IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA. RFA No.140 of 2000 Judgment reserved on : November 19, 2008 Date of Decision : 24th February, 2009 Himachal Pradesh Financial Corporation …Appellant. Versus: M/s. Himalayachal Pharmaceuticals and another …Respondents. Coram: The Hon’ble Mr.Justice Sanjay Karol, Judge. Whether approved for reporting?1 Yes For the appellant: Mr. Ajay Kumar, Advocate. For respondents 1 & 3. Mr. Rakesh Kanwar, Advocate SANJAY KAROL, JUDGE. The Himachal Pradesh Financial Corporation (hereinafter referred to as ‘the Corporation’) has assailed the impugned judgment and decree dated 7.7.1997 passed by the District Judge, Shimla, in C.S. No. 9-S/1 of 1995/89 titled as H.P.F.C. vs. M/s. Himalayachal Pharmaceuticals & others. The appellant herein is referred to as the plaintiff and the respondents herein are referred to as the defendants. On 13.11.1982, defendant No.2 Shri S. D. Kaith and defendant No.3 Shri Amar Sain Bhuinta as partners of defendant No.1 M/s. Himalayachal Pharmaceuticals, applied for a loan, 1 Whether reporters of Local Papers may be allowed to see the judgment? 2 which was sanctioned by the plaintiff on 3.5.1983. Between the year 1983 and 1985, out of total sanctioned sum of Rs.2,90,000/-, only a sum of Rs.1,63,000/- was withdrawn by the defendants. Various documents, namely, agreement, deed of hypothecation, guarantee deed were executed by the defendants. In terms of the agreement, the loan was to be repaid in six monthly installments starting from 10.6.1985 ending on 10.12.1989. Certain properties of the defendants were also mortgaged. Since the repayment schedule was not adhered to, notice dated 27.3.1987 was served upon the defendants requiring them to pay the entire outstanding amount together with interest. As on 10.12.1987, the total amount due and payable by the defendants, had arisen from Rs.2,39,735.87 paise to Rs.3,17,223.87 paise. The plaintiff filed a suit under Order XXXIV Rule 4 CPC, inter alia, claiming the following reliefs:- i) Preliminary decree for Rs.3,17,223.87 with costs and future interest @ 14½% per annum from 11.10.89 with half yearly rests be passed in favour of the plaintiff and against the defendant by fixing reasonable time for payment of the aforesaid amount; ii) In case of failure of defendants to comply with the preliminary decree under Order XXXIV Rule 4 CPC a final decree for sale of mortgaged properties mentioned in para 5 of the plaint be passed in favour of the plaintiff and against the defendants. iii) In case the sale proceeds are found insufficient to satisfy the final decree, the plaintiff be held 3 entitled to recover the balance from other properties of the defendants; iv) A decree for the sale of hypothecated goods as detailed in agreements of hypothecation attached with the plaint may also be passed in favour of the plaintiff and against the defendants and the sale proceeds thereof be ordered to be adjusted towards the decretal amount; v) Any other decree or relief be also passed in favour of the plaintiff and against the defendants as this Hon’ble Court, in the facts and circumstances of the case, deems fit and proper; vi) Cost of the suit be also allowed to the plaintiff against the defendants. The defendants virtually admitted the plaintiff’s case but took certain preliminary objections with regard to the maintainability of the civil suit against defendant No.2 who had entailed disability due to mental illness. It was also pleaded that since the plaintiff had failed to take action in terms of the agreement and not taken sufficient steps for getting the hypothecated/mortgaged properties auctioned on 27.3.1987, the date when the notice was served, hence the defendants could not be burdened with any interest after the said date. Appreciating the material on record, the Court below decreed the plaintiff’s suit in totality except for prayer (iii) i.e. “in case the sale proceeds are found insufficient to satisfy the final decree, the plaintiff be held entitled to recover the balance from other properties of the defendants” for the reasons that considering Clauses VIII(5) & VIII(7-A) of the Agreement Ext.PD, the same was barred by limitation. The Court found that 4 since the first default was made on 10.12.1985 and the suit was filed in November, 1989, hence the said prayer was barred by time as the limitation for the said relief was prescribed under Article 37 of the Limitation Act. The Court below decided purely on the basis of the judgment delivered by this Court in H.P.F.C. vs. Smt. Man Mohan Kaur Anand and another {1991(1) S.L.C. 120}. I have heard the learned counsel for the parties and also perused the record. Clauses VIII(5) and VIII(7-A) of the agreement entered into between the parties are reproduced as under:- VIII(5). If a default shall have occurred in the payment of principal or interest or any other payments required under this Agreement or in any of the events mentions in sub-clause 2 hereof, H.P.F.C. may at its option, by notice in writing to the firm, declare the principal of the loan amount then outstanding to be due and payable immediately and upon any such declaration the security referred to in Schedule III hereto shall become enforceable and such principal, interest and all other moneys payable under this Agreement shall become due and payable immediately, notwithstanding anything in this Agreement and/or in any other document(s). The H.P.F.C. will be entitled to take any action as is available to it under the Agreement and the provisions of State Financial Corporations Act, 1951 as amended from time to time and or any other law in force. 