REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLATE JURISDICTION
CIVIL APPEAL NO.7245 OF 2008
M/S. SUNDARAM FINANCE LIMITED … APPELLANT
VERSUS
NOORJAHAN BEEVI AND ANOTHER … RESPONDENT
J U D G M E N T
ASHOK BHUSHAN, J.
The plaintiff-appellant has filed this appeal against the judgment
dated 10th April, 2002 in A.S. No.388 of 1992 of Kerala High Court by which
the High Court dismissed the appeal filed by the plaintiff-appellant in
which appeal the judgment of the trial court dated 29.05.1991 dismissing
the suit was assailed.
2. The brief facts necessary to be noted in this appeal are :
The plaintiff-appellant is a public limited company carrying on a
business of extending hire purchase facilities for commercial vehicles. The
plaintiff and the first defendant had entered into an agreement dated
20.09.1983 by which plaintiff had financed an amount of Rs.1,47,000/-. The
first defendant, the hirer was to clear off entire amount due in 36 monthly
instalments. The first defendant committed default in payment of
instalments with effect from 20th May,1984. The plaintiff seized the
vehicle No. KLI2447 on 9th February, 1985. Thereafter,the plaintiff vide
letter dated 12th February, 1985 called upon the defendants to settle the
contract within 10 days from the date of the receipt of the notice. The
defendants did not make any payment. The plaintiff on 30th May, 1985 sold
the vehicle and after adjusting the amount received from sale of vehicle
balance of Rs.40,138/- was further demanded. Notice dated 12th July,
1985/22.07.1985 was sent by the plaintiff. Reply to the notice was given on
30th July, 1985. The plaintiff filed Original Suit No.148 of 1988 on
25.5.1988 praying for decree of sum of Rs.40,138/- along with interest. The
second defendant, the husband of first defendant was also impleaded as
guarantor. A written statement was filed by the first defendant where
execution of hire purchase agreement was admitted. The default in payment
of instalments was admitted. It was further pleaded that provisions in
Clause 4 of hire purchase agreement regarding termination without notice is
contrary to the statutory provisions. It was further stated that the
vehicle was not sold on best price. The defendant pleaded that plaintiff is
not entitled for any relief. The trial court framed 8 issues. One of the
issues, issue No.7 was: “whether the suit is barred by limitation”. The
trial court after considering the facts held that suit is barred by
limitation. It was held that default is from 20th May, 1984 the suit ought
to have been filed within 20.5.1987. Suit was filed on 25th May, 1988
being beyond three years was to be dismissed.
3. The plaintiff filed an appeal in the Kerala High Court. The Kerala
High Court also affirmed the judgment of the trial court and held that suit
is barred by limitation. Plaintiff has come in this appeal questioning the
correctness of the judgment of the High Court.
4. The only question which needs to be considered was as to whether suit
filed by the plaintiff was barred by limitation. Relevant provisions of
Limitation Act, 1963 are Article 55 and Article 113 which are to the
following effect:
|Article|Description of suit |Period of|Time from which |
| | |limitatio|period begins to run|
| | |n | |
|55. |For compensation for the |Three |When the contract is|
| |breach of any contract, |years |broken or (where |
| |express or implied not | |there are successive|
| |herein specially provided | |breaches) when the |
| |for. | |breach in respect of|
| | | |which the suit is |
| | | |instituted occurs or|
| | | |(where the breach is|
| | | |continuing) when it |
| | | |ceases. |
| 113. |Any suit for which no period|Three |When the right to |
| |of limitation is provided |years |sue accrues. |
| |elsewhere in this Schedule. | | |
5. The submissions which have been pressed by the learned counsel for
the plaintiff that last instalment was to be paid on 20th September, 1986
and the balance liability of the defendant could be ascertained only after
the sale of the vehicle which took place on 30th May, 1985 and the suit
was filed within three years from the date of sale of the vehicle as well
as within three years from the last date of payment of instalment, hence,
it could not have been said to be barred by time. The present was a case
which was to be governed by Article 113 of the Limitation Act, 1963. The
Courts below erred in applying Article 55. The case was fully covered by
the judgment of the Madras High Court in Bell Alloys Steels Private Limited
vs. The National Small Industries Corporation Limited(1980 Legal Surveyor
85). The default in payment of each of the instalments would constitute
default. Therefore, a “continuing breach”, hence, the suit is well within
time from the date of default of payment of last instalment that is 20th
September, 1986.
