Kerala High Court
Radhamony vs Canara Bank on 28 January, 2003
Equivalent citations: AIR 2003 KERALA 140, ILR(KER) 2003 (2) KER 385, (2003) 1 KER LJ 356, (2003) 1 KER LT 552, (2003) 3 RECCIVR 45, (2003) 4 ICC 248
JUDGMENT R. Rajendra Babu, J.
1. This appeal is at the instance of the defendant in O.S. 35/88 before the Principal Sub Court, Alappuzha. The respondent-plaintiff, Canara Bank, Mullakkal Branch, represented by its Manager filed the suit for realisation of money. The plaintiff Bank advanced cash credit facilities including documentary bills purpose limits to Sri A.G. Sudhakaran, the proprietor of M/s. Eastern Trading Corporation, Zacheria Bazar, Alappuzha, and Smt. K.S. Radhamony, the appellant, wife of Sri. Sudhakaran (the principal debtor), executed a continuing guarantee on 5.8.1980. When there was default in paying an amount, the bank filed O.S. 233/83 against Sri. Sudhakaran for Rs. 16668-.92 and a decree was obtained against him on 29.6.84. At the time of filing O.S. 233/83, the appellant-guarantor was not made a defendant in the above suit. It was the case of the bank that the guarantee executed by the appellant was a continuing one and the above guarantee was not revoked by the guarantor by issuing any notice as provided in the deed of guarantee and as such the suit was not barred by limitation and accordingly the bank filed the suit O.S. 35/88 for realisation of a total sum of Rs. 30671.92.. The appellant-defendant admitted the execution of the guarantee, but contended that the suit was not maintainable as it was hit by Order II Rule 2 C.P.C. and that the suit was barred by limitation. The court below framed four issues. Considering the evidence, the court below found that the suit was maintainable and it was not barred by limitation and accordingly the suit was decreed. Aggrieved by the above judgment and decree, the defendant has come up in appeal.
2. Heard the learned counsel for the appellant and the respondent.
3. The appellant's husband Sri. Sudhakaran had availed of credit facilities including documentary bill purchase limits from the respondent bank and the appellant executed a continuing guarantee on 5.8.80. As per the above guarantee Ext. A1, the appellant was liable to pay all the amounts outstanding in account of M/s. Eastern Trading Corporation. As an amount of Rs. 16668.92 was outstanding and payable, the bank filed O.S. 233/83 against Sri. Sudhakaran, the principal debtor alone, without impleading the appellant, the surety. The present suit was filed only on 22.3,1988 i.e. nearly five. years after the filing of the earlier suit. Though an argument was advanced by the learned counsel for the appellant the suit was hit by Order II Rule 2 C.P.C., the counsel could not substantiate the same as it was not a case of forgoing or relinquishing a part of the claim and filing a suit for the remaining claim, but it was a case where the creditor had failed to implead the guarantor or the surety along with the principal debtor at the time of filing the earlier suit. The court below had taken the view that the guarantee being a continuing one and as the appellant had not revoked the guarantee as stipulated therein and the liability of the principal debtor was kept alive consequent on the decree obtained by the bank, the suit was not barred by limitation.
4. The learned counsel for the appellant submitted that the liability of the guarantor was co-extensive with that of the principal debtor and the cause of action for filing a suit as against the principal debtor as well as the surety, would arise when there was a default in the payment of the amount by the principal debtor and a suit had to be filed against the principal debtor as well as the surety within three years from the date of default i.e. from the date of the cause of action. It was further argued that as the suit was not filed against the surety within three years from the date of arising the cause of action, the suit was barred by limitation and there cannot be any exclusion of time on the basis of a decree obtained as against the principal debtor. The learned counsel for the respondent bank submitted that the suit was not barred by limitation as the appellant had executed a continuing guarantee and that would be continuing till it was revoked by the surety by issuing notice to the bank. Ext. A1, the agreement of guarantee executed by the appellant on 5.8.1980, would show that it was a continuing guarantee for payment of the ultimate balance to become due to the bank by the borrower, until notice in writing of revocation of the guarantee as thereinafter provided was received by the bank, the liability of the guarantor was co-extensive with that of the principal debtor. The learned counsel for the respondent bank further argued that as per Ext. A1 deed of guarantee, the liability of the surety would stand extended until the surety revoked the guarantee and served notice on the bank and as the appellant surety had not revoked the agreement and issued notice on the bank, the liability under the agreement of guarantee would continue and thus the suit was not barred by limitation. The above condition in Ext. A1 guarantee, in fact, would relate to the revocation of the guarantee during the continuance of the dealings with the bank by the borrower i.e. during the subsistence of the contract between the bank and the principal debtor. If the surety wanted to revoke the guarantee during the subsistence of the agreement of guarantee, he had to give notice to the bank regarding the revocation of the guarantee. The question of revocation of guarantee would come up only when the contract between the bank and the principal debtor was alive or subsisting. By the filing of the earlier suit as against the principal debtor, there was determination of all the cash credit arrangements between the bank and the principal debtor. As the liability of the guarantor was co-extensive with that of the principal debtor, the moment the principal debtor