IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.07.2008 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE R.SUBBIAH O.S.A.NO.80 OF 2004 The Tamilnadu Industrial Investment Corporation Limited, represented by its Senior Branch Manager, Guindy Branch, Thiru Vi Ka Industrial Estate, Guindy, Chennai-600 032. .. Appellant Vs. 1.M/s.Sudarsanam Industries, represented by its Sole Proprietor, R.Sudarsanam, No.63,Pillaiyar Koil Street, Triplicane, Chennai-600 005. 2.K.Baskaran 3.Sultana Rahman .. Respondents This O.S.A. has been preferred under Order XXXVI Rule 1 of O.S. Rules read with Clause 15 of Letters of Patent against the order and decree, dated 29.3.2001 made in O.P.No.552 of 1997. For Appellant : Mrs.Rita Chandrasekaran for M/s.Aiyar & Dolia For Respondents: Mr.S.Subbiah for Mr.R.Gopinath for RR2 and 3 - - - - JUDGMENT (The judgment of the Court was made by M.CHOCKALINGAM, J.) This appeal challenges an order of the learned Single Judge of this Court in O.P.No.552 of 1997, whereby the claim made by the appellant herein for recovery of sum of Rs.12,56,021.00, was dismissed. 2.The petitioner filed the petition with specific allegations that a loan was availed by the first respondent, who is the principal https://hcservices.ecourts.gov.in/hcservices/ debtor, for which the respondents 2 and 3 stood as guarantors; that the principal debtor executed a loan agreement along with the deed of hypothecation on 4.9.1984; that the respondents 2 and 3 have executed deed of guarantee on the same day; that it was agreed between the parties that the loan should be repaid in instalments; that there was a default and hence the loan was foreclosed on 08.01.1993; that despite repeated demands, the loan was not paid and hence in exercise of powers vested upon the petitioner, the hypothecated assets were seized and they were brought for public auction on 15.12.1994, which yielded sale proceeds of Rs.5,75,000/-, which were given credit to the said loan and there was a balance of Rs.12,56,021/-, as found in the claim; that despite lawyer's notice, it was not paid and under these circumstances, the claim was made as against the respondents 1 to 3 that they are jointly and severally liable to repay the entire outstanding amount and hence this original petition was filed. 3.This original petition was resisted only by the respondents 2 and 3, inter-alia, stating that it is true, they stood as guarantors for the loan availed by the principal debtor, the first respondent; that they sent a letter on 20.04.1987 to the petitioner informing that the state of affairs of the principal debtor concern was bad and was not alright and hence they were not willing to continu to be the guarantors and therefore, their surety should be terminated and further, if the said state of affairs were allowed to continu, it would be detrimental to the interest of the petitioner and hence immediate action was necessary; that despite the same, the petitioner did not take any steps at all; that on the contrary, the property was brought for sale by public auction in the year 1994, but the same was also not informed to the respondents 2 and 3; that had they been informed about the same, the assets could have been sold for higher price; that on 27.12.1991, a notice was issued making a demand on the respondents 2 and 3; that apart from that, the original petition has been filed in the year 1997; that in the instant case, it is true, as per the agreement, it was a continuing guarantee, but it came to be terminated by way of notice in the year 1987; that demand was made after a period of three years and that the O.P. was filed out of time and hence their liability has come to an end and hence this original petition has got to be dismissed. 4.The learned Single Judge framed necessary issues and on enquiry, has dismissed the original petition in entirety and under these circumstances, the appellant/petitioner has brought forth this appeal before this court. 5.The questions that would arise for consideration are: a)whether the claim made by the appellant as against the respondents 1 to 3 could be ordered and whether the appellant is entitled to have the claim of Rs.12,56,021/-? b)So far as guarantee was concerned, whether the termination of guarantee by the respondents 2 and 3 is valid and accepted in law? c)Whether the plea of limitation as put forth by the respondents 2 and 3 could be accepted in law? https://hcservices.ecourts.gov.in/hcservices/ 6.Advancing arguments on behalf of the appellant, the learned counsel would submit that the first respondent availed loan on 4.9.1984 and also executed a deed of hypothecation on the very day and the respondents 2 and 3 have also executed a guarantee deed on the very day, which are all the facts admitted; and that a reading of the guarantee deed would clearly reveal that it was a continuing guarantee. The learned counsel took the court to Section 128 of the Indian Contract Act, which speaks about the Surety's liability and also Section 129 of the Act, which speaks about the continuing guarantee and would add that a very reading of the above provisions would clearly indicate that a guarantee which extends to a series of transactions is called a continuing guarantee; that in the instant case, as admitted by the respondents, it was a continuing guarantee; that if to be so, so long as the liability of the principal debtor was available, the guarantee would also continue; that in the instant case, they have actually executed a deed of guarantee also; and that the learned Single Judge has actually relied on clause 2 as found in the guarantee agreement. 