6. Learned counsel appearing for the respondents refuting submissions
made by the learned counsel for the appellant contended that the trial
court was correct in dismissing the suit as barred by time. Learned counsel
for the respondent has also placed reliance on the judgment of this Court
in Deepak Bhandari vs. Himachal Pradesh State Industrial Development
Corporation Limited,2015 (5) SCC 518.
7. We have gone through the records and considered the submissions
raised by the learned counsel for the parteis.
8. As noted above, the trial court framed issue No.7, as to whether the
suit was barred by time. In paragraph 10 of the judgment this issue was
dealt with in the following manner:
“10.ISSUE NO.7 :- According to the learned counsel for the defendants the
suit is barred by limitation for the reason that the date of agreement is
20.9.83 and the last date of payment is 20.4.84 but the suit is filed only
on 26.5.88. He has invited by attention to clause 4 to the effect that if
any instalment is not paid within the stipulated time whether legally
demanded or not; break or fail to perform or observe any conditions on
their part therein contained, then and in such cases the rights of the
hirer under the agreement shall forth with be determined ipso facto,
without any notice to the hirer. Therefore, according to him on 20.4.84
itself to contract was also determined. But the learned counsel for the
plaintiff would argue that clause 4 contains provisions for seizure of
vehicle and unless the vehicle is sold to balance in any cannot be
ascertained and therefore the plaintiff would get course of action only on
30.5.85, the date of sale of the vehicle. Though I went through the
different provisions of Ext.A2 agreement, I could not find any provision
for sale of the vehicle. Even in Ext.A3 there is no such provisions. So
this argument cannot hold good. In the case on hand, the default is from
20.5.84, the suit ought to have been filed within 20.5.87. Therefore, the
suit is barred by limitation.
9. The trial court has elaborately considered the submissions of both
the parties and has referred to relevant clauses of agreement dated
20.9.1983.
10. On the question of limitation while referring to Clause 4 of the
agreement dated 20.9.1983 in para 4 of the judgment following was observed:
“4.....Ext.A2 agreement dated 20.9.83 contains the terms and conditions to
be followed by the parties. As per clause 4 of Ext. A2, the plaintiff is
entitled to seize the vehicle even without notice in case of default of
instalments or other conditions mentioned therein. Admittedly, the
defendants have committed default of instalments. If the hirer commits
breach of the agreement, the rights of the hirer commits breach of the
agreement, the rights of the hirer under the agreement shall forthwith be
determined ipso facto without any notice to the hirer and all the
instalments previously paid by the hirer shall be absolutely forfeited to
the owners who shall thereupon be entitled to enter any house or place
where the said vehicle may then be seize, remove and retake possession of
it and to sue for all the instalments due and for damages for breach of the
agreement and for all the costs occasioned by the hirer's default. So, as
per the defendants, the financier invoked Clause 4 of the agreement and the
vehicle was seized and subsequently sold. The cause of action arose on
20.4.1984. The plaintiff ought to have filed the suit within three years
from 20.4.1984. but the suit was filed only on 26.5.1988. The agreement
between the parties were determined on the date of default itself.”
11. The High Court has come to conclusion that as per Clause 4 if the
hirer commits breach of the agreement, the rights of the hirer under the
agreement shall forthwith be determined ipso facto without any notice to
the hirer and all the instalments previously paid by the hirer shall be
absolutely forfeited to the owners who shall thereupon be entitled to enter
any house or place where the said vehicle may then be seize, remove and
retake possession of it. Further in paragraph 6 of the judgment of the High
Court following further was observed:
“As per the agreement, the financier is at liberty to terminate the
agreement ipso facto and also seize the vehicle without notice. There is
no question of surrender of the vehicle and as stated above, the vehicle
belonged to the first defendant at the time of the agreement. The suit is
being one for damages for breach of contract of hire purchase, it is
governed by Article 55 of the Limitation Act and therefore, the suit should
have been filed within three years from the date of the breach. Here, the
breach has been committed on 20.4.84. In pursuance of clause 4 of the
agreement, the vehicle was seized by the plaintiff. So, he ought to have
filed the sit within three years from the date of breach of the agreement.
