Andhra HC (Pre-Telangana)
K. Raja Rao vs A.P. Industrial Development ... on 4 January, 2013
Bench: Pinaki Chandra Ghose, Vilas V. Afzulpurkar
THE HON'BLE THE CHIEF JUSTICE SRI PINAKI CHANDRA GHOSE AND THE HON'BLE SRI VILAS V. AFZULPURKAR WRIT APPEAL NO.1309 OF 2012 4-1-2013 K. Raja Rao A.P. Industrial Development Corporation Limited (State Government Undertaking) Rep. by its Managing Director Parishrama Bhavan, Fathemaidan Road Hyderabad and another COUNSEL FOR APPELLANT: Sri E. Manohar, Senior Counsel for Sri V. Kishore COUNSEL FOR RESPONDENT NO.1: Sri S. Sreenivasa Reddy COUNSEL FOR RESPONDENT NO.2: G.P. for Revenue <GIST >HEAD NOTE: ?CITATIONS: 1. AIR 1979 SC 102 2. AIR 1971 AP 169. 3. (2006) 9 SCC 617 4. AIR 1999 SC 1305 5. APLJ 1984(2) 173 6. AIR 1933 PC 63 7. AIR 1976 SC 1309 8.1993 SUPP.(1) SCC 499 9. (1979) 1 SCC 193 10. AIR 2006 SC 1874 11. 1939 AC 439 12. (1918) 2 KB 833 JUDGMENT:
(Per the Hon'ble the Chief Justice) This Writ Appeal by the appellant-writ petitioner is directed against the order of the learned Single Judge dated 21.8.2012 in W.P.No.6842 of 2000 dismissing the writ petition filed by the appellant to declare the action of the Mandal Revenue Officer, Khairatabad Mandal - 2nd respondent in initiating proceedings No.A2/39/98 dated 6.1.2000 under the provisions of the A.P. Revenue Recovery Act, 1864 for payment of Rs.56.80 lakhs with interest at 6% p.a. payable to the Andhra Pradesh Industrial Development Corporation Limited, Hyderabad without deciding his liability to the Corporation as arbitrary, illegal and without jurisdiction.
2. The parties will be referred to by their status in the writ petition. Brief facts leading to the controversy are:
(a) M/s Rama Organics Private Limited, Hyderabad (for short 'the Company') dealing in bulk drugs was initially incorporated by three promoter Directors, namely, Mr.P. Seshagiri Rao, Mr. A. Nageswara Rao and Dr. A.K. Chatterjee.
Andhra Pradesh Industrial Development Corporation (for short 'the Corporation') sanctioned term loan of Rs.56.80 lakhs to the Company on 13.11.1984 and another term loan of Rs.12.45 lakhs on 26.2.1985. Dr. A.K. Chaterjee as Managing Director of the Company gave personal guarantee to the above loans. On 29.12.1987 the appellant was inducted as Director in place of Dr.A.K. Chatterjee and he executed personal guarantees for the aforesaid loans on 17.8.1988.
(b) It appears that the company had failed to discharge the loans, consequently, according to the list of chronological events filed by the petitioner, demand letters were issued by the Corporation for payment of outstanding loan amount before taking action under Section 29 of the State Financial Corporation Act (for short 'the SFC Act') to the principal debtor and the guarantors including the petitioner on 12.1.1989, 8.3.1989, 9.3.1989 and 16.6.1989. But, neither the petitioner nor the Corporation filed those letters. On 6.10.1989 the petitioner resigned as Director and requested to relive him immediately and to take steps to relieve him from all his personal guarantees/undertakings provided to various financial institutions. In the Board meeting of the Company held on 16.10.1989 the resignation of the petitioner was accepted and the Managing Director was requested to relieve him from all his personal guarantees and undertakings. It was also resolved to co- opt Lt. Col. (Retd.) K.S. Rao as a director in the place of the petitioner and resolved that he will furnish all guarantees/undertakings originally furnished by the petitioner to the Corporation and other institutions and that the shares of the value of Rs.4,80,000 of the petitioner be transferred to the Directors subject to the approval of the Corporation and other institutions. According to the petitioner, again on 07/18.10.1989 demand was made for payment of outstanding loan amount from the Company.
