Bench held that the consistent view in that High Court to be to allow evidence on original consideration or an implied contract to repay. In Ramaswami & S.Prasad JJ. Preferred to lay down the law that a promissory note may be given as conditional payment of collateral security in which case a suit on the debt would lie and that the question depends on each case on the intention of the parties. This accords more with the Madras views.


Lothamasu Sambasiva Rao vs Thadwarthi Balakotiah on 14 November, 1972

131. In Raghavan v. Varaithu, (1962) 2 Ker LR 1, it was held that if the suit was filed on the basis of a promissory note no decree can be passed on the debt.

 132.  In Gangaram    v.   Keshava  Deo,    Bapna  Ag.  C. J.  &  Ranawat  J. Accepted the principal of an implied contract in every loan after entire case law was reviewed.

 133.  In  Champalal  v.  Saligram    Modi &  Chhangani  JJ. Held that where a promissory note is not proved to have been given in absolute discharge of a debt it can be treated as a conditional payment of the debt and a suit on the debt would lie.


134. In Dhondi Emki v. Hazari Vittal, AIR 1952 Hyd 137. Saidatali Khan J. Followed the decision in Sadasukh Jankidas v. Sir Kishen Pershad, AIR 1918 PC 146 ; Sarafalli v. Maha Sukhbhai AIR 1933 Bom 476 and Hazi Syed Shah v. Bachi Rajappa, 35 Deccan L. R. 368 and held that if there is a distinct and separate transaction and the promissory note was given as a collateral security, then separate transaction can be proved, and to that effect an amendment also can be allowed, whether the transaction is antecedent or contemporaneous with the promissory note, and section 91 is no bar. In a decision rendered on 22-8-1956 in Brji Raj v. Raja Ram, AIR 1957 Hyd 35 Srinivasachari, J. held that in a loan contemporaneous promissory note there is a presumption of conditional payment. The payee is therefore entitled to prove the existence of an obligation to pay the amount advanced as a loan. The fact that the promissory note is contemporaneous with the loan does not negative in the inference that it was executed as a collateral security or conditional payment. Though the learned Judge refers for another purpose to decisions in S. Krishner v. Meenakshi Iyer, AIR 1933 Mad 781. Venkanna v. Parasuram AIR 1929 Mad 522 he follows AIR 1918 PC 146, and holds that a promissory note is only a conditional payment. It does not appear that the Full Bench decision in AIR 1938 Mad 785 ( FB ) was brought to the notice of the learned Judge.


135. Datta J. In Manik Lal v. Dhirendra Chandra, AIR 1957 Tripura 28 followed the Full Bench decisions in AIR 1943 All 220 ( FB ) and AIR 1946 All 126 ( FB ) and held that unless there are circumstances or evidence to show the contrary a promissory note is always given as a conditional payment and hence a suit on the debt would lie. The Full Bench decision in AIR 1938 Mad 785 ( FB ) was not considered in this case also.

 136. In the case before the Full Bench decision in AIR 1934 Rang 389 = ILR 12 Rang 500 ( FB ) the suit was based upon the promissory note or in the alternative for money lent. Page C. J. who spoke for the Full Bench laid down six propositions which, except for the third one, were accepted by the Madras Full Bench in AIR 1938 Mad 785 (FB ) says Page C. J., at page 391 :--
 "I apprehended that the same principles apply as between borrower and lender and that when a promissory note or bill of exchange is given for a loan prima facie it is given and taken as conditional payment and not in accord and satisfaction, of the debt, if the promissory note or bill of exchange is taken as a conditional payment, and that term is embodied in the document cadit questio, but if it is not therein set out the document does not contain all the terms of the agreement upon which the loan was made, and in my opinion Section 91, Evidence Act does not apply. "


Dealing with the decision in ( 1881 ) ILR 7 Cal 256 the learned Judge says at page 392:
 "I confess that I do not understand why in the above cases so much significance should have been held to attach to the handing over of the promissory note and the money being part of the same transaction ; and I am of opinion, with all respect, that the fallacy that lies within the above proposition of law is that it does not appear to have been appreciated in those cases that it is not the time when but the terms upon which, the loan was made that matters, and that whether the promissory note or bill of exchange was given at the time when the money was handed over to the borrower or subsequently in either case it is necessary for the court to ascertain the terms of the agreement upon which the loan was made ; the question as to what those terms " were being a question of fact to be determined according to the particular circumstances obtaining in each case. "

 Stress is therefore laid on the terms of the agreement upon which the loan was made. Evidence is admissible regarding those terms without any inhibition under Section 91 Evidence Act. But for the view that there is a presumption that promissory note is prima facie conditional payment, this view accords with Madras view. The Madras Full Bench also laid down that the terms or the true nature of the transaction may be proved.


137. In Naraindas v. Jassomal, AIR 1921 Sind 80 it was held as follows :--
 "The question whether a loan was given and taken, can in certain cases such as those of collateral security, be distinguished from the question of terms of the loan and its repayment. When it can so distinguished even if the document embodying the terms is inadmissible, the lender may fall back and sue upon the loan itself and prove it by other evidence. An implied contract to repay money lent always arises from the fact that the money is lent. "

 138. In Lokumal v. Sind Bank Ltd. 57 Ind Cas 386 = ( AIR 1920 Sind 66 ) after a review of the case law a view akin to the Madras was laid down :
 139. In Chandulal v. Baboolal AIR 1952 Madh Bha 45, Mehta, J., held that where a cause of action for money lent is once complete in itself whether for goods sold or money lent or for any other claim and the debtor then gives a promissory note to the creditor for the payment of money at a future time the creditor may, if the money is not paid on the maturity of the pronote fall back on the original consideration. This is in accordance with the 1st proposition laid down in ( 1881 ) ILR 7 Cal 256, But it is to be noted in this connection that the suit promissory note in this case was executed after settling accounts relating to dealings in silver. Hence it is a clear case of an antecedent debt.


140. In R. K. Radhu & Co. v. Mathra Das , AIR 1936 Pash 146 Jolly Officiating C. J. speaking for the F. B. held that where a contract is wholly contained in a pronote, which is inadmissible in evidence the person suing on the pronote is precluded from proving the debt independently of the pronote. Says the learned Judge at page 147 :--
 " Now where the contract is contained wholly in the pronote, it is clear from the provisions of Section 91, Evidence Act and Illustration (b) thereto that the plaintiff will be precluded from proving the debt alinude ; in the present case even in the amended plaint the suit is framed on the pronote with the more addition of the fact that plaintiff advanced the money and obtained a receipt therefor ; the plaint states that defendant got from plaintiff Rs. 2,000 /- in cash and executed a pronote in plaintiff's favour and also gave a receipt for the amount ; again in para 3 plaintiff sums up his claim as follows Rs. 2,000 /- due on the pronote, Rs. 341 /- as interest and Rs. 180 /- as rent. This would appear to be a clear admission that the contract was in fact contained in the pronote and we find it difficult to regard the pronote as a mere subsidiary contract in respect of interest and time of payment and not in respect of liability for the principal, for the pronote, if admissible would undoubtedly afford a cause of action for both principal and interest. Assuming that the money actually changed hands before the execution of the pronote, the implied contract for repayment would be reduced to writing in the form of the pronote which must then deemed to have been regarded by the parties as the repository of their agreement, and therefore the only evidence thereof under Section 91 Evidence Act. "


For this proposition the decision in AIR 1927 Bom 437 was followed as laying down the correct rule. It therefore accords with the Madras view.

 141. In T. S. Srinivasa Gowda v. Siddiah, AIR 1971 Mys 144 it was held following the earlier decision of the same High Court in Srinivasa v. Thimmaiah, AIR 1964 Mys 56 that a plaintiff cannot fall back on the original consideration.

 142. Mohd Jamal Saheb v. Munwar Begum, My Lord Gopal Rao Ekbote, J. ( as he then was ) held that the plaintiff can succeed on a non-contractual basis, viz., for money had and received. To that extent the Full Bench view was not followed.

 143. In AIR 1966 J. & K. 127 it has been held by Fazl Ali and Janki Nath Bhat JJ. After review of the case law when the terms of the entire contract between the parties are reduced to the form of a promissory note where it is a contemporaneous lending. Section 91 is a clear bar to any other evidence and the whole suit must fail. This differs from the Madras view.


144. From a view of the above authorities it is evident that there are two lines of thought expressed by the different High Courts. The view laid down by the Full Bench of the Madras High Court in AIR 1938 Mad 785 ( FB ) finds acceptance, more or less, generally in the decisions rendered by the Lahore, Punjab, Patna, Kerala, Sind, Peshawar, Jammu Kashmir and Mysore High Courts. The contrary view taken by the other High Courts viz; Calcutta, Allahabad, Oudh, Bombay, Hyderabad, Tripura, Rangoon and Madhya Bharat, is based either more upon the theory of an implied promise in every contemporaneous loan or upon the presumption that a promissory note is only a conditional payment in the case of every loan transaction. This conflict it, appears to me, is irreconcilable at the present moment and it is only an authoritative pronouncement by their Lordships of the Supreme Court that can set at rest or give a quietus to this age-long controversy.

 145. As far as this case is concerned we have to see which view is acceptable as one based upon principle and in tune with the legal provisions arising in this matter.


