Case: Deepak Bhandari Vs. Himachal Pradesh State Industrial Development Corporation Limited

of the mortgage deed which was executed between the parties and in the present case such a clause is conspicuously absent. Had the judgment of this Court rested solely on clause 7 of the mortgage deed, the aforesaid argument of Mr. Dhruv Mehta would have been of some credence. However, we find that the Court also specifically discussed the issue as to when right to sue on the indemnity would arise and specific answer given to this question was that it would be only after the assets were sold of. The judgment was also rested on another pertinent aspect viz. since the mortgage deed was executed, the period of limitation would be 12 years if a mortgage suit was to be filed. Following discussion in the said judgment on this aspect squarely answers the contention of the learned Senior Counsel for the appellant: “Whilst considering the question of limitation the Division Bench has given a very lengthy judgment running into approximately 50 pages. However they appear to have not noticed the fact that under Clause 7 an indemnity had been given. Therefore, the premise on which the judgment proceeds i.e. that the loan transaction and the mortgage deed, are one composite transaction which was inseparable is entirely erroneous. 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 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. In this case, it is an admitted position that the sale took place on 28.1.1984 and 14.3.1985. it is only after this date that the question of right to sue on the indemnity (contained in Clause 7) arose. The suit having been filed on 15.9.1985 was well within limitation. Therefore, it was erroneous to hold that the suit was barred by the law of limitation.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] 21. We thus, hold that when the Corporation takes steps for recovery of the amount by resorting to the provisions of Section 29 of the Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the industrial concern. As the Corporation would be in a position to know as to whether there is a shortfall or there is excess amount realised, only after the sale of the mortgage/ hypothecated assets. This is clear from the language of sub-Section (1) of Section 29 which makes the position abundantly clear and is quoted below: “Where nay industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.” 22. It is thus clear that merely because the Corporation acted under Section 29 of the State 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 only 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. The right to sue on the contract of indemnity arose after the assets were sold. The present case would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old Limitation Act, 1908. The right to sue on a contract of indemnity/ guarantee would arise when the contract is broken. 23. Therefore,

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]. The Court answered by holding that for such proceedings Article 137 of the Limitation Act would apply meaning thereby, period of limitation is 3 years. From the reading of this judgment, it becomes abundantly clear that the issue to which would be the starting date for counting the period of limitation, was neither raised or dealtwith the approach of the High Court in as much as clause 7 specifically provided that the Corporation could filed recovery proceedings against the partners of the Industrial concern if the sale proceeds of the assets of the industrial concern were insufficient to satisfy the dues of the Corporation.We thus, hold that when the Corporation takes steps for recovery of the amount by resorting to the provisions of Section 29 of the Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the industrial concern. As the Corporation would be in a position to know as to whether there is a shortfall or there is excess amount realised, only after the sale of the mortgage/ hypothecated assets.It is thus clear that merely because the Corporation acted under Section 29 of the State 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 only 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. The right to sue on the contract of indemnity arose after the assets were sold. The present case would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old Limitation Act, 1908. The right to sue on a contract of indemnity/ guarantee would arise when the contract is