committed the default, the cause of action to proceed for the realisation of the amount defaulted by the principal debtor would arise as against the guarantor also. Thus when the suit was filed by the bank as against the principal debtor, the agreement of guarantee also would stand determined and the creditor bank cannot be permitted to contend that the guarantee would continue indefinitely until a notice of revocation was served on the creditor. By the filing of the suit for the realisation of defaulted amount, the guarantee would cease to continue and time would start to run from the date of default and any suit should be filed against the guarantor within the time prescribed by the Limitation Act. The period of limitation for suing against the principal debtor as well as the guarantor for the realisation of the amount would start from the date of default in paying the amount i.e. from the date of breach of the contract. Though a guarantee executed by the guarantor could be treated as a separate and collateral contract and was distinct from the contract of debt between the principal debtor and the creditor the suit as against the guarantor would have to be filed within the time prescribed under Article 55 of the Limitation Act. A Division Bench of this Court in Union Bank of India, Ernakulam v. T.J. Stephen (AIR 1990 Ker. 180) held:
"If we examine the precedents of different High Courts, it is now well settled that the agreement executed by the guarantors is a separate and collateral contract and it is distinct from the contract of debt between the principal debtor and creditor. This is clear from the fact that the Article for the period of limitation in regard to the contract of guarantee is Article 55. Of course, the guarantor is one who guarantees to perform the promise of or discharge the liability of a person for whom he stands guarantee. It is so under Section 126 of the Contract Act. Under Section 128 of the Contract Act, it is plainly clear that the liability of the surety is co-extensive with that of the principal debtor unless it is specifically provided in the contract."
Article 55 of the Limitation Act deals with the period of limitation "for compensation for the breach of any contract, express or implied, not therein specifically provided for. The time would begin to run "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 breach is continuing) when it ceases". The period of limitation is "three years". In the present case when the contract was broken or when there was a breach, the bank had already filed a suit against the principal debtor as O.S. 233/83. In the present plaint also it was stated in paragraph 4:
"As it became evident for the plaintiff that the principal borrower and the guarantor were not eager to adjust the liability, a suit has been filed by the plaintiff bank as O.S. 233 of 1983 against the proprietor of M/s. Eastern Trading Corporation as defendant on 8.8.1983."
Thus the breach of contract by the principal debtor as well as the guarantor was even prior to 1983 and a suit was instituted in 1983 as O.S. 233/83 against the principal debtor. Ext. A1 agreement would further reveal that the liability of the guarantor to the batik was that of the principal debtor and that the bank's option the bank could treat the guarantor as primarily liable for the debtor of the principal debtor to the extent of the amount covered by the gurantee A suit against the guarantor also should have been instituted within three years from the date of breach of the contract in view of Article 55 of the Limitation Act. Section 3 of the Limitation Act says that subject to the provisions contained in Sections 4 to 24, every suit instituted after the prescribed period shall be dismissed. As the suit was not filed within three years from the date of breach of the contract, the suit could be maintainable only if there was acknowledgment under Section 18 of the Limitation Act. The bank had no case that there was any acknowledgment to hold that the guarantee, though being a continuing one, would continue to be subsisting even after the period of limitation as contemplated under Article 55 of the Limitation Act. The period of limitation shall not get exempted or extended on the basis of a decree passed against the principal debtor in another suit. As the liability of the guarantor was co-extensive with that of the principal debtor and as there was no acknowledgment of the liability by the principal debtor within the prescribed time, the suit filed beyond the prescribed period of time as against the guarantor was barred by limitation. Every suit should be filed within the prescribed period of time and if not filed, it was liable to be dismissed in view of Section 3 of the Limitation Act. By filing a suit against the principal debtor and obtaining a decree against him, the period of limitation for filing a suit as against the surety shall not get excluded or extended. The period of limitation for filing a suit is fixed by law and it cannot be deemed to be excluded or extended on the basis of a decree against the principal debtor. The present suit was filed long after arising the cause of action and was barred by limitation. The court below did not consider the legal aspects in the proper perspective, but decreed the suit holding that the guarantee was a continuing one and, as it was not revoked by issuing a notice, it would continue to survive. Being an agreement of guarantee, Article 55 of the Limitation Act was applicable and as the suit was not filed within three years from the date of arising the cause of action, the suit should have been dismissed by the court below as barred by limitation. Hence this appeal has to be allowed.
In the result this appeal is allowed. The judgment and decree passed by the court below are set aside and O.S. 35/88 before the Sub Court, Alappuzha, shall stand dismissed. Considering the nature and circumstances of the case the parties shall suffer their respective costs.