Case: Syndicate Bank Vs. Channaveerappa Beleri

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:i) Guarantee Bond dated 17.9.1983/20.8.1983/29.8.1983 executed by Respondents 1, 2 and 3, the limit of liability being Rs. 10.50 lakhs (a single deed executed by Respondents 1, 2 and 3 on different dates).ii) Guarantee bond dated 4.4.1984 executed by respondents 4 & 5, the limit of liability being Rs. 10.50 lakhs.iii) Guarantee bond dated 10.9.1985 executed by Respondents 1, 4, 5, 6 & 7, the limit of liability being Rs.11.70 lakhs.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 :-Account No.Date ofLimit/AmountBalance as onAdvanceAdvanced30.9.1987Over Draft27/8510.9.852,50,000/-3,32,116.041/867.1.862,50,000/-3,39,719.5414/8629.4.861,50,000/-1,99,105.35Goods Loan49/8423.7.841,61,000/-1,91,654.0048/8512.10.8527,450/-35,894.85Demand Loan against Supply Bills229/852.12.855,000/-318.60232/856.12.855,000/-6,936.65233/856.12.852,500/-3,469.40234/8511.12.8516,900/-23,356.15235/8520.12.851,500/-2,071.85237/8526.12.856,100/-8,366.902/861.1.862,900/-3,966.953/861.1.865,100/-3,425.755/8613.1.8632,970/-44,819.308/863.2.863,700/-444.0510/8610.2.8631,600/-26,274.8512/8613.2.8613,700/-18.424.2014/8611.3.868,800/-11,685.4515/8620.3.8610,230/-13,518.2516/8621.3.8636,000/-47,534.0018/8625.3.8620,300/-26,750.1020/8626.4.866,400/-8,412.60TOTAL13,48,264.792.3) 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.3. Respondents 4 and 7 remained ex parte. Respondents 1, 5 and 6 filed a common written statement which was adopted by 2nd respondent. Respondent No. 3 filed a separate written statement. They resisted the suit inter alia on the following grounds: -a) The suit was not maintainable only against the Guarantors and was liable to be rejected for non-joinder of the principal debtor.b) The Bank cannot proceed against the guarantors without first exhausting of remedies against the principal debtor.c) The guarantee bonds were executed in the years 1983, 1984 and 1985. As the suit was not filed within three years from the respective dates of the guarantee bonds, in the absence of renewals or acknowledgement by them, the suit was barred by limitation.4. The trial court framed as many as 16 issues. We are concerned with the issue no.4, that is, : Is the suit not in time?. The Bank examined its manager and respondents 1, 2 and 3 gave evidence on behalf of the defence. Ex. P-1 to P-35 and Ex. D-1 to D5 were marked. The trial court by an exhaustive judgment answered all the issues, except the issue regarding limitation in favour of the Bank. It held that the Bank had established the correctness of the amounts claimed and the rate of interest. It, however, held that the suit was barred by time and consequently, dismissed the suit. The appeal filed by the Bank was also dismissed by the High Court. The said dismissal is challenged in this appeal by special leave.

Court's reasoning:
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.17. In the view we have taken, it is not necessary to consider the meaning of the words live account used and referred to in Samuel (supra). Suffice it to say that the interpretation by the courts below placed on the words live account, that they refer to an account which is operational and not dormant, may not be sound. This Court itself had indicated that live account means an account that is not settled. The use of the term settled gives an indication that a live account refers to an account where the balance has not been struck by an "account stated" or "account settled". We may in this behalf, refer to the following observations in Bishunri Lal & Anr. (AIR 1934 PCessence of an account stated is not the character of the items on one side or the other but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and, by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral, and creates a new debt and a new cause of action.""There can be account stated although the balance of indebtedness is not throughout in favour of one side. It is irrelevant whether the debt in favour of the final creditor is created at the outset by one large payment or consists of several sums of principal and several sums of interest. Nor is it material whether the only payments made on the other side were simply payments in reduction of such indebtedness or were payments made in respect of other dealings. In any event items must be ascertained and agreed on each side before the balance can be struck and settled.Some arguments were addressed about the Article of limitation that would apply in respect of a suit against the guarantors. Samuel (supra) held that in the case of refusal of a guarantor to pay the amount, the matter would be governed by Article 115 of the Schedule to the Limitation Act, 1908, which corresponds to Article 55 of the Limitation Act, 1963. One of the submissions made before us was that the term compensation for breach of contract in Article 55 indicates to a claim for unliquidated damages and not to a claim for payment of sum certain (as to what is the difference between a claim for unliquidated damages and a claim for a sum certain or a sum presently due, reference can advantageously be made to the classic statement of Law by Chagla, CJ., in Iron and Hardware (India) Ltd., Vs. Firm Shamlal & Bros (AIR 1954 Bom. 423 ). If Article 55 does not apply, then a claim against a Guarantor in such a situation may fall under the residuary Article 113 of the Limitation Act, 1963 corresponding to Article 120 of the old Act. The controversy about the appropriate Article applicable, when the claim is found to be not exactly for compensation but ascertained sum due has been referred to as long back as 1916 in Tricomdas Cooverji Bhoja v. Gopinath Jin Thakur (AIR 1916 PC 183). Under the old Limitation Act (Act of 1908), the periods prescribed were different under Article 115 and 116. The periods prescribed were also different under Article 115 and 120. But under the 1963 Act, the period of limitation is the same (three years) both under Article 55 and 113. Having regard to the fact that the period of limitation is 3 years both under Article 55 and Article 113, and having regard to the binding decision in Samuel (supra), we do not propose to examine the controversy as to whether the appropriate Article is 55 or 113. Suffice it to note that even if the Article applicable is Article 113, the Banks suit is in time.