1 IN THE HIGH COURT OF BOMBAY AT GOA FIRST APPEAL NO. 161 OF 2002 Shri Madhukar D. Nirgudkar, son of Shri Dattatraya Nirgudkar, of full age, resident of Adarsha Colony, Caranzalem, Ilhas, Goa. .... Appellant V/s 1. The Economic Development Corporation of Goa, Daman & Diu Ltd., EDC House, Dr. Atmaram Borkar Road, Panaji, Goa. 2. Shri Surendra Bhasker Kamat, 64, North Stand, Wankhede Stadium, D-Road, Churchgate, Mumbai – 400 020. .... Respondents Mr. V. Menezes, Advocate for the Appellant. Mr. M.S. Sonak, Advocate for Respondent No.1. CORAM : A.P. DESHPANDE & N.A. BRITTO, JJ. DATE : 16th OCTOBER, 2008 JUDGMENT : (Per, N.A. BRITTO, J.) This appeal is filed by defendant no. 2 in SCS No. 68/1985 and is directed against judgment/decree dated 21/12/2001 by which the defendants have been directed to pay to the plaintiff a sum of Rs. 19,68,433.77 with interest at the rate of 14.5% from 1/04/1985 till payment. 2 2. The parties hereto are referred in the names as they appear in the cause title of the said civil suit. 3. There is hardly any dispute as regards the basic facts. The defendant no.2 was a promoter, share holder and a director of a company known as M/s. Goa Metal Casters Pvt. Ltd. who was advanced two loans by the plaintiff in the sum of Rs. 5.6 lacs on 19/05/1977 and Rs. 7.5 lacs on 4/07/1979. The first loan was repayable in 17 half yearly instalments of Rs. 32,900/- each with interest at the rate of 14.5%, starting from 20/03/1980. The second loan was also repayable in 17 half yearly instalments of Rs. 44,000/- each, starting from 20/03/1980 with interest at the rate of 14.5%. The defendants had guaranteed the repayment of the first loan by a deed of continuing guarantee dated 31/03/1978 and the second loan by a deed of guarantee dated 4/07/1979. On 31/03/1978 the defendants had also given an undertaking not to transfer, dispose of, pledge or charge, etc. their share holdings in the share capital in the said company without the written permission of the plaintiff. The said company had also executed a deed of mortgage on 21/04/1978 in consideration of a sum of Rs. 5.6 lacs, part of which was already advanced and part of which was to be advanced. The said mortgage was in respect of a plot of land admesuring 20,000 sq. mts. and also included the plant, machinery, spare parts, etc. belonging to the said company. By another indenture dated 21/04/1978 a tripartite agreement was entered into between 3 MSFC (Maharashtra State Financial Corporation), the plaintiff and the said company. The said company had also obtained a loan of Rs. 30 lacs from the said MSFC on or about 16/09/1976. The agreement provided that the rights of the plaintiff and the said MSFC in respect of the securities created by the MSFC mortgage and EDC mortgage would rank pari passu without any preference or priority of any one over the other. 4. The plaintiff filed the suit for recovery of money, claiming that out of the total advance of Rs. 12,27,300/- received by the company, the company had paid only interest in the sum of Rs. 2,64,328.38. The suit was filed on 11/04/1985 for a sum of Rs. 19,68,433.77, a sum of Rs. 12,27,300/- being due on the principal amount, Rs. 7,35,602.98 due as interest and Rs. 5,530.79 as other charges. There is no dispute that at the relevant time the provisions of the State Financial Corporations Act, 1951 (Act, for short) were not applicable to the plaintiff. The said provisions were made applicable to the plaintiff by virtue of notification dated 4/01/1993, under sub-section (1) of Section 46 of the Act, published on gazette dated 10/06/1993. 5. The defendant no.1 did not contest the suit, nor has filed any appeal, but defendant no. 2 did by filing a written statement, and, in support of his case the defendant no.1 examined himself and another witness. The learned trial Court framed several issues and after considering the evidence produced 4 came to the conclusion that the plaintiff had succeeded in proving that the defendants are jointly and severally liable to pay to the plaintiff an amount of Rs. 19,68,433.77 with interest at the rate of 14.5% per annum from 1/04/1985. 6. At the hearing of this appeal, two points have been raised by Shri Menezes, the learned Counsel on behalf of the appellant/defendant no.2. 7. The first is regarding the plea of limitation which plea was vaguely taken by defendant no.2 in his written statement without even specifying as to why the suit was said to be time barred. The finding of the learned trial Court that the suit was within time is not at all satisfactory and this has been conceded by Shri Sonak, the learned Counsel appearing on behalf of the plaintiff. The learned trial Court appears to have proceeded on the basis that the suit was based on a mortgage and therefore the time limit to file the same was 12 years. However, there is no dispute that both the defendants had executed deeds of continuing guarantee dated 31/03/1978 which were produced by the plaintiff at Exhibit PW1/B and PW1/G. The said deeds are stated to be on identical terms, and, they stipulated that the said deeds of guarantee were intended to be supplemental to the deed of mortgage to be executed. Clause 1 of the said deed of the continuing guarantee