Madhya Pradesh High Court
Vimla Pradhan And Ors. vs United Commercial Bank And Ors. on 10 July, 1989
Equivalent citations: 1990(0)MPLJ819
JUDGMENT Gulab C. Gupta, J.
1. This first appeal filed under section 96 of the Code of Civil Procedure, is directed against the Judgment and decree dated 15th April, 1985 passed by Shri K. K. Saxena, IInd Additional Judge to the Court of District Judge, Bilaspur in Civil Suit No. 11-B of 1978, holding the appellants responsible, jointly and severally with Respondents Nos. 2, 3 and 4, to the sum of Rs. 14,084.56 p. together with interest at the rate of 11 per cent per annum.
2. Facts of this case are more or less settled. It is no longer in dispute that Respondent No. 2 Sharad Kumar Thawait borrowed a sum of Rs. 30,300/- from the respondent Bank for purchasing a Matador pick-up van which was granted to him. The original defendant Bhaskar Prasad whom the appellant now represents, had guaranteed the aforesaid loan by executing document of guarantee dt. 5-3-1974 (Ex. P-3). From this document it appears that the guarantee was continuing guarantee and was to terminate only with the liability of the borrower Respondent No. 2. It, however, appears, that the said amount could not be paid by the borrower necessitating action by the respondent Bank. On 12-11-1976, the account between Respondents Nos. 1 and 2 was settled and a fresh contract regarding hypothecation of goods was signed (Ex. P-18). By this agreement the pick-up van M. P. L. 7016 was hypothecated by the respondent Bank to secure the amout of Rs. 21,000/-. This agreement was different than the earlier agreement (Ex. P-3) inasmuch as by the earlier agreement the amount secured was Rs. 30,300/- whereas in this agreement the amount secured was only 21000/-. The rate of interest agreed in Ex. P-3 was only 11 per cent per annum charged on the daily balance whereas this rate was increased to 13 per cent in the agreement (Ex. P-18). Perhaps because of these important changes in the terms of agreement, the respondent Bank also required the respondent-borrower to provide fresh guarantee of the aforesaid loan. The respondent No. 3, S. K. Verma, therefore, guaranteed the aforesaid loan by executing a letter of guarantee (Ex. P-17). It appears that the respondent Bank was not satisfied by the aforesaid guarantee in the context of continuing default of payments and therefore, required the respondent borrower to give another guarantee which was furnished by Respondent No. 4 on 9-8-1977. vide Ex. P-19. It however, appears that in spite of aforesaid arrangement the amount could not be repaid and the respondent Bank had to file the suit for realizing the balance of Rs. 26,784.56 p. From the proceedings of the trial Court, it appears that hypothecated vehicle was sold in public auction and a sum of Rs. 12,700 recovered. Because of this recovery, the suit was amended to obtain a decree of Rs. 14,084.56 p. only. The appellants denied their liability as guarantor and submitted that since the borrower has signed fresh agreement and obtained fresh guarantee which has been accepted by the respondent Bank, they are no longer liable to pay the amount. The learned Judge, on consideration of oral and documentary evidence on record, held that the subsequent agreement was only an acknowledgment of the previous debt and therefore, liability of the appellant was not terminated. That is how the decree making the appellants jointly and severally liable, has been passed.
3. Important question arising for consideration in such a factual situation is whether the liability of the earlier guarantor late Shri Bhaskar Prasad ceased to exist because of subsequent arrangement by agreements Ex.. P-17, P-18 and Ex. P-19? Any decision on this question would depend upon the finding whether this new arrangement amounted to 'acknowledgment' of past liability within the meaning of section 18 of the Limitation Act, 1963. Though this question was neither raised before nor decided by the trial Court, it has been seriously pressed for consideration of this Court as a pure question of law arising out of facts already on record. The question is relevant in relation to the liability of the appellants alone as they are not parties to subsequent arrangement. If this arrangement amounts to 'acknowledgment' within the meaning of section 18 of the Limitation Act, it would not amount to a fresh cause of action but would give fresh limitation for suit. If, however, this arrangement amounts to a new arrangement giving a fresh cause of action, suit on original cause of action, would be barred by limitation. Federal Bank of India v. Som Dev Grover and Ors., AIR 1956 Pun. 21 and Suwalal Vemichand v. Fazle Hussain Rajabali Bohra and Ors., AIR 1939 Nag. 31. holding that acknowledgment of liability by the borrower would not extend the period of liability against the guarantor and that this principle applies with equal force to cases of continuing guarantee also. Federal Bank of India's case was followed by the same High Court in Hazara Singh v. Bakshish Singh, AIR 1962 Pun. 495. Both these cases were dissented from in Wandoor Jupitor Chits (P.) Ltd. v. K. P. Mathew, AIR 1980 Ker. 190. This Court is not aware of any case where Suwalal"s case has either been followed or dissented. Learned counsel for the respondent Bank, However, stated that some unreported judgments of this court lay down that acknowledgment of liability by the debtor was sufficient to extend the period of limitation against the guarantor in view of the particular term in the agreement. No such decision has been placed for consideration of this Court. In the opinion of this Court, this question does not arise for consideration at this stage, though it may arise if it is held that agreements Exs. P-17, P-18 and P-19 amount to 'acknowledgment' of the liability within the meaning of section 18 of the Limitation Act. For the time being this Court has to ascertain if agreements Exs. P-17, P-18 and P-19 merely contain 'acknowledgment' of liability arising from agreements Exs. P-3 and P-4 or constitute fresh contract creating fresh cause of action covered under section 25(3) of the Contract Act? Having given its anxious consideration to the submissions of the appellants this Court is unable to hold that agreements Exs. P-17, P-18 and P-19 amount to 'acknowledgment' of the liability arising from agreements Exs. P-3 and P-4. The distinction between an acknowledgment of liability and a contract creating a new cause of action has been explained by the Supreme Court in Shapoor Freedom Mazda v. Durga Prasad, AIR 1961 SG 1236. in the following words:-
"It is thus clear that acknowledgment as prescribed by section 19 merely renews debt; it does not create a new cause of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication" (para 6).
