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INDIAN BANK, MADRAS versus THE STATE OF TAMIL NADU

High Court of Madras

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Indian Bank, Madras v. The State of Tamil Nadu - O.S.A. NO.71 OF 1994 [2002] RD-TN 334 (7 June 2002)



IN THE HIGH COURT OF JUDICATURE AT MADRAS



DATED: 07/06/2002

Coram

The Hon'ble Mr.Justice R.JAYASIMHA BABU

And

The Hon'ble Mr.Justice A.KULASEKARAN

O.S.A. NO.71 OF 1994

Indian Bank, Madras

31,Rajaji Salai, Madras. .....Appellant Versus

1.The State of Tamil Nadu

rep.by its Secretary

Department of Handloom and Textiles

Fort St.George, Madras-600 009.

2.The Director of Handloom and Textiles

Kuralagam (2nd Floor)

Esplanade, Madras-600 001.

3.Tamil Nadu Textile Corporation Limited

rep.by its Managing Director,

Kuralagam, Esplanade, Madras-600 001.

.....Respondents Appeal against the Judgement and decree passed in C.S.No.346 of 1993 dated 16.6.1993 on the file of this Court.

For Appellants : Mr.V.Kalyanaraman

For M/S.Aiyar & Dolia For Respondents 1&2 : Mr.M.Chinnasamy

Govt.,Advocate.

:J U D G E M E N T



(Judgement of the Court was made by A.KULASEKARAN,J) Plaintiff is the appellant in this appeal.

2. The suit in C.S.No.346/83 was filed for recovery of an amount of Rs.6,73,817.21 together with interest at the contract rates on the respective principal amounts viz., Rs.1,28,242.62 in respect of Medium Term Loan and a sum of Rs.1,40,841.98 in respect of UDA/DP. M/s.Om Parasakthi Mills Limited, Coimbatore has availed the facilities of term loans and as on 10.9.69 a sum of Rs.5,73,223.11 was due to the plaintiff. On 15.9.69, the said mill was taken over under the provisions of Industries (Development and Regulations) Act 1951 and was subsequently nationalised under the provisions of the Sick Textiles Undertaking (Nationalisation)Act 1974. At the time of nationalisation, defendants 2 and 3 requested the plaintiff to grant further loan facilities and they have executed the necessary guarantees in favour of the plaintiff. Later, the plaintiff has preferred a claim before the Commissioner of Payments under the Nationalisation Act claiming the amounts due under the various facilities. By award dated 12.1.1979, the Assistant Commissioner of Payments had recognised and passed orders for payment of Rs.8,66,531.42 under UDA/DP guarantee and rejected the claim of the plaintiff for Medium Term loan of Rs.1,28,242.62. The plaintiff has preferred CMA No.75 of 1979 on the file of the District Judge, Coimbatore. The plaintiff bank issued advocate notice dated 6.12.7 9 calling upon the defendants 2 and 3 to pay a sum of Rs.5,72,200.50 together with interest. The said amount was inclusive of a sum of Rs.1,28,242.62 together with interest being the amount which was rejected by the Assistant Commissioner of payments under Medium Term Loan on the ground that it was pre-take over liability and the sum of Rs.1,4 0,841.98 together with further interest being the amount which was rejected by the Assistant commissioner of Payments under UDA/DP. The said notice was given without prejudice to the claim in CMA No. 75 of 1 979. Defendants 2 and 3 have received the notice but neither sent any reply nor complied with the demand. The defendants were liable to pay a sum of Rs.1,28,242.62 and a sum of Rs.99,662.46 towards interest at 14 p.a. from 25.4.77 till the date of plaint totalling Rs.2,27,90 5.08 in respect of Medium Term Loan and Rs.1,40,841.98 towards balance under UDA/DP and a sum of Rs.3,05,070.15 towards interest at 16.5 per annum from 25.4.1977 till date of plaint totalling to Rs.4,45,912 .13 and thus the total amount of Rs.6,73,817.21 was due and payable by the defendants as per the deeds of guarantee dated 8.12.1969 and 22 .12.69 and 4.1.73. The plaintiff has invoked the guarantees on 6.12.1 979. The present suit is filed within three years of the said invocation of the guarantee. The present suit is only for recovery of the portion of the claim disallowed by the Assistant Commissioner of payments and the interest thereof. Hence the suit.

