesaid
    argument of Mr. Dhruv Mehta would have been of some credence.  However,
    we find that the Court also specifically discussed the issue as to when
    right to sue on the indemnity would arise and specific answer given  to
    this question was that it would be only after the assets were sold  of.
    The judgment was also rested on another pertinent aspect viz. since the
    mortgage deed was executed, the period of limitation would be 12  years
    if a mortgage suit was to be filed. Following discussion  in  the  said
    judgment on this aspect squarely answers the contention of the  learned
    Senior Counsel for the appellant:
           “Whilst considering the  question  of  limitation  the  Division
           Bench  has  given  a  very   lengthy   judgment   running   into
           approximately 50 pages. However they appear to have not  noticed
           the fact that under  Clause  7  an  indemnity  had  been  given.
           Therefore, the premise on which the judgment proceeds i.e.  that
           the loan transaction and the mortgage deed,  are  one  composite
           transaction which was inseparable is entirely erroneous.  It  is
           settled law that a contract of indemnity and/ or guarantee is an
           independent and separate contract from the main  contract.  Thus
           the question which they required to  address  themselves,  which
           unfortunately they did not, was when does the right  to  sue  on
           the indemnity arose. In our view, there can be only  one  answer
           to this question. The right to sue on the contract of  indemnity
           arose only after the assets were sold off. It is  only  at  that
           stage that the balance due became ascertained.  It  is  at  that
           stage only that a suit for recovery of the  balance  could  have
           been filed. Merely because the Corporation acted  under  Section
           29 of the Financial  Corporation  Act  did  not  mean  that  the
           contract of indemnity came to an end. Section 29 merely  enabled
           the Corporation to take  possession  and  sell  the  assets  for
           recovery of the dues under the main contract. It may be that  on
           the Corporation taking action under  Section  29  and  on  their
           taking possession they became deemed owners.  The  mortgage  may
           have come to an end, but the contract of indemnity, which was an
           independent contract, did  not.  The  right  to  claim  for  the
           balance arose, under the contract of indemnity,  only  when  the
           sale proceeds were found to be insufficient.
                 In this case, it is an admitted  position  that  the  sale
           took place on 28.1.1984 and 14.3.1985. it  is  only  after  this
           date that  the  question  of  right  to  sue  on  the  indemnity
           (contained in Clause 7) arose. The suit  having  been  filed  on
           15.9.1985  was  well  within  limitation.  Therefore,   it   was
           erroneous to hold that  the  suit  was  barred  by  the  law  of
           limitation.
                 Even otherwise, it must be  mentioned  that  the  Division
           Bench was in error in  stating  that  the  right  to  personally
           recover the balance terminates after the expiry of three  years.
           It must be remembered that the question of recovery  of  balance
           will only arise after the remedy in respect of the mortgage deed
           has first been exhaustive. If a mortgage suit was to  be  filed,
           the period of limitation would be 12 years. Of course, in such a
           suit, a prayer can also be made for a  personal  decree  on  the
           sale proceeds being insufficient. Even though such prayer may be
           made, the suit remains a mortgage suit. Therefore, the period of
           limitation in  such  cases  will  remain  12  years”.  [Emphasis
           Supplied]
    21.    We thus, hold that when the Corporation takes steps for recovery
    of the amount by resorting to the provisions of Section 29 of the  Act,
    the limitation period for recovery of the balance  amount  would  start
    only after adjusting the proceeds  from  the  sale  of  assets  of  the
    industrial concern. As the Corporation would be in a position  to  know
    as to whether there is a shortfall or there is excess amount  realised,
    only after the sale of the mortgage/ hypothecated assets. This is clear
    from the language of sub-Section (1) of  Section  29  which  makes  the
    position abundantly clear and is quoted below:
           “Where nay industrial concern, which is under a liability to the
           Financial Corporation under an agreement, makes any  default  in
           repayment of any loan or advance or any installment  thereof  or
           in meeting its obligations in relation to any guarantee given by
           the Corporation or otherwise fails to comply with the  terms  of
           its agreement with  the  Financial  Corporation,  the  Financial
           Corporation shall have the right to take over the management  or
           possession or both of the industrial concern,  as  well  as  the
           right to transfer by way  of  lease  or  sale  and  realise  the
           property pledged, mortgaged, hypothecated  or  assigned  to  the
           Financial Corporation.”


    22.    It is thus clear that merely because the Corporation acted under
    Section 29 of the State Financial Corporation Act did not mean that the
    contract of indemnity came to an end. Section  29  merely  enabled  the
    Corporation to take possession and sell the assets for recovery of  the
    dues under the main contract. It  may  be  that  only  the  Corporation
    taking action under Section 29 and  on  their  taking  possession  they
    became deemed owners. The mortgage may have come to  an  end,  but  the
    contract of indemnity, which was an independent contract, did not.  The
    right to claim for the balance arose, under the contract of  indemnity,
    only when the sale proceeds were found to be insufficient. The right to
    sue on the contract of indemnity arose after the assets were sold.  The
    present case would fall under Article 55 of the  Limitation  Act,  1963
    which corresponds to old Articles 115 and 116  of  the  old  Limitation
    Act, 1908. The right to sue on a contract of indemnity/ guarantee would
    arise when the contract is broken.
    23.    Therefore, the period of limitation is to be  counted  from  the
    date when the assets of the Company were sold and not when  the  recall
    notice was given.
    24.    The up-shot of the aforesaid discussion  is  to  hold  that  the
    present appeal is bereft of any merits. Upholding the judgment  of  the
    High Court, we dismiss the instant appeal, with costs.


                              …...........................................J.
                                                        [K.S. RADHAKRISHNAN]






                               …..........................................J.
                                                                [A.K. SIKRI]
    New Delhi.
    29th January  , 2014

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