The contract was determined on 20.4.84 itself. The argument of the learned
counsel for the plaintiff that the vehicle was sold only on 30.05.1985 and
the amount was credited and then only the cause of action will arise cannot
be accepted since it is a loan transaction between the parties and the
contract has ipso factor determined on the date of breach of contract. It
is clear from clause 4 of the agreement that the financier is at liberty to
forfeited the previous payment made by the hirer and also seized the
vehicle and sue for all the instalments due and for damages for breach of
the agreement and for all the costs of retaking possession of the said
vehicle and all costs occasioned by the hirer's default. Since the
plaintiff invoked the said provision, the argument advanced by the learned
counsel for the plaintiff that the last instalment is due only on
20.09.1986 and the suit is within time cannot be accepted. Since, there is
no provision to sell the vehicle and credit the amount to the loan advanced
there is no question of waiting till the sale of the vehicle.”
12. There is no dispute between the parties that the hirer committed
default in payment of instalments on 20th May, 1984. The High Court has
further held that there is no clause in agreement permitting the plaintiff
to sell the vehicle. The submission of the learned counsel for the
appellant that limitation to file the suit for recovery of balance amount
shall begin with effect from the date of sale this is 30th May,1985, does
not appeal to us. The contract was to be determined ipso facto on default
being committed. The power of seizing the vehicle and to take possession as
contemplated under Clause 4 of the agreement was consequent to default
being committed by the hirer.
13. This Court on 12th June, 2012 passed the following order:
“Learned counsel for the appellant shall place on record a copy of
the hire purchase agreement dated 20th September, 1983.
List thereafter.”
The copy of the agreement dated 20th September, 1983 having not
been placed before us, we have no option except to rely on the contents of
Clause 4 as noted by the High Court in its judgment. The High Court has
noted that agreement does not contain any provision for sale of the vehicle
hence, taking starting point of limitation from the date of sale of vehicle
cannot be accepted.
14. As noted above, in paragraph 4 of the judgment of the High Court
while noticing the contents of Clause 4 of the agreement it has been
observed that “if the hirer commits the breach of the agreement, the rights
of the hirer under the agreement shall forthwith be determined ipso facto
without any notice to the hirer and all the instalments previously paid by
the hirer shall be absolutely forfeited to the owners who shall thereupon
be entitled to enter any house or place where the said vehicle may then be
seize, remove and retake possession of it and to sue for all the
instalments due and for damages for breach of the agreement....”
(underlined by us).
15. Thus, as per Clause 4 the right to sue accrues when the hirer commits
breach of the agreement. Committing default in payment of instalement is
nothing but a breach of the agreement and thus courts below has rightly
taken a view that period of limitation for filing a suit under Article 55
shall begin with effect from 20th May, 1984 when the default was committed
by the hirer.
16. In this case it is relevant to refer the judgment of this Court in
Himachal Pradesh Financial Corporation vs. Pawna and others, 2015 (5)SCC
617. In the above case Himachal Pradesh Financial Corporation had given a
loan to a partnership firm. As security for that loan, a mortgage deed was
executed. Clause 7 of the mortgage deed contemplated that without prejudice
to the rights and powers conferred on the Corporation under the State
Financial Corporations Act, 1951, in the event, the partners of the
industrial concern fail to pay the said principal sum with interest, the
Corporation shall be entitled to realise its dues by sale of the mortgaged
properties, 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. Clause 7 of the agreement was to the following
effect:
“3. Clause 7 of the mortgage deed is important. It reads as follows:
“Without prejudice to the above rights and powers conferred on the
Corporation by these presents and by Sections 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 monies
due from them under these presents to the Corporation in the manner agreed,
the Corporation shall be entitled to realise its 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)”
17. In the above case the assets were sold on 28.3.1984 and 14.3.1985.
The sale amount could not satisfy the outstanding hence, the notice was
issued on 27.5.1985 and thereafter suit was filed on 15.9.1985. The High
Court has dismissed the suit as barred by limitation. In the appeal this
Court set aside the judgment of the High Court by making following
observations in paragraphs 10 and 11:
“10. 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
Corporations 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.
11. In this case, it is an admitted position that the sale took place on 28-
3-1984 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.”
18. The above case was based on Clause 7 of the agreement as well as a
specific power given to the Corporation under the State Financial
Corporations Act, 1951, there is no such clause akin to Clause 7 of the
mortgage deed in the present case.