7.Relying on clause 2 of the guarantee agreement, the learned counsel would state that the guarantor can come out from the liability provided he makes settlement of principal and interest accrued at that time, but in the instant case, they have not done so; that according to both the respondents, they have actually issued notice of termination of guarantee in the year 1987, but it was not actually received; that even assuming that such a notice was issued in the year 1987, the notice by itself will not terminate the continuing guarantee; that further in a given case like this, so long as the amounts are not paid or settled by the principal debtor, in view of the continuing guarantee originally accepted and agreed by the respondents 2 and 3, it would continue not only by operation of law, but also as per the agreement entered into between the parties and further, in this case, no question of limitation of three years would arise and that all the contentions put forth by the respondents' side should have been rejected in view of the settled proposition of law and hence the appeal has got to be ordered. 8.The court heard the learned counsel for the respondents on the above contentions. The learned counsel, in short, would submit that in the instant case, what has got to be applied is the provisions what is found under Sections 128 and 130 of the Indian Contract Act; that it is not in controversy that there was an agreement entered into between the parties; that the respondents 2 and 3 have executed a deed of guarantee; that the guarantee, which was originally a continuing one, was put an end by way of termination letter, dated 20.04.1987; that a reading of letter would clearly reveal that the plaintiff corporation was cautioned that the industry was not running to the satisfaction and they did not want to continue as surety any further and that they themselves got relieved of from the surety; that despite the letter, there was no action taken by the appellant's side, but they kept calm for the reasons known to them; that P.W.1, at the time of enquiry, has gone to an extent of saying that no such letter was received, but it has been actually acknowledged and the acknowledgment was also filed. https://hcservices.ecourts.gov.in/hcservices/ 9.Added further the learned counsel that the first demand notice was made only on 27.12.1991; that on receipt of the same, a reply was made under Ex.R.4 and it refers to the notice issued in the year 1987 itself; that the demand notice was made after a period of 3 years from the date of termination letter; that further, the original petition was filed in the year 1997 and that too after the demand was made in the year 1991 and thus, it was barred by time and under these circumstances, the learned Single Judge was perfectly correct in coming to a conclusion that it was barred by time and hence the appeal has got to be dismissed. 10.The Court has paid its anxious consideration on the submissions made. 11.It is not in controversy that a loan was availed by the first respondent, principal debtor from the appellant corporation, in respect of which, he executed a letter of hypothecation and the respondents 2 and 3 have executed a guarantee deed on 04.09.1984. A perusal of the documents would clearly indicate that the letter of guarantee executed by respondents 2 and 3 on 04.09.1984 was actually the one continuing guarantee. At this juncture, it would be more apt and appropriate to reproduce Sections 128 and 129 of the Indian Contract Act, which reads as follows: "128.Surety's liability.-The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. 129."Continuing guarantee".-A guarantee which extends to a series of transactions is called a "continuing guarantee". A reading of the above provisions would make it clear that so long as the liability of the principal debtor is available, the continuing guarantee will also co-extensive. Now, at this juncture, the learned counsel for the appellant relied on clause 2 of the guarantee agreement, which reads as follows: "The Guarantors may at any time upon giving one month's notice in writing to the Corporation require the Corporation to transfer to the Guarantors the said Mortgage Debt and interest and all securities for the same upon the Guarantors paying to the Corporation the amount then owing upon the security of the mortgage by way of principal interest and other monies and also all costs, charges and expenses