Andhra HC (Pre-Telangana)
The General Manager, The Karimnagar ... vs The A.P. Cooperative Tribunal, At ... on 22 December, 2016
Author: A.Ramalingeswara Rao
Bench: A.Ramalingeswara Rao
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
Writ Petition No.20044 of 2006
22-12-2016
The General Manager, The Karimnagar District Cooperative Central Bank Limited,
Karimnagar and another Petitioners
The A.P. Cooperative Tribunal, at Warangal, rep. by its Secretary and others.
Respondents
Counsel for the Petitioners: Sri P. Srinivas
Counsel for the Respondents: GP for Cooperation
Sri V. Hariharan
<Gist :
>Head Note :
?Cases referred
1. AIR 1979 SC 102
2. AIR 2006 SC 1874
HONBLE SRI JUSTICE A. RAMALINGESWARA RAO
Writ Petition No. 20044 of 2006
Order:
Heard learned Counsel for the Petitioner and the counsel for 2nd
respondent.
The Karimnagar District Cooperative Central Bank Limited,
Karimnagar granted a cash credit facility to the tune of Rs.3.00 lakhs on
20.05.1993 to the second respondent herein. They operated the account
till 31.03.1994. Thereafter, they did not operate the account. At the time
of availing cash credit facility, a promissory note was executed along with
a letter of continuity, letter of acceptance, deed of hypothecation and an
agreement. Since the second respondent failed to repay the outstanding
amount, the first petitioner issued a notice on 01.11.1999 to the second
respondent calling upon them to clear the outstanding amount. In spite
of the said notice when the second respondent did not repay the amount,
nor submitted any reply, proceedings were initiated before the second
petitioner on 06.11.1999. The second petitioner passed an award in
Rc.No.2 of 1999 on 05.01.2000 for an amount of Rs.5,94,187/-.
Challenging the same, the second respondent filed C.T.A.No.44 of 2000
and the same was allowed on 12.03.2003 remanding the matter to the
second petitioner/Arbitrator for fresh disposal. After remand, the second
petitioner passed an award on 22.09.2003 in Rc.No.21/2003/1360/L for
an amount of Rs.8,49,843.33 ps., with interest at 22% p.a., from
01.04.2003. Challenging the same, the second respondent filed CTA
No.101 of 2003 before the A.P. Cooperative Tribunal, which set aside the
award dated 22.09.2003 by its order dated 20.12.2005 on the ground that
the claim of the first petitioner was barred by limitation and the debt
cannot be recovered from the second respondent. Challenging the said
order of the Tribunal, the present Writ Petition was filed.
The Writ Petition against the respondents 4 and 5 was dismissed
for default by an order dated 23.06.2011. No counter affidavit is filed by
the respondents 2 and 3.
The facts in the above case are not disputed. Learned counsel for
the petitioners submits that Article 115 of the Limitation Act, 1908 on
which reliance was placed by the Tribunal has no application to the case
and the period of limitation runs from the date of refusal by the debtor.
He submits that since a notice was issued on 01.11.1999 and reference
was made immediately on 06.11.1999, the proceedings were initiated
within the period of limitation and hence the award is valid. He relied on
the decisions of the Honble Supreme Court in Mrs. Margaret Lalita
Samuel v. The Indo Commercial Bank Limited and Syndicate
Bank v. Channaveerappa Beleri .
In view of the above facts and contentions, the only point that
arises for consideration in the present case is whether Article 115 of the
Limitation Act, 1908 is applicable to the facts of the case and whether the
order of the Tribunal is valid in law?
It is an admitted case that the second respondent who availed the
cash credit facility operated the account till 31.03.1994 and thereafter did
not operate the account. While sanctioning the said facility, the second
respondent issued a demand promissory note dated 20.05.1993, letter of
continuity and letter of acceptance followed by a deed of hypothecation
dated 20.05.1993. An agreement was executed by the respondents 3 to 5
guaranteeing the payment of amount in the event of default committed by
the second respondent. Thus, the first document is a document of
demand promissory note and the second document is a letter of
continuity. The letter of continuity states that the promissory note
continues to stand as security so long as the amount was due. The letter
of acceptance states that the cash credit facility was sanctioned till
31.03.1994 and the conditions stipulated in the letter of sanction are
acceptable to them. The deed of hypothecation undertakes to submit on
5th of every month, a statement of the goods hypothecated and the goods
so hypothecated shall be held as the exclusive property of the first
petitioner Bank. The schedule to the agreement did not contain any list of
goods. As already stated, a personal guarantee was also executed. All
the documents were executed on 20.05.1993. It is an admitted case that
after 01.04.1994, the second respondent did not continue to avail the
facility. A notice was issued on 01.11.1999 stating that the second
respondent availed the limit and defaulted to the Bank on 01.04.1994.