146. As stated supra the provisions of the Evidence Act cannot be departed from in our country by courts to evolve an equitable principle howsoever laudable it may be. ( Vide Maung Kyin v. Ma Shwe Law, ILR 45 Cal 320 = ( AIR 1917 PC 207 ). Hence the bar laid down by S. 91 of the Evidence Act has to be given its fullest effect. If the loan transaction is merely oral no difficulty arises in regard to its proof as any amount of oral evidence can be adduced without any legal bar. The difficulty arises only when such a loan transaction is reduced to the form of a writing or a document like a promissory note. In all such cases Section 91 lays down the best evidence rule namely that no evidence shall be given in proof of the terms of such contract or of such matter except the document itself or secondary evidence of its contents in cases in which such secondary evidence is admissible under the provisions of the Evidence Act. Their Lordships of the Supreme Court have held in Jupudi v. Pulavarthi, as follows :


"The first limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty unless it is duly stamped. The second limb of it which relates to acting upon the instrument will obviously shut out any secondary evidence of such instrument for following such evidence to be let in when the original admittedly chargeable with duty was not stamped or insufficiently stamped, would be tantamount to the document being acted upon by the person having by law or authority to receive evidence. Proviso (a) is only applicable when the original instrument is actually before the Court of law and the deficiency in stamp with penalty is paid by the party seeking to rely upon the document. Clearly secondary evidence either by way of oral evidence of the contents of the unstamped document or the copy of it covered by Section 63 of the Indian Evidence Act would not fulfil the requirements of the proviso which enjoins upon the authority to receive nothing in evidence except the instrument itself. Section 35 is not concerned with any copy of an instrument and party can only be allowed to relay on a document which is an instrument for the purpose of section 35. ' Instrument ' is defined in section 2 (14) as including every document by which any right or liability is, or purports to be created transferred limited extended, extinguished or recorded. There is no scope for inclusion of a copy of a document as an instrument for the purpose of the Stamp Act. "


147. Again at page 1077 it is said :--
 " A we have expressed our view already that Section 35 imposed a bar on the reception of any, but the original instrument and forbade the reception of secondary evidence. "

 148. There can be no doubt that term of the loan or borrowing is the most important term of the contract while the terms as to rate of interest, duration of the loan or the method of payment etc., are incidental or ancillary terms of such a contract. If the contract of loan is reduced to writing one cannot resort to an implied promise to pay, out of such an express contract, as it would amount to violating or bypassing the strict mandatory provisions of the Evidence Act. The promise to pay whether express or implied is contained in every case of loan or borrowing and once it takes the form of writing both get merged in the document. One cannot be separated from the other as both mean the same thing. If the express promise cannot be proved on account of a legal bar the implied promise contained in that writing cannot also to be proved as the legal bar would equally apply to such proof. By permitting proof of such an implied promise in case of promissory notes executed for contemporaneous borrowing the law enacted in Section 91 would in my opinion be clearly violated.


149. It has been held by the Privy Council in ILR 50 Cal 338 = ( AIR 1923 PC 50 ) that document excluded from evidence is nevertheless a written contract and so as the effect of excluding evidence of the same being given. If there is an express promise resort cannot be made to an implied promise. In that case their Lordships held that the creditor could not establish as to the deposit of title deeds. A fortiori the fact of the loan cannot be proved on the basis of an implied promise. The law laid down by this Privy Council decision was also recently approved by their Lordships of the Supreme Court in a decision in .


150. Regarding the theory that a promissory note is a conditional payment, though it may happen in many cases, it cannot be decided as a matter of presumption in every case. It is a matter of allegation in the plaint and proof in each and every case. In the case of a simple loan the lender may lend and the borrower may borrow the money by execution of a promissory note at the time of the borrowing to evidence that loan. In such a case, it cannot be said that debt borrowed is instantaneously repaid by the promissory note. It depends upon the intention of the parties whether they intended to treat the promissory note as a conditional payment or not. In the generality of cases of a simple loan payment by a pronote may not arise on the date of lending itself. The very idea of a loan or borrowing indicates that the borrower is in need of money which he could not secure otherwise than by borrowing it on that day from the lender and the lender may take the pronote as evidence or a voucher for it. But in some cases it may be open to them to agree that the promissory note may be treated as a conditional payment of the debt involved in the borrowing so that in case the promissory note becomes in- admissible in evidence the creditor or lender may fall back upon the original debt or original consideration. That again is a matter for proof by evidence and not a matter of presumption in every case. As laid down in ILR 51 All 530 = ( AIR 1929 All 254 ) from the mere execution of the promissory note it does not necessarily follow that the whole contract between the parties has been reduced to the form of a document. This view which was also held in Chidambaram Chettiar v. Ayyaswami Thevan, ILR 40 Maad 585 = ( AIR 1917 Mad 201 ) and accepted by their Lordships


Maad 585 = ( AIR 1917 Mad 201 ) and accepted by their Lordships Leach C. J. and Varadachariar J. In the Full Bench decision in AIR 1938 Mad 785 ( FB ) appears to me to lay down the law correctly. Thus in a case where all the terms of the contract of a loan are not incorporated in the promissory note, the true nature of the transaction may be proved, if there is an alternation and proof about it, and where on such proof it is established that the promissory note was executed as a conditional payment or a collateral security, the claim can be decreed on the basis of the original debt or original consideration.


151. Then coming to the theory of ' money had and received ' adopted in some of the decisions this again depends upon the theory of an implied promise to pay. It appears from the discussion in 1914 AC 398, that this theory is applied generally in the case of contracts in rem and not in personam. As this also depends upon the proff of a contract and inasmuch as the bar under Section 91 is to that very proof, a resort to this theory of ' money had and received ' is quite inappropriate and unwarranted in such cases. ( Vide ILR 38 Mad 660 = ( AIR 1914 Mad 657 (2) ).


152. As regards the applicability of Section 70 of the Contract Act to cases of this type it may be noted that Section 70 which appears in Chapter V of the Contract Act relates to certain relations resembling those created by contract and which are not contracts by themselves. It deals with certain obligation imposed by law on the parties concerned and not resulting from any contract express or implied. Such relations though they are commonly known as quasi-contracts the basic element of a contract viz. agreement is entirely lacking in most of them. Hence in the obligations imposed there can be nothing contractual. The promise or the obligation which Section 70 creates is entirely fictitious and is a creating of law. Any action to enforce this obligation is not an action based on a contract. It has been held by lord Gopal Rao Ekbote, J. ( as his Lordships then was ) in N. Kanaka Rao v. Venkata Ramalinga Reddy, that Section 70 cannot be pressed into service and no relief can be granted on the basis of a quantum meruit where there is an express contract. His Lordship has cited the relevant case law and elaborately discussed the question in that decision. Thus where there is an express contract and that contract is not admissible in evidence for any purpose, as in this case. Section 70 cannot come to the rescue of the plaintiff. Failure to stamp the promissory note properly does not affect the validity of the transaction enbodied therein, as stated by me earlier in this judgment.


153. The three decisions of the Supreme Court relied upon in this connection in favour of the applicability of Section 70 are in my opinion, clearly distinguishable. In Gajandrakadkar J. Puts the claim not on the basis of a subsisting contract, but on some thing done by the party to the other. It was a case where the plaintiff constructed the warehouse in excess of the stipulated valid contract. The plaintiff could not have compelled the defendant to accept it but since the defendant accepted it and used it, the illustration (a) to Section 70 was held to apply to that case. Their Lordships also negatived the argument that by decreeing the suit claim Section 175 (3) of the Government of India Act was violated by the following words :
 "Once it is realised that the cause of action for a claim for compensation under Section 70 is based not upon the delivery of the goods or the doing of any work as such but upon the acceptance and enjoyment of the said goods or the said work it would not be difficult to hold that Section 70 does not treat as valid the contravention of Section 175 (3) of the act. "


154. The case in related to a void contract or a contract which was non est. In also as a result of the contravention of the mandatory provisions of law the contracts therein became nullified and void and it was recognised therein that there was no contract in existence. It was made clear that the juristic basis of obligation was not founded upon any contract or tort but upon the third category of law, namely, quasi contract or restitution. As in the present case before the Full Bench, the existence of the contract or its validity cannot be disputed, the principles of the above three decisions cannot apply therein. Moreover resort to Section 70 in this case also would amount to violating or by-passing the mandatory provisions of Section 91 of the Evidence Act and as such is not permissible.

 155. Since I am of the view that the basic foundations of the contrary view are not legally tenable. I would prefer to hold that the view enunciated in AIR 1938 Mad 785 ( FB ) states the law correctly and has to be followed in these cases as well. My answer therefore to the question posed before this Full Bench is that plaintiff can lay any action for recovery of the amount advanced by him basing on the original cause of action, where the suit negotiable instrument becomes inadmissible on account Section 35 of the Stamp Act, provided that there is an allegation in the plaint and proof in evidence about the fact that the promissory note did not incorporate all the terms of the contract of loan and that it was executed as a conditional payment or a collateral security.

 C. R. P. No. 255 of 1965.


C. R. P. No. 255 of 1965.

 Sambasiva Rao, J.
 156. This revision petition has contributed substantially to legal history. From a single Judge it went to a Division Bench and from there it travelled to a Full Bench of seven Judges. It has now come back all the way to me for deciding the case in the light of the opinion expressed by the Full Bench.

 157. A few facts relevant for determination of the case may be briefly stated. The defendant borrowed from the plaintiff a sum of Rs. 1,000 /- on 21-11-1960 and contemporaneously executed a hand letter in favour of the plaintiff . Since it was only a hand letter it was not stamped. The hand letter indicates that the defendant agreed to pay a sum of Rs. 1,000 /- with interest at 12 % per annum on demand. The interest was, however, claimed in the suit only in accordance with the provisions of the Madras Act IV of 1938.

 158. Though the lower Court noticed the decision of a Full Bench consisting of five Judges in AIR 1938 Mad 785 ( FB ), which held that the promissory note embodied all the terms of the contract and the instrument was improperly stamped no suit on the debt will lie and that Section 91 of the Evidence Act and Section 35 of the Indian Stamp Act bar the suit, it preferred to follow the single Judge decision of Ekbote, J., ( as he then was ) in which took a contrary view.