(c) On 28.3.1990 letter was addressed to the Managing Director of the Company intimating that steps are being taken for recovery of an amount of Rs.75,81,000/- by way of sale of the Unit under Section 29 of the SFC Act as per the proforma of sale notice enclosed thereto. Copy of the said letter was marked to petitioner and other directors except Sri K.S. Rao. By letter dated 16.4.1990 petitioner replied that he is no longer Director of the Company and in his place Sri K.S. Rao was appointed as director. The Corporation issued another demand notice dated 28.5.1992 for Rs.71,27,180/- to the Managing Director of the Company, copy of which was marked to the petitioner. The assets of the company were seized on 3.7.92. Petitioner submitted replies on 13.7.1992 and 17.8.1992 denying his liability and ultimately the assets were sold for consideration of Rs.61.00 lakhs on 29.12.1993. On 25.11.1994, the Corporation relieved Dr. A.K. Chaterjee from his personal guarantee.
(d) On 22.3.1996, for the first time, a letter of demand was addressed to the petitioner for payment of Rs. 59.69 lakhs towards principal and Rs. 71.45 lakhs towards interest totaling to Rs.131.14 lakhs and by letter dated 20.5.1996 petitioner denied his liability stating that the Corporation has not taken expeditious steps for sale of the Unit under Section 29 of the SFC Act, pursuant to the notice dated 28.3.1990, therefore, the action to invoke the provisions of the Revenue Recovery Act is time barred and unenforceable. Ultimately, the Corporation addressed letter to the District Collector, Hyderabad on 22.5.1996 to initiate action under Revenue Recovery Act. The Collector by letter dated 4.6.1996 instructed the MRO, Golconda to initiate proceedings under the Revenue Recovery Act. On 15.7.1996 the Mandal Revenue Officer, Golconda issued distraint order to which the petitioner submitted his reply on 16.7.1996. On 28.11.1997 the District Collector was requested to take steps for realization of outstanding amount from the petitioners and others. By letter dated 23.6.1998 the Corporation demanded payment of Rs.77.33 lakhs towards principal and Rs.67.98 towards interest totaling to Rs.135.31 lakhs, failing which it was informed that action will be taken under the Revenue Recovery Act to which the petitioner again disputed his liability by letter dated 17.7.1998. Finally, the Mandal Revenue Officer, Khairatabad issued the impugned notice dated 6.1.2000 for recovery of Rs.56.80 lakhs from the petitioner and other guarantors. Petitioner submitted his reply on 7.1.2000 to the impugned notice. On the above facts, the petitioner state that since Dr.A.K. Chaterjee continued as guarantor till 25.11.1994 he is also liable for payment of the dues and no action having been taken against him, the impugned proceedings cannot be sustained. Since he has resigned as director and in his place Sri K.S. Rao has been inducted as director, he has been relieved of his personal guarantee obligations and as such there is no liability on his part to pay any amount. It is further stated that the liability of the petitioner having been crystallized on 28.3.1990 when notice was issued to the borrower for payment of the amount due and to take action under section 29 of SFC Act for sale of the Unit of the Company in the event of failure to pay the amount, the notice dated 22.3.1996 issued to the petitioner calling upon him to pay the amount and contemplating to initiate action under the Revenue Recovery Act in the event of failure to pay the amount is barred by limitation. Consequently, the impugned notice dated 6.1.2000 which was issued nearly four years thereafter is hopelessly barred by limitation and without jurisdiction. It was also contended that since the petitioner has furnished the guarantees in his capacity as Director of the Company the same are co-terminus with the directorship of the company.
3. In the counter filed by the Corporation it is stated that Sri K.S. Rao has not executed any guarantee deed in favour of the corporation and only resolution of the Board of Directors of the Company was intimated regarding induction of Lt.Col. K.S. Rao. Since personal guarantees executed by the petitioner is holding the field he is liable for the dues payable by the company. After realization of the amount through sale of assets of the company on 29.12.1998 for sale consideration of Rs.61.00 lakhs, demand notices were issued for payment of the amount due, but the petitioner has not paid the amounts. The Corporation issued notice on 22.3.1996 calling upon the petitioner to pay Rs.131.14 lakhs which was due as on 31.5.1994. Counter denied that the guarantees were furnished by the petitioner in the capacity as director of the company. Counter refutes that the debt was barred by limitation and submitted that no period of limitation has been prescribed for recovery of dues of the Corporation for instituting proceedings under the Revenue Recovery Act. Even otherwise, it was contended that the proceedings under the Revenue Recovery Act were initiated by reason of the letter dated 4.6.1996 of the District Collector, Hyderabad addressed to the Mandal Revenue Officer, Golconda requesting to attach movable and immovable properties of the petitioner and Distraint order dated 15.7.1996 of the Mandal Revenue Officer, Golconda, which culminated into the notice dated 6.1.2000 and as such the proceedings are within limitation. It was further stated that the guarantees were furnished in the personal capacity of the petitioner and the same continues to be in force even if he ceases to be the director. Since the amounts realized through sale of the assets of the company are not sufficient to discharge the amounts payable, it has become necessary to initiate proceedings under the Revenue Recovery Act and as such no interference is warranted with the proceedings.
