1 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR :::: JUDGMENT :::: 1. Hakam Singh Vs. RFC & Ors. S.B. Civil Misc. Appeal No.1469/2007 against the order dated 15.3.2007 passed by Shri Ram Chandra, RHJS, District Judge, Sri Ganganagar in Civil misc. Case No.150/2000. 2. Babu Lal & Anr. Vs. RFC & Ors. S.B. Civil Misc. Appeal No.1394/2007 against the order dated 15.3.2007 passed by Shri Ram Chandra, RHJS, District Judge, Sri Ganganagar in Civil misc. Case No.150/2000. DATE OF ORDER :::: 12th May, 2009 PRESENT HON'BLE MR. PRAKASH TATIA, J. S/Sh. Mr. RK Singhal, HS Sandhu, DS Rajvi, SP Sharma, MS Rathore and NS Khileri for their respective parties. <><><> BY THE COURT: These two appeals have been preferred by the 2 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. guarantors who gave guarantee for the loan availed by deceased Baldev Singh from the respondent- Rajasthan State Financial corporation (hereinafter referred to as 'corporation'). The appellants are aggrieved against the order passed by the District Judge, Sri Ganganagar on application submitted by the respondent under Section 31 (1)(aa) of the State Financial Corporation's Act, 1951 (hereinafter referred as 'the Act of 1951). The court below after rejecting the contention of the appellants that the application is barred by time, held that the respondents can proceed to recover the amount of Rs.6,15,913.50/- from the properties mortgaged with the respondents by the guarantors. The core question is whether the application filed by the respondent-corporation under Section 31(1)(aa) of the Act of 1951 was within the period of limitation. For the purpose of deciding the controversy, following are the relevant facts: The loan was sanctioned to the borrower Baldev Singh 3 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. by the respondent-corporation on 14th Nov., 1984 of Rs.1,81,000/- which was re-payable in 48 installments. The two guarantors Babu Lal and Inder Singh gave guarantee for re-payment of the entire loan amount paid to and the loan which may be found due in the borrower Baldev Singh and they mortgaged their immovable properties and executed the guarantee deed on 18th Dec., 1984. The borrower defaulted and, therefore, the respondent- corporation gave notice under Section 31 of the Act of 1951 on 30.1.1988 and by invoking powers under Section 29 of the Act of 1951 the respondent -corporation attached truck of the borrower for which finance was given to the borrower by the respondent. The truck was attached on 24.1.1990. Faced with this situation of the attachment of the truck, the borrower preferred S.B. Civil Misc. Appeal No.50/1990 before this Court. In that CMA notices were issued to the respondents and ultimately on 22nd May, 1990, this Court in borrowers S.B. Civil Misc. Appeal No.50/1990 released the truck in question i.e., Truck No.RRC 6145 on condition that 4 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. the borrower shall pay Rs.15,000/- per month against the respondents' dues and shall also furnish fresh guarantee for the due amount of loan. In the interim order dated 22.5.1990 it was made clear that in a case of default in payment of any instalment, the respondents will be free to take possession of the truck in question and will be free to auction it. In pursuance of the order dated 22nd May, 1990, a guarantee was submitted by guarantor Hakam Singh, who is appellant in S.B. Civil Misc. Appeal No.1469/2007. In the guarantee submitted by Hakam Singh, was in pursuance of the order of this Court dated 22nd May, 1990 and he agreed to pay all the amount which may found due in the borrower of the respondent-RFC. The terms and conditions in the guarantee submitted by Hakam Singh (Ex.21) is almost same as of the deed of guarantee executed by the two earlier guarantors. However, the borrower failed to comply the aforesaid interim order and has committed default in payment of the instalment, therefore, a notice under Section 30 of the Act 5 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. of 1951 was served upon the borrower by the respondent- corporation which is dated 1.1.1996 and the same notice was served upon all three guarantors. In the notice dated 1.1.1996 the total amount due as on 1st Nov., 1995 was shown as principal amount Rs.1,70,152, interest amount Rs.2,77,742/- and misc. charges 3456/- and total Rs.5,51,350/-. By this notice dated 1st Jan., 1996 the borrower as well as guarantors were asked to pay the amount with interest by 31.1.1996 and they were informed that in case of failure, the respondent-corporation will exercise its power under Section 29 of the Act of 1951 and may sell the properties to recover the amount. The borrower and guarantors did not pay the amount in response to the notice dated 1.1.1996 then on 1.1.1997 the truck in question was again attached and it was auctioned on 28.2.1997 for a consideration of Rs.1,49,000/-. The said amount of Rs.1,49,000/- was credited by the respondent in the loan account of the borrower on 31.3.1994. Thereafter, on 22nd Sept., 1997, the respondent again gave a notice to 6 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. all the guarantors under Section 30 of the Act of 1951, then filed the present petition under Section 31(1) (aa) of the Act of 1951 in the court of District Judge, Sri Ganganagar on 29th March, 2000. In the proceedings under Section 31, the trial court proceeded to take evidence and, thereafter, held that the respondent-corporation entitled