Case: J.G. Glass Limited Vs. Indian Bank & Another

S. Radhakrishnan, J. This First Appeal arises out of a judgment and order dated 28th February, 1989, passed by the learned Civil Judge Senior Division, Pune, whereby the suit was decreed against the Defendants in the sum of Rs. 10.70,760.25 ps. alongwith interest.2.Briefly, the facts are that M/s. J.G. Moulds Ltd. the Respondent No.2 herein had applied for cash credit facility, key cash credit term loan and bill discounting facilities for its business and obtained the same from Indian Bank, the original Plaintiff. In that behalf the said Respondent No.2 had hypothecated various movables in favour of the Plaintiff Bank. Original Defendant No.2 M/s. J.G. Glass Industries Ltd. was the principal company whereas M/s. J.G.Moulds Ltd. was its subsidiary. The said M/s. J.G. Glass Industries Ltd. being the original Defendant No.2 had fully guaranteed repayment of all dues of M/s. J.G. Moulds Ltd. to Indian Bank. It appears that the said M/s. J.G. Glass Industries Ltd. had even acknowledged its liability to pay the Bank, in its annual balance sheets upto 1981.3.During the pendency of the suit, the said J.G. Glass Industries Ltd., being Defendant No.2 was amalgamated with Defendant No.3 M/s. J.G. Glass Ltd. the Appellant herein. The said amalgamation was granted on 7th July, 1983, with effect from 1st April, 1982. Thereby the Respondent No.2 herein became the subsidiary of Appellant and the Appellant was fully liable to pay the Banks dues on such amalgamation. The Respondent No.2 had originally obtained the facilities in 1971, the same was renewed in 1974 and further fresh documents were executed renewing the liability on 4th September, 1978. 4.The Appellant to guarantee the repayment had executed a promissory note on 4th September, 1978 and the covering letter accompanying the same refers to renewal of the earlier promissory note dated 24th September, 1975, executed by the Appellant in favour of the Bank. The said J. G. Glass Industries Private Limited had also duly executed a continuing guarantee on 30th November, 1974 in favour of Indian Bank, being Exhibit 54 before the Trial Court. 5.The said continuing guarantee clearly mentions various credit facilities availed of by the said J.G. Moulds Pvt. Ltd. The Guarantor J.G. Glass Industries Private Ltd. had guaranteed full repayment with interest thereon, including all costs, charges etc. Clauses 3, 4, 5, 6 and 7 of the said guarantee read as under :"3. The Guarantor further declares that this Guarantee shall be a continuing guarantee and shall not be revocable by the guarantor except on their making full payment of the amount due to the said Bank from the said Company.4. The Guarantor further declares that this Guarantee shall not in any manner be affected by reason of the said Bank granting any indulgence or enlargement of time to the said Company without reference to the Guarantor.5. The Guarantor further declares that as between the said Bank and the Guarantor, the Guarantor will be treated as debtors jointly with the said Company and accordingly the Guarantor or any of them shall not be entitled to and the Guarantor hereby waive all the rights conferred on the Guarantor by Sections 133, 134, 135, 139 and 141 of the Indian Contract Act.6. The Guarantor further declares that this guarantee shall not in any event be affected by reason of the said Bank obtaining further securities nor would it be affected by reason of the said Bank failing to recover and realise any of the securities.7. The Guarantor further declares that this guarantee shall not in any manner be affected by reason of any latches on the part of the said Bank to recover the amount due from the said Company."The said guarantee has been duly executed by its Director and Secretary. Prior to execution of the said guarantee, on the very same day, the Board had passed a resolution to execute such a guarantee. 6.Shri Mhamane, the learned counsel for the Appellant, sought to assail the Trial Court judgment on only one ground, viz. suit claim was barred by limitation. According to the learned Counsel original Defendant No.1 had obtained facilities in 1971 and the same was renewed in 1974. Thereafter, only on 4th September, 1978 fresh documents were again executed. Therefore, Shri Mhamane contends that as the renewal did not take place in 1977 and the same was done only in 1978, the suit claim was already time barred, hence could not have been renewed.7.We have perused the entire record and therefrom that the Appellant has clearly executed a continuing guarantee on 30th November, 1974 supported by a Board resolution, whereby in a clear and unambiguous term guaranteed repayment unconditionally, as per clauses mentioned hereinabove. Over and above, the Appellant had also executed a promissory note on 24th September, 1975 and the reference of the same is made in the covering letter dated 4th September, 1978 while executing another promissory note on that very day. Therefore, it is not that after 1974 upto 1978 no document was executed as contended. The published balance sheets of Appellant upto 1981, show clearly the liability of the Appellant. For the aforesaid reasons, the contention that the claim is barred by law of limitation, has no merit whatsoever.8.We have also perused the reasoning of the Trial Court. We do not find anything erroneous or illegal in the reasoning and findings of the trial Court.9.In this context, we may refer to a Supreme Court Judgment in Margaret Lalita Samuel vs. Indo Commercial Bank Ltd. AIR 1979 SC 102 , wherein the Apex Court had negatived the contention of bar by law of limitation in a continuing guarantee, and para 10 of the said judgment reads as under : "We may first consider the question of limitation. As already mentioned by us, the submission of Shri Bal was that every item of an overdraft account was an independent loan, limitation for the recovery of which was determined by Art. 57 of the schedule to the Limitation Act, 1908. Limitation, according to the learned Counsel, started to run from the date of each loan. He relied on Basanta Kumar Mitra v. Chota Nagpur Banking Association Ltd. AIR 1948 Pat. 18 : Brojendra Kishore Roy Choudhury vs. Hindustan Co-operative Insurance Society Ltd. I.L.R. 44 Cal. 1978 = AIR 1918 Cal. 707; National and Grindlays Bank Ltd. v. Tikam Chand Daga AIR 1964 Cal. 358 , and Uma Shankar Prasad