Syndicate Bank vs Channaveerappa Beleri & Ors

2. The appellant Bank filed Original Suit No. 29 of 1990 against Respondents 1 to 7 herein for recovery of Rs.19,77,478/60 (the liability of Respondents 2 & 3 being restricted to Rs.15,75,960 and liability of Respondents 6 & 7 being restricted to 17,56,070.60) together with interest @18.5% per annum compounded quarterly from the date of suit till the date of realization. The plaint averments in brief are as under.

2.1) The Bank had extended credit facilities by way of overdraft, goods loan, and demand loan against supply Bills to a company known as Gadag Forge Fits (India) Pvt. Ltd., ('company' for short). Respondent 1 was its Managing Director and Respondents 2 to 7 were its Directors. The credit facilities were renewed and enhanced from time to time. Respondents 1 to 7 executed the following guarantee bonds in favour of the Bank, personally agreeing and undertaking to pay and satisfy the Bank on demand all sums which may be due on account of the credit facilities granted to the company subject to the limits mentioned therein :

Thus the limit of total liability undertaken exclusive of interest was Rs.22.20 lakhs in the case of Respondents 1, 4 & 5, Rs. 10.50 lakhs in the case of Respondents 2 & 3 and Rs.11.70 lakhs in the case of Resondents 6 & 7. Their liability was joint and several with the company.

2.2) On account of the company allegedly incurring losses and stopping its activities, operations in the accounts of the company with the Bank stopped in the middle of 1986. In view of the failure on the part of the company (principal debtor) in paying the amounts due, the Bank sent a letter dated 12.10.1987 to the company and its 7 Directors (Respondents 1 to 7) informing that the following amounts were outstanding in the accounts of the company as on 30.9.1987 and calling upon the company as principal debtor and respondents 1 to 7 as guarantors to pay the said amounts aggregating to Rs.13,48,264.79 with interest @ 18.5% per annum from 1.10.87 within 15 days :-

318.60 6,936.65 3,469.40 23,356.15 2,071.85 8,366.90 3,966.95 3,425.75 44,819.30 444.05 26,274.85 18.424.20 11,685.45 13,518.25 47,534.00 26,750.10 8,412.60 TOTAL 13,48,264.79 2.3) The company and its Directors (Respondents 1 to 7) sent a reply dated 31.10.1987 through counsel stating that the company was passing though a financial crisis and the Bank had failed to assist the company by making further advances by way of working capital. They further alleged that in view of the failure to advance further funds, the company sustained heavy loss and the company was reserving liberty to file a suit for damages for an amount which would be more than the amount claimed by the Bank. They also alleged that the bank ought to have given a moratorium on interest to rehabilitate the company. They also stated that without prejudice to their rights and contentions, they were willing to discuss the matter with the Bank, to arrive at an amicable solution. A formal notice through counsel was sent by the Bank on 17.12.1987 demanding payment which elicited a reply dated 30.12.1987 denying the demand.

2.4) The Bank initiated proceedings for winding up against the company on account of its inability to pay its dues, on 11.10.1988 and the High Court ordered winding up of the company on 17.3.1989. Therefore, the suit was filed by the Bank on 16.3.1990 only against the Guarantors (Respondents 1 to 7) for recovery of Rs.19,77,478.60 (that is, the amount demanded in the notice dated 12.10.1987 with interest up to date of suit). The Bank restricted the claim to Rs.10.50 lakhs with interest at 18.5% P.A. from 17.12.87 to the date of suit against Respondents 2 and 3 and to Rs.11.70 lakhs with interest at 18.5% P.A. from 17.12.1987 to date of suit against respondents 6 and 7. The Bank contended that the respondents were jointly and severally liable to pay the amounts due by the company, as aforesaid. It was alleged that the cause of action for the suit against the guarantors (respondents 1 to 7) arose on 17.12.1987 when the demand was made and on 30.12.1987 when they denied the liability by notice. The statements of account showing the particulars of amount due as on 31.12.1989 were annexed to the plaint.

16. In view of the above, we hold that the time began to run not when the operations ceased in the accounts in mid-1986, but on the expiry of 15 days from 12.10.1987 when the demand was made by the Bank and there was refusal to pay by the guarantors. The suit filed within three years therefrom is, therefore, in time.

116. The periods prescribed were also different under Article 115 and

19. In view of our finding that the suit is not barred by time, we allow this appeal and, consequently set aside the judgment and decree of the High Court and that of the trial court. Consequently, the suit is decreed, as prayed for, with costs.