4. On behalf of the appellant-petitioner it was argued before the learned single Judge that the guarantee bonds executed by the petitioner are co-terminus with the directorship of the petitioner and the moment he had resigned as director on 16.10.1989, the guarantee bonds shall be deemed to have been revoked. It was also argued that since the personal bonds executed by Dr.A.K. Chaterjee were not revoked by the Corporation till 15.11.1994 and continue to be in force even after the petitioner had resigned as director on 16.10.1989 proceedings ought to have been initiated against Dr.A.K. Chaterjee and no action could have been taken on the personal guarantee bonds executed by the petitioner in place of Dr. A.K. Chaterjee. It was vehemently argued before the learned single Judge that since no proceedings were initiated against the petitioner subsequent to the demand notice dated 28.3.1990, which was denied by the petitioner, the distraint order dated 15.7.1996 is without jurisdiction, even though there was a subsequent demand on 28.5.1992 because the claim of the Corporation was barred by limitation and it cannot be permitted to take recourse to the provisions of the Revenue Recovery Act and reliance was placed on the decision of the Supreme Court in MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD.1 and a decision of the Division Bench decision of this Court in B.C.MULAJKAR v. STATE2. It was also argued that there was no determination of the liability of the petitioner to the Corporation determined in any of the demands issued to the petitioner including the demands issued under the Revenue Recovery Act and the same is violative of the principles of natural justice.
On the other hand, the learned counsel for the respondent argued that proceedings for recovery of the amount due were initiated in the year 1990 by taking recourse to Section 29 of the State Financial Corporations Act, 1951 and as the amounts realized were found to be insufficient to liquidate the liability of the company proceedings came to be initiated against the appellant under the provisions of the Revenue Recovery Act and such proceedings being in continuance of the proceedings under section 29 of the State Financial Corporations Act, the debt is not a time barred debt and the proceedings under the Revenue Recovery Act are thus maintainable. It was argued the moment petitioner executed the guarantee on 17.8.1988 the guarantee executed by Dr.A.K. Chaterjee stood discharged and the bonds executed by the petitioner remains in force till they are revoked or the liability of the company has completely been discharged. Notice dated 6.1.2000 is consequent to the distraint order dated 15.7.1996, since there was no challenge to the distraint order, notice dated 6.1.2000 cannot be found fault with.
5. The learned single Judge while holding that the Mandal Revenue Officer is competent to issue the distraint order dated 15.7.1996, on the issue whether the claim of the Corporation is a time barred debt and there is no consistency as to the amount due from the company, held thus:
"14. I have gone through various letters emanating from the 1st respondent Corporation. In the letter dated 22.5.1996 the amount due after adjusting the amount realized by sale of the assets of the company has been indicated. Therefore, I am of the view that there is no discrepancy with regard to the amounts due from the company after adjusting the amount realized by way of sale of assets of the company to the loan account. Even otherwise, the 1st respondent Corporation has given an opportunity to the petitioner under letter dated 22.3.1996 to verify the accounts. The petitioner did not choose to avail the same. The petitioner having failed to avail the said opportunity cannot be permitted to contend that there is no consistency with regard to the amount due from the company. The proceedings for realization of the amount due from the company commenced in the year 1990. The mortgaged properties have been sold by taking recourse to Section 29 of the State Financial Corporations Act and after adjusting the sale proceedings to the loan account, proceedings have been initiated for recovering the balance amount by taking recourse to the provisions of the Revenue Recovery Act. It can be said without any controversy that the proceedings have been commenced for realization of the dues by sale of mortgaged properties within limitation. The further proceedings for realization of the balance amount by taking recourse to the Revenue Recovery Act is only continuation of the process of recovery proceedings initiated earlier. Therefore, the contention of the petitioner that the claim of the 1st respondent Corporation against the Company is barred by limitation has no substance."