19. In Deepak Bhandari vs. Himachal Pradesh State Industrial Development
Corporation Limited,2015 (5) SCC 518 while considering Article 55 of the
Limitation Act, 1963, this Court was considering the question whether the
limitation period begins from notice recalling loan amounts or from
realisation of sale proceeds of mortgaged/hypothecated assets. It was held
that limitation for such suit beginsfrom the date when amount of dues for
recovery are ascertained, and that can take place only after adjusting
amounts received from sale of mortgaged/hypothecated assets. In paragraph
11 and 12 facts of the case were noted which are to the following effect:
“11. As per the defendants, the 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.
12. The Corporation, on the other hand, contended that action for selling
the mortgaged/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 realisation of the sale proceeds
only, that 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.”
This Court has also referred to the judgment of the Himachal
Pradesh Financial Corporation(supra). In paragraph 27 of the judgment the
following was stated:
“27. 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
mortgaged/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:
“29. Rights of Financial Corporation in case of default.—(1) Where any
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 instalment 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.”
This Court while taking the above view has referred to the
statutory power given to the Corporation under the State Financial
Corporations Act.
20. The above judgment of this Court was a case where the Court had taken
into consideration the statutory power given to Financial Corporation under
Section 29 of the State Financial Corporation Act,1951 where the
Corporation is entitled to take possession of the assets and transfer by
way of lease or sale. Present is not a case where plaintiff can claim to
exercise any power akin to Section 29 of the State Financial Corporations
Act, 1951. The rights of the parties have to be determined as per terms and
conditions of the agreement dated 20.9.1983. The terms of the agreement as
noted by the High Court and referred to by us as above clearly indicate
that on committing a breach of terms and conditions of the agreement the
rights shall accrue to the plaintiff to sue for balance instalments and the
damages for breach of contract. Thus, the right to sue shall not stand
differed till either sale which took place on 20th May, 1985 or till the
last date of payment of the instalment that is 20th September, 1986. Both
the courts below have rightly taken the view that limitation shall start
running from the date the hirer defaulted in making payment that is on
20.5.1984 and suit has been filed beyond three years from the above date
was clearly barred by time. Article 55 of the Limitation Act, 1963 has also
come for consideration before this Court in Syndicate Bank vs.
Channaveerappa Beleri and others,2006 (11) SCC 506. In paragraph 13 of the
judgment following was stated:
“13. What then is the meaning of the said words used in the guarantee bonds
in question? The guarantee bond states that the guarantors agree to pay and
satisfy the Bank “on demand”. It specifically provides that the liability
to pay interest would arise upon the guarantor only from the date of demand
by the Bank for payment. It also provides that the guarantee shall be a
continuing guarantee for payment of the ultimate balance to become due to
the Bank by the borrower. The terms of guarantee, thus, make it clear that
the liability to pay would arise on the guarantors only when a demand is
made. Article 55 provides that the time will begin to run when the contract
is “broken”. Even if Article 113 is to be applied, the time begins to run
only when the right to sue accrues. In this case, the contract was broken
and the right to sue accrued only when a demand for payment was made by the
Bank and it was refused by the guarantors. When a demand is made requiring
payment within a stipulated period, say 15 days, the breach occurs or right
to sue accrues, if payment is not made or is refused within 15 days. If
while making the demand for payment, no period is stipulated within which
the payment should be made, the breach occurs or right to sue accrues, when
the demand is served on the guarantor.”
21. In exercise of power under Clause 4 of the agreement dated 20.9.1983
the plaintiff had taken possession of vehicle on 9.2.1985 and had
immediately vide letter dated 12.2.1985 called upon the defendant to pay
them due within 10 days from the receipt of the letter. The notice dated
12.2.1985 was received by the first defendant which was also replied by the
first defendant as has been pleaded in the written statement. Thus,in any
event of the matter contract stood broken on the default and right to sue
accrued to the plaintiff on demanding the amount to be paid within 10
days. Thus, in any view of the matter suit filed by the plaintiff was
beyond three years and has rightly been dismissed by the trial court. The
High Court has also not erred in dismissing the appeal by taking the view
that the suit was barred by limitation.
22. In view of the foregoing, we do not find any merit in this appeal.
The appeal is dismissed accordingly.
………………….…...........................J.
(ABHAY MANOHAR SAPRE)
………………..…...........................J.
(ASHOK BHUSHAN)
NEW DELHI,
JUNE 29, 2016.
