Madras High Court
The National Small Industries vs M/S.Singh Printers on 13 August, 2013
Author: R.S.Ramanathan
Bench: R.S.Ramanathan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 13.8.2013. CORAM THE HON'BLE MR.JUSTICE R.S.RAMANATHAN A.S. No.100 of 2002 The National Small Industries Corpn. Ltd., by its Regional General Manager at 615, Anna Salai, Chennai 600 006. .. Appellant vs. 1. M/s.Singh Printers, Shop No.15, IIT Campus, Chennai-36, rep by its Present Proprietor Sri.Santhosh Kumar Nigam 2. Sri.Santhosh Kumar Nigam, 3. Smt.Maya Nigam 4. Ms.Meenu Nigam 5. Ms.Narmatha minor rep by Mother Mrs.Maya Nigam 6. Sri.Swami Dayal Nigam .. Respondents Appeal against the judgment and decree dated 18.4.2001 made in O.S.No.756 of 1997 on the file of the IV Additional Judge, City Civil Court, Chennai. For appellant : Ms.V.S.Sowmiya For RR 1 to 5 : No appearance. For R6 : Mr.V.Bhiman for M/s.Sampathkumar Associates JUDGMENT
The plaintiff in O.S.No.756 of 1997 on the file of the IV Additional Judge, City Civil Court, Chennai is the appellant.
2. The plaintiff filed the suit against six defendants for recovery of amount and the suit was decreed as against defendants 1 to 5 and dismissed as against the sixth defendant and therefore, this appeal is filed by the plaintiff against the dismissal of the suit in respect of the sixth defendant.
3. The case of the plaintiff as seen from the plaint is as follows:-
One N.S.Gopal was running a Proprietorship Concern by name Singh Printers and he entered into a Hire Purchase Agreement dated 16.10.1987 with the plaintiff for the purchase of Off Set Printing Machine and the sixth defendant stood as guarantor and executed a guarantee agreement in favour of the plaintiff on the same day. N.S.Gopal died on 28.5.1992 leaving behind defendants 2 to 5 as his legal representatives and they also succeeded to his estate and as defendants 1 to 5 continued the default in payment of dues, after issuing notice to all the defendants, the suit was filed for recovery of amount due under the Hire Purchase Agreement.
4. Defendants 1 to 5 remained ex parte and the sixth defendant contested the suit stating that the suit claim was barred by limitation and the guarantee was executed in for N.S.Gopal and he died and therefore, on his death, the guarantee also became inoperative and the guarantee was dated 16.10.1987 and it was not renewed and hence, the suit, on the basis of the guarantee agreement was also barred by limitation. He further contended that the plaintiff could have sold the machinery immediately on default committed by N.S.Gopal and having failed to take appropriate steps by securing the security, the liability of the surety is discharged. He also filed additional statement contending that he did not stand as guarantor for defendants 2 to 5 and due to the recognition of defendants 2 to 5 as Proprietors of the first defendant, the guarantee given by the sixth defendant is terminated and therefore, he is not liable to pay any amount.
5. The Trial Court framed two issues and later an additional issue which are respectively as follows:-
"1. Whether the plaintiff is entitled to claim the amount?
2. To what relief, the plaintiff is entitled?
3. Whether the suit is liable to be dismissed as against the sixth defendant?"
6. On the side of the plaintiff, two witnesses were examined and on the side of the defendants, the sixth defendant was examined and 32 documents were marked on the side of the plaintiff.
7. The Trial Court tried issues 1 and 3 together and held that the suit against the sixth defendant was barred by limitation and the sixth defendant agreed to stand as guarantor for N.S.Gopal and after the death of N.S.Gopal, he did not agree to stand as guarantor for defendants 2 to 5 and the guarantee agreement was also not renewed and the guarantor also withdrew his guarantee by executing Ex.A15 dated 17.1.1994 and therefore, the suit was barred by limitation as against the sixth defendant and decreed the suit as against defendants 1 to 5 and dismissed the suit as against the sixth defendant.
