Monday 28 October 2019

How to ascertain limitation for enforcing liability against surety?

The Hon'ble Apex Court in the case of Syndicate Bank vs. Channaveerappa Beleri and other MANU/SC/2032/2006 : 2006 (11) SCC 506 has considered the meaning of the phrase "on demand" and held that when a contract of guarantee is clear that the guarantor's liability would arise only when the demand is made, the right to sue to the creditor accrues only when a demand for payment is made by the creditor and is refused by the guarantors. When a demand is made requiring payment within a stipulated period, the breach occurs or the right to sue accrues, if payment is not made within the stipulated period. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or the right to sue accrues when the demand is served on the guarantor. The Hon'ble Apex Court has concluded thus:

"We have to however enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due unrecoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of demand validly made in time, the creditor can sue the guarantor within 3 years, even if the claim against the principal debtor gets subsequently time barred'".
16. It is undisputed that in this case the appellant made a demand on the respondents vide its legal notice dated 12.7.1997 calling upon the respondents, including the respondent No. 2, 4 and 5, to pay the amounts due. Though the legal notice dated 12.7.1997 and the acknowledgements as regards service of such notice on the respondents are not marked as exhibits by the appellant, the witness - P.W. 1, has categorically stated in his evidence-in-chief (paragraph 26) that office copy of the legal notice dated 12.7.1997 and the postal acknowledgement signed by respondent Nos. 1, 2 and 4 for receipt of the legal notice were part of the Court's record, and similarly, the un-served registered postal envelopes in respect of respondent Nos. 3 and 5 were also part of the court records. The respondents, more specifically respondent Nos. 2, 4 and 5, have disputed neither the issuance of the legal notice dated 12.7.1997 nor the receipt of the same.

17. As declared by the Hon'ble Supreme Court in Syndicate Bank vs. Channaveerappa Beleri and other, the limitation for the creditor to sue a guarantor commences, where the period is stipulated in the demand, from the date of refusal to pay or from the date of stipulated for payment; in the event no time stipulated in the demand, from the date of receipt of the demand. In view of the undisputed fact that the appellant caused legal notice dated 12.7.1997 and the same were either received or refused by the respondents, the significant date would be 12.7.1997. The appellant had to file the petition under section 31(1)(aa) of the Act, in any event, within 3 years from this date. It's been held by the Hon'ble Supreme Court in Maharashtra State Financial Corporation vs. Ashok K Agarwal and Others MANU/SC/1724/2006 : AIR 2006 SC 1584 that the limitation for filing the petition under section 31 of the Act would be 3 years as provided under article 137 of the Limitation Act, 1963. The present petition is filed under section 31(1)(aa) of the Act on 11.7.2000. As such, the petition is filed by the appellant within 3 years from 12.7.1997.

18. Further, it is nobody's case that the State Financial Corporation's claim against the respondent No. 6 (the principal borrower-debtor) was time barred, and in fact, it cannot be because admittedly the sale of the assets of the respondent No. 2, pursuant to the orders of the Company Court, was in the year 2008 i.e., after the initiation of the present proceedings. The learned District Judge has not considered the aforesaid circumstances and has concluded that the petition as against respondent Nos. 2, 4 and 5 had to be rejected as being time-barred because the appellant had filed the petition invoking the Deeds of Guarantee after a lapse of 15 years from the date these deeds were executed. Therefore, in the considered opinion of this court, the learned District Judge has erroneously concluded that the petition under section 31(1)(aa) of the Act was liable to be dismissed as against respondent Nos. 2, 4 and 5 on the ground that such petition is time-barred.

Miscellaneous First Appeal No. 4140 of 2010 (SFC)

Decided On: 25.02.2019

Karnataka State Industrial Investment and Development Corporation Limited Vs  G.C. Lohia and Ors.

Hon'ble Judges/Coram:
Ravi V. Malimath and B.M. Shyam Prasad, JJ.

Citation: AIR 2019 Karn 80.
Read full judgment here: Click here 

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