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLATE JURISDICTION
CIVIL APPEAL NO.7245 OF 2008
M/S. SUNDARAM FINANCE LIMITED … APPELLANT
VERSUS
NOORJAHAN BEEVI AND ANOTHER … RESPONDENT
J U D G M E N T
ASHOK BHUSHAN, J.
The plaintiff-appellant has filed this appeal against the judgment
dated 10th April, 2002 in A.S. No.388 of 1992 of Kerala High Court by which
the High Court dismissed the appeal filed by the plaintiff-appellant in
which appeal the judgment of the trial court dated 29.05.1991 dismissing
the suit was assailed.
2. The brief facts necessary to be noted in this appeal are :
The plaintiff-appellant is a public limited company carrying on a
business of extending hire purchase facilities for commercial vehicles. The
plaintiff and the first defendant had entered into an agreement dated
20.09.1983 by which plaintiff had financed an amount of Rs.1,47,000/-. The
first defendant, the hirer was to clear off entire amount due in 36 monthly
instalments. The first defendant committed default in payment of
instalments with effect from 20th May,1984. The plaintiff seized the
vehicle No. KLI2447 on 9th February, 1985. Thereafter,the plaintiff vide
letter dated 12th February, 1985 called upon the defendants to settle the
contract within 10 days from the date of the receipt of the notice. The
defendants did not make any payment. The plaintiff on 30th May, 1985 sold
the vehicle and after adjusting the amount received from sale of vehicle
balance of Rs.40,138/- was further demanded. Notice dated 12th July,
1985/22.07.1985 was sent by the plaintiff. Reply to the notice was given on
30th July, 1985. The plaintiff filed Original Suit No.148 of 1988 on
25.5.1988 praying for decree of sum of Rs.40,138/- along with interest. The
second defendant, the husband of first defendant was also impleaded as
guarantor. A written statement was filed by the first defendant where
execution of hire purchase agreement was admitted. The default in payment
of instalments was admitted. It was further pleaded that provisions in
Clause 4 of hire purchase agreement regarding termination without notice is
contrary to the statutory provisions. It was further stated that the
vehicle was not sold on best price. The defendant pleaded that plaintiff is
not entitled for any relief. The trial court framed 8 issues. One of the
issues, issue No.7 was: “whether the suit is barred by limitation”. The
trial court after considering the facts held that suit is barred by
limitation. It was held that default is from 20th May, 1984 the suit ought
to have been filed within 20.5.1987. Suit was filed on 25th May, 1988
being beyond three years was to be dismissed.
3. The plaintiff filed an appeal in the Kerala High Court. The Kerala
High Court also affirmed the judgment of the trial court and held that suit
is barred by limitation. Plaintiff has come in this appeal questioning the
correctness of the judgment of the High Court.
4. The only question which needs to be considered was as to whether suit
filed by the plaintiff was barred by limitation. Relevant provisions of
Limitation Act, 1963 are Article 55 and Article 113 which are to the
following effect:
|Article|Description of suit |Period of|Time from which |
| | |limitatio|period begins to run|
| | |n | |
|55. |For compensation for the |Three |When the contract is|
| |breach of any contract, |years |broken or (where |
| |express or implied not | |there are successive|
| |herein specially provided | |breaches) when the |
| |for. | |breach in respect of|
| | | |which the suit is |
| | | |instituted occurs or|
| | | |(where the breach is|
| | | |continuing) when it |
| | | |ceases. |
| 113. |Any suit for which no period|Three |When the right to |
| |of limitation is provided |years |sue accrues. |
| |elsewhere in this Schedule. | | |
5. The submissions which have been pressed by the learned counsel for
the plaintiff that last instalment was to be paid on 20th September, 1986
and the balance liability of the defendant could be ascertained only after
the sale of the vehicle which took place on 30th May, 1985 and the suit
was filed within three years from the date of sale of the vehicle as well
as within three years from the last date of payment of instalment, hence,
it could not have been said to be barred by time. The present was a case
which was to be governed by Article 113 of the Limitation Act, 1963. The
Courts below erred in applying Article 55. The case was fully covered by
the judgment of the Madras High Court in Bell Alloys Steels Private Limited
vs. The National Small Industries Corporation Limited(1980 Legal Surveyor
85). The default in payment of each of the instalments would constitute
default. Therefore, a “continuing breach”, hence, the suit is well within
time from the date of default of payment of last instalment that is 20th
September, 1986.