to sell the property mortgaged by the guarantors and the claim of the respondent is not barred by time. Learned counsel for the appellants in both the appeals vehemently submitted that the claim of the respondent was hopelessly barred by time and, therefore, the application should have been rejected by the court below on the ground of bar of limitation. Learned counsel for the appellant Shri BS Sandhu for two earlier guarantors Babu Lal and Inder Singh in SBCMA No.1394/2007 submitted that the cause of action accrued to the respondents against the borrower as well as against the guarantors immediately on committing default by the 7 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. borrower in payment of instalment and if not then the cause of action accrued to the respondent on 30.1.1988 when the notice under Section 31 of the Act of 1951 was served upon the borrower and the guarantors. It is submitted that after 30.1.1988 the guarantors never acknowledged the debt nor paid any amount towards the loan amount so as to extend the limitation. It is also submitted that these two guarantors were not party in the S.B. Civil Misc. Appeal No.52/90 preferred by the borrower before this Court, therefore, any order passed in that appeal is absolutely irrelevant for extending period of limitation for the present guarantors. It is also submitted that the respondent- corporation entered into a fresh agreement by accepting the fresh guarantee from new guarantor Hakam Singh on 26th June, 1994 and, therefore, the guarantee which was given by the appellants Babu Lal and Inder Singh stands superseded by the subsequent guarantee given by Hakam Singh and, therefore, the appellants' guarantee stand discharged which they gave in the year 1984. Then it is 8 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. submitted that even if the period is counted from the date when the truck was attached then that is the date starting the cause of action for recovery of the amount by the respondent from the borrower and guarantors. Originally, the truck was attached on 24.1.1990 and if it was released without the information and knowledge of the appellants then that itself a ground for exonerating the guarantors. Learned counsel for the appellants in both the appeals submitted that period of limitation for filing an application under Section 31 of the Act of 1951 is three years in view of the judgment of the Hon'ble Apex Court delivered in the case of Maharashtra State Financial Corporation Vs. Ashok K. Agarwal & Ors reported in 2006 DNJ (SC) 508 and in view of the judgment of this Court delivered in the case of RFC Vs. M/s. Anis Ahmed Habib Khan & Ors (S.B. Civil Misc. Appeal No.590/2008, decided on 22.9.2008) and in another judgment delivered in the case of Modern Mech. & Electrical Eng. Vs. Rajasthan Financial Corporation reported in 2009 (1) DNJ (Raj.) 373. Learned counsel for the appellants in 9 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. both the appeals drew my attention to the relevant provisions of the Limitation Act to show that the application is barred by time. Learned counsel for the appellant Shri RK Singhal appearing for the guarantor Hakam Singh also submitted that Babul Lal and Inder Singh gave guarantee in the year 1990 and borrower committed the default in the year 1990 then the cause of action created to the RFC in the year 1990, therefore, the respondent-RFC could not have sit over the matter so as to drag the appellant in such situation that he will have to pay huge amount of more than Rs.4 lacs as on 31.1.1996 and further more amount by now. It is also submitted that the borrower was under obligation to pay the instalment in view of the subsequent settlement and he committed default in the year 1990 then the limitation for filing application came to an end in the year 1993. The attachment of the truck by the respondent by exercising power under Section 29 of the Act of 1951 and its unilateral action cannot extend the limitation in view of the fact that 10 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. the limitation once started can be extended when there is written acknowledgement of the debt by the borrower or his representative or there is part payment by the borrower, guarantors or their representatives against the loan amount. Admittedly, the loan amount was not paid by the borrower or guarantor after 1990 and, therefore, there arises no question of extension of limitation as provided under Section 18 and 19 of the Indian Limitation Act, 1963. It is submitted that part payment against the debt if is voluntary then only it may extend the period of limitation under Section 19 of the Indian Evidence Act. The RFC by exercise of power under Section 29 of the Act of 1951 if took over the possession of the property of the borrower and sold it then they were not agency of the borrower and, therefore, any payment received through force measure cannot be treated to be the payment against due by borrower or guarantor under Section 19 of the Act of 1963. Learned counsel for the respondent-corporation Sh.DS Rajvi submitted that the guarantee given by Hakam Singh 11 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. was not the fresh guarantee so as to discharge the original guarantors. The guarantee given by Hakam singh was in pursuance of the order passed by this Court in S.B. Civil Misc. Appeal No.50/90. It is the supplementary guarantee which is mentioned in the deed itself. Learned counsel for the respondent further submitted that in recent judgment of the Hon'ble Apex Court it has been held that the proceedings under Section 31 of the Act of 1951 is akin to the proceeding for execution as under Section 31 r/w Section 32 is complete code in itself. It is complete procedure in itself for recovery of dues. With the help of said judgemnt of the Hon'ble Apex court delivered in the case of Karnataka State Industrial Investment & Developoment Corporation Ltd Vs. SKKK Kulkarni & Ors reported in (2009) 2 SCC 236 , learned counsel for the respondent – corporation submitted that the limitation for filing application under Section 31, therefore, would be 12 years, which is the limitation provided for filing of the execution petition. 