3. Defendants 2 and 3 contested the suit on the ground that without proceeding against the principal debtor, the suit was filed against the guarantors and as such it was not maintainable. Under the principles of law, the liability of the surety/guarantor is co-extensive with that of the principal debtor and one cannot have any separate existence without the other. Even the National Textiles Corporation that has taken over the Mills has not been added as a party. According to the defendants, the suit is prematured and unsustainable in law. The defendants have admitted that they have executed guarantees in favour of the plaintiff for Rs.5,73,223.11 on 22.12.1969 and also another guarantee for Rs.23.00 lakhs on 4.1.73. The Ordinance of Nationalisation of Sick Textile Undertakings was passed on 21.9.1974 and the Nationalisation Act became law on 21.12.1974. The claims of the plaintiff were all included in Category I (Part A) of Schedule 2 to the Sick Textile Undertakings (Nationalisation) Act 1974. The liabilities included in the said category are to be paid first out of the compensation specified in respect of each Mill in Schedule I of the Act and if the compensation provided is not adequate to cover the full amount, the liability has to be assumed by the Central Government as per Section 2 7 of the Nationalisation Act. The Central Government is not impleaded as a party and hence the suit was bad for non joinder of necessary party. The Central Government has issued a memo No.53/3/1/75 CF dt.19.12.1975 specifically directed that the unresolved disputes between the Government Department and a Public sector Enterprise and between one Public Enterprise and another would ordinarily fall in two categories namely (i) those relating to statutory matters (ii)those relating to commercial or other agreements, but, the plaintiff has filed the suit in disregard of the above terms as such it is not entitled to claim any amount. The plaintiff has already resorted to the provisions of Sick Textiles Undertaking Nationalisation) Act 1974 and preferred an appeal and other legal action for the recovery of the amount separately. Whileso, the present suit was pre matured. The guarantees were made on 22.12.1969 and 4.1.1973 as such the suit filed is barred by limitation. All the claims were prior to 1973 and the suit is filed after 9 years. Even the guarantee cannot be invoked after the main claim is barred by limitation. The main claim was said to be due as on 10.9.1969 which expired on 9.9.1972. Even assuming that the guarantee was given on 4.1.1973, it was valid upto 3.1.75. The time taken by the plaintiff to agitate the claim before the Commissioner for Compensation under the Nationalisation Act cannot save limitation. In any event the claim having not been maintained within three years from 12 .1.79, the date of award, it cannot be stated that the suit is in time. The plaintiff has been negligent and allowed the claim visited with the law of limitation and therefore, even in equity, it was not entitled to any claim. Having chosen to claim the entire money out of the compensation payable in respect of the take over it is not open to the plaintiff to claim a rejected portion from the 3rd defendant. His remedy is only to file appeal under the provisions of of the Nationalisation Act and not a suit. On this ground also the suit is liable to be rejected. 4. In the suit the below mentioned issues were framed:

(1) Whether the first defendant is liable for the suit claim? (2) Whether the suit against the guarantors alone is not maintainable? (3) Whether the suit against the guarantors is barred by time? (4) Whether the suit is premature?

(5) Whether notices under section 80 CPC are not proper? (6) Whether the Government of India is a necessary party to this suit? 7. Whether the suit is bad for non joinder of the Government of India? (8) To what relief is the plaintiff entitled?

5. The learned Single Judge has held that the first defendant is not liable to pay the suit amount, that the suit against the guarantors is maintainable, that the suit is barred by limitation though the same is not premature, that the notices under section 80 C.P.C. were properly served, that the Government of India is not a necessary party and ultimately dismissed the suit, hence, this appeal.