and failed to pay the same in spite of Banks request. As on the date of
issuance of said notice an amount of Rs.2,90,519.33 ps., was outstanding
as principal amount and interest of an amount of Rs.3,03,668/- was due
as on 31.03.1999. A claim was made before the second petitioner for
recovery of the said amount and after passing of an award on 05.01.2000
and when it was challenged before the Tribunal, the Tribunal remanded
the matter to the second petitioner for consideration of the case afresh.
The order of remand dated 12.03.2003 was passed by the Tribunal and
directed the second petitioner to conduct a fresh enquiry under Rule 49 of
the A.P. Cooperative Societies Rules and find out whether the reference
was within the period of limitation as provided by Article 55 of the
Limitation Act, 1963 and the law laid down by the Honble Apex Court in
Mrs. Margaret Lalita Samuels case (supra). After remand, the second
petitioner issued notices to the respondents 2 to 5 herein and it was
noticed that the respondents 4 and 5 expired by that time. The second
petitioner passed an award on 22.09.2003 holding that the contention
raised by the second respondent that the claim was barred by limitation
as provided under Article 55 of the Limitation Act, 1963 and also as per
the law laid down by the Honble Supreme Court in Mrs. Margaret Lalita
Samuels case (supra) was not correct. In order to come to the said
conclusion the second petitioner stated that in view of letter of continuity
executed on 20.05.1993 which contained no period of limitation, the
period of limitation starts running from the date of receipt of notice issued
on 01.11.1999 as per Article 115 of the Limitation Act, 1908. It was also
stated that the second respondent acknowledged the audit report for the
year 2000-01 issued by the District Cooperative Audit Officer, Karimnagar
and it operates as an acknowledgment. It was further held that the
judgment in Mrs. Margaret Lalita Samuels case (supra) supports the
case of the first petitioner herein. Accordingly, he passed an award for an
amount of Rs.8,49,843.33 ps., with further interest at 22% p.a., from
01.04.2003 till realisation. In the appeal before the Cooperative Tribunal
challenging the said award in CTA No.101 of 2003, the Tribunal held that
the reasoning given by the second petitioner that the period of limitation
starts from the date of receipt of notice under Article 115 of the Limitation
Act was wrong. The Tribunal noticed that there were no transactions
from 01.04.1994 till the date of issuance of legal notice. The Tribunal
opined that the acknowledgment of audit report for the year 2000-01
showing a debt owed to the Bank by the second respondent herein does
not give rise to any right to the first petitioner. The Tribunal held that
since no action was taken within the period of three years from the date
of cause of action, the claim for recovery of the amount under the award
was already barred. Accordingly, it set aside the award.
Article 55 of the Limitation Act, 1963 reads as follows.
55. For compensation for
the breach of any
contract, express or
implied not specifically
provided for.
Three
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.
The reference to Article 115 by the second petitioner was a reference to
Article 115 of the Limitation Act 1908 which is Article 55 of the present
Act.