12 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. Learned counsel for the respondent also pointed out that limitation can start only when the respondent demands amount from the borrower and the guarantor fail to pay the amount or denies to pay the amount. It is submitted that the guarantors' guarantee was continuing guarantee which is clear from both the deeds itself. In view of the above reasons, the court below rightly held that the respondent's application is within limitation. According to learned counsel for the respondent the notice under Section 30 was given on 1.1.1996 and before expiry of limitation from 1.1.1996, the truck was auctioned on 28.2.1997 for a consideration of Rs.1,49,000/- and by deposit of this Rs.1,49,000/- in the account of the borrower by the respondent on 31.3.1997, the limitation which started running from 31.3.1997 in view of Section 19 of the Indian Limitation Act got the fresh starting point and that is from 31.3.1997. It is also submitted that the property auctioned by the respondent was of the borrower and, therefore, they had right to appropriate the amount received by auction of 13 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. the borrower's property and before that amount could have been appropriated against the loan amount of the borrower, the respondent could not have know whether any amount of the borrower is still due or not. Once the amount is received then only the respondent could know that yet there is any amount of loan is due. In view of the above reasons, the filing of the application by the respondent on 29th March, 2000 is well within limitation from 31.3.1997, the day on which the amount of Rs.1,49,000/- was deposited in the borrower's account, which was the amount of sale proceeds received by the respondent from sale of the truck of the borrower. I considered the submissions of learned counsel for the parties and perused the facts of the case. This is unfortunate that a loan was sanctioned in the year 1984 and paid in the year 1984 and the recovery proceedings yet has not come to an end even in the year 2009 consuming 25 years of period. It is further more unfortunate because of the reason that a special provision 14 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. has been made by the Legislature giving extra ordinary power to the financier to recover the amount. Obviously special power has been given to financier institutions because of the reason that Legislature thought it fit that the public money be protected and the financial institutions may without long litigation for recovery of the public money itself may recover their loan amount so it may advance to public again. Despite such special provisions of law, the recovery of the loan amount has not been made for 25 years. It is relevant to mention here that in normal contract for finance where the financier if is State Financial Corporation or bank there is always provision for levy of compound interest and which is not allowed in private finance. Any delay in recovery of loan in such cases results into the grave injustice to the borrower. In the cases where loan has been advanced to the poor persons of Rs.1 lac, the liability may go to the extent of millons of rupees. At this juncture, it will be further relevant to mention her that in that situation even bonafide persons who suffered loss or 15 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. losses their property may also have the liability of huge amount and further more is that the guarantor who never imagine the consequences of delay is the worst suffer when borrower delays the recovery proceedings. The very object for enacting the provision as enacted in the Act of 1951 will frustrate if the actions are not taken in time and the matters are not decided in time. The facts of the present case are also glaring that in the year 1984 the loan was advanced of Rs.1,81,000/- that too for a truck. The commercial vehicle loses their value fast and in no time. Against the loan of truck of Rs.1,81,000/- according to the borrower total amount recovered by the RFC is more than Rs. 8 lacs till today, yet there is huge liability against the guarantors and their property is yet mortgaged with the respondent -RFC. In commercial transaction there may be reason for extending period for repayment and the RFC also helps the borrower by making re-settlement so that the borrower may pay the loan amount but yet there must be some limit against the 16 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. total amount which can be recovered against the loan, but that can be examined by the law framers and policy makers and not by the courts. Be it as it may be, the crucial question which has been raised by the respondent in this