Syndicate Bank v. 1. K.Prakash2. J.K.Javarappa

In the High Court of Judicature at MadrasDated 27.06.2007CoramThe Honourable Mr.Justice S.R.SINGHARAVELUAppeal Suit No.150 of 1995Syndicate Bank, rep.by itsManager V.Jethonan,Ootacamund..Appellant(Plaintiff)..vs..1. K.Prakash2. J.K.Javarappa..Respondents/(Defendants)Appeal Suit filed under Section 96 of Civil Procedure Code,against the judgment and decree dated 28.02.1992 made in O.S.No.260of 1990 on the file of District Judge of the Nilgiris, Ootacamund.For Appellant : Mr.K.Chandrasekaran For Respondents: No appearance JUDGMENTThis appeal arises against the judgment and decree of thelearned District Judge, Ootacamund, in O.S.No.260 of 1990 dated28.02.1992, in dismissing the suit for money claim against seconddefendant and decreeing only against first defendant. Aggrieved overthe dismissal of the suit against second defendant, a guarantor, theplaintiff bank has preferred this appeal.2. There was an overdraft facility obtained by first defendantfrom plaintiff bank for his business and that was made at theinstance of the request of first defendant on 19.05.1986. Seconddefendant guaranteed the repayment of the above said loan.Therefore, both joined together and executed a pronote on 19.05.1986for a sum of Rs.25,000/- in favour of appellant/plaintiff bank andthat was marked as Ex.A-2. There was also a hypothecation deed underEx.A-3 executed by both as security for the said loan. Thus, firstdefendant was the principal debtor and second defendant was only aguarantor.3. A sum of Rs.1,000/- was repaid by first defendant on03.02.1987 and there was an acknowledgment by first defendant, theprincipal debtor. Construing as a starting period of limitation, the https://hcservices.ecourts.gov.in/hcservices/ plaint was filed on 11.12.1990. There was also an acknowledgment ofliability made by first defendant under Ex.P-7, which is dated11.08.1988. So, the suit was rightly decreed by construing thestarting period of limitation as 11.08.1988 and the suit was filedwithin three years thereof. The suit was dismissed as against seconddefendant/guarantor because he never signed in Ex.P-7 or on the dateof repayment of Rs.1000/- by first defendant on 03.02.1987.Therefore, it was found by the trial court that as against seconddefendant, the guarantor, the suit is time barred because it was notfiled within three years from the date of pronote (19.05.1986).4. Learned counsel for the second respondent relied onMercantile Credit Corporation Ltd., Tiruchirapalli .vs. A.Velusamyand another(2001-1-L.W.308), wherein it was held as follows:"To sum up, the making of an acknowledgment of liabilityby the principal debtor viz., the 1st defendant does notinvolve any variance of the original contract under Ex.A2 andEx.A26 within the meaning of Section 133 of the Contract Act.It also does not involve the making of another contract or afresh contract under Sections 134 and 135 whereby thecreditor discharges the debtor or makes a composition withhim. In fact the effect of acknowledgment of liability bythe 1st defendant alone under Exs.A27 to A38 is just thecontrary to the creation of another contract or freshcontract".Of course, in that case, it was held that suit claim as against 2nddefendant guarantor was barred by limitation.5. In that case law, reliance was made upon Indian Bank, Madras.vs. Krishnaswamy (AIR 1990 Madras 115 = 1989-2-L.W.105), where theloan was given by the bank to the mill and the plaintiff in that suitstood as surety. The mill was subsequently taken over by theGovernment and there was a fresh agreement between the Government andthe mill, which was not made known to the surety and therefore it washeld that the surety was discharged from that liability. 6. But in the case of Mercantile Credit Corporation Ltd., therewas no fresh agreement entered into and the acknowledgment ofprincipal debtor should be treated as that of the surety as such afinding was given in Wandoor Jupeter Chits (P) Ltd., ..vs..K.P.Mathew (AIR 1980 KERALA 190), wherein the following observationwas made;"13. Acknowledgment of the debt under Section 18 of LimitationAct, which provides for a fresh period of limitation, woulditself be sufficient in the context of a contract of guaranteeto keep the surety's liability alive. Surety's contract beingseparate and collateral could not be equated to that of a co-debtor or joint contractor within the meaning of Section 20(2)of Limitation Act, so that the surety could not plead that the https://hcservices.ecourts.gov.in/hcservices/ written acknowledgment of the debtor could not keep hissurety's liability alive. The surety could also pleaddischarge under Section 133 of the Contract Act since thedebtor's acknowledgment would not create a contract differentfrom the one of the performance which the surety hadguaranteed.7. In AIR 1980 KERALA 190, it was observed as follows:"11. The law of limitation is based on public policy andexpediency, and generally stated, it only disables thelitigant who has not been vigilant, from getting the aid ofthe State in enforcing his claim. It does not destroy thelitigant's right, but only puts an end to the accessory rightof action. It is procedural, notwithstanding that in somerare cases like those under Ss.25 and 27 (of the Act of1963), rights are sometimes created and sometimesextinguished. In Mahant Singh vs. U.Ba Yi (43 Cal WN 641):(AIR 1939 PC 110), the Privy Council held that failure to suethe principal debtor till recovery is barred by the statuteof limitation would not operate to discharge the surety, andthat when S.2(j) of the Contract Act lays down that:"A contract which ceases to be enforceable by lawbecomes void when it ceases to be enforceable",the unenforceability should arise from substantive law, andnot from procedural regulations. The debt remains a debteven when the creditor by reason of a rule of procedurecannot himself bring an action upon it. In Bombay Dyeing &Mfg.Co. vs. State of Bombay (AIR 1958 SC 328), the SupremeCourt held:-"Now, it is the settled law of this country that thestatute of limitation only bars the remedy but does