160. Now, the Full Bench consisting of seven Judges upheld the view expressed in AIR 1938 Mad 785 ( FB ) and held that Section 70 of the Contract Act cannot be invoked on the theories of implied promise, money had and received, quasi-contract and just and reasonable or unjust enrichment or any other equitable doctrine. It further expressed its disagreement with the views taken by Gopala Rao Ekbote J. in Moahamad Jamal Saheb's case, .

 161. In view of this it must be held that the suit is not maintainable. The lower Court's decree is therefore, set aside. The revision petition is accordingly allowed . But in the light of the lower Court's finding of fact that the defendant had in fact received the amount from the plaintiff. I direct the parties to bear their own costs.

 C. R. P. No. 577 of 1965.

 162. The revision petition also comes up before me after the Full Bench of seven Judges expressed their view in regard to the maintainability of a suit on an unstamped or insufficiently stamped document in C. R. P. No. 255/65 and batch dated 3rd October, 1972. The Full Bench of seven Judges affirmed the decision of the Full Bench of the Madras High Court in AIR 1938 Mad 785 (FB ) and held that Section 70 of the Contract Act cannot be invoked on the theories of implied promise, money had and received, quasi-contract and just and reasonable etc., and did not endorse the view expressed by Gopalrao Ekbote, J. in .


163. In the present case the incurring of the loan and the execution of Hundi were contemporaneous. It is also common case that the Hundi was insufficiently stamped. Simply proceeding on the averment in the plaint that the Hundi, though contemporaneously taken, was only in the nature of a collateral security, the lower Court was inclined to decree the suit. It also invoked the principle of money had and received in further support of the decree. There is no discussion and no finding that the execution of the Hundi, though contemporaneous with the incurring of the debt, was quite apart from the actual contract of debt. In the absence of any such finding this revision by the defendant should be allowed in the light of the Full Bench decision in C. R. P. No. 255/65 and batch dated 3-10-1972.

 164. The revision petition is thus allowed. But in view of the finding that the defendant had actually received the money I direct the parties to bear their own costs.

 C. R. P. No. 1998 of 1966.

 165. This another revision petition that comes up before me after the Full Bench expressed its opinion on the question of law in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972.


166. In this case the defendant borrowed Rs. 334 /- from the plaintiff and executed a promissory note dated 25th of May, 1964. It is common ground that the promissory note was insufficiently stamped. On this the office took objection that the suit was not maintainable. Then plaintiff amended the plaint to the effect that the debt was incurred in the morning with a promise that it would be returned by the evening, but when the defendant could not keep his word he executed the promissory note. Therefore, the incurring of the debt and the execution of the promissory note were not simultaneous and in fact , the latter was taken as a collateral security. As a finding of fact, on a consideration of the evidence, the lower Court found this part of the plaintiff's case as false and held that the promissory note was contemporaneously executed with the incurring of the debt. Nevertheless, it decreed the suit on the principle that money was had and received by the plaintiff.

 167. In the light of these facts, and following the rule laid down by the Full Bench in C. R. P. No. 255 of 1965 and batch D/- 3-10-1972 it must be held that the suit is not maintainable.

 168. Consequently, the decree of the lower Court is set aside and the revision petition is allowed. In view of the fact that the defendant had received the money. I direct the parties to bear their own costs.

 C. R. P. No. 2234 of 1968.


C. R. P. No. 2234 of 1968.

 169. This is yet another case which comes up before me after the decision of the Full Bench in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972. This is a plaintiff's revision petition. The lower Court found, as a fact, that the defendant had borrowed the sum of Rs. 290 /- from the plaintiff. It also held that the execution of the promissory note was contemporaneous with the borrowing. In view of the fact that the promissory note was insufficiently stamped following the decision in AIR 1938 Mad 785 ( FB ) it is dismissed the suit Perumal Chettiar's case, AIR 1938 Mad 785 ( FB ) is now affirmed by the aforesaid Full Bench by its opinion dated 3-10-1972 in C. R. P. No. 255/65.

 170. In view of the facts found by the lower Court and following the opinion of the Full Bench. I dismiss the plaintiff's revision. But in view of the fact that the defendant-respondent had been found to have actually received the money. I direct the parties to bear their own costs.

 C. R. P. No. 605 of 1969.

 171. This revision petition is also coming up before me after the Full Bench expressed the opinion in C. R. P. No. 255 of 1965 and batch dated 3rd October, 1972 affirming the view of the Full Bench of the Madras High Court in AIR 1938 Mad 785 = ILR ( 1938 ) Mad 933 ( FB ).


172. This is a plaintiff's revision petition. The suit was on the foot of a promissory note dated 7-6-1965 for Rs. 400 /- to recover a sum of Rs. 456.85 Ps. One of the decrees was that the debt was discharged but the lower Court was not prepared to believe this defence. Al the same it dismissed the suit following Perumal Chettiar's case, AIR 1938 Mad 785: ILR ( 1938 ) Mad 933 ( FB ) on the ground that the promissory note was insufficiently stamped though executed contemporaneously with the incurring of the debt. It is not in doubt that the promissory note is insufficiently stamped and it is contemporaneous with the incurring of the debt. So, following the opinion of the Full Bench dated 3rd Oct. 1972 in C. R. P. No. 255/65 and batch. I dismiss the plaintiff's revision petition. But, in the circumstances of the case I direct the parties to bear their own costs.

 C. R. P. No. 2130 of 1969.

 173. This is a revision petition by the second defendant.


173. This is a revision petition by the second defendant.

 174. The Small Cause Suit was filed by the plaintiff on the foot of a promissory note dated 28th of April 1966 executed by the 1st defendant in her favour for Rs. 375 /- and the suit was to recover Rs. 437 /-. Defendants 2 and 3 are the sons of the first defendant; but defendants 1 and 3 remained ex-parte and only the second defendant contested the suit. It is true, that the promissory note was not sufficiently stamped. But no objection was taken by the office. The husband of the plaintiff went into the box as P. W.1. During his examination-in-chief, the promissory note was marked as an exhibit and received in evidence without any objection. It was duly endorsed by the presiding officer as required by the Civil Procedure Code. Thus, it became an exhibit and part of the record. It was only during the cross-examination of P. W. 1 that the insufficiency of the stamp on the promissory note was noticed and then objection was raised as to the maintainability of the suit on such promissory note. The lower Court found that the first defendant died, in fact, receive the amount of Rs. 375 /- and also held that Section 35 was only a bar to the admissibility of an unstamped or insufficiently stamped document. But when it was admitted in evidence it cannot afterwards be withdrawn. Consequently, it decreed the suit. Therefore, the second defendant has brought this revision petition.

 175. Section 36 of the Stamp Act provides that:
 " where an instrument has been admitted in evidence such admission shall not except as provided in Section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped ".


Therefore, in view of the undoubted fact that the promissory note had been admitted in evidence no objection could be raised at any stage in the suit that it was not duly stamped. Section 35 is only a bar to the admissibility of unstamped or insufficiently stamped documents. Since an unstamped document is inadmissible in evidence, the Full Bench in C. R. P. No. 255/65 and batch dated 3-10-1972 took the view that no suit can be laid on such admissible document. But, that principle has no application to the facts of the present case for the reason that the promissory note had already become part of the record as one of the exhibits. Therefore, the principle laid down by the Full Bench has no application. The lower Court is, therefore, right in decreeing the suit when it came to the conclusion that the promissory note was supported by consideration. For this reason the revision petition must be found as having no merits. It is accordingly dismissed with costs.

 176. Order accordingly.


K. Raja Rao vs A.P. Industrial Development ... on 4 January, 2013

THE HON'BLE THE CHIEF JUSTICE SRI PINAKI CHANDRA GHOSE AND THE HON'BLE SRI VILAS V. AFZULPURKAR

WRIT APPEAL NO.1309 OF 2012

4-1-2013

K. Raja Rao

A.P. Industrial Development Corporation Limited (State Government Undertaking)
Rep. by its Managing Director Parishrama Bhavan, Fathemaidan Road  Hyderabad and
another

COUNSEL FOR APPELLANT: Sri E. Manohar, Senior Counsel for Sri V. Kishore


COUNSEL FOR RESPONDENT NO.1: Sri S. Sreenivasa Reddy           COUNSEL FOR RESPONDENT NO.2: G.P. for Revenue <GIST >HEAD NOTE:
?CITATIONS:
1. AIR 1979 SC 102
2. AIR 1971 AP 169.
3. (2006) 9 SCC 617
4. AIR 1999 SC 1305
5. APLJ 1984(2) 173
6. AIR 1933 PC 63
7. AIR 1976 SC 1309 8.1993 SUPP.(1) SCC 499
9. (1979) 1 SCC 193
10. AIR 2006 SC 1874
11. 1939 AC 439
12. (1918) 2 KB 833 JUDGMENT: (Per the Hon'ble the Chief Justice) This Writ Appeal by the appellant-writ petitioner is directed against the order of the learned Single Judge dated 21.8.2012 in W.P.No.6842 of 2000 dismissing the writ petition filed by the appellant to declare the action of the Mandal Revenue Officer, Khairatabad Mandal - 2nd respondent in initiating proceedings No.A2/39/98 dated 6.1.2000 under the provisions of the A.P. Revenue Recovery Act, 1864 for payment of Rs.56.80 lakhs with interest at 6% p.a. payable to the Andhra Pradesh Industrial Development Corporation Limited, Hyderabad without deciding his liability to the Corporation as arbitrary, illegal and without jurisdiction.