8. Learned counsel appearing for the appellant submitted that the Trial Court, without properly appreciating the nature of guarantee which is a continuing guarantee, erred in holding that the suit as against the sixth defendant was barred by limitation. The learned counsel further submitted that the sixth defendant executed Exs.A14 and A15 and as per Ex.A14, he agreed to co-operate with the plaintiff/appellant in realising the security and he has not withdrawn the guarantee. He, therefore, submitted that having regard to the nature of the guarantee executed by the sixth defendant, till the liability payable by defendants 1 to 5 is discharged, the sixth defendant is liable as guarantor and his guarantee was not terminated and the same was not properly appreciated by the court below. He further submitted that the plaintiff/appellant has not done anything to discharge the guarantor and the plaintiff/appellant has done its best to secure the security for the realisation of the amount and therefore, the court below ought to have made the sixth defendant also liable for the amount payable by defendants 1 to 5 and ought not to have exonerated the sixth defendant. He also relied upon the judgment in INDIAN BANK, 31, RAJAJI SALAI, MADRAS v. THE STATE OF TAMIL NADU AND OTHERS (2002-3-LW 790).
9. On the other hand, Mr.V.Bhiman, learned counsel for the sixth respondent submitted the court below rightly dismissed the suit as against the sixth defendant/sixth respondent on the ground of limitation. Admittedly, the guarantee was executed for N.S.Gopal and he died and thereafter, the guarantee was not renewed and without the knowledge and consent of the sixth defendant viz., the guarantor, the plaintiff/appellant was negotiating with the legal representatives of the said Gopal and the plaintiff/appellant also failed to take appropriate steps to secure the security and therefore, the security was also lost and the guarantor was discharged by reason of the conduct of the plaintiff and the guarantee was not a continuing guarantee as contended by the appellant and the guarantee came to an end as soon as the principal debtor viz., N.S.Gopal died and therefore, the plaintiff/appellant cannot proceed against the sixth defendant and that was also properly appreciated by the court below. He also relied upon the following judgments:-
1) TAMILNADU INDUSTRIAL INVESTMENT CORPORATION LIMITED v. M/S.SUDARSANAM INDUSTRIES & 2 OTHERS (2008-3-LW 714)
2) AMRIT LAL GOVERDHAN LALAN (DEAD) BY HIS LEGAL REPRESENTATIVE v. STATE BANK OF TRAVANCORE AND OTHERS (AIR 1968 SC 1432)
3) THE STATE BANK OF SAURASHTRA v. CHITRANJAN RANGNATH RAJA AND ANOTHER (AIR 1980 SC 1528)
4) SATISH CHANDRA JAIN v. NATIONA SMALL INDUSTRIES CORPORATION LIMITED (AIR 2003 SC 623)
5) M.R.CHAKRAPANI IYENGAR V. CANARA BANK (AIR 1997 KARNATAKA 216)
6) AMAR CHAND v. BHANO (AIR 1995 SC 871)
7) R.Y.NARAYANAN v. BANK OF MADURAI LIMITED, OPPANAKARA ST. COIMBATORE AND ANOTHER ((1991) 2 MLJ 82)
8) THE INDIAN BANK, BY ITS CUSTODIAN AT THE INDIAN BANK BUILDINGS,0 NO.17, NORTH BEACH ROAD, MADRAS v. S.KRISHNASWAMY AND OTHERS ((1989) 2 MLJ 46)
10. The points that arise for consideration in this appeal are:-
1) Whether the guarantee agreement executed by the sixth defendant is a continuing one?
2) Whether the suit is barred by limitation as against the sixth defendant?
3) Whether the guarantee agreement was terminated by the sixth defendant?
4) Whether the sixth defendant was discharged by reason of the act of the plaintiff/appellant in not taking appropriate steps to secure security?
11. To appreciate the contention of both the parties and to give a finding as regards the first point for consideration, we will have to see the provisions of section 129 of the Contract Act and also the deed of guarantee under Ex.A2 executed by the sixth defendant. Continuing guarantee is defined in section 129 of the Contract Act and it has been held by a Division Bench of this court that whether a guarantee is a continuing guarantee or not is a question of intention of the parties as expressed by the language they have employed in the deed of guarantee. If the guarantee is construed as a continuing guarantee, then the guarantor is liable so long as the account is a live account and not settled and when there is no refusal on the part of the guarantor to carry out the obligation. Further, if the guarantee is construed as a continuing guarantee, then there is no question of limitation if the account is kept alive.
12. It is the specific case of the learned counsel for the appellant that the guarantee was given for N.S.Gopal and thereafter, the guarantee was not renewed and the sixth defendant never agreed to stand as guarantor for defendants 2 to 5 who were impleaded as legal representatives of N.S.Gopal. Therefore, we will have to see whether the guarantee was executed by the sixth defendant for N.S.Gopal.