6. Learned counsel for the petitioner while reiterating the contentions urged before the learned single Judge submitted that when the Corporation issued notice dated 28.3.1990 to the principal debtor to take steps under section 29 of the SFC Act for sale of the unit the liability of the petitioner was crystallized and when the petitioner denied his liability, limitation started to run and three year period of limitation expired on 28.3.1993 i.e. long before 22.3.1996 when demand was made and when the Corporation sent requisition to the District Collector on 22.5.1996 to recover the amount from the appellant under A.P. Revenue Recovery Act, therefore, the claim of the Corporation against the petitioner is barred by limitation and such time-barred debt is unenforceable under the provisions of the A.P. Revenue Recovery Act, consequently the impugned notice dated 6.1.2000 issued by the Mandal Revenue Officer is illegal and without jurisdiction. In support his contention; he placed reliance on the decisions of the Supreme Court MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS3 and STATE OF KERALA v. V.R. KALLIYANIKUTTY4 and MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD. (1 supra).
He further submitted that as the amount due was not determined, the 2nd respondent has no jurisdiction to issue the notice under the Revenue Recovery Act as held by this Court in B.C.MULAJKAR v. STATE (2 supra). It was also contended that the learned single Judge failed to consider that since the resignation of the petitioner was accepted by the Board, he is relieved of his obligation as a guarantor. He further submitted that since K.S.Rao became Director and offered guarantee in his place, the deeds of guarantee dated 17.8.1988 executed by the appellant ceased to be operative w.e.f. 6.10.1989 when the petitioner resigned as Director of Company and when it was accepted by the Board of directors in its 33rd Board meeting held on 16.10.1989.
7. Learned counsel appearing for the Corporation urged the very same submissions advanced before the learned single Judge and submitted that the learned single Judge has rightly held that since the proceedings for realization of the dues by sale of mortgaged properties have been commenced within limitation, the further proceedings for realization of the balance amount by taking recourse to the Revenue Recovery Act is only continuation of the process of recovery proceedings initiated earlier, therefore, the claim is not a time barred debt. He further submitted that when the notice dated 22.3.1996 was issued to the petitioner for recovery of the amounts due by the principal debtor under the Revenue Recovery Act, the debt recoverable from the principal debtor is alive, therefore, the proceedings initiated under the Revenue Recovery Act are within limitation and as such the decisions relied upon by the learned counsel or the petitioner have no application and as such no interference is warranted with the order impugned. He also relied upon the decision of this Court in GODAVARI PLYWOODS LTD. HYDERABAD v. UNION OF INDIA5 and submitted that the writ petition is not maintainable.
8. On a careful examination of the pleadings advanced by the parties, the submissions of the learned counsel for both the sides and the order under appeal, the following points arise for consideration:
1. Whether the debt recoverable from the principal debtor as per the sale notice dated 28.3.1990 issued by the respondent-Corporation under Section 29 of the SFC Act is not alive against the petitioner-guarantor as on 22.3.1996 when the respondent issued notice to the petitioner for recovery of the amount due under the Revenue Recovery Act, if so, the same is barred by limitation and is a time barred debt insofar as the petitioner is concerned?
2. Whether in view of induction of Lt.Col. K.S. Rao in place of the petitioner as Director consequent on his resignation and acceptance by the Board of Directors by the resolution dated 16.10.1989 the petitioner is relieved of his liability to the Corporation and the guarantee is deemed to have been revoked and his liability is co-terminus with the directorship in the Corporation?
3. Whether the Corporation is justified in seeking to recover the amount without determining the liability of the petitioner to the Corporation?
9. Before we deal with the points for consideration, we may examine the liability of a guarantor with reference to the law laid down by the Supreme Court.
The fundamental principle of law under the Indian Contract Act is that the liability of a surety or a guarantor is co-extensive with that of the principal debtor.
B.C. MULAJKAR v. STATE OF ANDHRA PRADESH relied upon by the learned counsel for the petitioner is a case where the appellant therein obtained loans by mortgaging certain movable and immovable properties from the Industrial Trust Fund constituted under the Hyderabad Industrial Trust Fund Rules, 1347 Hizri. In the year 1965, the Government initiated proceedings under the Madras Revenue Recovery Act to recover the dues. It was argued before the learned single Judge that the Industrial Trust Fund Rules under which the appellant therein was granted loan did not provide for invoking the provisions of the Revenue Recovery Act. Learned single Judge rejected the said contention holding that the action of the Government was valid and authorized under the provisions of the Section 52 of Madras Revenue Recovery Act. On appeal, the Division Bench held that even in the absence of a provision in the Industrial Trust Fund Rules, the language in Section 52 of the Act is wide enough to cover all sums due to the Government and that the action of the Government in invoking the provisions of Section 52 of the Act was authorized and valid. In the said case, a contention was also raised by the appellant that the respondents cannot straightaway issue a demand notice and attach or distrain the appellant's properties without first determining the amounts actually due by the appellant and that such a procedure is not warranted by the provisions of Section 52 of the Act and is opposed to the principles of natural justice. The Division Bench accepted the contention and held that even though the provision has been made in the interest of expeditious collection of the amounts due to the Government, Section 52 of the Act has to be interpreted in such a manner so as to accord with the principles of natural justice and that the party sought to be proceeded against should at least have the minimum safeguard of having an opportunity to know the basis and the material on which the liability is sought to be imposed upon and to rebut the same by placing the necessary material in that behalf before the appropriate authority.