matter is from which date the limitation will start and whether that limitation stand extended by any other reason covered under Section 18 and 19 of the Indian Evidence Act. The Hon'ble Apex Court considered this aspect of the matter in the case of Maharashtra State Financial Corporation (supra). In that case the loan was advanced by the financial corporation to one company in the year 1978. The company was served with the legal notice on 8.3.1983 calling upon the company to repay the entire amount due. Then on 25.10.1983, the corporation moved application under Section 31 and 32 of the Act of 1951 in the court of District Judge. On 11.6.1990, the corporation attached the properties of the borrower company and put it to sale. After depositing the said amount there was short fall and 17 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. then corporation sent notice on 27.12.1991 to the sureties claiming Rs.16,79,033/- with interest @ 14.5% per annum. On 2.1.1992 the appellant corporation filed an application under Section 31(1)(aa) of the Act of 1951 against the guarantors. The Hon'ble Apex Court held that in proceedings under Sections 31 and 32 of the Act of 1951, the Article 137of the Limitation Act applies. The Hon'ble Apex Court held that since notices were served upon the borrower on 8th March, 1983 then the notice given to the sureties on 7.12.1991 and submitting of application under Section 31 and 32 of the Act of 1951 by the corporation on 2.1.1992 is barred by time. The judgment relied upon by learned counsel for the respondent of the Hon'ble Apex Court delivered in the case Karnataka State Industrial Investment and Development Corporation Ltd. (supra) the Hon'ble Apex Court observed “.....The proceedings under Section 32 of the 1951 Act are, therefore, nothing but execution proceedings. A combined reading of Section 31 and Section 32 of the 1951 Act 18 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. indicates that an investigation has to be made to find out the terms and conditions on which loan was given by SFC to the industrial concern and whether SFC was entitled to the relief under Section 31(1) on account of breech of the terms of agreement...” In the above case, the Hon'ble Apex Court further observed that “....Section 31 read with Section 32 constitutes a code by itself. It is a special provision. It is a mode of recovery...” The above observation of the Hon'ble Apex Court only says that proceedings under Section 31 and 32 of the Act of 1951 are akin to the execution proceedings but the Hon'ble Apex court in the case of Maharashtra State Financial Corporation (supra) considered whether the Article 137 of the Indian Evidence Act shall apply to the proceedings under Section 31 of the Act of 1951 or not. The Hon'ble Apex Court held that “...It is by way of a legal fiction that the procedure akin to execution of decrees under the Code of Civil Procedure has been permitted to be invoked. But one cannot lose sight of the fact that there is no decree or order of a civil Court 19 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. when we are dealing with applications under Section 31 of the Act. The legal fiction at best refers to a procedure to be followed. It does not mean that a decree or order of a civil court is being executed, which is a sine quo non for invoking Article 136.” Therefore, the judgment delivered by the Hon'ble Apex Court in Karnataka State Industrial Investment & Development Corporation Ltd when dealt with one particular situation and that situation of nature of proceedings under Section 31 has already been considered specifically by the Hon'ble Apex Court in the judgment delivered in Maharashtra State Financial Corporation (supra) then there is no conflict between the two judgment as in the judgment delivered in the case of Maharashtra State Financial Corporation (supra), the Hon'ble Apex Court held that even if a proceeding under Section 31 SFC Act is akin to execution yet it is not the execution of the order or decree of the court so as to make it itself execution proceedings. Learned counsel for the respondent also relied upon 20 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. the judgment of the Hon'ble Apex Court delivered in the case of Mangal Lal Vs. M/s. Jaiswal Industries reported in AIR 1989 SC 2113 wherein it has been held that fiction of order for sale is decree in suit. The financial corporation was decree holder and a debtor is judgment-debor. In proceedings under Section 31 and 32 of the Act of 1951 it has been held that for applying Section 34 of CPC it cannot also be extended for treating application under Section 31 (1) as application for payment of court fees. The issue involved in the case of Maganlal (supra) was entirely different. Any petition under Section 31(1) if cannot be treated to be a plant so as to treat it as a suit so as to apply period of limitation for recovery of any amount then application under Section 31(1) is also not execution petition. In totality, the application under Section 31 of the Act of 1951 is applicant and the court cannot pass any decree on said application nor it is execution even in view of judgment relied upon by learned counsel for the respondent delivered in the case of Karnataka State Industrial 21 of 27 SBCMA No.1469/07 Hakam Singh Vs. RFC& Ors. and SBCMA No.1394/07 Babu Lal & Anr. Vs. RFC & Ors. Investment & Development Corporation Ltd (supra) as in the said judgment also, the Hon'ble Apex Court clearly said