provided that in case of default made by the company in the payment of the principal 5 amount, the Guarantors and each of them, would pay to the plaintiff, on demand, at Panaji the principal moneys and interest and other moneys which shall then be due to the plaintiff and would indemnify and keep indemnified the plaintiff against all losses of the principal, interest and other moneys due to the plaintiff under the said mortgage and all costs charges and expenses whatsoever which the plaintiff may incur by reason of any default on the part of the said Company, their successors or assigns. They also provided that the Guarantee was irrevocable and would be enforceable against the Guarantors or any one of them notwithstanding that the securities or any of them specified under the said mortgage shall at the time when the proceedings are taken against the Guarantors or any of them thereunder be outstanding or unrealised. They also stipulated that in order to give effect to the Guarantee the plaintiff would be entitled to act as if the Guarantors were and are the principal debtors to the plaintiff for all payments and covenants guaranteed by them as aforesaid to the plaintiff. By virtue of clause 7 it was stipulated that the Guarantee would be continuing one for all amounts to be lent and advanced by the plaintiff to the company under the said loan as also for all interest, costs, and other moneys which may from time to time become due and payable and remain unpaid to the plaintiff under the said loan and shall remain in force until all such moneys shall be paid off in full, with interest and all other charges. The Guarantors also agreed that all the communications including a Notice of Demand posted under certificate of 6 posting at the address mentioned in the Guarantee deed or last known address of the Guarantors shall be sufficient service of such communication or notice on them and the plaintiff would be entitled to proceed on the basis that the said communication or letter posted under the certificate of posting has been duly received by the Guarantors at the end of the normal period after which such communication or letter would be ordinarily delivered by the postal authorities. The Guarantors also agreed that such service on any one of them shall be deemed to be sufficient service on all or either of the Guarantors giving joint and several Guarantee. 8. Although, defendant no.2 took a plea of limitation, defendant no.2 did not even ensure that relevant documents were produced to enable the Court to decide the said plea. Nevertheless, we proceed to decide the said plea on the basis of the documents referred to by the plaintiff. There is no dispute that by notice dated 11/03/1982 the principal borrower-the company was called upon to repay the loan within 3 months. The Guarantors were called upon to pay the loan by notice dated 23/05/1983 and the suit was filed on 11/04/1985. Shri Menezes, the learned Counsel on behalf of defendant no.2 fairly concedes that no specific plea was taken by the defendant no.2 as to why the suit was time barred, but nevertheless, learned Counsel contends that the period of limitation has to be reckoned from the date of the notice to the principal borrower i.e. 11/03/1982 and, being so, the suit filed on 11/04/1985 7 was clearly time barred. Shri Sonak, the learned Counsel on behalf of the plaintiff, on the other hand, submits that although the notice to the principal borrower was given on 11/03/1982, the principal borrower was required to pay the loan within three months and it is only upon the expiry of three months i.e. on or about 11/06/1982, the period of limitation would start to run and thus seen the suit which was filed on 11/04/1985 is well within time. We are inclined to accept this submission of learned Advocate Shri Sonak. 9. Shri Menezes has placed reliance on an unreported judgment of this Court dated 22/07/1998 in First appeal No. 80/1994 in the case of The Maharashtra State Financial Corporation V/s. Shri Ashok Kumar Agrawal and 2 Ors. A reading of the said judgment shows that the loan against the principal borrower was recalled in the year 1981 and an application was filed subsequently in the year 1992 against the Guarantors under Section 31(1)(aa) of the Act, and the said Guarantors had taken the plea of limitation and this Court held that the period of limitation would be three years against the respondents i.e. the Guarantors for filing the suit against them and the said period of three years had already expired prior to the coming into force of clause (aa) of sub-section (1) of Section 31 of the Act and the said amendment could not revive a cause of action against the respondents/Guarantors so as to entitle the appellant-MSFC to file an application under Section 31(1)(aa) of the Act. The said civil miscellaneous 8 application bearing no. 1/92 appears to have been filed only after clause (aa) was introduced in the year 1985. The said judgment of the Division Bench was carried to the Apex Court and the Apex Court on 30/03/2006 in the decision reported in Maharashtra State Financial Corporation V/s. Ashok K. Agarwal & Ors. (2006 (9) SCC 617) held that the notice demanding repayment of the amount