10. In MARGARET LALITA SAMUEL v. INDO COMMERCIAL BANK LTD the guarantee was a continuing guarantee at any one time. A contention was raised that each of the debit items in the account constituted a distinct loan and gave raise to separate limitation. The Supreme Court rejected the contention and held thus:
"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 alive 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 Article 115 of the schedule to the Limitation Act, 1908."
11. In STATE OF KERALA v. V.R. KALLIYANIKUTTY the question that arose for consideration was whether a debt which is barred by the law of limitation can be recovered by resorting to recovery proceedings under Section 71 of the Kerala Revenue Recovery Act, 1968. A Division Bench of the Kerala High Court held that in the absence of any provision in the Kerala Revenue Recovery Act creating a substantive right to recover time-barred debts, the said Act which provides for summary recovery cannot be availed of once the period prescribed for recovery under the Limitation Act has expired. However, a Full Bench of Kerala High Court overruled the said decision. Placing reliance on the words 'amount due' occurring in Section 71 of the Act, it was contended before the Supreme Court by the respondents-institutions that the words 'amount due' encompasses time-barred claims also. It was also contended that the statute of limitation merely bars the remedy without touching the right, therefore, the right to recover the loan would remain even though the remedy by way of a suit would be time-barred. Placing reliance on the decision of the Privy Council in HANSRAJ GUPTA v. DEHRA DUN MUSSOORIE ELECTRIC TRAMPWAY CO. LTD.6 and the decisions in NEW DELHI MUNICIPAL COMMITTEE v. KALU RAM7 and PUNJAB NATIOINAL BANK v. SURENDERA PRASAD SINHA8 the Supreme Court interpreting the words 'amount due' in Section 71 of the Kerala Revenue Recovery Act held thus:
16. There is no question, however, in the present case of any payment voluntarily made by a debtor being adjusted by his creditor against a time-
barred debt. The provisions in the present case are statutory provisions for coercive recovery of 'amounts due'. Although the necessity of filing a suit by a creditor is avoided, the extent of the claim which is legally recoverable is not thereby enlarged. Under Section 70(2) of the Kerala Revenue Recovery Act the right of a debtor to file a suit for refund is expressly preserved. Instead of the bank or the financial institution filing a suit which is defended by the debtor, the creditor first recovers and then defends his recovery in a suit filed by the debtor. The rights of the parties are not thereby enlarged. The process of recovery is different. An Act must expressly provide for such enlargement of claims which are legally recoverable, before it can be interpreted as extending to the recovery of those amounts which have ceased to be legally recoverable on the date when recovery proceedings are undertaken. Under the Kerala Revenue Recovery Act such process of recovery would start with a written requisition issued in the prescribed form by the creditor to the Collector of the District as prescribed under Section 69(2) of the said Act. Therefore, all claims which are legally recoverable and are not time-barred on that date can be recovered under the Kerala Revenue Recovery Act."
12. From the above, it is clear that all legally recoverable debts which are not time barred as on the date on which requisition under the Revenue Recovery Act was issued to the District Collector can be recovered under the provisions of the Revenue Recovery Act.