2. The parties will be referred to by their status in the writ petition. Brief facts leading to the controversy are:
(a) M/s Rama Organics Private Limited, Hyderabad (for short 'the Company') dealing in bulk drugs was initially incorporated by three promoter Directors, namely, Mr.P. Seshagiri Rao, Mr. A. Nageswara Rao and Dr. A.K. Chatterjee. Andhra Pradesh Industrial Development Corporation (for short 'the Corporation') sanctioned term loan of Rs.56.80 lakhs to the Company on 13.11.1984 and another term loan of Rs.12.45 lakhs on 26.2.1985. Dr. A.K. Chaterjee as Managing Director of the Company gave personal guarantee to the above loans. On 29.12.1987 the appellant was inducted as Director in place of Dr.A.K. Chatterjee and he executed personal guarantees for the aforesaid loans on 17.8.1988.


(b) It appears that the company had failed to discharge the loans, consequently, according to the list of chronological events filed by the petitioner, demand letters were issued by the Corporation for payment of outstanding loan amount before taking action under Section 29 of the State Financial Corporation Act (for short 'the SFC Act') to the principal debtor and the guarantors including the petitioner on 12.1.1989, 8.3.1989, 9.3.1989 and 16.6.1989. But, neither the petitioner nor the Corporation filed those letters. On 6.10.1989 the petitioner resigned as Director and requested to relive him immediately and to take steps to relieve him from all his personal guarantees/undertakings provided to various financial institutions. In the Board meeting of the Company held on 16.10.1989 the resignation of the petitioner was accepted and the Managing Director was requested to relieve him from all his personal guarantees and undertakings. It was also resolved to co- opt Lt. Col. (Retd.) K.S. Rao as a director in the place of the petitioner and resolved that he will furnish all guarantees/undertakings originally furnished by the petitioner to the Corporation and other institutions and that the shares of the value of Rs.4,80,000 of the petitioner be transferred to the Directors subject to the approval of the Corporation and other institutions. According to the petitioner, again on 07/18.10.1989 demand was made for payment of outstanding loan amount from the Company.


(c) On 28.3.1990 letter was addressed to the Managing Director of the Company intimating that steps are being taken for recovery of an amount of Rs.75,81,000/- by way of sale of the Unit under Section 29 of the SFC Act as per the proforma of sale notice enclosed thereto. Copy of the said letter was marked to petitioner and other directors except Sri K.S. Rao. By letter dated 16.4.1990 petitioner replied that he is no longer Director of the Company and in his place Sri K.S. Rao was appointed as director. The Corporation issued another demand notice dated 28.5.1992 for Rs.71,27,180/- to the Managing Director of the Company, copy of which was marked to the petitioner. The assets of the company were seized on 3.7.92. Petitioner submitted replies on 13.7.1992 and 17.8.1992 denying his liability and ultimately the assets were sold for consideration of Rs.61.00 lakhs on 29.12.1993. On 25.11.1994, the Corporation relieved Dr. A.K. Chaterjee from his personal guarantee.


(d) On 22.3.1996, for the first time, a letter of demand was addressed to the petitioner for payment of Rs. 59.69 lakhs towards principal and Rs. 71.45 lakhs towards interest totaling to Rs.131.14 lakhs and by letter dated 20.5.1996 petitioner denied his liability stating that the Corporation has not taken expeditious steps for sale of the Unit under Section 29 of the SFC Act, pursuant to the notice dated 28.3.1990, therefore, the action to invoke the provisions of the Revenue Recovery Act is time barred and unenforceable. Ultimately, the Corporation addressed letter to the District Collector, Hyderabad on 22.5.1996 to initiate action under Revenue Recovery Act. The Collector by letter dated 4.6.1996 instructed the MRO, Golconda to initiate proceedings under the Revenue Recovery Act. On 15.7.1996 the Mandal Revenue Officer, Golconda issued distraint order to which the petitioner submitted his reply on 16.7.1996. On 28.11.1997 the District Collector was requested to take steps for realization of outstanding amount from the petitioners and others. By letter dated 23.6.1998 the Corporation demanded payment of Rs.77.33 lakhs towards principal and Rs.67.98 towards interest totaling to Rs.135.31 lakhs, failing which it was informed that action will be taken under the Revenue Recovery Act to which the petitioner again disputed his liability by letter dated 17.7.1998. Finally, the Mandal Revenue Officer, Khairatabad issued the impugned notice dated 6.1.2000 for recovery of Rs.56.80 lakhs from the petitioner and other guarantors. Petitioner submitted his reply on 7.1.2000 to the impugned notice. On the above facts, the


7.1.2000 to the impugned notice. On the above facts, the petitioner state that since Dr.A.K. Chaterjee continued as guarantor till 25.11.1994 he is also liable for payment of the dues and no action having been taken against him, the impugned proceedings cannot be sustained. Since he has resigned as director and in his place Sri K.S. Rao has been inducted as director, he has been relieved of his personal guarantee obligations and as such there is no liability on his part to pay any amount. It is further stated that the liability of the petitioner having been crystallized on 28.3.1990 when notice was issued to the borrower for payment of the amount due and to take action under section 29 of SFC Act for sale of the Unit of the Company in the event of failure to pay the amount, the notice dated 22.3.1996 issued to the petitioner calling upon him to pay the amount and contemplating to initiate action under the Revenue Recovery Act in the event of failure to pay the amount is barred by limitation. Consequently, the impugned notice dated 6.1.2000 which was issued nearly four years thereafter is hopelessly barred by limitation and without jurisdiction. It was also contended that since the petitioner has furnished the guarantees in his capacity as Director of the Company the same are co-terminus with the directorship of the company.


3. In the counter filed by the Corporation it is stated that Sri K.S. Rao has not executed any guarantee deed in favour of the corporation and only resolution of the Board of Directors of the Company was intimated regarding induction of Lt.Col. K.S. Rao. Since personal guarantees executed by the petitioner is holding the field he is liable for the dues payable by the company. After realization of the amount through sale of assets of the company on 29.12.1998 for sale consideration of Rs.61.00 lakhs, demand notices were issued for payment of the amount due, but the petitioner has not paid the amounts. The Corporation issued notice on 22.3.1996 calling upon the petitioner to pay Rs.131.14 lakhs which was due as on 31.5.1994. Counter denied that the guarantees were furnished by the petitioner in the capacity as director of the company. Counter refutes that the debt was barred by limitation and submitted that no period of limitation has been prescribed for recovery of dues of the Corporation for instituting proceedings under the Revenue Recovery Act. Even otherwise, it was contended that the proceedings under the Revenue Recovery Act were initiated by reason of the letter dated 4.6.1996 of the District Collector, Hyderabad addressed to the Mandal Revenue Officer, Golconda requesting to attach movable and immovable properties of the petitioner and Distraint order dated 15.7.1996 of the Mandal Revenue Officer, Golconda, which culminated into the notice dated 6.1.2000 and as such the proceedings are within limitation. It was further stated that the guarantees were furnished in the personal capacity of the petitioner and the same continues to be in force even if he ceases to be the director. Since the amounts realized through sale of the assets of the company are not sufficient to discharge the amounts payable, it has become necessary to initiate proceedings under the Revenue Recovery Act and as such no interference is warranted with the


has become necessary to initiate proceedings under the Revenue Recovery Act and as such no interference is warranted with the proceedings.


4. On behalf of the appellant-petitioner it was argued before the learned single Judge that the guarantee bonds executed by the petitioner are co-terminus with the directorship of the petitioner and the moment he had resigned as director on 16.10.1989, the guarantee bonds shall be deemed to have been revoked. It was also argued that since the personal bonds executed by Dr.A.K. Chaterjee were not revoked by the Corporation till 15.11.1994 and continue to be in force even after the petitioner had resigned as director on 16.10.1989 proceedings ought to have been initiated against Dr.A.K. Chaterjee and no action could have been taken on the personal guarantee bonds executed by the petitioner in place of Dr. A.K. Chaterjee. It was vehemently argued before the learned single Judge that since no proceedings were initiated against the petitioner subsequent to the demand notice dated 28.3.1990, which was denied by the petitioner, the distraint order dated 15.7.1996 is without jurisdiction, even though there was a subsequent demand on 28.5.1992 because the claim of the Corporation was barred by limitation and it cannot be permitted to take recourse to the provisions of the Revenue Recovery Act and reliance was placed on the decision of the Supreme Court in MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD.1 and a decision of the Division Bench decision of this Court in B.C.MULAJKAR v. STATE2. It was also argued that there was no determination of the liability of the petitioner to the Corporation determined in any of the demands issued to the petitioner including the demands issued under the Revenue Recovery Act and the same is violative of the principles of natural justice.


On the other hand, the learned counsel for the respondent argued that proceedings for recovery of the amount due were initiated in the year 1990 by taking recourse to Section 29 of the State Financial Corporations Act, 1951 and as the amounts realized were found to be insufficient to liquidate the liability of the company proceedings came to be initiated against the appellant under the provisions of the Revenue Recovery Act and such proceedings being in continuance of the proceedings under section 29 of the State Financial Corporations Act, the debt is not a time barred debt and the proceedings under the Revenue Recovery Act are thus maintainable. It was argued the moment petitioner executed the guarantee on 17.8.1988 the guarantee executed by Dr.A.K. Chaterjee stood discharged and the bonds executed by the petitioner remains in force till they are revoked or the liability of the company has completely been discharged. Notice dated 6.1.2000 is consequent to the distraint order dated 15.7.1996, since there was no challenge to the distraint order, notice dated 6.1.2000 cannot be found fault with.