13. A reading of Ex.A2 makes it clear that the guarantor agreed to stand as guarantor to the said N.S.Gopal for the due repayment of the amount due and payable under the said Hire Purchase Agreement and also agreed to undertake the guarantee and bind himself to pay the plaintiff/appellant, if, at any time, default is made in payment of instalments of hire rent, interest or any other amount payable by the said Gopal under the agreement in favour of the plaintiff/appellant. He also undertook to indemnify and keep indemnified the appellant any loss, damage, expenses or costs that the appellant may be put to by reason of default on the part of Gopal. It is also made clear that the guarantee shall not be revoked until repayment of all the amounts due and payable to the appellant in respect of supply of the machinery under the Hire Purchase Agreement dated 16.10.1987 is paid in full. Therefore, a combined reading of the clause mentioned above stated in the agreement of guarantee makes it clear that the sixth defendant agreed to stand as guarantor till the amount is paid in full.
14. Section 129 of the Contract Act defines 'continuing guarantee' and section 130 deals with revocation of continuing guarantee. As per section 129, the guarantee which exists to the series of transactions is called a continuing guarantee. Section 130 contemplates that a continuing guarantee, may, at any time, be revoked by the surety as to future transactions by notice to the creditor. Therefore, by revoking a continuing guarantee, the guarantor is exonerated fully in respect of future transactions and in respect of transactions which had already taken place for which the guarantee was already taken, the guarantor is liable to pay the same. A Division Bench of this court in INDIAN BANK, 31, RAJAJI SALAI, MADRAS v. THE STATE OF TAMIL NADU AND OTHERS (2002-3-LW 790) dealt with the continuing guarantee and also the period of limitation in respect of continuing guarantee. In the said case, after referring to the wordings in the guarantee deeds, which are similar to the words employed in Ex.A2, the Division Bench held as follows:-
"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 = (1978) 91 LW 172 S.N.), 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 Co-operative 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 together 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 statute-barred."
15. The same principle is reiterated in the judgment referred in SYNDICATE BANK v. CHANNAVEERAPPA BELERI (AIR 2006 SC 1874). It is seen from Ex.A14 that the sixth defendant/sixth respondent gave his consent to dispose of the machinery as is where is basis and requested the plaintiff to take such action in the best interest in its view. In that letter, Ex.A14, he has not withdrawn the guarantee and has acknowledged that after the death of Gopal, his son started looking after the Press and agreed to co-operate with the plaintiff. In his letter dated 17.1.1994, Ex.A15, he has stated that he spoke to his brother's son Santhosh and he promised that he would repay the amount to the plaintiff within the time allowed and requested the plaintiff/appellant to give Santhosh a chance to clear the loan in respect of the machinery. He further requested the plaintiff to delete para 8 of his letter, Ex.A14 wherein he gave consent to dispose of the machinery on as is where is basis. In Ex.A15, he withdrew that consent and thereby he did not permit the plaintiff/appellant to sell the machinery and he also informed the plaintiff/appellant that the amount would be settled by his brother's son. Further, having regard to the terms of the contract of guarantee as referred to above, he undertook to stand as guarantor till the amount payable under the Hire Purchase Agreement is paid in full. Therefore, having regard to the recitals in Ex.A2, the deed of guarantee and Exs.A14 and A15, it is made clear that the sixth defendant agreed to stand as guarantor till the payment under the Hire Purchase Agreement is paid in full and therefore, the deed of agreement executed by the sixth defendant is a continuing guarantee as per section 129 and that was not properly appreciated by the court below and the court below erred in holding that the deed of guarantee is not a continuing guarantee. Hence, point No.1 is answered in favour of the appellant.
16. Once the deed of guarantee is considered as a continuing guarantee, there is no question of limitation as held by the Division Bench in the decision reported in 2002-3-LW 790. It is admitted that the liability of defendants 2 to 5 was not discharged and till the liability is discharged, the guarantor is liable to pay the amount and therefore, the suit is not barred by limitation. Accordingly, the second point for consideration is answered in favour of the appellant.
17. As per section 129 of the Contract Act, a surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Section 135 of the Contract Act speaks about discharge of surety when there is an agreement between the creditor and the principal debtor by which the creditor makes a composition with or compromises to give time to or not to sue the principal debtor.
