Bank Vs. Channaveerappa Beleri & Ors  Insc 195 (10 April 2006)
Kumar & R V Raveendran Raveendran, J.
appeal by special leave, is by the plaintiff Bank against the judgment dated
6.3.1997 of the High Court of Karnataka dismissing R.F.A. No. 107 of 1993 filed
by it against the judgment and decree dated 29.10.1992 of the Civil Judge, Gadag
in O.S. No. 29 of 1990, dismissing its suit on the ground of limitation.
Bank filed Original Suit No. 29 of 1990 against Respondents 1 to 7 herein for
recovery of Rs.19,77,478/60 (the liability of Respondents 2 & 3 being
restricted to Rs.15,75,960 and liability of Respondents 6 & 7 being
restricted to 17,56,070.60) together with interest @18.5% per annum compounded
quarterly from the date of suit till the date of realization. The plaint
averments in brief are as under.
The Bank had
extended credit facilities by way of overdraft, goods loan, and demand loan
against supply Bills to a company known as Gadag Forge Fits (India) Pvt. Ltd.,
('company' for short).
1 was its Managing Director and Respondents 2 to 7 were its Directors. The
credit facilities were renewed and enhanced from time to time. Respondents 1 to
7 executed the following guarantee bonds in favour of the Bank, personally
agreeing and undertaking to pay and satisfy the Bank on demand all sums which
may be due on account of the credit facilities granted to the company subject
to the limits mentioned therein :
dated 17.9.1983/20.8.1983/29.8.1983 executed by Respondents 1, 2 and 3, the
limit of liability being Rs. 10.50 lakhs (a single deed executed by Respondents
1, 2 and 3 on different dates).
dated 4.4.1984 executed by respondents 4 & 5, the limit of liability being Rs.
dated 10.9.1985 executed by Respondents 1, 4, 5, 6 & 7, the limit of
liability being Rs.11.70 lakhs.
the limit of total liability undertaken exclusive of interest was Rs.22.20 lakhs
in the case of Respondents 1, 4 & 5, Rs. 10.50 lakhs in the case of
Respondents 2 & 3 and Rs.11.70 lakhs in the case of Resondents 6 & 7.
Their liability was joint and several with the company.
On account of the
company allegedly incurring losses and stopping its activities, operations in
the accounts of the company with the Bank stopped in the middle of 1986. In view
of the failure on the part of the company (principal debtor) in paying the
amounts due, the Bank sent a letter dated 12.10.1987 to the company and its 7
Directors (Respondents 1 to 7) informing that the following amounts were
outstanding in the accounts of the company as on 30.9.1987 and calling upon the
company as principal debtor and respondents 1 to 7 as guarantors to pay the said
amounts aggregating to Rs.13,48,264.79 with interest @ 18.5% per annum from
1.10.87 within 15 days :-
No. Date of Advance Limit/Amount Advanced Balance as on 30.9.1987 Over Draft
27/85 1/86 14/86 10.9.85 7.1.86 29.4.86 2,50,000/- 2,50,000/- 1,50,000/-
3,32,116.04 3,39,719.54 1,99,105.35 Goods Loan 49/84 48/85 23.7.84 12.10.85
1,61,000/- 27,450/- 1,91,654.00 35,894.85 Demand Loan against Supply Bills
229/85 232/85 233/85 234/85 235/85 237/85 2/86 3/86 5/86 8/86 10/86 12/86 14/86
15/86 16/86 18/86 20/86 2.12.85 6.12.85 6.12.85 11.12.85 20.12.85 26.12.85
1.1.86 1.1.86 13.1.86 3.2.86 10.2.86 13.2.86 11.3.86 20.3.86 21.3.86 25.3.86
26.4.86 5,000/- 5,000/- 2,500/- 16,900/- 1,500/- 6,100/- 2,900/- 5,100/-
32,970/- 3,700/- 31,600/- 13,700/- 8,800/- 10,230/- 36,000/- 20,300/- 6,400/-
318.60 6,936.65 3,469.40 23,356.15 2,071.85 8,366.90 3,966.95 3,425.75
44,819.30 444.05 26,274.85 18.424.20 11,685.45 13,518.25 47,534.00 26,750.10
8,412.60 TOTAL 13,48,264.79
The company and
its Directors (Respondents 1 to 7) sent a reply dated 31.10.1987 through counsel
stating that the company was passing though a financial crisis and the Bank had
failed to assist the company by making further advances by way of working
further alleged that in view of the failure to advance further funds, the
company sustained heavy loss and the company was reserving liberty to file a
suit for damages for an amount which would be more than the amount claimed by
the Bank. They also alleged that the bank ought to have given a moratorium on
interest to rehabilitate the company. They also stated that without prejudice
to their rights and contentions, they were willing to discuss the matter with
the Bank, to arrive at an amicable solution. A formal notice through counsel
was sent by the Bank on 17.12.1987 demanding payment which elicited a reply dated
30.12.1987 denying the demand.