6. Learned counsel appearing for the respondents refuting submissions
made by the learned counsel for the appellant contended that the trial
court was correct in dismissing the suit as barred by time. Learned counsel
for the respondent has also placed reliance on the judgment of this Court
in Deepak Bhandari vs. Himachal Pradesh State Industrial Development
Corporation Limited,2015 (5) SCC 518.
7. We have gone through the records and considered the submissions
raised by the learned counsel for the parteis.
8. As noted above, the trial court framed issue No.7, as to whether the
suit was barred by time. In paragraph 10 of the judgment this issue was
dealt with in the following manner:
“10.ISSUE NO.7 :- According to the learned counsel for the defendants the
suit is barred by limitation for the reason that the date of agreement is
20.9.83 and the last date of payment is 20.4.84 but the suit is filed only
on 26.5.88. He has invited by attention to clause 4 to the effect that if
any instalment is not paid within the stipulated time whether legally
demanded or not; break or fail to perform or observe any conditions on
their part therein contained, then and in such cases the rights of the
hirer under the agreement shall forth with be determined ipso facto,
without any notice to the hirer. Therefore, according to him on 20.4.84
itself to contract was also determined. But the learned counsel for the
plaintiff would argue that clause 4 contains provisions for seizure of
vehicle and unless the vehicle is sold to balance in any cannot be
ascertained and therefore the plaintiff would get course of action only on
30.5.85, the date of sale of the vehicle. Though I went through the
different provisions of Ext.A2 agreement, I could not find any provision
for sale of the vehicle. Even in Ext.A3 there is no such provisions. So
this argument cannot hold good. In the case on hand, the default is from
20.5.84, the suit ought to have been filed within 20.5.87. Therefore, the
suit is barred by limitation.
9. The trial court has elaborately considered the submissions of both
the parties and has referred to relevant clauses of agreement dated
20.9.1983.
10. On the question of limitation while referring to Clause 4 of the
agreement dated 20.9.1983 in para 4 of the judgment following was observed:
“4.....Ext.A2 agreement dated 20.9.83 contains the terms and conditions to
be followed by the parties. As per clause 4 of Ext. A2, the plaintiff is
entitled to seize the vehicle even without notice in case of default of
instalments or other conditions mentioned therein. Admittedly, the
defendants have committed default of instalments. If the hirer commits
breach of the agreement, the rights of the hirer commits breach of the
agreement, the rights of the hirer under the agreement shall forthwith be
determined ipso facto without any notice to the hirer and all the
instalments previously paid by the hirer shall be absolutely forfeited to
the owners who shall thereupon be entitled to enter any house or place
where the said vehicle may then be seize, remove and retake possession of
it and to sue for all the instalments due and for damages for breach of the
agreement and for all the costs occasioned by the hirer's default. So, as
per the defendants, the financier invoked Clause 4 of the agreement and the
vehicle was seized and subsequently sold. The cause of action arose on
20.4.1984. The plaintiff ought to have filed the suit within three years
from 20.4.1984. but the suit was filed only on 26.5.1988. The agreement
between the parties were determined on the date of default itself.”
11. The High Court has come to conclusion that as per Clause 4 if the
hirer commits breach of the agreement, the rights of the hirer under the
agreement shall forthwith be determined ipso facto without any notice to
the hirer and all the instalments previously paid by the hirer shall be
absolutely forfeited to the owners who shall thereupon be entitled to enter
any house or place where the said vehicle may then be seize, remove and
retake possession of it. Further in paragraph 6 of the judgment of the High
Court following further was observed:
“As per the agreement, the financier is at liberty to terminate the
agreement ipso facto and also seize the vehicle without notice. There is
no question of surrender of the vehicle and as stated above, the vehicle
belonged to the first defendant at the time of the agreement. The suit is
being one for damages for breach of contract of hire purchase, it is
governed by Article 55 of the Limitation Act and therefore, the suit should
have been filed within three years from the date of the breach. Here, the
breach has been committed on 20.4.84. In pursuance of clause 4 of the
agreement, the vehicle was seized by the plaintiff. So, he ought to have
filed the sit within three years from the date of breach of the agreement.