notextinguish the debt, S.28 of the Limitation Act (of1908, which corresponds to Section 27 of the presentAct) provides that when the period limited to a personfor instituting a suit for the possession of anyproperty has expired, his right to such property isextinguished. And the authorities have held-and rightly,that when the property is incapable of possession, asfor example a debt, the Section has no application, andlapse of time does not extinguish the right of a personthereto".If a debt barred by limitation is not extinguished, anacknowledgment designed to place it beyond the pale ofunenforceability, cannot certainly after its nature orcharacter, or that of the contract on which it is founded, soas to enable the surety to disown his obligation".8. Even in Subramania Aiyar .vs. Gopala Aiyar ((1910( ILR 33 Mad308), it was observed as follows:"Whenever procedural actions are barred, the rights https://hcservices.ecourts.gov.in/hcservices/ themselves are not extinguished.... Unless a law oflimitation operates as well as a law of extinctiveprescription, omission to sue cannot discharge the debtor.Limitation which merely bars the remedy is never spoken ofin modern jurisprudence as a mode of discharging anobligation...... It would therefore seem to follow that, asa mere omission to sue does not discharge the principaldebtor, the surety is not discharged under S.134 of theIndian Contract Act. It has been argued that the suretywill be prejudiced if he is liable to be sued when he cannothave any remedies against the debtor after a suit againsthim has become barred. The answer is he is himself toblame. He can easily avoid the risk and clothe himself withall the creditor's rights by payment or performance as soonas the debtor becomes liable".9. Therefore, the following was observed in AIR 1980 Kerala 190;"To sum up, the making of an acknowledgment by the principaldebtor does not involve any variance of the contract withinthe meaning of Section 133 of the Contract Act. It alsodoes not involve the making of another contract underSections 134 and 135 whereby the creditor discharges thedebtor or makes a composition with him. In fact the effectof an acknowledgment is just the contrary. Nor is S.137attracted because it has been held that mere forbearance tosue even for a time beyond the period of limitation does notoperate to discharge the surety. An acknowledgment does notalso impair the remedy of the surety against the debtor,under S.139. It follows that there is nothing in Sections 18and 20(2) of the Limitation Act, or in the relevantprovisions of the Contract Act, as contended for, to renderthe surety's collateral obligation unenforceable by reasonof a written acknowledgment by the principal debtor".10. Lastly, the ruling laid down in Popular Bank Ltd .vs. UnitedCoir Factories (1961 Kerala LT 434) was confirmed in the aforesaidcase in AIR 1980 Kerala 190. 11. Now, coming to the principal laid down in 1961 Kerala LT434, wherein it was held that, "...in respect of any debt incurred by the principal duringthe currency of the guarantee, the surety is liable so longas the debt is recoverable from principal; it does notmatter that the principal has kept the debt alive byacknowledgments under S.19 of the Limitation Act or bypayment under S.20, for by these acts, there is no renewalof the debt, and no new debt created which is not covered bythe guarantee. The debt remains the same, namely, the debtguaranteed; only the bar of time against recovery ispostponed. S.21(2) of the Limitation Act has no bearing, for https://hcservices.ecourts.gov.in/hcservices/ a mere surety is not a joint contractor. His is a separateand collateral contract for the purpose of ensuring that theprincipal keeps his contract".12. In that case, the first defendant was the principal debtor.The guarantor was the second defendant. The guarantee bond wasexecuted under Ex.P4. Clause(b) shows that it is a continuingguarantee determinable only after three months' notice-there is nocase that it has been so determined-and clause(c) states that theguarantee shall be applicable to the ultimate general balance.Therefore, it was made clear that in respect of any debt incurred bythe principal during the currency of the guarantee, the surety isliable so long as the debt is recoverable from principal. It doesnot matter that the principal has kept the debt alive byacknowledgment under S.19 of the Limitation Act or by payments underS.20, for by these acts, there is no renewal of the debt, and no newdebt created which is not covered by the guarantee. The debt remainsthe same, namely, the debt guaranteed; only the bar of time againstrecovery is postponed. This principle was followed as laid down inGana Nath Sen .vs. Ranjith Roy (ILR.1942 (1) Calcutta 11). This wasconfirmed in later case law 1980 Kerala 190, which was followed in2001-1-L.W.308. 13. In this case also, the debt remains the same and thecontract regarding the liability also remains the same. Because ofthe subsequent acknowledgment and payment under Sections 19 and 20 ofLimitation Act by first defendant, the principal debtor, the contractremains the same and what was postponed was the bar of limitation.The statute of limitation only bars the remedy but does notextinguish the debt. Whenever procedural actions are barred, therights themselves are not extinguished. Thus, the payment of firstdefendant and the acknowledgment made by him is established and solong as the debt or liability of the principal debtor is alive, thenthe guarantor's liability also will survive. There need not be anyseparate acknowledgment from the guarantor. Therefore, there shouldbe also a decree against the second defendant.For the reasons stated above, the appeal is allowed and thedecree and judgment of the trial court are set aside and the suit isdecreed as prayed for. No costs.Sd/Asst.Registrar/true copy/Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ glTo1.The District Judge,The Nilgiris at Ootacamund.2.The Record Keeper,V.R.Section,High Court, Madras.One cc to Mr.Chandrasekaran, advocate SR.No.32859 Appeal Suit No.150 of 1995PV/COSKY/11/9