Instead of touching the heart of the problem, the appellants have just skirted it. Their argument does seem attractive at first sight but loses its sheen the moment examined on the touchstone of Hon'ble Supreme Court's authority in the case Himachal Pradesh Financial Corporation v. Smt. Pawna and Ors. Civil Appeal No. 1971/1998, decided on 18.12.2003, a true copy of the said order has been placed with the written arguments filed by the Counsel for the respondent No. 1, Himachal Pradesh Financial Corporation. In both the cases, Clause 7 of the mortgage deed runs as follows:
(7) Without prejudice to the above rights and powers conferred on the HPFC by these presents and by Sections 29 and 30 of the State. Financial Corporation Act, 1951 (as amended in from time-to-time) and the special remedies available to the HPFC under the said Act, it is hereby further agreed and declared that if the sole proprietor of the industrial concern fails to pay the said principal sum with interest and other moneys from him, under these presents, to the HPFC in the manner agreed, the HPFC shall be entitled to realize 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 HPFC to recover the balance from the sole proprietor and the other properties owned by him though not included in this security.
14. The facts of the case before the Hon'ble Supreme Court were these: The principal debtor committed defaults in repayment. Therefore, on 4th January, 1977, a notice was issued to them. Thereafter, a publication declaring intention to take over the assets was made on 25th July, 1981. On 25th October, 1982 in exercise of powers under Section 29 of the Financial Corporations Act, possession was taken over. The Corporation sold the assets on 28th March, 1984 and 14th March, 1985. From such sale, they recovered a sum of Rs. 2,90,000/-. The Corporation then issued a notice dated 27th May, 1985 to the respondents who had executed the indemnity. As the balance was not paid up, a civil suit for recovery of the balance amount was filed on 15th September, 1985. In the said case, the Hon'ble Supreme Court was pleased to hold as under:
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 in 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 28th March, 1984 and 14th March, 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 15th September, 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 he 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.
Equivalent Citation: II(2010)BC79
DEBTS RECOVERY APPELLATE TRIBUNAL
DELHI
Decided On: 06.01.2010
Shri Krishan Kumar Khemka Vs. Himachal Pradesh Financial Corporation and Ors.
Hon'ble Judges/Coram:
J.M. Malik, J. (Chairperson)
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