5. The learned single Judge while holding that the Mandal Revenue Officer is competent to issue the distraint order dated 15.7.1996, on the issue whether the claim of the Corporation is a time barred debt and there is no consistency as to the amount due from the company, held thus:
 "14. I have gone through various letters emanating from the 1st respondent Corporation. In the letter dated 22.5.1996 the amount due after adjusting the amount realized by sale of the assets of the company has been indicated. Therefore, I am of the view that there is no discrepancy with regard to the amounts due from the company after adjusting the amount realized by way of sale of assets of the company to the loan account. Even otherwise, the 1st respondent Corporation has given an opportunity to the petitioner under letter dated 22.3.1996 to verify the accounts. The petitioner did not choose to avail the same. The petitioner having failed to avail the said opportunity cannot be permitted to contend that there is no consistency with regard to the amount due from the company. The proceedings for realization of the amount due from the company commenced in the year 1990. The mortgaged properties have been sold by taking recourse to Section 29 of the State Financial Corporations Act and after adjusting the sale proceedings to the loan account, proceedings have been initiated for recovering the balance amount by taking recourse to the provisions of the Revenue Recovery Act. It can be said without any controversy that the proceedings have been commenced for realization of the dues by sale of mortgaged properties within limitation. The further proceedings for realization of the balance amount by taking recourse to the Revenue Recovery Act is only continuation of the process of recovery proceedings initiated earlier. Therefore, the contention of the petitioner that the claim of the 1st respondent Corporation against the Company is barred by limitation has no substance."


6. Learned counsel for the petitioner while reiterating the contentions urged before the learned single Judge submitted that when the Corporation issued notice dated 28.3.1990 to the principal debtor to take steps under section 29 of the SFC Act for sale of the unit the liability of the petitioner was crystallized and when the petitioner denied his liability, limitation started to run and three year period of limitation expired on 28.3.1993 i.e. long before 22.3.1996 when demand was made and when the Corporation sent requisition to the District Collector on 22.5.1996 to recover the amount from the appellant under A.P. Revenue Recovery Act, therefore, the claim of the Corporation against the petitioner is barred by limitation and such time-barred debt is unenforceable under the provisions of the A.P. Revenue Recovery Act, consequently the impugned notice dated 6.1.2000 issued by the Mandal Revenue Officer is illegal and without jurisdiction. In support his contention; he placed reliance on the decisions of the Supreme Court MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS3 and STATE OF KERALA v. V.R. KALLIYANIKUTTY4 and MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD. (1 supra).


He further submitted that as the amount due was not determined, the 2nd respondent has no jurisdiction to issue the notice under the Revenue Recovery Act as held by this Court in B.C.MULAJKAR v. STATE (2 supra). It was also contended that the learned single Judge failed to consider that since the resignation of the petitioner was accepted by the Board, he is relieved of his obligation as a guarantor. He further submitted that since K.S.Rao became Director and offered guarantee in his place, the deeds of guarantee dated 17.8.1988 executed by the appellant ceased to be operative w.e.f. 6.10.1989 when the petitioner resigned as Director of Company and when it was accepted by the Board of directors in its 33rd Board meeting held on 16.10.1989.

 7. Learned counsel appearing for the Corporation urged the very same submissions advanced before the learned single Judge and submitted that the learned single Judge has rightly held that since the proceedings for realization of the dues by sale of mortgaged properties have been commenced within limitation, the further proceedings for realization of the balance amount by taking recourse to the Revenue Recovery Act is only continuation of the process of recovery proceedings initiated earlier, therefore, the claim is not a time barred debt. He further submitted that when the notice dated 22.3.1996 was issued to the petitioner for recovery of the amounts due by the principal debtor under the Revenue Recovery Act, the debt recoverable from the principal debtor is alive, therefore, the proceedings initiated under the Revenue Recovery Act are within limitation and as such the decisions relied upon by the learned counsel or the petitioner have no application and as such no interference is warranted with the order impugned. He also relied upon the decision of this Court in GODAVARI PLYWOODS LTD. HYDERABAD v. UNION OF INDIA5 and submitted that the writ petition is not maintainable.


8. On a careful examination of the pleadings advanced by the parties, the submissions of the learned counsel for both the sides and the order under appeal, the following points arise for consideration:
1. Whether the debt recoverable from the principal debtor as per the sale notice dated 28.3.1990 issued by the respondent-Corporation under Section 29 of the SFC Act is not alive against the petitioner-guarantor as on 22.3.1996 when the respondent issued notice to the petitioner for recovery of the amount due under the Revenue Recovery Act, if so, the same is barred by limitation and is a time barred debt insofar as the petitioner is concerned?

2. Whether in view of induction of Lt.Col. K.S. Rao in place of the petitioner as Director consequent on his resignation and acceptance by the Board of Directors by the resolution dated 16.10.1989 the petitioner is relieved of his liability to the Corporation and the guarantee is deemed to have been revoked and his liability is co-terminus with the directorship in the Corporation?

3. Whether the Corporation is justified in seeking to recover the amount without determining the liability of the petitioner to the Corporation?

9. Before we deal with the points for consideration, we may examine the liability of a guarantor with reference to the law laid down by the Supreme Court.

The fundamental principle of law under the Indian Contract Act is that the liability of a surety or a guarantor is co-extensive with that of the principal debtor.


B.C. MULAJKAR v. STATE OF ANDHRA PRADESH relied upon by the learned counsel for the petitioner is a case where the appellant therein obtained loans by mortgaging certain movable and immovable properties from the Industrial Trust Fund constituted under the Hyderabad Industrial Trust Fund Rules, 1347 Hizri. In the year 1965, the Government initiated proceedings under the Madras Revenue Recovery Act to recover the dues. It was argued before the learned single Judge that the Industrial Trust Fund Rules under which the appellant therein was granted loan did not provide for invoking the provisions of the Revenue Recovery Act. Learned single Judge rejected the said contention holding that the action of the Government was valid and authorized under the provisions of the Section 52 of Madras Revenue Recovery Act. On appeal, the Division Bench held that even in the absence of a provision in the Industrial Trust Fund Rules, the language in Section 52 of the Act is wide enough to cover all sums due to the Government and that the action of the Government in invoking the provisions of Section 52 of the Act was authorized and valid. In the said case, a contention was also raised by the appellant that the respondents cannot straightaway issue a demand notice and attach or distrain the appellant's properties without first determining the amounts actually due by the appellant and that such a procedure is not warranted by the provisions of Section 52 of the Act and is opposed to the principles of natural justice. The Division Bench accepted the contention and held that even though the provision has been made in the interest of expeditious collection of the amounts due to the Government, Section 52 of the Act has to be interpreted in such a manner so as to accord with the principles of natural justice and that the party sought to be proceeded against should at least have the minimum safeguard of having an opportunity to know the basis and the material on which the liability is sought to be imposed upon and to rebut the same by placing the necessary material in that


the liability is sought to be imposed upon and to rebut the same by placing the necessary material in that behalf before the appropriate authority.


10. In MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD the guarantee was a continuing guarantee at any one time. A contention was raised that each of the debit items in the account constituted a distinct loan and gave raise to separate limitation. The Supreme Court rejected the contention and held thus: "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 alive 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 Article 115 of the schedule to the Limitation Act, 1908."


11. In STATE OF KERALA v. V.R. KALLIYANIKUTTY the question that arose for consideration was whether a debt which is barred by the law of limitation can be recovered by resorting to recovery proceedings under Section 71 of the Kerala Revenue Recovery Act, 1968. A Division Bench of the Kerala High Court held that in the absence of any provision in the Kerala Revenue Recovery Act creating a substantive right to recover time-barred debts, the said Act which provides for summary recovery cannot be availed of once the period prescribed for recovery under the Limitation Act has expired. However, a Full Bench of Kerala High Court overruled the said decision. Placing reliance on the words 'amount due' occurring in Section 71 of the Act, it was contended before the Supreme Court by the respondents-institutions that the words 'amount due' encompasses time-barred claims also. It was also contended that the statute of limitation merely bars the remedy without touching the right, therefore, the right to recover the loan would remain even though the remedy by way of a suit would be time-barred. Placing reliance on the decision of the Privy Council in HANSRAJ GUPTA v. DEHRA DUN MUSSOORIE ELECTRIC TRAMPWAY CO. LTD.6 and the decisions in NEW DELHI MUNICIPAL COMMITTEE v. KALU RAM7 and PUNJAB NATIOINAL BANK v. SURENDERA PRASAD SINHA8 the Supreme Court interpreting the words 'amount due' in Section 71 of the Kerala Revenue Recovery Act held thus:


16. There is no question, however, in the present case of any payment voluntarily made by a debtor being adjusted by his creditor against a time- barred debt. The provisions in the present case are statutory provisions for coercive recovery of 'amounts due'. Although the necessity of filing a suit by a creditor is avoided, the extent of the claim which is legally recoverable is not thereby enlarged. Under Section 70(2) of the Kerala Revenue Recovery Act the right of a debtor to file a suit for refund is expressly preserved. Instead of the bank or the financial institution filing a suit which is defended by the debtor, the creditor first recovers and then defends his recovery in a suit filed by the debtor. The rights of the parties are not thereby enlarged. The process of recovery is different. An Act must expressly provide for such enlargement of claims which are legally recoverable, before it can be interpreted as extending to the recovery of those amounts which have ceased to be legally recoverable on the date when recovery proceedings are undertaken. Under the Kerala Revenue Recovery Act such process of recovery would start with a written requisition issued in the prescribed form by the creditor to the Collector of the District as prescribed under Section 69(2) of the said Act. Therefore, all claims which are legally recoverable and are not time-barred on that date can be recovered under the Kerala Revenue Recovery Act."


12. From the above, it is clear that all legally recoverable debts which are not time barred as on the date on which requisition under the Revenue Recovery Act was issued to the District Collector can be recovered under the provisions of the Revenue Recovery Act.