initiated proceedings for winding up against the company on account of its
inability to pay its dues, on 11.10.1988 and the High Court ordered winding up
of the company on 17.3.1989.
the suit was filed by the Bank on 16.3.1990 only against the Guarantors
(Respondents 1 to 7) for recovery of Rs.19,77,478.60 (that is, the amount
demanded in the notice dated 12.10.1987 with interest up to date of suit). The
Bank restricted the claim to Rs.10.50 lakhs with interest at 18.5% P.A. from
17.12.87 to the date of suit against Respondents 2 and 3 and to Rs.11.70 lakhs
with interest at 18.5% P.A. from 17.12.1987 to date of suit against respondents
6 and 7. The Bank contended that the respondents were jointly and severally
liable to pay the amounts due by the company, as aforesaid. It was alleged that
the cause of action for the suit against the guarantors (respondents 1 to 7)
arose on 17.12.1987 when the demand was made and on 30.12.1987 when they denied
the liability by notice. The statements of account showing the particulars of
amount due as on 31.12.1989 were annexed to the plaint.
and 7 remained ex parte. Respondents 1, 5 and 6 filed a common written
statement which was adopted by 2nd respondent. Respondent No. 3 filed a
separate written statement.
resisted the suit inter alia on the following grounds :-
The suit was not
maintainable only against the Guarantors and was liable to be rejected for non-joinder
of the principal debtor.
The Bank cannot
proceed against the guarantors without first exhausting of remedies against the
bonds were executed in the years 1983, 1984 and 1985. As the suit was not filed
within three years from the respective dates of the guarantee bonds, in the
absence of renewals or acknowledgement by them, the suit was barred by
The trial court
framed as many as 16 issues. We are concerned with the issue no.4, that is, :
'Is the suit not in time?'. The Bank examined its manager and respondents 1, 2
and 3 gave evidence on behalf of the defence. Ex. P-1 to P-35 and Ex. D-1 to D5
were marked. The trial court by an exhaustive judgment answered all the issues,
except the issue regarding limitation in favour of the Bank. It held that the
Bank had established the correctness of the amounts claimed and the rate of
interest. It, however, held that the suit was barred by time and consequently,
dismissed the suit. The appeal filed by the Bank was also dismissed by the High
Court. The said dismissal is challenged in this appeal by special leave. The
only question that was argued and that arises for consideration in this appeal
is whether the decision of the courts below that the suit was barred by
limitation is correct in law.
the rival contentions, it is necessary to refer to the relevant statutory
provisions, the terms of the guarantee and the decision of this Court relied on
by both parties.
126, 128, 129 and 130 of Contract Act, 1872 are extracted below :
126. 'Contract of guarantee,' 'surety,' 'principal-debtor' and 'creditor' A
'contract of guarantee' is a contract to perform the promise, or discharge the
liability, of a third person in case of his default. The person who gives the
guarantee is called the 'surety'; the person in respect of whose default the
guarantee is given is called the 'principal-debtor,' and the person to whom the
guarantee is given is called the 'creditor.' A guarantee may be either oral or
written." "Section 128. Surety's liability The liability of the
surety is co-extensive with that of the principal-debtor, unless it is
otherwise provided by the contract." "Section 129. 'Continuing
guarantee' A guarantee which extends to a series of transactions is called a
'continuing guarantee." "Section 130. Revocation of continuing
guarantee A continuing guarantee may at any time be revoked by the surety, as
to future transactions, by notice to the creditor."
Articles in the Schedule to the Limitation Act, 1963 are extracted below :
of Suit Period of Limitation Time from which period begins to run 55 For
compensation for the breach of any contract, express of implied not herein
specially provided for.
years When the contract is broken or (where there are successive breaches) when
the breach in respect of which the suit is instituted occurs or (where the
breach is continuing) when it ceases.