The contract was determined on 20.4.84 itself. The argument of the learned
counsel for the plaintiff that the vehicle was sold only on 30.05.1985 and
the amount was credited and then only the cause of action will arise cannot
be accepted since it is a loan transaction between the parties and the
contract has ipso factor determined on the date of breach of contract. It
is clear from clause 4 of the agreement that the financier is at liberty to
forfeited the previous payment made by the hirer and also seized the
vehicle and sue for all the instalments due and for damages for breach of
the agreement and for all the costs of retaking possession of the said
vehicle and all costs occasioned by the hirer's default. Since the
plaintiff invoked the said provision, the argument advanced by the learned
counsel for the plaintiff that the last instalment is due only on
20.09.1986 and the suit is within time cannot be accepted. Since, there is
no provision to sell the vehicle and credit the amount to the loan advanced
there is no question of waiting till the sale of the vehicle.”
12. There is no dispute between the parties that the hirer committed
default in payment of instalments on 20th May, 1984. The High Court has
further held that there is no clause in agreement permitting the plaintiff
to sell the vehicle. The submission of the learned counsel for the
appellant that limitation to file the suit for recovery of balance amount
shall begin with effect from the date of sale this is 30th May,1985, does
not appeal to us. The contract was to be determined ipso facto on default
being committed. The power of seizing the vehicle and to take possession as
contemplated under Clause 4 of the agreement was consequent to default
being committed by the hirer.
13. This Court on 12th June, 2012 passed the following order:
“Learned counsel for the appellant shall place on record a copy of
the hire purchase agreement dated 20th September, 1983.
List thereafter.”
The copy of the agreement dated 20th September, 1983 having not
been placed before us, we have no option except to rely on the contents of
Clause 4 as noted by the High Court in its judgment. The High Court has
noted that agreement does not contain any provision for sale of the vehicle
hence, taking starting point of limitation from the date of sale of vehicle
cannot be accepted.
14. As noted above, in paragraph 4 of the judgment of the High Court
while noticing the contents of Clause 4 of the agreement it has been
observed that “if the hirer commits the breach of the agreement, the rights
of the hirer under the agreement shall forthwith be determined ipso facto
without any notice to the hirer and all the instalments previously paid by
the hirer shall be absolutely forfeited to the owners who shall thereupon
be entitled to enter any house or place where the said vehicle may then be
seize, remove and retake possession of it and to sue for all the
instalments due and for damages for breach of the agreement....”
(underlined by us).
15. Thus, as per Clause 4 the right to sue accrues when the hirer commits
breach of the agreement. Committing default in payment of instalement is
nothing but a breach of the agreement and thus courts below has rightly
taken a view that period of limitation for filing a suit under Article 55
shall begin with effect from 20th May, 1984 when the default was committed
by the hirer.
16. In this case it is relevant to refer the judgment of this Court in
Himachal Pradesh Financial Corporation vs. Pawna and others, 2015 (5)SCC
617. In the above case Himachal Pradesh Financial Corporation had given a
loan to a partnership firm. As security for that loan, a mortgage deed was
executed. Clause 7 of the mortgage deed contemplated that without prejudice
to the rights and powers conferred on the Corporation under the State
Financial Corporations Act, 1951, in the event, the partners of the
industrial concern fail to pay the said principal sum with interest, the
Corporation shall be entitled to realise its dues by sale of the mortgaged
properties, 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. Clause 7 of the agreement was to the following
effect:
“3. Clause 7 of the mortgage deed is important. It reads as follows:
“Without prejudice to the above rights and powers conferred on the
Corporation by these presents and by Sections 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 monies
due from them under these presents to the Corporation in the manner agreed,
the Corporation shall be entitled to realise its 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)”
17. In the above case the assets were sold on 28.3.1984 and 14.3.1985.
The sale amount could not satisfy the outstanding hence, the notice was
issued on 27.5.1985 and thereafter suit was filed on 15.9.1985. The High
Court has dismissed the suit as barred by limitation. In the appeal this
Court set aside the judgment of the High Court by making following
observations in paragraphs 10 and 11:
“10. 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
Corporations 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.
11. In this case, it is an admitted position that the sale took place on 28-
3-1984 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.”
18. The above case was based on Clause 7 of the agreement as well as a
specific power given to the Corporation under the State Financial
Corporations Act, 1951, there is no such clause akin to Clause 7 of the
mortgage deed in the present case.