10. In MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS the question that arose for consideration is whether it is Article 136 or Article 137 of the Schedule to the Limitation Act which has application to the proceedings initiated under sections 31, 32 and 31(1)(aa) of the State Financial Corporation Act, 1951. In this case, the Maharashtra State Financial Corporation had sanctioned a loan Rs.5.00 lakhs in favour of a company to which the respondents therein who were directors of the borrower company stood sureties for the loan. When the company failed to repay the loan notice dated 8.3.1983 was issued calling upon the borrower to repay its due. On 25.10.1983 an application under sections 31 and 32 of the State Financial Corporations Act, 1951 was filed by the Corporation for 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 11.6.1990 the attached properties of the borrower company were put to sale. There was shortfall in the amount realized and hence notice dated 27.12.1991 was issued to the respondent sureties claiming Rs.16,79,033/- together with interest. On 2.1.1992 the Corporation filed an application under section 31(1)(aa) for steps for recovery of the amount due. An objection was raised that the application was barred by limitation, which was upheld by the Additional District Judge in view of Article 137 of the Schedule to the Limitation Act which provides that in cases where no period of limitation is specifically prescribed period of limitation would be three years. Learned counsel for the appellant however placing reliance on Article 136 contended that since the said Article prescribes a limitation period of twelve years in cases of execution of


contended that since the said Article prescribes a limitation period of twelve years in cases of execution of decrees and orders passed by Civil Courts, the same should be made applicable to the application filed under section 31 (1)(aa) also which is in the nature of execution proceedings. The Supreme Court following the proposition set out in GUJARAT STATE FINANCIAL CORPN v. NATSON MFG. CO. (P) LTD.9 held that while dealing with an application under Sections 31 and 32 of the SFC Act there is no decree or order of a Civil Court being executed and it is only on the basis of a legal fiction that the proceedings under Section 31 are treated as akin to execution proceedings, therefore, application under sections 31 and 32 of the State Financial Corporation Act is not by way of execution of a decree or order of Civil Court and as such Article 136 has no application. It was held that since the liability of sureties had crystallized on 25.10.1983 when the Corporation had filed the application under sections 31 and 32, the application filed on 2.1.1992 under section 31(1)(aa) for recovery of the amounts due from the sureties is barred by limitation.


13. In SYNDICATE BANK v. CHANNAVEERAPPA BELERI AND OTHERS10 the Supreme Court held that the limitation as to guarantor's liability depends on the terms and conditions of contract and limitation starts running only when actually a demand for payment is made and it was refused by guarantors, however, such a demand should not be time-barred against the principal debtor i.e. it should be a live claim and cessation of operation of accounts cannot be treated as refusal to pay by the principal debtor. The appeal by the appellant-bank was directed against the order of the High Court of Karnataka dismissing the suit filed by the bank on the ground of limitation. We may briefly state the facts leading to filing the suit. The suit was filed against the respondents guarantors for recovery of Rs.19,77,478.60 together with interest at 18.5%. The bank extended credit facilities by way of overdraft, goods loans and demand loan and respondents executed 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. On account of the company incurring losses, it stopped operations in the accounts of the company with the bank in the middle of 1986. The bank vide letter dated 12.10.1987 demanded the company as principal debtor and the respondents as guarantors for payment of amounts due as on 30.9.1987 within 15 days. The company sent reply dated 31.10.1987 raising various grounds and thereafter the bank sent a formal notice through their counsel on 17.12.1987. The bank initiated proceedings for winding up on 11.10.1988 and on 17.3.1989 the High Court ordered winding up of the company. Thereafter the bank filed the suit on 16.3.1990 against the


the company. Thereafter the bank filed the suit on 16.3.1990 against the guarantors for the amounts demanded in the notice dated 12.10.1987 stating that the cause of action against the guarantors arose on 17.12.987 when the demand was made and on 30.12.1987 when they denied the liability of notice and the statements of account showing the particulars of amount due as on 31.12.1989 were annexed to the plaint.


One of the grounds urged by the respondents before the trial Court was that in the absence of renewals or acknowledgment of the guarantee bonds executed by them in the years 1983, 1984 and 1985 the suit filed on 16.3.1990 was barred by limitation. The trial court framed as many as 16 issues including the issue whether the suit was in time. The court answered all the issues in favour of the bank but dismissed the suit on the ground that it was barred by limitation which was upheld by the Karnataka High Court. The trial court held that the accounts of the company with the bank became dormant and inoperative from 1986 and therefore they ceased to be live accounts and that in view of such cessation of operation of the accounts, it should be deemed that the company and consequently the guarantors had refused to discharge their obligation, that once there was such refusal by stopping operation of the accounts the limitation would start to run immediately; that time which begins to run, cannot be stopped; and that the mere fact the demand was made by the bank much later in the year 1987 will not postpone the commencement of running of the period of limitation. The trial court declined to accept the contention that the limitation will start to run only when a notice was issued by the creditor bank demanding payment of the amount from the guarantors and a refusal thereof by the guarantors. It was held that the period of limitation commenced to run from the middle of 1986 when the operation of the accounts was stopped and the suit filed in 1990 beyond three years from the stoppage of operation of a accounts was barred by time. The High Court held that when the guarantee deed provided that the guarantors were liable to pay on demand by the bank, it meant that the amount was payable from the moment of execution of the guarantee and, consequently, no actual demand was necessary to make the amount due under the guarantees. The High Court further held that


no actual demand was necessary to make the amount due under the guarantees. The High Court further held that when the accounts became dormant in the middle of 1986 by non- operation and non-payment it should be deemed that there was a refusal to pay the amount under the guarantees and therefore, the suit filed on 16.3.1990 was barred by limitation being beyond three years. The High Court also held that the decision in Samuel's case will not apply because the Supreme Court had stated that the limitation will not run only if the account was a live account and there was no refusal on the part of the guarantor to carry out the obligations. It was also held that the word 'live' meant that account should be operating and when an account became dormant and inoperative it was not a live account. It was contended before the Supreme Court that the guarantees executed by the respondents were continuing guarantees and that the guarantors had agreed to pay the amount on demand by the bank, therefore, since the demand made by the bank on 12.10.1987 and 17.12.1987 was denied by the respondents by their letters dated 31.10.1987 and 30.12.1987 the suit filed on 16.3.1990 was within limitation. At para 9 of the judgment the Supreme Court held:


9. A guarantor's liability depends upon the terms of his contract. A continuing guarantee is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.


The Supreme Court referring to Samule's case observed that the Supreme Court also agreed with the view expressed by the Privy Council in WRIT V. NEW ZEALAND FARMERS COOPERATIVE ASSOCIATION OF CANTERBURY LTD.11 and the Court of Appeal in BRADFORD OLD BANK LTD. V. SUTCLIFFE12 that limitation against a guarantor under a continuing guarantee (which specified that the liability of the guarantor is to pay on demand) would not run from the date of each advance, but only run from the time when the balance (payment of which is guaranteed) was constituted and a demand was made for payment thereof. The Supreme Court also refereed to a passage form Paget's Law of Banking which reads thus:
 In Bradford Old Bank Ltd. v. Sutcliffe it was pointed out that the contract of the surety was a collateral, not a direct, one and that in such case demand was necessary to complete a cause of action and set statute running. Moreover, bank guarantees invariably specify that the liability of the surety is to pay on demand, and in this connection the words are not devoid of meaning or effect, even with reference to the statute, as is the case with a promissory note payable on demand, but make the demand a condition precedent to suing the surety, so that the statue does not begin to run till such demand has been made and not complied with."


The supreme Court found that Bradford (supra) in turn reiled on Hartland v. Juke {(1863) 1 G and C 667} wherein in the context of a continuing guarantee, the contention that the period of limitation would begin to run as soon as the principal debtor becomes indebted to the Bank was negatived by stating: It was contended before us that the statute began to run from the 31st December, 1855, by reason of the debt of Pound 179 :1"11 then due to the bank, but no balance was then struck, and certainly no claim was made by the bank upon the defendant's testator (the Guarantor) in respect of that debt; and we think the mere existence of the debt, unaccompanied by any claim from the bank, would not have the effect of making the statute run from that date".


Distinguishing the Samule's case, the Supreme Court held that the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand as held in the case of Bradford (supra) and Hartland (supra) the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand. In the case before the Supreme Court the guarantee bond states that the guarantors agree to pay and satisfy the bank on demand. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the bank. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the bank by the borrower. Therefore, the Supreme Court held that the terms of guarantee make it clear that the liability to pay would arise on the guarantors only when a demand was made. Article 55 provides that the time will begin to run when the contract is broken. Even if article 113 is to be applied the time begins to run only when the right to sue accrues. In this case the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to be sued accrues, when the demand is served on the guarantor. It was also held:


14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred.


The Supreme Court held that by no logical process it can be held that ceasing of operation of accounts by the borrower for some reason would amount to a demand by the bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts. Ultimately, the Supreme Court held 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, therefore, the suit filed within three years therefrom is within time and accordingly set aside the judgment and decree of the High Court and that of the trial court.

14. On an analysis of the above decisions of the Supreme Court, the following points can be deduced for application:
1. Under the scheme of Section 52-A of the Revenue Recovery Act without prejudice to any other mode of recovery, which may have been taken or may be taken by banks and other public bodies were also brought on par with land revenue for the purpose of recovery under the Act and thereby all loans and advances granted by the State Government, corporation established by or under State or Central Act or Government Company or any public body notified as such in the Andhra Pradesh Gazette or by any bank was entitled to invoke the provisions of Revenue Recovery Act for recovery of loans with interest including all sums such as rents, margin money or the like.