10. In MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS the question that arose for consideration is whether it is Article 136 or Article 137 of the Schedule to the Limitation Act which has application to the proceedings initiated under sections 31, 32 and 31(1)(aa) of the State Financial Corporation Act, 1951. In this case, the Maharashtra State Financial Corporation had sanctioned a loan Rs.5.00 lakhs in favour of a company to which the respondents therein who were directors of the borrower company stood sureties for the loan. When the company failed to repay the loan notice dated 8.3.1983 was issued calling upon the borrower to repay its due. On 25.10.1983 an application under sections 31 and 32 of the State Financial Corporations Act, 1951 was filed by the Corporation for sale of the hypothecated property of the borrower company so that the sale proceeds could be appropriated towards meeting the outstanding liability of the borrower towards the appellant. On 11.6.1990 the attached properties of the borrower company were put to sale. There was shortfall in the amount realized and hence notice dated 27.12.1991 was issued to the respondent sureties claiming Rs.16,79,033/- together with interest. On 2.1.1992 the Corporation filed an application under section 31(1)(aa) for steps for recovery of the amount due. An objection was raised that the application was barred by limitation, which was upheld by the Additional District Judge in view of Article 137 of the Schedule to the Limitation Act which provides that in cases where no period of limitation is specifically prescribed period of limitation would be three years. Learned counsel for the appellant however placing reliance on Article 136 contended that since the said Article prescribes a limitation period of twelve years in cases of execution of decrees and orders passed by Civil Courts, the same should be made applicable to the application filed under section 31 (1)(aa) also which is in the nature of execution proceedings. The Supreme Court following the proposition set out in GUJARAT STATE FINANCIAL CORPN v. NATSON MFG. CO. (P) LTD.9 held that while dealing with an application under Sections 31 and 32 of the SFC Act there is no decree or order of a Civil Court being executed and it is only on the basis of a legal fiction that the proceedings under Section 31 are treated as akin to execution proceedings, therefore, application under sections 31 and 32 of the State Financial Corporation Act is not by way of execution of a decree or order of Civil Court and as such Article 136 has no application. It was held that since the liability of sureties had crystallized on 25.10.1983 when the Corporation had filed the application under sections 31 and 32, the application filed on 2.1.1992 under section 31(1)(aa) for recovery of the amounts due from the sureties is barred by limitation.
13. In SYNDICATE BANK v. CHANNAVEERAPPA BELERI AND OTHERS10 the Supreme Court held that the limitation as to guarantor's liability depends on the terms and conditions of contract and limitation starts running only when actually a demand for payment is made and it was refused by guarantors, however, such a demand should not be time-barred against the principal debtor i.e. it should be a live claim and cessation of operation of accounts cannot be treated as refusal to pay by the principal debtor. The appeal by the appellant-bank was directed against the order of the High Court of Karnataka dismissing the suit filed by the bank on the ground of limitation. We may briefly state the facts leading to filing the suit. The suit was filed against the respondents guarantors for recovery of Rs.19,77,478.60 together with interest at 18.5%. The bank extended credit facilities by way of overdraft, goods loans and demand loan and respondents 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 the credit facilities granted to the company. On account of the company incurring losses, it stopped operations in the accounts of the company with the bank in the middle of 1986. The bank vide letter dated 12.10.1987 demanded the company as principal debtor and the respondents as guarantors for payment of amounts due as on 30.9.1987 within 15 days. The company sent reply dated 31.10.1987 raising various grounds and thereafter the bank sent a formal notice through their counsel on 17.12.1987. The bank initiated proceedings for winding up on 11.10.1988 and on 17.3.1989 the High Court ordered winding up of the company. Thereafter the bank filed the suit on 16.3.1990 against the guarantors for the amounts demanded in the notice dated 12.10.1987 stating that the cause of action against the guarantors arose on 17.12.987 when the demand was made and on 30.12.1987 when they denied the liability of notice and the statements of account showing the particulars of amount due as on 31.12.1989 were annexed to the plaint.
One of the grounds urged by the respondents before the trial Court was that in the absence of renewals or acknowledgment of the guarantee bonds executed by them in the years 1983, 1984 and 1985 the suit filed on 16.3.1990 was barred by limitation. The trial court framed as many as 16 issues including the issue whether the suit was in time. The court answered all the issues in favour of the bank but dismissed the suit on the ground that it was barred by limitation which was upheld by the Karnataka High Court. The trial court held that the accounts of the company with the bank became dormant and inoperative from 1986 and therefore they ceased to be live accounts and that in view of such cessation of operation of the accounts, it should be deemed that the company and consequently the guarantors had refused to discharge their obligation, that once there was such refusal by stopping operation of the accounts the limitation would start to run immediately; that time which begins to run, cannot be stopped; and that the mere fact the demand was made by the bank much later in the year 1987 will not postpone the commencement of running of the period of limitation. The trial court declined to accept the contention that the limitation will start to run only when a notice was issued by the creditor bank demanding payment of the amount from the guarantors and a refusal thereof by the guarantors. It was held that the period of limitation commenced to run from the middle of 1986 when the operation of the accounts was stopped and the suit filed in 1990 beyond three years from the stoppage of operation of a accounts was barred by time. The High Court held that when the guarantee deed provided that the guarantors were liable to pay on demand by the bank, it meant that the amount was payable from the moment of execution of the guarantee and, consequently, no actual demand was necessary to make the amount due under the guarantees. The High Court further held that when the accounts became dormant in the middle of 1986 by non- operation and non-payment it should be deemed that there was a refusal to pay the amount under the guarantees and therefore, the suit filed on 16.3.1990 was barred by limitation being beyond three years. The High Court also held that the decision in Samuel's case will not apply because the Supreme Court had stated that the limitation will not run only if the account was a live account and there was no refusal on the part of the guarantor to carry out the obligations. It was also held that the word 'live' meant that account should be operating and when an account became dormant and inoperative it was not a live account. It was contended before the Supreme Court that the guarantees executed by the respondents were continuing guarantees and that the guarantors had agreed to pay the amount on demand by the bank, therefore, since the demand made by the bank on 12.10.1987 and 17.12.1987 was denied by the respondents by their letters dated 31.10.1987 and 30.12.1987 the suit filed on 16.3.1990 was within limitation. At para 9 of the judgment the Supreme Court held:
9. A guarantor's liability depends upon the terms of his contract. A continuing guarantee is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.