Elaborating upon essential requirements of 'acknowledgment' the Supreme Court, in this very case, observed that "Words used in the acknowledgment must, however, indicate the existence of the jural relationship between the parties such as that of debtor and creditor and that it must appear that the statement is made with the intention to admit such relationship." In Tilakram v. Nathu, AIR 1967 SC 935, the Supreme Court affirmed these statements and added that: -
"Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on its maker by an involved or a far-fetched process of reasoning." (para 10).
If facts of the present case are judged by these standards, the one and the only answer to the question under consideration would be that documents Exs. P-17, P-18 and P-19, either separately or together, do not amount to 'Acknowledgment' within this provision. There is no reference to either earlier liability or agreements Exs. P-3 and P-4 in these documents, nor do they state that there was in existence the relationship of debtor and creditor between the borrower and the Bank. These documents, on the contrary, create new conditions relating to rate of interest and mode of payment. These documents reflect settlement of old account and promise to pay the same with higher interest. It is, therefore, the considered view of this Court that these documents do not contain any admission of past existing liability and do not amount to 'acknowledgment' within the meaning of section 18 of the Limitation Act.
4. The learned trial Judge is however of the opinion that in the absence of any loan advanced to the borrower under agreements Exs. P-17, P-18 and P-19, they cannot be accepted as fresh contracts and must be treated as continuation of agreements Exs. P-3 and P-4. Neither this logic nor the conclusion has any legal support. If new agreements do not amount to 'acknowledgment', the suit would be barred by limitation. A suit based on the cause of action arising from earlier agreements would, without doubt, be time-barred. It could be treated as within time only if agreements Exs. P-17, P-18 and P-19 are either accepted as 'acknowledgement' within the meaning of section 18 of the Limitation Act or if it is treated as based on a new contract evidenced by these documents, giving rise to a fresh cause of action. If documents Exs. P-17. P-18 and P-19 are executed without consideration, they would be void; but for this reason alone they would not be accepted as the continuation of agreements Ex. P-3 and Ex. P-4. Clearly, therefore, the learned Judge had missed the very core of controversy. This Court, however, is not able to accept that past payment does not amount to "consideration' for these agreements. A consideration within the meaning of section 2(d) of the Contract Act, does not mean payment of money alone. Promise to pay past debt, even when the same had become time-barred, is accepted as good consideraion under section 25 of the Contract Act. Indeed past consideration is as good as present or future consideration and hence a transaction cannot be accepted as being not supported by consideration only because of the absence of present consideration. In this view of the matrer, the promise to pay the past debt with interest would amount to execution of a fresh and valid contract under law.
5. Since agreements Exs. P-17, P-18 and P-19 amount to fresh contracts based on past consideration, the parties to these agreements alone would be liable to the respondent Bank. These agreements would validly terminate contracts Exs. P-3 and P-4 and consequently discharge the guarantor late Shri Bhaskar Prasad. This is also the purport of section 134 of the Contract Act. Liability of the borrower under Ex. P-3 has come to an end because of execution of fresh agreement by him and hence surety also stands discharged. Since late Bhaskar Prasad has not stood surety to subsequent agreements the appellants cannot be made liable for defaults in repayment. In this view of the matter, it is not possible to sustain the impugned judgment and decree in so far as they hold the appellants liable.
6. There is another reason why this Court would hold that the appellants are not liable to pay the amount under the guarantee Ex. P-3. The respondent Bank not only secured fresh agreement with the borrower varying substantially the terms of agreement Ex. P-3, they also secured fresh guarantee. This indicates that they did not think that the guarantor of the agreement Ex. P-3 would be bound to guarantee the loan amount under Ex. P-18 and Ex. P-20. Having compelled the respondent-borrower to give fresh guarantee, they must be deemed to have agreed to release the earlier guarantor Bhaskar Prasad. The Bank cannot now turn back and plead to the contrary.
7. In view of the discussions aforesaid, this Court is of the view that the guarantee furnished by Late Bhaskar Prasad stood discharged with the execution of agreements Ex. P-18 and Ex. P-20 and consequently the appellants cannot be held liable for the amount of debt.
8. In view of the discussions aforesaid, the appeal succeeds and is allowed. While the impugned judgment and decree are held legal and valid in relation to Respondents Nos. 2, 3 and 4, the appellants are discharged from their liability for the said amount. This would, therefore, entitle the respondent Bank to execute the decree on. other respondents only. Considering the nature of the controversy, the appellants will bear their own costs in both the Courts.