2. The provisions of the Revenue Recovery Act have to be interpreted in such a manner so as to accord with the principles of natural justice and that the party sought to be proceeded against should at least have the minimum safeguard of having an opportunity to know the basis and the material on which the liability is sought to be imposed upon. In other words, a party ought to have an opportunity at such quantification of his dues and such quantified/ascertained sums can be recovered under the Revenue Recovery Act.
3. All claims which are legally recoverable and are not time-barred on the date when the process for recovery of the amounts by the sale of movable properties as land revenue was taken up by the District Collector can be recovered under the Revenue Recovery Act.
4. The liability of the sureties would crystallize when the proceedings under the State Financial Corporation Act would be initiated for sale of properties of the borrower company.
5. Limitation as to guarantor's liability depends on the terms and conditions of contract and limitation starts running only when actually a demand for payment is made and it was refused by guarantors, however, such a demand should not be time-barred against the principal debtor i.e. it should be a live claim and cessation of operation of accounts cannot be treated as refusal to pay by the principal debtor.


6. A continuing guarantee is different from ordinary guarantee. There is difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. A claim may be time-barred against the principal debtor, but still enforceable again the guarantor.


7. Limitation against a guarantor under a continuing gurantee (which specified that the liability of the guarantor is pay on demand) would not run from the date of each advance, but only run from the timed when the balance was constituted and a demand was made for payment thereof.
8. In a case where the guarantor liable to pay on demand the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.
9. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time- barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non- compliance. Where guarantor becomes liable in pursuance of a demand validly made in time the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred.

10. Ceasing of operation of accounts by the borrower for some reason or the other would amount to a demand by the bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts.
 On the above proposition of law, we proceed to examine the case of the petitioner.


15. Point No.1: Though the petitioner has disputed that he has not executed the guarantee deed dated 17.8.1988 for Rs.56.80 lakhs, however, a copy of the said guarantee deed placed on record discloses that the petitioner did execute the deed. The Corporation has not filed any statement of account to indicate when the debt was crystallized. The various letters referred to by the petitioner have also not been placed on record either by the Corporation or the petitioner. The material placed on record discloses that sale notice was issued on 18.10.1989 but a copy of the same has not been placed on record. Be that as it may, the Corporation vide letter dated 28.3.1990 addressed to the Managing Director of the Company intimated that they are initiating proceedings for recovery of an amount of Rs.75,81,100/- by way of sale of the Unit under Section 29 of the SFC Act duly enclosing proforma sale notice. A copy of the said letter was placed on record. Therefore, this can be taken as the date when the debt was crystallized on the guarantors. There is no dispute that the petitioner was inducted as guarantor in place of one Dr. A.K. Chatterjee who was relieved of his liability by the company by letter dated 25.11.1994. Before we examine the liability of the petitioner, it is necessary to refer to the guarantee deeds executed by the petitioner for Rs.56.80 lakhs and Rs.12.45 lakhs dated 17.8.1988, which reads as under:
 AGREEMENT OF GUARANTEE Loan of Rs.56.80 lakhs Sanctioned to M/s. Rama Organics Private Limited - Guarantee - Reg.


In consideration of Rs.56.80 lakhs sanctioned to M/s. Rama Organics Private Limited, hereinafter referred to as the Principal Debtors, I Sri K. Raja Rao, S/o Shri. Nagabhushanam aged 38 years R/o. 8-3-678/2, Near LIC Colony, Yellareddyguda, Hyderabad, doth hereby guarantee that the said principal debtors shall pay the amount there under including the interest on due dates and abide by all other terms and conditions contained in the said Deed of Hypothecation/Mortgate and known to me and if the Principal Debtors commit default, the Corporation will be entitled to recover the same from me, the Guarantor herein and from my properties both movable and immovable not withstanding the remedies which the Corporation may have against the Principal Debtors and the properties hypothecated/mortgaged and/or to be hypothecated/mortgaged under the said deed of hypothecation/mortgage.
 I further agree and convenant with the Corporation that the Corporation shall be at liberty without my further assent or knowledge at any time to grant to the Principal Debtors or any person or persons liable with or for him/them any time or indulgence or enter into composition or make any other arrangements with him/them as they think fit without discharging or in any manner affecting my liability under the Guarantee.


The Guarantee hereby given shall not be affected by any change in the constitution of the Corporation or the Principal Debtors.

 That any account settled between the Corporation and the Principal Debtors mentioned above shall be conclusive evidence against the Guarantors and the amount found to be due shall not be questioned by the Principal Debtors.

 The expression guarantor and the Corporation herein before used shall unless such an interpretation is repugnant to the context include in the case of the guarantor, his heirs, executors, administrators and assigns and in the case of the Corporation its successors and assigns.

IN WITNESS WHERE OF, I. K. RAJA RAO have hereunto set my hands at Hyderabad on 17/8/'88.
GUARANTEE FOR REPAYMENT OF
RUPEE TERM LOAN PERSONAL GUARANTEE

The Andhra Pradesh Industrial                   Place: Hyderabad
        Development Corporation Ltd.,                      Date: 17-08-88
        Parisrama Bhavanam', Basheerbagh,
HYDERABAD - 500 029.


In consideration of Andhra Pradesh Industrial Development Corporation Limited agreeing to our request to grant to M/s. Rama Organics Private Limited (who is hereinafter referred to as the Borrower) accommodation by way of Rupee Term Loan of Rs.12,45,000/- (Rupees Twleve lakhs forty five thousand only) on condition amount others that the repayment of the said loan and service charges be secured by the demand promissory note to be executed by the Borrower in favour of the Corporation and further that the loan should be guaranted by Sri. K. Raja Rao in his personal capacity as regards repayment of principal amount and payment of service charge to the Corporation as per the letter of sanction No.FND/DM/(R & M)/SCA/ROPL/989/85, 26.2.1985 addressed to the borrower Sri K. Raja Rao Here by undertake in his personal capacity to guarantee repayment of the principal and payment of service charge to the Corporation and remaining unpaid on account of the said Rupee Term Loan, until notice in writing that the same is enclosed, is given by the said Corporation to me on the understanding that the said Corporation shall be at liberty to take steps to enforce payment of the said promissory Note at any time after notice in writing, demanding payment there of, posted to me to my usual or last known address and default being made in payment for three days after the posting of such notice. And, I agree that the fact of the said Corporation not taking steps to enforce payment of the said loan or of the said promissory notice until expiry of a period of three days after posting of such notice or otherwise granting time to me shall in no way release me from my liability under the said Promissory Note. And I further agree that it shall not be necessary for the said Corporation to present the said promissory note for payment to the borrower before demanding repayment from me or suing thereon.


said promissory note for payment to the borrower before demanding repayment from me or suing thereon.


I further agree that the said Soft Loan shall be made up with service charge in accordance with the practice of the said Corporation and that the service charge payable under the said Promissory Note shall be applicable to the payment and satisfaction of the service charge accruing upon as much of the moneys becoming payable to the said Corporation in respect of the said demand loan as is secured by the said promissory Note.

 I further agree that no failure in the observance or performance of any of the stipulations or terms of said document and no default of the said corporation in requiring or enforcing the observance of performance of any of the said stipulations or terms shall have the effect of releasing me from the liabilities or of prejudicing the said Corporations rights or remedies against me under the said Promissory Note.
 I agree that the said Corporation shall be at liberty to take other securities for the said loan account or any part there of and to release or forbear to enforce all or any of its remedies upon or under such securities any collateral security and that no such release of forbearance, as aforesaid shall have the effect of releasing me from my liability or of prejudicing the said Corporation's rights and remedies against me and that I shall have no right to the benefit of any other security that may be held by the said Corporation until the claim of the said Corporation against the Borrower in respect of the said Soft Loan and of all (of any) other claims of the Corporation against the Borrower or any other account whatsoever shall had been fully satisfied and then in so far only, as such security shall not have been exhausted for the purpose of realizing the amount of the said Corporation's claims and (if any) entitled to the benefit of such securities respectively.


I agree that if the Borrower shall become insolvent bankrupt or make an agreement or composition with creditors, the Corporation may (not withstanding payment to the said Corporation by me or any other person of the whole or any part of the amount hereby secured) rank as creditors and proceed against the estate of the BORROWER for full amount of all the said Corporation's claims against the Borrower or agree to and accept any composition in respect there of and the said Corporation may receive and retain the whole of the dividends composition or other payments there of until all the said Corporation's claims are fully satisfied and I will not, by paying off the amount payable by me or any part there of or otherwise prove or claim against the estate of the Borrower have been satisfied and the said Corporation may enforce and recover payment from me of the full amount payable by me not withstanding any such proof of composition as aforesaid.

I further agree that any other Promissory Note or Notes that may thereafter be given by the Borrower in renewal of or substitution for the said Promissory Note or any renewal there of shall be held by the said Corporation upon and subject to the same terms and conditions as are here in expressed and contained with reference to the said Promissory Note.

I further agree that the corporation shall be at liberty to sue me in respect of such liability and to proceed to judgment and execution at the option of the Corporation until its claim is fully satisfied.

The expression 'BORROWER' AND THE Corporation here in before used shall unless such an interpretation is repugnant to the context include in the case of the borrower, his heirs, executors, administrators and assigns and in case of the corporation its successors and assigns.

I witness where of I have hereunto set my hands at Hyderabad on 17-8-88.

Sd/- K. Raja Rao.


Sd/- K. Raja Rao.

 16. The guarantee deed executed for term loan of Rs.56.80 lakhs would show that it is a simple deed of guarantee and the petitioner has guaranteed for repayment of the amount of Rs.56.80 lakhs sanctioned to the Company on 13.11.1984 including the interest on due dates in his personal capacity and would abide by all terms and conditions contained in the deed of Hypothecation/Mortgage and if the Principal Debtors commit default, the Corporation was given the liberty to recover the same from the petitioner from his movable and immovable properties notwithstanding the remedies which the Corporation may have against the Principal Debtors and the properties hypothecated/mortgaged and/or to be hypothecated/mortgaged under the said deed of hypothecation/mortgage. Therefore, notwithstanding the remedies available to the Corporation against the Company, the Corporation has the authority to demand and proceed with the guarantor when the debt was crystallized.


