Case: Maharashtra State Fin.Corpn Vs. Ashok K. Agarwal

The appellant Maharashtra State Financial Corporation (hereinafter referred to as the Corporation) had sanctioned a loan of Rupees Five lakhs in favour of M/s. Crystal Marketing Private Limited on 14th November, 1978. The respondents in the present appeal were Directors of the said borrower and stood sureties for the loan. The amounts under the said loan were disbursed to M/s. Crystal Marketing Private Limited from time to time in the year 1979. The company however failed to repay the loan amounts. The Corporation issued various letters calling upon the borrower to clear its dues. Ultimately, the Corporation got a legal notice dated 8.3.1983 issued calling upon the borrower to repay the entire amounts due. On 25th October, 1983, the Corporation moved an application under Sections 31 and 32 of the State financial Corporation Act, 1951 in the Court of the District Judge, North Goa, Panaji. The appellant Corporation prayed for an order of sale of the hypothecated property of the borrower company so that the sale proceeds could be appropriated towards meeting the outstanding liability of the borrower towards the appellant. On 11th June, 1990 the attached properties of the borrower company were put to sale. Because there was a shortfall in the amount realized on sale of the hypothecated property, the appellant-Corporation sent notices on 27th December, 1991 to the sureties, that is, the respondents in this appeal. An amount of Rs.16,79,033/- was claimed as due from the sureties together with interest at the rate of 14.5% per annum. On 2nd January, 1992, the appellant-Corporation filed an application under Section 31 (1) (aa) of the State Financial Corporation Act against the respondents for steps for recovery of the amount due. The respondents took various objections against the application and the reliefs prayed therein including that the application was barred by limitation. The learned Additional District Judge vide his order dated 16th April, 1994 upheld the objection regarding the application being barred by limitation. The application was accordingly dismissedAccording to the respondents Article 137 of the Limitation Act was applicable and as per that provision such an application could be made within a period of three years. Article 137 applies in cases where no period of limitation is specifically prescribed. It was submitted that as no period of limitation is prescribed for an application under Sections 31 and 32 of the Act, Article 137 would apply. The Addl. District Judge upheld the contention of the respondents and the application of the Corporation was dismissed as barred by limitation. The appellant Corporation filed an appeal against the said order in the High Court of Judicature at Bombay, Bench at Panaji. The appeal was dismissed by the High Court by the impugned order dated 22nd July, 1998. The High court upheld the reasoning of the Additional District Judge.

Court's reasoning:
In fact this Court has observed that there is no decree to be executed nor there is any decree holder or judgment debtor and therefore in a strict sense it cannot be said to be a case of execution of a decree. Article 136 of the Limitation Act has no application in the facts of the present case. Article 136 specifically uses the words decree or order of any civil court. The application under Sections 31 and 32 of the State Financial Corporation Act is not by way of execution of a decree or order of any civil courtArticle 137 of the Limitation Act applies in the facts of the present case. When Article 137 is applied, the application moved by the appellant-Corporation on 2nd January, 1992 for proceeding against the sureties i.e. the respondents herein, was clearly barred by time and the courts below were correct in holding so. To recall the facts of the present case, the notice demanding repayment of the amount of loan was issued against the borrower, that is, M/s. Crystal Marketing Private Limited on 8th March, 1983 and the application under Sections 31 and 32 of the State Financial Corporation was filed against the said borrower on 25th October, 1983. The liability of sureties had crystalised thenThe amendment under Section 31 of the State Financial Corporation Act which authorises the State Financial Corporations to take action under Section 31 of the Act for enforcing the liability against the sureties, was brought about in the year 1985 by introduction of sub-section (aa) in Section 31 (1) of the Act. Even after this amendment the appellant did not wake up to take any step against the sureties in the present case. Notice was issued to the sureties only on 7th December, 1991 and the application for enforcement of liability against them was filed on 2nd January, 1992. The application, therefore, was clearly barred by time and the decisions of the courts below cannot be faulted. The courts below rightly dismissed the application on the ground that it was barred by limitation.