6. Om Parasakthi Mills Limited, Coimbatore has availed the loan facility from the plaintiff bank. The mill was taken over by the Industries Department under the provisions of the Industries (Development and Regulation) Act 1951 on 15.9.1969. After taken over, the second defendant executed Ex.P1 Deed of Guarantee for the term loan amount of Rs.5,73,223.11 due from the said mill. The third defendant also executed a similar agreement Ex.P2 dated 22.12.1969. Subsequently, the mill was nationalised in the year 1974. The third defendant had executed another guarantee agreement dated 4.1.1973 for UDA/DP guarantee facility to the extent of Rs.23,00,000/= for the purchase of 21 Textool Highspeed Spinning Frames for the mill. It is also admitted in the plaint that the suit was filed against defendants 2 and 3 on the basis of the Deeds of Guarantee executed by them. No reasoning was given in the plaint nor it was explained before us to justify that the first defendant was a necessary party to the suit. Hence, we concur with the finding of the learned Single Judge that the first defendant was not a necessary party.

7. Learned Counsel appearing for the appellant argued that the suit against the guarantor alone is maintainable as defendants 2 and 3 have executed Exs.P1 to P3 Deeds of Guarantee. Learned counsel appearing for the respondents argued that in the absence of the principal debtor, the claim made against the guarantors was not valid. The learned Single Judge decided the issue in favour of the plaintiff relying upon the decision in GOPILAL J.NICHANI v. M/S.TRACK INDUSTRIES AND COMPONENTS LTD. (1978 II MLJ 94), wherein a Division Bench of this Court had observed that "The Section (Sec.128 of Indian Contract Act) talks of only one thing and that is about the liability of the guarantor as being coextensive with that of the principal debtor. The word 'co-extensive' is an objective for the word 'extent' and it can relate to the quantum of the principal debt." We also agree with the learned Single Judge.

8. After the nationalisation of sick mills under the provisions of Sick Textiles Undertaking (Nationalisation) Act, 1974, the creditors were entitled to make claims against the nationalised mills before the Commissioner of Payments. The plaintiff also made a claim before the said authority for the term loan and other liabilities due from M/ s.Om Parasakthi Mills Limited. The said authority passed an award for the principal amount due under UDA/DP guarantee. The plaintiff has filed an appeal before the District Judge, Coimbatore for the rejected claim which was also dismissed. Subsequently, a writ petition was filed before this court. At that time, the present suit was filed in C.S. No.346 of 1983 when the said appeal in C.M.A.No.75 of 1979 was pending before the District Judge. Hence, the defendants had contended that the suit was premature. During the pendency of this suit, C.M.A.No.75 of 1979 and the writ petition were dismissed. Considering the same, the learned Single Judge rightly held that the suit was not premature.

9. The plaintiff bank has sent notices Exs.P4 and P5 demanding the amount due from Om Parasakthi Mills Limited prior to filing of the suit. Hence, the learned Single Judge has rightly held that statutory notice under section 80 was duly served on the defendants.

10. The learned counsel appearing for the respondents placed an argument that when the compensation amount was not adequate to cover the full claim, the Central Government is liable to pay the balance amount under the Nationalisation Act and as such, the Central Government was a necessary party. The learned Single Judge has rightly rejected the said contention by holding that the statutory liability is created against the Central Government only under section 27 of the Nationalisation Act whereas the suit was filed not under the Nationalisation Act, but, on the basis of guarantee agreements Exs.P1 to P3 executed by defendants 2 and 3. Admittedly, defendants 2 and 3 created liability against themselves for the amount payable by Om Parasakthi Mills Limited. The plaintiff has filed the suit invoking the Deeds of Guarantee executed by defendants 2 and 3. Hence, as rightly held by the learned Single Judge, the Central Government was not a necessary party.

11. The learned Single Judge has dismissed the suit on the ground that the claim is barred by limitation. The counsel appearing for the appellant/plaintiff has vehemently attacked the reasoning given by the learned Single Judge for arriving at the said conclusion as invalid and unsustainable in law.