17. The second guarantee deed relates to Term Loan of Rs.12.45 lakhs sanctioned to the Company on 26.2.1985. Unlike the deed of guarantee for Rs.56.80 lakhs, this deed is exhaustive. Repayment of this loan amount was secured by way of demand promissory note to be executed by the principal debtor in favour of Corporation for which the petitioner guaranteed the same in his personal capacity. The deed stipulates that the Corporation shall be at liberty to take steps to enforce payment of the promissory note at any time after notice in writing, demanding payment thereof was issued to the petitioner to his usual or last known address when default was made in payment within three days after the posting of such notice. Further, the Corporation not taking steps to enforce payment of the loan or of the promissory note until expiry of a period of three days after posting of such notice or otherwise granting time to the petitioner shall in no way release him from his liability under the promissory note. The Corporation shall also have the liberty to take other securities for the loan account or any part thereof and to release or forbear to enforce all or any of its remedies upon or under such securities any collateral security. However, no such release of forbearance shall have the effect of releasing him from his liability or of prejudicing the right of Corporation and remedies against him and he shall have no right to the benefit of any other security that may be held by the said Corporation until the claim of the said Corporation against the borrower in respect of the said soft loan and of all (of any) other claims of the Corporation against the borrower or any other account whatsoever shall had been fully satisfied and then in so far only, as such security shall not have been exhausted for the purpose of realizing the amount of the Corporation's claims and (if any) entitled to the benefit of such securities respectively. Therefore, the movables and immovable given as security by the petitioner are


of such securities respectively. Therefore, the movables and immovable given as security by the petitioner are not to be released until the claim of Corporation against the Company is exhausted in respect of the existing term loan and all other claims of Corporation against the Company or any other account whatsoever had been fully satisfied. So, not only against the term loan of Rs.12.45 lakhs the Company has charge over the movables and immovable property given as security it has charge also against any other claim of the Corporation against the principal debtor or amount due under any other account to the Corporation. This deed of guarantee, therefore, gives right to the Corporation to proceed against the movables and immovable properties given as security even in respect of the loan covered under the first deed of guarantee also.


In our view, the deeds of guarantees are not continuing guarantees but are only in the nature where payments are required to be made on demand when the principal debtor commits default under the first deed of guarantee for Rs.56.80 lakhs and within three days on issuing a notice of demand in respect of the second deed of guarantee for Rs.12.45 lakhs. Even in respect of a continuing guarantee also, there must be a demand from the creditor.

18. Admittedly, the debt against the guarantors was crystallized when the Corporation issued sale notice under Section 29 SFC Act on 28.3.1990 even if we ignore the sale notice dated 18.10.1989 and other notices which were not placed on record. Though under the first deed of guarantee the Corporation has the option to proceed against the guarantor notwithstanding the remedies available to it against the principal debtor, it has not chosen to do so but inclined to proceed against the principal debtor only at the first instance. It may be noted herein that though two separate guarantee deeds were executed for the two different loans, the Corporation at no point of time has chosen to make demands independently, but opted to make demand consolidating the loans together. The letter dated 28.3.1990 enclosing the proforma sale notice was addressed to the principal borrower and only copies of the same were furnished to the guarantors. The said letter reads as under:By Regd. Post Ack due
No. SDM(Mon)ICS/ROPL/511/89                                     Date: 28-3-90

The Managing Director,
Rama Organics Private Ltd.,
8-3-222/6, Yousufguda Road,
Srinagar Colony,
Hyderabad - 500 873.

Dear Sir,


Dear Sir,

Sub:- Your loan account with us - Defaults - Action for recovery of outstanding amounts - Action under Section-29 of SFC's Act - Reg., Ref:- 1) Our letter No.SDM(Mon).ICS/RCPL/ 7020/88, dt.12-1-90.
 2) Our letter No.SDM (Mon) AFP/ ROPL/ 611/88, dt.8-2-89.

 3) Our letter No.SDM (Mon)/ ROPL/ 8281/89, dt.9-3-89.

4) Our letter No.DCM (M&A) /ROPL /1935/89, dt:16-6-89.
 With reference to the above, we find that your account continues to be irregular inspite of several concessions shown and letter reminders and even notices issued to you, an amount of Rs.37,97,000/- (Rupees Thirty seven lakhs ninety seven thousands only) is outstanding towards interest against term loan.

 In view of the above, we are taking steps for recovery of an amount of Rs.75,81,000/- (Rupees Seventy five lakhs eighty one thousands only). This amount includes outstanding term loan amount plus interest amount, which is outstanding in your account as on 28.3.'90 and other amounts debitable to the account by sale of your unit under section 29 of the SFC Act, 1951, by advertisement in the newspapers, if necessary, as per the proforma enclosed with appropriate variations.


Please note that if the sale does not materialize or the proceeds thereof are not sufficient, we will proceed against you jointly and severally for the recovery of outstanding or the shortfall as the case may be under the other provisions of SFC's Act and other Laws at your cost and deeds. However, if the amounts are paid on or before 15 days from the ate of this notice, the proposed action will be dropped.

 Thanking you, Yours faithfully, for A.P.I.D.C. Limited, Sd/- X X X (T. RAMGOPAL) GENRAL MANAGER,MONITORING & RECOVERIES Encl: Sale Notice Proforma.

Copy to:
1)Sri P. Seshagiri Rao, H.No.8-3-222/6, Yoursufguda, Srinagar Colony, Hyderabad.
2)Sri A. Nageshwara Rao, 6-3-668/10/4, Durganagar Colony, Panjagutta, Hyderabad.
3)Sri K. Raja Rao, 8-3-678/2, Near LIC Colony, Yellareddyguda, Hyderabad.
4)The Managing Director, A.P. State Financial Corporation, Chirag Ali Lane, Hyderabad.
5)The Manager,
        State Bank of India,
        Narayanguda Branch,
        Hyderabad.    "


19. The letter dated 28.5.1992 together with the sale notice intimating that steps will be taken under Section 29 of the SFC Act was also addressed to the Managing Director of the Company and only a copy of the same was sent to the petitioner and not communicated to other guarantors. The said letter reads as under:
By Regd. Post Ack due.
The Managing Director D/28.5.1992 M/s. Rama Organics Pvt., Ltd., No.8-3-222/6, Yousufguda Road, Srinagar Colony, HYDERABAD - 500 873.
Dear Sir, Sub:- Your Loan Account with us - Defaults - action for recovery of outstanding amounts under Sec.29 of SFC's Act - Reg.
 With reference to the above, we find that your account continue to be irregular inspite of several reminders and even Notices issued to you. An amount of Rs.51,96,869/- (Rupees fifty one lakhs ninety six thousand eight hundred and sixty nine only) is due as on 28-2-1992 towards Term Loan instalments/interest.

 In view of the above, we are taking steps for the recovery of an amount of Rs.71,27.180/- which is outstanding in your account as on 28-2-1992 and other amounts debitable to the account by sale of your Unit under Section-29 of the State Financial Corporations Act, 1951, by advertisement in the newspapers, if necessary, as per the proforma enclosed with appropriate variations.

 Please note that if the sale does materialize and the proceeds thereof are not sufficient, we will proceed against you jointly and severally for the recovery of outstanding or the shortfall as the case may be under the other provisions of SFCs Act and other Laws at your cost and deeds.


However, if the amounts are paid on or before 15-6-1992 proposed action will be dropped.

 Thanking you, Yours faithfully for A P I D C LIMITED S V REDDY GENERAL MANAGER (M&R) Encl: Sale Notice proforma Copy to : Shri K. Raja Rao S/o Shri Nagabhushanam No.8-3-678/2, Near LTC Colony, Yellareddyguda, HYDERABAD - 500 873."
20. As already stated notice was issued on 18.10.1989 for sale of the assets of the company under section 29 of the SFC Act, again notice was issued on 28.3.1990 and another notice was issued on 28.5.1992. It is not clear from the material placed on record what steps the Corporation had taken pursuant to the notice dated 18.10.1989 and 28.3.1990 as it could secure the amount to the extent of Rs.61.00 lakhs by sale only on 29.12.1993. Even after this also there was no demand by the Corporation demanding payment of the balance amount. It was only on 22.3.1996 for the first time demand was made by the Company demanding the petitioner to pay the arrears to the tune of Rs.131.14 and to recover the same under the Revenue Recovery Act. The said demand reads as under.

By Regd. Post Ack due.
Ref.No.ED(P)/RRD/ROL/466/96                                dt:22-3-1996.


Mr. Kodali Raja Rao
S/o K. Nagabhushnam
H.No.8-3-678/2, (8-3-678/2),
Yellareddiguda
Near LIC Colony,
Hyderabad - 500 016.

 Sub:- APIDC - Recovery of over dues under Revenue Recovery Act from the Guarantor of M/s Rama Organics (P) Lte - Reg.
 Ref:- Your agreement of guarantee dt.17-8-1988.

The APIDC Limited has advanced a loan of Rs.56.80 lakhs to M/s. Rama Organics (P) Limited situated at Bollaram (V) Jinnaram (M), Medak District. While releasing the earlier guarantors you have undertaken guarantee on 17-8-1988 to the effect that if the principal debtor commits default in repayment of the loan, the Corporation will be entitled to recover the same from your persons and property both movable and immovable notwithstanding remedies which the Corporation may have against the Principal debtor.

M/s. Rama Organics (P) Ltd has committed default in repayment of loan instalments. Hence the APSFC which has also financed the unit has seized it U/s.29 of SFCs Act and disposed off to recover the dues of Financial Institutions. After adjustment of Rs.50.00 lakhs sale proceeds received towards the share of APIDC the company is in arrears of following amounts to the APIDC.