5 VIII (7-A) In case of default in repayment of any installment of principal amount of loan and interest on due dates, the Corporation shall also be entitled to recover the money due to it under this agreement in any of the modes available to it under the law including as arrears of land revenue under the H.P. Public Moneys (Recovery of Dues) Act, 1973 is amended.” Along with the same, Clause 7 of the mortgage deed (Ext.PD) relevant for the purpose of adjudication of the controversy, is reproduced as under:- “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 Corporation 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 presents, to the Corporation in the manner agreed, the Corporation 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 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). 6 The execution of the said documents is not in dispute. Therefore, the reference to the relevant oral evidence is not necessary. The relevant provisions of the Limitation Act, 1963 are reproduced as under:- Article 37: On promissory note or bond payable by installments, which provides that, if default be made in payment of one or more installments, the whole shall be due. Article 62: To enforce payment of money secured by a mortgage or otherwise charged upon immovable property. The Apex Court in Civil Appeal No. 1971 of 1998 titled as Himachal Pradesh Financial Corporation vs. Smt. Pawna and others, while dealing with almost an identical issue, by taking into account the provisions of Clause 7 of the mortgage deed has held that the contract of indemnity and/or mortgage is an independent and separate contract from the main contract. As to whether the plaintiff’s prayer i.e. “(iii) In case the sale proceeds are found insufficient to satisfy the final decree, the plaintiff be held entitled to recover the balance from other properties of the defendants” is barred by limitation or not, the issue is no longer res integra and is covered by a decision of the Apex Court in Himachal Pradesh Financial Corporation (supra). The Apex Court was dealing with a case where the principal debtor had committed defaults in repayment 7 and the possession was taken over by the Corporation in exercise of its powers under Section 29 of the State Financial Corporations Act, 1951. The assets were sold off and notice to pay the short fall in the total amount due was issued to the persons who had executed the deed of indemnity. Failure on the part of the defendants therein to repay the amount, a suit for recovery of the balance amount was filed on 15.9.1985. Taking into account the fact that since the default in repayment of the loan amount had taken place in the year 1977 and the assets taken over in the year 1982 and sold off only in the year 1985, the suit for obtaining a personal decree was held to be barred after a period of three years from the date of the breach of the payment in the mortgage deed as the period of limitation commenced from the date when the breach of payment of installment under the mortgage deed was committed. This Court dismissed the plaintiff’s suit. However, in an appeal to the Apex Court, the finding of the High Court was reversed and the Apex Court held as under:- “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 8 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. 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) This Court in Man Mohan Kaur Anand (supra) was not dealing with a case of mortgage having been executed by the defendants. It was a case based on the hypothecation agreement. Therefore, the facts are clearly distinguishable and the ratio of law are not applicable. In any event, the said 9 judgment is under challenge by way of an LPA and is pending decision before this Hon’ble Court. In the present case, the first default was made on 10.12.1985. The admitted case is that since then no payment was made, but, however, suit was filed only in November, 1989 i.e. after a period of three years. Keeping in view the ratio of law laid down by the Apex Court in Himachal Pradesh Financial Corporation (supra), the reliance on the ratio of law laid down by this Court in Man Mohan Kaur Anand (supra) would be totally misplaced. The provisions of Article 32 of the Limitation Act are not applicable by any stretch of imagination and Article 62 which deals with the mortgage property would be applicable in the present case. There is no dispute that the properties of the defendants stand mortgaged with the plaintiff and that the same are governed by clause 7 of the mortgage deed. Hence, the plaintiff’s prayer (iii) is purely within the period of limitation and not barred by Limitation Act, 1963. Therefore, in my view, the Court below erred in not correctly applying the relevant provisions of law. The error is corrected. Accordingly, the appeal is allowed and the plaintiff’s suit is decreed in totality, including the prayer which had been refused by the Court below. 24.2.2009. ( Sanjay Karol ), (rana) Judge.