incurred by the Corporation by way of and incidental to such transfer." A reading of the said clause would clearly reveal that the guarantor can issue one month notice for the purpose of transfer of guarantee. Now, at this juncture, it is pertinent to point out that this clause is available in the ordinary course, but in the instant case, the circumstance what is noticed by the court, is actually the letter that was issued by the respondents 2 and 3 on 20.04.1987, which reads as follows: https://hcservices.ecourts.gov.in/hcservices/ "We undersigned are the sureties for the above mentioned Industry which borrowed 3 lakhs and 25 thousand from Tamilnadu Industrial Investment Corporation during 1984. Of late due to mismanagement, the Industry is not running to our satisfaction and we don't want to continue as sureties any further as such we are getting ourselves hereby relieved. If this state of affairs are allowed to continue it will be detrimental to the interest of Tamil Nadu Industrial Investment Corporation. Please take necessary immediate action." From a reading of the letter, two things are made clear. First of all, the respondents 2 and 3 have come forward to state that they are relieved from the surety and that, they have put the petitioner/appellant on notice. Secondly, the petitioner/appellant was also cautioned that they should immediately take necessary action for the recovery of the sum, since it would be detrimental to the interest of the appellant corporation. 12.At this juncture, it is pertinent to point out that after receiving such a letter, the appellant/petitioner kept quiet. On the contrary, when the matter came before the Court, P.W.1, the responsible Officer of the Corporation came forward to state that no such letter was received. But, the letter was actually produced before the Court. This letter would also contain the acknowledgment of the appellant Corporation. When such a caution was made, why they kept quiet remained unknown. Further, in a given case like this, the question is as to how the continuing guarantee could be put an end or terminated. It would be apt and appropriate to reproduce Section 130 of the Indian Contract Act, which reads as follows: "130.Revocation of continuing guarantee.-A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor." From a reading of the above would make it clear that even in the case of continuing guarantee, it can be revoked by the surety by issue of notice to the creditor as one done in this case on 20.04.1987. Thus, once such a notice has been issued, the liability of the respondents 2 and 3 would fasten only upto that date and not thereafter. Further, the contention put forth by the learned counsel for the appellant that since it was continuing guarantee and the liability of the guarantor would be coextensive with that of the principal debtor and hence when the claim is made against the principal debtor, the guarantors are also liable, can be accepted in the ordinary course. In a given case, where continuing guarantee is actually terminated by issuing notice as contemplated under Section 130 of the Act as done in this case, the court is unable to appreciate the said contention. Thus, the continuing guarantee, though actually agreed between the parties under the deed of guarantee, it was put an end by way of issuing notice by the respondents 2 and 3 as noticed under Ex.R.2. 13.The next question that would arise for consideration is whether the claim is barred by limitation. As contended by the https://hcservices.ecourts.gov.in/hcservices/ learned counsel for respondents 2 and 3, the court has to answer in affirmative for the reason that there was notice issued by the respondents 2 and 3 on 20.04.1987 as referred to above, but the first demand notice was made only on 27.12.1991, i.e. after a period of 4 years. That apart, after the demand was made in the year 1991, the original petition was filed in the year 1997. All would go to show that despite the fact that there was continuing guarantee and the termination of notice was issued by the respondents 2 and 3 on 20.04.1987, the demand was made only in the year 1991, after a period of 4 years and the original petition was also filed after a period of 6 years and hence, all would go to show that it was thoroughly time barred, since the respondents 2 and 3 were relieved of the liability. 14.The learned Single Judge has dismissed the entire original petition and the appeal has also been filed against the dismissal. But, when the appeal is pending, so far as the first respondent is concerned, no steps were taken and hence the appeal has already been dismissed against the first respondent. Under these circumstances, now the entire appeal fails and the same is dismissed accordingly. No costs. Sd/- Asst. Registrar. /true copy/ Sub Asst. Registrar. vvk To The Sub Assistant Registrar Original Side, High Court, Madras - 104 + 1 CC To M/s. Aiyar & Dolia, Advocate SR NO.35746 O.S.A.NO.80 OF 2004 sgl(co) sra(17/07) https://hcservices.ecourts.gov.in/hcservices/