18. It is the contention of the learned counsel for the sixth respondent that the plaintiff/appellant did not take any steps to secure the machinery immediately after the death of N.S.Gopal and immediately after the default committed in payment of instalments and by reason of the inaction on the part of the plaintiff/appellant, the security lost its value and therefore, the surety is discharged. As stated supra, under Ex.A14 dated 14.1.1994, the sixth defendant gave his consent to dispose of the machinery on as is where is basis and by Ex.A15, dated 17.1.1994, he withdrew that portion of the permission given in his letter, Ex.A14. Further, having regard to the evidence adduced in this case, it cannot be stated that the plaintiff/appellant has not done anything to secure the machinery. Admittedly, the machinery was available in the Indian Institute of Technology Campus and under Ex.A16 dated 17.5.1994, the plaintiff/appellant sent a letter to the Indian Institute of Technology requesting them not to permit Santhosh to remove the machinery. Further, defendants 2 to 5 were requesting the plaintiff to wait for some time for them to settle the dues. Therefore, it cannot be contended that the plaintiff has not done anything to secure the machinery or the plaintiff has done some acts which would have the effect of discharging the surety as per sections 134 and 135 of the Act. Therefore, point Nos. 2 and 3 are also answered against the sixth respondent and in favour of the appellant.
19. The decision reported in (1989) 2 MLJ 46 deals with section 133 of the Contract Act. As per section 133, any variance made without the sureties consent in the terms of the contract between the principal debtor and creditor, discharges the surety. In this case, there was no variance of the contract of Hire Purchase Agreement between the creditor and debtors and therefore, the said judgment cannot be applied to the facts of the case.
20. In the judgment reported in (1991) 2 MLJ 82, it is held that the creditor should keep the security alive to enable the surety to proceed against the security and if the creditor fails to keep the security, that will lead to the surety being discharged from the liability. As stated supra, under Ex.A15, the sixth respondent requested the plaintiff to delete para 8 of Ex.A14 by which the permission granted to the plaintiff/appellant to sell the machinery was withdrawn. Therefore, it cannot be stated that by reason of the failure on the part of the plaintiff/appellant, the security was lost.
21. In the judgment reported in AIR 2003 SC 623, fresh agreement was entered into between the creditor and debtor and in that context, it was held that the guarantor is not liable as the parties have entered into a new contract. In the judgment reported in AIR 1995 SC 871, the same principle has been reiterated and those judgments cannot be applied to the facts of this case as there was no substitution of earlier contract and entering into a new contract and there is only one contract viz., Hire Purchase Agreement between N.S.Gopal in favour of the plaintiff/appellant and after the death of N.S.Gopal, his legal heirs undertook to repay the same and there was no substitution or variance of the earlier contract.
22. In the judgment reported in AIR 1980 SC 1528, it has been held that when the security has been lost due to bank's negligence, the surety is discharged and in this case, the security has not been lost due to the negligence on the part of the plaintiff/appellant.
23. Similarly, in the judgment reported in AIR 1968 SC 1432, the surety was discharged as there was variance in terms of the contract between the principal debtor and creditor without consent of the surety, lost the security due to his negligence. Therefore, those judgments cannot be applied to the facts of the present case as in this case, there is no loss of security by negligence on the part of the creditor and there is no variance of contract.
24. In the judgment reported in 2008-3-LW 714, the Division Bench dealt with the continuing guarantee and also the scope of section 130 of the Contract Act and held that even in the case of continuing guarantee, it can be revoked by surety by issuing notice to the guarantor and having regard to the facts of that case, it was held that continuing guarantee was revoked in the year 1987 and the suit was filed in the year 1997 and in that context, it was held that the suit was barred by limitation. In this case, as stated supra, there was no revocation of the guarantee and having regard to the terms of the continuing guarantee, Ex.A2, the guarantor agreed to stand as surety till the amount is settled as per the Hire Purchase Agreement and therefore, the suit cannot be held to be time barred as the amount was not discharged. Hence, the points for consideration are also answered against the sixth respondent and in favour of the appellant.
In the result, the appeal is allowed and the judgment and decree of the Trial Court insofar as exonerating the sixth respondent/sixth defendant is set aside and the sixth respondent is also liable to pay the amount to the plaintiff/appellant. The suit is decreed as against the sixth respondent/sixth defendant also. No costs.
ssk.
To IV Additional Judge, City Civil Court, Chennai