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
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.
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. |
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