Any suit for which no period of limitation is provided elsewhere in this
years When the right to sue accrues.
money payable for money lent.
years When the loan is made.
money lent under an agreement that it shall be payable on demand.
years When the loan is made.
bonds have been executed in the standard Form of the Bank. The relevant portions
from the Guarantee bond dated 10.8.1985 (the Bonds are similarly worded) are
extracted below :
consideration of SYNDICATE BANK, here-in/after called the "Syndicate".
making, or continuing to make advances or otherwise giving credit or financial
accommodation or affording banking facilities for as long as the Syndicate may
think fit to M/s. Godrej Forge Fits (I) Pvt. Ltd. Hirakoppa village, Gadag taluk
here-after called the "Borrower".., the undersigned
C. M. Beleri,
I. M. Beleri,
K. M. Chhadda,
Mrs. Shailaja Beleri
referred to as the "Guarantor") hereby agrees to pay and satisfy to
the Syndicate on demand all and every sum and sums of money which are now or
shall at any time be owing to the Syndicate in any of its offices on any
account whatsoever,." "PROVIDED ALWAYS that the total liability
ultimately enforceable against the Guarantor under this guarantee shall not
exceed the sum of Rs.11,70,000/- together with interest thereon at the rate
stipulated by the bank from date of demand by the Syndicate upon the Guarantor
for payment." "NOTWITHSTANDING the Borrower's Account or Accounts
with the Syndicate may be brought to credit or the credit given to the Borrower
fully exhausted or exceeded or howsoever the said financial accommodation
varied or changed from time to time; notwithstanding any payments from time to
time or any settlement of Account, this guarantee shall be a continuing
guarantee for payment of the ultimate balance to become due to the Syndicate by
the Borrower not exceeding Rs.11,70,000/- as aforesaid."
"NOTWITHSTANDING the discontinuance of this
Guarantee as to one or more of the Guarantors or the death of any one of them,
the Guarantee is to remain a continuing Guarantee, as to the other or others or
the representatives and estates of the deceased and where there is more than
one Guarantor, their liability under these presents being construed as joint
and several." "ANY ACCOUNT SETTLED or stated by or between the
Syndicate and the Borrower or admitted by him or on his behalf may be adduced
by the Syndicate and shall in that case be accepted by the guarantors and each
of them and their respective representatives as conclusive evidence that the
balance or amount thereby appearing is due from to the Syndicate."
SAMUEL vs. INDO COMMERCIAL BANK LTD (AIR 1979 SC 102) relied on both sides dealt
with the question of limitation with reference to a continuing guarantee. In
that case the guarantor sought to avoid liability by contending that every item
of an overdraft account was an independent loan and the limitation would start
from the date of each loan, and that with reference to such dates, the suit was
barred by limitation. While negativing the said contention, this Court observed
our view it is unnecessary for the purposes of the present case, to go into the
question of the nature of an overdraft account. The present suit is in
substance and truth one to enforce the guarantee bond executed by the
defendant. In order to ascertain the nature of the liability of the defendant,
it is necessary to refer to the precise terms of the guarantee bond rather than
embark into an enquiry as to the nature of an overdraft account.
referring to the terms of the guarantee bond, this Court held :
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 a live 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 Art. 115 of the schedule to the Limitation Act,
1908. When the Bombay High Court considered the matter in the first instance
and held that the suit was not barred by limitation. J.C. Shah, J. speaking for
the Court said :
plain words of the letters of guarantee it is clear that the defendant
undertook to pay any amount which may be due by the Company at the foot of the
general balance of its account or any other account whatever .
not concerned in this case with the period of limitation for the amount
repayable by the Company to the bank. We are concerned with the period of
limitation for enforcing the liability of the defendant under the surety bond We
hold that the suit to enforce the liability is governed by Art. 115 and the
cause of action arises when the contract of continuing guarantee is broken, and
in the present case we are of the view that so long as the account remained
live account, and there was no refusal on the part of defendant to carry out
her obligation, the period of limitation did not commence to run.
supplied) After expressing agreement with the above view expressed by Shah, J.,
this Court also agreed with the view expressed by the Privy Council in Wright
v. New Zealand Farmers Co-operative Association of Canterbury Ltd. (1939 AC
439), and the Court of Appeal in Bradford Old Bank Ltd. v. Sutcliffe [1918 (2)
KB 833] 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. This Court also referred to a passage from Paget's Law of
Banking, with approval, though not extracted. The said passage from Paget reads
Bradford Old Bank Ltd v Sutcliffe - (1918) 2 KB 833, 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 the 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 this 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 statute does not begin to run till such demand
has been made and not complied with." (Emphasis supplied)
Bradford (supra), in turn, relied on Hartland v. Jukes (1863) 1 H&C
667, wherein in the context of a continuing guarantee, it was contended that the
period of limitation would begin to run as soon as the principal debtor becomes
indebted to the Bank. The contention was negatived by stating :
was contended before us that the statute began to run from the 31st of 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."