In Mrs. Margaret Lalita Samuels case (supra) the respondent
before the Honble Supreme Court was a Bank which filed the claim
against the petitioner before the Supreme Court. In the said case the
plaintiff was maintaining the overdraft account granted in favour of the
defendant. The defendant executed a promissory note for Rs.10.00 lakhs
and a guarantee bond was also executed guaranteeing the repayment of
amount. The guarantee was a continuing guarantee to the extent of limit
of the overdraft account. The overdraft account was operated till
30.06.1946. The husband of the defendant died on 27.04.1951 and she
executed a letter of acknowledgment acknowledging her personal
guarantee to repay the outstanding amount as on 31.12.1951 by letter
dated 02.02.1952. The suit was filed on 08.11.1954 to enforce the
guarantee bond against the defendant. The defendant took a plea of
limitation stating that the letter dated 02.02.1952 was obtained from her
by fraud. The trial Court held that the letter dated 02.02.1952 was not
obtained by fraud, but held that the suit was barred by limitation. When
an appeal was filed before the High Court of Bombay, the suit was held to
be not barred by limitation. Since there was a dispute with regard to the
amount payable, the matter was remanded to the trial Court. After
remand, the trial Court held that the letter of acknowledgment was
binding on the defendant and the suit was decreed. The defendant
preferred an appeal before the High Court of Bombay. The High Court of
Bombay affirmed the decree passed by the trial Court. The defendant
went before the Honble Supreme Court and the plea of limitation was
raised. It was contended before the Honble Supreme Court that every
item of an overdraft account was an independent loan, the limitation for
recovery of which was determined by Article 57 of the Schedule to the
Limitation Act, 1908. The Honble Supreme Court held that the said point
does not arise since the suit filed was to enforce the guarantee bond
executed by the defendant. The Supreme Court agreed with the view
expressed by the Bombay High Court that the letter of guarantee
undertook to pay any amount which may be due by the company and the
suit to enforce the liability is governed by Article 115 of the Limitation Act,
1908. The cause of action arises from the date of breaking the contract of
continuing guarantee and so long as the account remained as live account
and there was no refusal on the part of the defendant to carry out her
obligation, the period of limitation did not commence to run. The Honble
Supreme Court held that the account continued to be a live account even
after the company ceased its business on 30.06.1946. However, with
regard to amount decreed, the Supreme Court interfered with the
quantum on the basis of entries available in evidence.
In Syndicate Banks case (supra) the Honble Supreme Court was
considering a case of the appellant Bank filing a suit against respondents
1 to 7 for recovery of amount on the basis of credit facilities extended to
the respondents. The respondent No.1 was Managing Director of Gadag
Forge Fits (India) Private Limited and respondents 2 to 7 were its
Directors. They 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 credit facilities granted
to the company subject to the limits mentioned therein. The operations of
the company stopped in the middle of 1986. The Bank issued a letter on
12.10.1987 to the company and its seven directors informing them of the
amounts outstanding in the accounts as on 30.09.1987 and calling upon
them to pay the said amount. The respondents sent a reply on
31.10.1987 stating that the company sustained losses in view of the
failure to advance further funds and they reserved their right to file a suit
for damages for an amount which would be more than the amount
claimed by the Bank. The Bank again issued a notice on 17.12.1987
demanding payment and reply was issued on 30.12.1987 denying the
demand. The Bank initiated proceedings for winding up of the company
on 11.10.1988 and the High Court ordered winding up of the company on
17.03.1989. Thereafter, the suit was filed by the Bank on 16.03.1990
only against the guarantors for recovery of the amount demanded in the
notice dated 12.10.1987. The trial Court framed 16 issues including the
issue relating to limitation, but answering all issues except the issue
regarding the limitation in favour of the Bank, however, on the point of
limitation it held that the suit was barred by time and consequently
dismissed the suit. The appeal preferred by the Bank was also dismissed
by the High Court. The matter was taken to the Honble Supreme Court.
On the point of limitation, the Supreme Court considered Sections 126,
128, 129 and 130 of the Contract Act, 1872 relating to the guarantee and
sureties liability. The Supreme Court also considered Articles 55, 113, 19
and 21 of the Limitation Act, 1908. Before the Supreme Court, Mrs.
Margaret Lalita Samuels case (supra) was relied on by both the
parties. The Supreme Court distinguished Mrs. Margaret Lalita
Samuels case (supra). The Supreme Court held that the time began to
run not when the operations ceased in the accounts in the middle of
1986, but on the expiry of 15 days from 12.10.1987 when the demand
was made by the Bank and refusal by the guarantors. The suit filed
within three years therefrom was within time. The Supreme Court refused
to consider the meaning of the words live account used and referred in
Mrs. Margaret Lalita Samuels case (supra). However, the Supreme
Court made the following observations which require to be noticed.
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. To clarify
the above, the following illustration may be useful:
Let us 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.
18. 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. v. 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.
Accordingly, the appeal was allowed.
In the case before us, the claim was made before the second
petitioner under Section 62(4) of A.P. Cooperative Societies Act read with
Rule 49 of the Rules made thereunder. The notice demanded payment of
overdue cash credit amount as on 31.03.1999. The notice was issued on
01.11.1999, after five years of cessation of operation of accounts of the
first petitioner. The demand was not for enforcement of the guarantee
and in fact a copy of the notice was not sent to the guarantors at all. The
claim made before the second petitioner was also not for enforcement of
guarantee though the guarantors were referred to in the claim. Even
otherwise also there was no demand to the guarantors as could be seen
from the following notice issued on 01.11.1999.