vs. Bank of Bihar Ltd. AIR 1942 Pat. 201 . In our view it is unnecessary for the purposes of the present case to go into the question of the nature of an overdraft account. The present suit is in substance and truth one to enforce the guarantee bond executed by the defendant. In order to ascertain the nature of the liability of the defendant it is necessary to refer to the precise terms of the guarantee bond rather than embark into an enquiry as to the nature of an overdraft account. Exhibit 57 is the guarantee bond executed by the defendant and her husband on 23rd October, 1944. It is addressed to the Indo Commercial Bank Ltd., Madras, and is in the following terms ... "Dear Sirs, In consideration of your having agreed to allow overdraft accommodation up to Rs.10,00,000/- (Rupees Ten Lakhs only) to the Modern Hindustan Food Products Ltd., Poona, we, C.B. Samuel and M.L. Samuel, the undersigned do hereby jointly and severally guarantee to you, the Indo Commercial Bank Limited the repayment of all money, which shall at any time be due to you from the said Modern Hindustan Food Products Ltd., on the general balance of their accounts with you or on any account whatever such balances to include all interest, charges, commission and other expenses which you may charge as banker and also the due payment at maturity of any promissory note or other negotiable instrument on the security or in respect of which any credit or advance shall be made. And we hereby declare that this guarantee shall be a continuing guarantee to the extent at any one time for Rupees 10,00,000/- (Rupees Ten Lakhs only) and shall not be considered wholly or partially satisfied by the payment at any one time or at different times of any sums of money due on such general balance of account but shall extend and cover and be a security for every and all further sums at any time due to you thereon. And we further declare that you may grant to the Modern Hindustan Food Products Ltd., any indulgence without discharging our liability." The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach under Art. 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J.C. Shah, J. speaking for the Court said: "On the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever we are not concerned in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation of enforcing the liability of the defendant under the surety bond ............. we hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained live account. and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."We agree with the view expressed by Shah J. The intention and effect of a continuing guarantee such as the one with which we are concerned in this case was considered by the Judicial Committee of the Privy Council in Wright v. New Zealand Farmers Co-operative Association of Canterbury Ltd. 1939 A.C. 439. The second clause of the guarantee bond in that case was in the following terms: "This guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing to you by the William Nosworthy and Robert Nosworthy on their current account with you for goods supplied and advances made by you as aforesaid and interest and other charges as aforesaid." A contention was raised in that case that the liability of the guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of advance. The Judicial Committee of the Privy Council expressed the opinion that the matter had to be determined by the true construction of the guarantee. Proceeding to do so, the Judicial Committee observed (at p. 449): "It is no doubt a guarantee that the Association will be repaid by the Nosworthys advance made and to be made to them by the Association, together with interest and charges; but it specifies in col. 2 how that guarantee will operate namely, that it will apply to (i.e. the guarantor guarantees repayment OX the balance which at any time thereafter is owing by the Nosworthys to the Association. It is difficult to see how effect can be given to this provision except by holding that the repayment of every debit balance is guaranteed as it is constituted from time to time, during the continuance of the guarantee, by the excess of the total debits over the total credits. It that be the true construction of this document, as their Lordships think it is, the number of years which have expired since any individual debit was incurred is immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted.That document, in their opinion, clearly guarantees the repayment of each debit balance as constituted from time to time, during the continuance of the guarantee, by the surplus of the total debit over the total credits, and accordingly at the date of the counterclaim the Associations claim against the plaintiff for payment of the unpaid balance due from the Nosworthys, with interest, was not statute-barred." 10.In the instant case also the account was alive, not settled and there was no refusal on the part of the guarantor to carry out its obligation and the continuing guarantee was subsisting. Therefore, the Appellant was very much liable. 11.Under the aforesaid facts and circumstances, we do not find any substance in the contention of Mr. Mhamane, the learned Counsel for the Appellant that the suit claim is barred by law of limitation.

Decision reasoning: 0[ds]Over and above, the Appellant had also executed a promissory note on 24th September, 1975 and the reference of the same is made in the covering letter dated 4th September, 1978 while executing another promissory note on that very day. Therefore, it is not that after 1974 upto 1978 no document was executed as contended. The published balance sheets of Appellant upto 1981, show clearly the liability of the Appellant. For the aforesaid reasons, the contention that the claim is barred by law of limitation, has no merit whatsoever.8.We have also perused the reasoning of the Trial Court. We do not find anything erroneous or illegal in the reasoning and findings of the trialthe instant case also the account was alive, not settled and there was no refusal on the part of the guarantor to carry out its obligation and the continuing guarantee was subsisting. Therefore, the Appellant was very much liable. 11.Under the aforesaid facts and circumstances, we do not find any substance in the contention of Mr. Mhamane, the learned Counsel for the Appellant that the suit claim is barred by law of limitation.