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'. It
held that a 'live account' was one which was currently being operated at the
relevant time by the borrower/customer. The trial court further held 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
obligations; 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 that the demand was made by
the bank much later, that is in the year 1987, will not postpone the
commencement of running of the period of limitation. The trial court refused 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. The trial court was of the
view that if Bank's contention was to be accepted, then it would mean that the
Bank, by postponing issue of a notice making a demand, can postpone the
commencement of the running of limitation. The trial court purported to test
the validity of the Bank's contention, by reference to a hypothetical
situation, where the Bank, by not making a demand for, say 20 or 30 years, or
postponing the demand indefinitely, could postpone the commencement of
limitation indefinitely, and held that such a situation was impermissible. It,
therefore, 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 3 years from the stoppage of operation of accounts was barred by time.
The High Court
affirmed the said finding. It held that the words 'on demand' had a specific connotation
in legal parlance; and that when an amount is payable on demand, it means
'always payable' and a 'demand' is not a condition precedent for the amount to
be paid. The High Court held that when the guarantee stated 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 is necessary to make the amount due under the guarantees. It was held
that the money became payable under the guarantee bond as soon as the guarantee
was executed. The High Court also 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 3 years. The
High Court held that the decision in Samuel (supra) will not apply to the
Bank's suit, as this 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 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.
High Court also distinguished the decision in Samuel on facts.
appellant-Bank contended that the guarantees executed by the respondents were
continuing guarantees; that the guarantors had agreed to pay the amount/s on
demand by the Bank; that such a demand was made by the Bank on the guarantors
on 12.10.1987 and 17.12.1987; and that the guarantors' refusal to pay the
amount demanded is contained in their reply-letters dated 31.10.1987 and
30.12.1987; and that, therefore, the suit filed on 16.3.1990, within three
years from 31.10.1987 was in time. Reliance is placed on Article 55 of the Limitation
Act, 1963 and the decision of the Supreme Court in Samuel (supra).
liability depends upon the terms of his contract.
'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
Samuel (supra), no doubt, dealt with
a continuing guarantee. But the continuing guarantee considered by it, did not
provide that the guarantor shall make payment on demand by the Bank. The
continuing guarantee considered by it merely recited that the surety guaranteed
to the Bank, the repayment of all money which shall at any time be due to the
Bank from the borrower on the general balance of their accounts with the Bank,
and that the guarantee shall be a continuing guarantee to an extent of Rs.10 lakhs.
Interpreting the said continuing guarantee, this Court held that so long as the
account is a live 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, the period of
limitation could not be said to have commenced running.
But in the case on hand, 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.
We will examine the meaning of the
words 'on demand'. As noticed above, the High Court was of the view that the
words 'on demand' in law have a special meaning and when an agreement states
that an amount is payable on demand, it implies that it is always payable, that
is payable forthwith and a demand is not a condition precedent for the amount
to become payable. The meaning attached to the expression 'on demand' as
'always payable' or 'payable forthwith without demand' is not one of universal
application. The said meaning applies only in certain circumstances.
said meaning is normally applied to promissory notes or bills of exchange
payable on demand. We may refer to Articles 21 and 22 in this behalf. Article
21 provides that for money lent under an agreement that it shall be payable on
demand, the period of limitation (3 years) begins to run when the loan is made.
On the other hand, the very same words 'payable on demand' have a different
meaning in Article 22 which provides that for money deposited under an
agreement that it shall be payable on demand, the period of limitation (3
years) will begin to run when the demand is made. Thus, the words 'payable on
demand' have been given different meaning when applied with reference to 'money
lent' and 'money deposited'. In the context of Article 21, the meaning and
effect of those words is 'always payable' or payable from the moment when the
loan is made, whereas in the context of Article 22, the meaning is 'payable
when actually a demand for payment is made'.
What then is the meaning of the said
words used in the guarantee bonds in question? 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 for payment. 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. The terms of guarantee, thus, make
it clear that the liability to pay would arise on the guarantors only when a
demand is 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 sue accrues, when the demand is
served on the guarantor.
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.
To clarify the above, the following illustration may be useful :
say that a creditor makes some advances to a borrower between 10.4.1991 and
1.6.1991 and the repayment thereof is guaranteed by the guarantor undertaking
to pay on demand by the creditor, under a continuing guarantee dated 1.4.1991.