of loan against the borrower i.e. M/s. Crystal Marketing Pvt. Ltd. was issued on 8/03/1983 and the application under Section 31 and 32 of the Act was filed against the said borrower on 25/10/1983. The Court also noted that the amendment to Section 31 of the said Act was brought about in the year 1985 by introduction of sub-section (aa) in Section 31(1) of the Act and even after this amendment the appellant- MSFC did not wake up to take any steps against the sureties but the notice was issued only on 27/01/1991 and the application for enforcement of liability was filed on 2/01/1992 and thus the application was clearly time barred and therefore the Courts below were right in dismissing the application on ground that it was barred by limitation. The Apex Court in Syndicate Bank V/s. Channaveerappa Beleri & Ors. (2006 (11) SCC 506) held that a Guarantor's liability depends upon the terms of his contract. A “continuing guarantee” is different from an ordinary guarantee. There is also difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of the guarantee, 9 the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise on the principal debtor and guarantor at the same time or at different points of time. A claim may even be time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. These aspects have been referred to only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantee will arise, would depend purely on the terms of the contract. 10. We are unable to accept the contention of Shri Menezes that the period of limitation is to be reckoned from the date of notice. We are entirely in agreement with the contention of Shri Sonak that the time would run from three months from 11/03/1982, that being the time limit given to the borrowers to make the payment. A suit filed prior to that might have become premature. The stipulation in the guarantee agreement, in this case, is that the defendants had agreed to pay the amount due on demand by the plaintiff at Panaji, the principal money and interest, etc. The demand was made on 11/03/1982 on the principal borrower and on 23/05/1983 on the Guarantors. Looked from any angle, the suit of the plaintiff filed on 11/04/1985 cannot be said to be time barred since it has been filed within three years after the expiry of 10 the period given to the principal borrower as well as the guarantors to pay the amount. Therefore, the plea that the suit was time barred has got to be rejected. 11. The second contention raised on behalf of the defendant no.2 is that notice of auction was not given to the defendant no.2. There is no dispute that the MSFC had taken the possession of the assets of the company under Section 29 of the Act, on or about 27/03/1984 and sold them in public auction and after negotiations to M/s. K.P. Steels Pvt. Ltd. for the sum of Rs. 42.27 lacs. The contention of learned Advocate Shri Menezes is that no notice of the said sale was given to defendant no. 2. Not that there was any stipulation to that effect in the agreement of guarantee. This contention appears to have been based on the guidelines issued in Mahesh Chandra V/s. Regional Manager, U.P. Financial Corporation & Ors. (1993 (2) SCC 279). The case of defendant no.2 was that the plaintiff had not given him an opportunity to find out buyers so as to fetch the market price. However, it was not the case of the defendant no.2 that he did not have knowledge of the said auction or that he had taken any objection to the same or that he had any other better offer and in fact he admitted that he did not have objection for selling the assets in liquidation of the loan since that was the remedy available to the MSfC and plaintiff. The Apex Court in Haryana Financial Corporation & Anr. V/s. Jagadamba Oil Mills & Anr. (2002 (3) SCC 496) 11 has reconsidered, the earlier view in Mahesh Chandra (supra) and observed that that view was too widely expressed without taking note of the ground realities and the intended objects of the statute. The Court held that the fairness required of the Corporations cannot be carried to the extent of disabling them from recovering what is due to them. The Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge and as such in the discharge of its functions, it is free to act according to its own light. The views it forms and decisions it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations and unless its action is mala fide, even a wrong decision by it is not open to challenge. The Court also observed that the subsequent decision in the case of Gem Cap, Naini Oxygen and Micro Cast Rubber ran counter to the view expressed in Mahesh Chandra's case and further held that the issuance of the said guidelines in Mahesh Chandra's case are contrary to the letter and the intent of Section 29. In this case, the mortgaged property was auctioned by wide publicity both in local and national newspapers. In the light of the view held by the Apex Court in Haryana Financial Corporation and another (supra), the contention of learned Advocate Shri Menezes cannot be accepted. 12. In the light of above, we find there is no merit in this appeal and, 12 consequently, the same is hereby dismissed with costs. A.P. DESHPANDE, J. N.A. BRITTO, J. NH/-