The Supreme Court referring to Samule's case observed that the Supreme Court also agreed with the view expressed by the Privy Council in WRIT V. NEW ZEALAND FARMERS COOPERATIVE ASSOCIATION OF CANTERBURY LTD.11 and the Court of Appeal in BRADFORD OLD BANK LTD. V. SUTCLIFFE12 that limitation against a guarantor under a continuing guarantee (which specified that the liability of the guarantor is to pay on demand) would not run from the date of each advance, but only run from the time when the balance (payment of which is guaranteed) was constituted and a demand was made for payment thereof. The Supreme Court also refereed to a passage form Paget's Law of Banking which reads thus:
In Bradford Old Bank Ltd. v. Sutcliffe it was pointed out that the contract of the surety was a collateral, not a direct, one and that in such case demand was necessary to complete a cause of action and set statute running. Moreover, bank guarantees invariably specify that the liability of the surety is to pay on demand, and in this connection the words are not devoid of meaning or effect, even with reference to the statute, as is the case with a promissory note payable on demand, but make the demand a condition precedent to suing the surety, so that the statue does not begin to run till such demand has been made and not complied with."
The supreme Court found that Bradford (supra) in turn reiled on Hartland v. Juke {(1863) 1 G and C 667} wherein in the context of a continuing guarantee, the contention that the period of limitation would begin to run as soon as the principal debtor becomes indebted to the Bank was negatived by stating:
It was contended before us that the statute began to run from the 31st December, 1855, by reason of the debt of Pound 179 :1"11 then due to the bank, but no balance was then struck, and certainly no claim was made by the bank upon the defendant's testator (the Guarantor) in respect of that debt; and we think the mere existence of the debt, unaccompanied by any claim from the bank, would not have the effect of making the statute run from that date".
Distinguishing the Samule's case, the Supreme Court held that the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand as held in the case of Bradford (supra) and Hartland (supra) the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand. In the case before the Supreme Court the guarantee bond states that the guarantors agree to pay and satisfy the bank on demand. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the bank. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the bank by the borrower. Therefore, the Supreme Court held that the terms of guarantee make it clear that the liability to pay would arise on the guarantors only when a demand was made. Article 55 provides that the time will begin to run when the contract is broken. Even if article 113 is to be applied the time begins to run only when the right to sue accrues. In this case the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to be sued accrues, when the demand is served on the guarantor. It was also held:
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.
The Supreme Court held that by no logical process it can be held that ceasing of operation of accounts by the borrower for some reason would amount to a demand by the bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts. Ultimately, the Supreme Court held that the time began to run not when the operations ceased in the accounts in mid 1986 but on the expiry of 15 days from 12.10.1987 when the demand was made by the Bank and there was refusal to pay by the guarantors, therefore, the suit filed within three years therefrom is within time and accordingly set aside the judgment and decree of the High Court and that of the trial court.
14. On an analysis of the above decisions of the Supreme Court, the following points can be deduced for application:
1. Under the scheme of Section 52-A of the Revenue Recovery Act without prejudice to any other mode of recovery, which may have been taken or may be taken by banks and other public bodies were also brought on par with land revenue for the purpose of recovery under the Act and thereby all loans and advances granted by the State Government, corporation established by or under State or Central Act or Government Company or any public body notified as such in the Andhra Pradesh Gazette or by any bank was entitled to invoke the provisions of Revenue Recovery Act for recovery of loans with interest including all sums such as rents, margin money or the like.