12. Ex.P1 dated 8.12.1969, Deed of Guarantee is executed by the second defendant on behalf of Om Parasakthi Mills Limited, Coimbatore guaranteeing payment on demand within one week. It is evident under Ex.P1 that the second defendant has given guarantee for the term loan to the tune of Rs.5,73,223.11 and the guarantee extends to all loans payable by Om Parasakthi Mills Limited. Ex.P2 has been executed by the third defendant guaranteeing repayment of the two term loans amounting to Rs.5,73,223.11 besides executing Ex.P3 guaranteeing repayment of UDA/DP loan to the extent of Rs.23,00,000/=. No doubt, defendants 2 and 3 were liable to pay the said amount. It was canvassed before us by the respondents that the suit claim was barred by limitation as the same was made beyond the period of three years from the date on which it was due and payable.

13. The loan amount was disbursed under two categories viz. medium term loan and UDA/DP account. Ex.P6 is the statement of account relating to the term loan. The loan was given on 30.6.1973 and closed on 25.4.1977. Admittedly, the last transaction was on 12.10.1976. The learned Single Judge has held that under Article 19 of the Limitation Act, the period of limitation was three years from the date of loan or the date of last transaction. This is a general article applicable to a suit for recovery of money payable for the money lent and the terminus a qua is the date on which the loan is made.

14. The learned Single Judge further held that the claim of commission is governed by Article 7 and claim of interest is governed by Article 25 of the Limitation Act, both the Articles contemplate the period of limitation as three years and as such, both the claims are barred by limitation.

15. No doubt the above mentioned Articles are applicable only to ordinary loans where there is no guarantee agreement entered into between the parties as to the time of repayment.

16. The contract of guarantees is defined in section 126 of the Indian Contract Act which runs as follows:-

" 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. "

Continuing guarantee is defined in section 129 as follows:- " A guarantee which extends to a series of transactions is called a "continuing guarantee".

Whether in a particular case a guarantee is continuing or not is a question of the intention of the parties, as expressed by the language they have employed, understanding it fairly in the sense in which it is used; and this intention is best ascertained by looking to the relative position of the parties at the time the instrument is written.

17. In this case, special agreements viz., deeds of guarantee have been entered into between the parties. Now, we will have a look on the terms of the Deeds of Guarantee which reads as follows:- In page 3 of Ex.P1,

"The guarantee shall be a continuing guarantee and shall remain in full force until all the liabilities of Om Parasakthi Mills Limited of Rs.5,73,223.11 plus interest and the liabilities of the Authorised Controller in respect of various new facilities granted to him are discharged in full." Similar terms are available in page 2 of Ex.P2 as follows:- "We further agree that this guarantee will be a continuing guarantee and shall remain in full force and effect till all the liabilities of Om Parasakthi Mills Ltd. under the two medium term loans are fully discharged." In page 3 of Ex.P3, Guarantee Deed, it is mentioned that "We, the undersigned the Tamil Nadu Textile Corporation Limited, hereby guarantee to the said Bank the payment on demand of all moneys at any time and from time to time hereafter due to the said bank by the borrower in respect of the said accommodation with interest thereon at the rate of 12 per cent per annum from the date of demand and the due performance and observance by the borrower of all the terms pertaining to the accommodation aforesaid and the payment of all costs and expenses incurred by the said Bank in relation to the premises and we also agree to pay and make good to the said Bank on demand all losses, costs, damages and expenses occasioned to the said Bank by reasons of the non-payment of the said moneys, costs and expenses or any part thereof or the branch non-performance or non-observance of any of the terms aforesaid."

18. All the said three Deeds of Guarantee are read together make it clear that they are continuing guarantees and the undertaking by the defendants is to pay any amount that may be due by the mill. 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 fully and there is no refusal on the part of the guarantor to carry out the obligation. In a similar circumstance, the Honourable Apex Court of India, in MARGARET LALITA v. INDO COMMERCIAL BANK LTD. (AIR 1979 SC 102), at para 10, has held as follows:- " 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 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:

"On the 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 ..... We are 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." We agree with the view expressed by Shah,J. The intention and effect of a continuing guarantee such as the one with which we are concerned in this case was considered by the Judicial Committee of the Privy Council in Wright v. New Zealand Farmers Cooperative Association of Canterbury Ltd., (1939 AC 439). The second clause of the guarantee bond in that case was in the following terms:

"This guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing to you by the William Nosworthy and Robert Nosworthy on their current account with you for goods supplied and advances made by you as aforesaid and interest and other charges as aforesaid."