Let us further say a demand is made by the creditor against the guarantor for
payment on 1.3.1993. Though the limitation against the principal debtor may
expire on 1.6.1994, as the demand was made on 1.3.1993 when the claim was
'live' against the principal debtor, the limitation as against the guarantor
would be 3 years from 1.3.1993. On the other hand, if the creditor does not
make a demand at all against the guarantor till 1.6.1994 when the claims
against the principal debtor get time-barred, any demand against the guarantor
made thereafter say on 15.9.1994 would not be valid or enforceable.
that as it may.
The respondents have tried to
contend that when the operations ceased and the accounts became dormant, the
very cessation of operation of accounts should be treated as a refusal to pay
by the principal debtor, as also by the guarantors and, therefore the
limitation would begin to run, not when there is a refusal to meet the demand,
but when the accounts became dormant. By no logical process, we can hold 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
In view of the above, we hold that
the time began to run not when the operations ceased in the accounts in
mid-1986, but on the expiry of 15 days from 12.10.1987 when the demand was made
by the Bank and there was refusal to pay by the guarantors. The suit filed
within three years therefrom is, therefore, in time.
In the view we have taken, it is not
necessary to consider the meaning of the words 'live account' used and referred
to in Samuel (supra). Suffice it to say that the interpretation by the courts
below placed on the words 'live account', that they refer to an account which
is operational and not dormant, may not be sound. This Court itself had
indicated that 'live account' means an account that is not settled. The use of
the term 'settled' gives an indication that a 'live account' refers to an
account where the balance has not been struck by an "account stated"
or "account settled". We may in this behalf, refer to the following
observations in Bishun Chand v. Girdhari Lal & Anr. (AIR 1934 PC 147) :
essence of an account stated is not the character of the items on one side or
the other but the fact that there are cross items of account and that the
parties mutually agree the several amounts of each and, by treating the items
so agreed on the one side as discharging the items on the other side pro tanto,
go on to agree that the balance only is payable. Such a transaction is in truth
bilateral, and creates a new debt and a new cause of action." "There
can be account stated although the balance of indebtedness is not throughout in
favour of one side.
irrelevant whether the debt in favour of the final creditor is created at the
outset by one large payment or consists of several sums of principal and
several sums of interest. Nor is it material whether the only payments made on
the other side were simply payments in reduction of such indebtedness or were
payments made in respect of other dealings.
event items must be ascertained and agreed on each side before the balance can
be struck and settled."
Some arguments were addressed about
the Article of limitation that would apply in respect of a suit against the
guarantors. Samuel (supra) held that in the case of refusal of a guarantor to
pay the amount, the matter would be governed by Article 115 of the Schedule to the
Limitation Act, 1908, which corresponds to Article 55 of the Limitation Act,
1963. One of the submissions made before us was that the term 'compensation for
breach of contract' in Article 55 indicates to a claim for unliquidated damages
and not to a claim for payment of sum certain (as to what is the difference
between a claim for unliquidated damages and a claim for a sum certain or a sum
presently due, reference can advantageously be made to the classic statement of
Law by Chagla, CJ., in IRON AND HARDWARE (INDIA) LTD., vs. FIRM SHAMLAL &
BROS AIR 1954 Bom. 423). If Article 55 does not apply, then a claim against a
Guarantor in such a situation may fall under the residuary Article 113 of the Limitation
Act, 1963 corresponding to Article 120 of the old Act. The controversy about
the appropriate Article applicable, when the claim is found to be not exactly
for 'compensation' but ascertained sum due has been referred to as long back as
1916 in Tricomdas Cooverji Bhoja v. Gopinath Jin Thakur (AIR 1916 PC 183).
Under the old Limitation Act (Act of 1908), the periods prescribed were
different under Article 115 and 116. The periods prescribed were also different
under Article 115 and 120. But under the 1963 Act, the period of limitation is
the same (three years) both under Article 55 and 113. Having regard to the fact
that the period of limitation is 3 years both under Article 55 and Article 113,
and having regard to the binding decision in Samuel (supra), we do not propose
to examine the controversy as to whether the appropriate Article is 55 or 113.
Suffice it to note that even if the Article applicable is Article 113, the
Bank's suit is in time.
In view of our finding that the suit
is not barred by time, we allow this appeal and, consequently set aside the judgment
and decree of the High Court and that of the trial court. Consequently, the
suit is decreed, as prayed for, with costs.