THE KARIMNAGAR DIST.CO-OP CENTRAL BANK LTD.,
KARIMNAGAR.
Ref: No.1950/A1b1 Date: 01.11.1999
NOTICE by Regd. post & Ack.due
Sub: Repayment of overdue cash credit amount to the
Bank Notice issued Regarding.
Please take notice that the Kothapalli coop. Consumer
Stores Ltd., Kothapalli had been sanctioned cash credit limit of
Rs.3.00 lakhs (Rupees Three Lakhs only) by the Bank for the
purpose to deal in consumer goods under working capital. The
stores has availed the limit and became default to the Bank on
01.04.1994. The stores has failed to pay the same in spite of
Bank request.
The overdue amount of Rs.2,90,519.33 under principal and
Rs.3,03,668/-under interest due as on 31.03.1999 to the Bank by
the said stores and the same overdue is continuing and further
interest thereon.
Therefore you are informed to repay the principal amount
of Rs.2,90,519.33 ps., towards principal and interest accrued
Rs.3,03,668/- up to 31.03.1999 and further interest @ 22% and
3% from 01.04.1999 to the date of clearance to the Bank within
(7) days from the receipt of this notice, otherwise the Bank will
initiate legal action for recovery of overdue amount including of
legal action and other expenses.
Sd/- xxxx
General Manager
To
The President, The Kothapalli Coop. Consumer Stores, Ltd.,
Kothapalli.
Copy to the Br.Manager Town Br.Karimnagar with a request to
send the true copy of cash credit account of the stores induplicate
immediately with upto date interest.
Hence, the case before the second petitioner is only a case for recovery of
money based on promissory note. In Syndicate Banks case (supra) the
Honble Supreme Court observed that the words on demand would be
having different meanings 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. Section 61 of
the A.P. Cooperative Societies Act provides for a dispute including a claim
by society for any debt or other amount due to it. If it is held that the
dispute before the second petitioner was not a claim against the
guarantors, what remains to be decided is whether a claim against the
second respondent is within limitation on the basis of a demand
promissory note. The cases in Mrs. Margaret Lalita Samuel (supra)
and Syndicate Bank (supra) relate to the cases of enforcing guarantee
and in the absence of any notice in the instant case demanding money
from the guarantors, the case before the second petitioner cannot be
construed as a case of enforcement of guarantee and the decisions as
cited above are not applicable. This distinction was lost sight of by the
second petitioner as well as the first respondent herein. However, the
second petitioner came to the conclusion that since the notice was issued
on 01.11.1999 and the claim was made on 06.11.1999 it was held to be
within limitation. The Tribunal should have adverted to the nature of the
dispute between the second respondent and the application of period of
limitation to such dispute since the point of limitation is a mixed question
of fact and law. The Tribunal held that the claim was already barred as
no claim was made within the prescribed period of three (3) years. But no
reasons were given for such a finding and as stated above, the nature of
dispute was not considered.
Since this Court held that the claim before the second petitioner
was not a claim for enforcing the guarantee, but a claim for recovery of
money on demand promissory note, whether the period of limitation starts
running from the date of issuance of a notice or from the date of
cessation of operations of the cash credit facility is a relevant point that
has to be considered. Since no arguments were advanced before this
Court on the said point and the said point was not considered by the
Tribunal, this Court feels that it is an appropriate case for remand of the
matter to the first respondent for considering the application of relevant
period of limitation to a claim made by the first petitioner against the
second respondent for recovery of money on demand promissory note
executed on 20.05.1993 in the facts and circumstances of the case.
The Writ Petition is, accordingly, allowed by setting aside the order
of the A.P. Cooperative Tribunal, Warangal in CTA No.101 of 2003 dated
20.12.2005 and the matter is remanded to the first respondent for
consideration of the case afresh in accordance with law and pass
appropriate orders within a period of six (6) months from the date of
receipt of a copy of this order. There shall be no order as to costs.
As a sequel thereto, the miscellaneous petitions, if any, pending in
this Writ Petition shall stand closed.
____________________________
A.RAMALINGESWARA RAO, J
Date: 22nd December, 2016