19. In Deepak Bhandari vs. Himachal Pradesh State Industrial Development
Corporation Limited,2015 (5) SCC 518 while considering Article 55 of the
Limitation Act, 1963, this Court was considering the question whether the
limitation period begins from notice recalling loan amounts or from
realisation of sale proceeds of mortgaged/hypothecated assets. It was held
that limitation for such suit beginsfrom the date when amount of dues for
recovery are ascertained, and that can take place only after adjusting
amounts received from sale of mortgaged/hypothecated assets. In paragraph
11 and 12 facts of the case were noted which are to the following effect:
“11. As per the defendants, the 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.
12. The Corporation, on the other hand, contended that action for selling
the mortgaged/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 realisation of the sale proceeds
only, that 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.”
This Court has also referred to the judgment of the Himachal
Pradesh Financial Corporation(supra). In paragraph 27 of the judgment the
following was stated:
“27. 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
mortgaged/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:
“29. Rights of Financial Corporation in case of default.—(1) Where any
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 instalment 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.”
This Court while taking the above view has referred to the
statutory power given to the Corporation under the State Financial
Corporations Act.
20. The above judgment of this Court was a case where the Court had taken
into consideration the statutory power given to Financial Corporation under
Section 29 of the State Financial Corporation Act,1951 where the
Corporation is entitled to take possession of the assets and transfer by
way of lease or sale. Present is not a case where plaintiff can claim to
exercise any power akin to Section 29 of the State Financial Corporations
Act, 1951. The rights of the parties have to be determined as per terms and
conditions of the agreement dated 20.9.1983. The terms of the agreement as
noted by the High Court and referred to by us as above clearly indicate
that on committing a breach of terms and conditions of the agreement the
rights shall accrue to the plaintiff to sue for balance instalments and the
damages for breach of contract. Thus, the right to sue shall not stand
differed till either sale which took place on 20th May, 1985 or till the
last date of payment of the instalment that is 20th September, 1986. Both
the courts below have rightly taken the view that limitation shall start
running from the date the hirer defaulted in making payment that is on
20.5.1984 and suit has been filed beyond three years from the above date
was clearly barred by time. Article 55 of the Limitation Act, 1963 has also
come for consideration before this Court in Syndicate Bank vs.
Channaveerappa Beleri and others,2006 (11) SCC 506. In paragraph 13 of the
judgment following was stated:
“13. What then is the meaning of the said words used in the guarantee bonds
in question? The guarantee bond states that the guarantors agree to pay and
satisfy the Bank “on demand”. It specifically provides that the liability
to pay interest would arise upon the guarantor only from the date of demand
by the Bank for payment. It also provides that the guarantee shall be a
continuing guarantee for payment of the ultimate balance to become due to
the Bank by the borrower. The terms of guarantee, thus, make it clear that
the liability to pay would arise on the guarantors only when a demand is
made. Article 55 provides that the time will begin to run when the contract
is “broken”. Even if Article 113 is to be applied, the time begins to run
only when the right to sue accrues. In this case, the contract was broken
and the right to sue accrued only when a demand for payment was made by the
Bank and it was refused by the guarantors. When a demand is made requiring
payment within a stipulated period, say 15 days, the breach occurs or right
to sue accrues, if payment is not made or is refused within 15 days. If
while making the demand for payment, no period is stipulated within which
the payment should be made, the breach occurs or right to sue accrues, when
the demand is served on the guarantor.”
21. In exercise of power under Clause 4 of the agreement dated 20.9.1983
the plaintiff had taken possession of vehicle on 9.2.1985 and had
immediately vide letter dated 12.2.1985 called upon the defendant to pay
them due within 10 days from the receipt of the letter. The notice dated
12.2.1985 was received by the first defendant which was also replied by the
first defendant as has been pleaded in the written statement. Thus,in any
event of the matter contract stood broken on the default and right to sue
accrued to the plaintiff on demanding the amount to be paid within 10
days. Thus, in any view of the matter suit filed by the plaintiff was
beyond three years and has rightly been dismissed by the trial court. The
High Court has also not erred in dismissing the appeal by taking the view
that the suit was barred by limitation.
22. In view of the foregoing, we do not find any merit in this appeal.
The appeal is dismissed accordingly.
………………….…...........................J.
(ABHAY MANOHAR SAPRE)
………………..…...........................J.
(ASHOK BHUSHAN)
NEW DELHI,
JUNE 29, 2016.