A contention was raised in that case that the liability of the guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of advance. The Judicial Committee of the Privy Council expressed the opinion that the matter had to be determined by the true construction of the guarantee. Proceeding to do so, the Judicial Committee observed (at p.449):

"It is no doubt a guarantee that the Association will be repaid by the Nosworthys advance made and to be made to them by the Association to gether with interest and charges; but it specifies in col. 2 how that guarantee will operate namely, that it will apply to (i.e. the guarantor guarantees repayment of) the balance which at any time thereafter is owing by the Nosworthys to the Association. It is difficult to see how effect can be given to this provision except by holding that the repayment of every debit balance is guaranteed as it is constituted from time to time, during the continuance of the guarantee, by the excess of the total debits over the total credits. If that be the true construction of this document, as their Lordships think it is, the number of years which have expired since any individual debit was incurred is immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted."

Later it was again observed (at p.450):

"That document, in their opinion, clearly guarantees the repayment of each debit balance as constituted from time to time, during the continuance of the guarantee by the surplus of the total debits over the total credits, and accordingly at the date of the counterclaim the Association's claim against the plaintiff for payment of the unpaid balance due from the Nosworthys, with interest, was not statutebarred." "

19. The said judgment is squarely applicable to the facts and circumstances of the instant case. The present suit is in substance and truth one to enforce the guarantee deeds is governed by Article 55 of the Limitation Act, 1963 which is equivalent to Article 115 of the Limitation Act, 1908. The appellant has pursued the statutory remedy before the Assistant Commissioner of Payments constituted under The Sick Textiles Undertaking (Nationalisation) Act, 1974 and recovered certain amounts. In respect of the unrecovered portion of the amount, they preferred C.M.A.No.75 of 1979 which was also dismissed by the District Judge, Coimbatore. The Trial Court also rightly held that the suit is valid since the same is "filed not against the Industrial Undertaking, but, against the guarantors on the strength of the guarantee agreements executed by them", which was not challenged by the defendants. The said guarantees are continuing guarantees, so long as the account is a live account i.e., not settled and there is no refusal on the part of the guarantors to carry out the obligation, hence the period of limitation could not be said to have commenced running. The limitation would only run from the date of breach under Article 55 of the Limitation Act, 1963. Both the accounts which were guaranteed by defendants 2 and 3 by the execution of the guarantee bonds continued to be a live account even after they ceased their business. The plaintiff has issued notices Ex.P4 dated 6.12.1979 and Ex.P5 dated 6.10 .1982 invoking the guarantees and filed the suit on 1.11.1982 within three years from the said dates. The suit, which was filed on 1.1 1.1982, was, therefore, clearly within time under Article 55 of the Limitation Act. In this aspect, we disagree with the finding of the learned Single Judge.

20. In the result, the appeal is allowed to the extent indicated above and the judgment and decree passed by the learned Single Judge is set aside and the suit is decreed against defendants 2 and 3 as prayed for with cost.

(R.J.B.J.) (A.K.J.)

7.6.2002.

Index: Yes

Internet: Yes

ssk.

To

1.The State of Tamil Nadu

rep.by its Secretary

Department of Handloom and Textiles

Fort St.George, Madras-600 009.

2.The Director of Handloom and Textiles

Kuralagam (2nd Floor)

Esplanade, Madras-600 001.

3.Tamil Nadu Textile Corporation Limited

rep.by its Managing Director,

Kuralagam, Esplanade, Madras-600 001.

4. The Sub Assistant Reistrar,

Original Side,

High Court, Chennai.

R.JAYASIMHA BABU,J.

AND

A.KULASEKARAN,J.

P.D. JUDGMENT



IN

O.S.A.No.71/94

Delivered on

7.6.2002.

((SCO LYRIX 6.1

))


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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