2. The provisions of the Revenue Recovery Act have to be interpreted in such a manner so as to accord with the principles of natural justice and that the party sought to be proceeded against should at least have the minimum safeguard of having an opportunity to know the basis and the material on which the liability is sought to be imposed upon. In other words, a party ought to have an opportunity at such quantification of his dues and such quantified/ascertained sums can be recovered under the Revenue Recovery Act.
3. All claims which are legally recoverable and are not time-barred on the date when the process for recovery of the amounts by the sale of movable properties as land revenue was taken up by the District Collector can be recovered under the Revenue Recovery Act.
4. The liability of the sureties would crystallize when the proceedings under the State Financial Corporation Act would be initiated for sale of properties of the borrower company.
5. Limitation as to guarantor's liability depends on the terms and conditions of contract and limitation starts running only when actually a demand for payment is made and it was refused by guarantors, however, such a demand should not be time-barred against the principal debtor i.e. it should be a live claim and cessation of operation of accounts cannot be treated as refusal to pay by the principal debtor.
6. A continuing guarantee is different from ordinary guarantee. There is difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time.
A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. A claim may be time-barred against the principal debtor, but still enforceable again the guarantor.
7. Limitation against a guarantor under a continuing gurantee (which specified that the liability of the guarantor is pay on demand) would not run from the date of each advance, but only run from the timed when the balance was constituted and a demand was made for payment thereof.
8. In a case where the guarantor liable to pay on demand the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.
9. 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.
10. Ceasing of operation of accounts by the borrower for some reason or the other would amount to a demand by the bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts.
On the above proposition of law, we proceed to examine the case of the petitioner.
15. Point No.1: Though the petitioner has disputed that he has not executed the guarantee deed dated 17.8.1988 for Rs.56.80 lakhs, however, a copy of the said guarantee deed placed on record discloses that the petitioner did execute the deed. The Corporation has not filed any statement of account to indicate when the debt was crystallized. The various letters referred to by the petitioner have also not been placed on record either by the Corporation or the petitioner. The material placed on record discloses that sale notice was issued on 18.10.1989 but a copy of the same has not been placed on record. Be that as it may, the Corporation vide letter dated 28.3.1990 addressed to the Managing Director of the Company intimated that they are initiating proceedings for recovery of an amount of Rs.75,81,100/- by way of sale of the Unit under Section 29 of the SFC Act duly enclosing proforma sale notice. A copy of the said letter was placed on record. Therefore, this can be taken as the date when the debt was crystallized on the guarantors. There is no dispute that the petitioner was inducted as guarantor in place of one Dr. A.K. Chatterjee who was relieved of his liability by the company by letter dated 25.11.1994. Before we examine the liability of the petitioner, it is necessary to refer to the guarantee deeds executed by the petitioner for Rs.56.80 lakhs and Rs.12.45 lakhs dated 17.8.1988, which reads as under:
AGREEMENT OF GUARANTEE Loan of Rs.56.80 lakhs Sanctioned to M/s. Rama Organics Private Limited - Guarantee - Reg.
In consideration of Rs.56.80 lakhs sanctioned to M/s. Rama Organics Private Limited, hereinafter referred to as the Principal Debtors, I Sri K. Raja Rao, S/o Shri. Nagabhushanam aged 38 years R/o. 8-3-678/2, Near LIC Colony, Yellareddyguda, Hyderabad, doth hereby guarantee that the said principal debtors shall pay the amount there under including the interest on due dates and abide by all other terms and conditions contained in the said Deed of Hypothecation/Mortgate and known to me and if the Principal Debtors commit default, the Corporation will be entitled to recover the same from me, the Guarantor herein and from my properties both movable and immovable not withstanding the remedies which the Corporation may have against the Principal Debtors and the properties hypothecated/mortgaged and/or to be hypothecated/mortgaged under the said deed of hypothecation/mortgage.
I further agree and convenant with the Corporation that the Corporation shall be at liberty without my further assent or knowledge at any time to grant to the Principal Debtors or any person or persons liable with or for him/them any time or indulgence or enter into composition or make any other arrangements with him/them as they think fit without discharging or in any manner affecting my liability under the Guarantee.
The Guarantee hereby given shall not be affected by any change in the constitution of the Corporation or the Principal Debtors.
That any account settled between the Corporation and the Principal Debtors mentioned above shall be conclusive evidence against the Guarantors and the amount found to be due shall not be questioned by the Principal Debtors.
The expression guarantor and the Corporation herein before used shall unless such an interpretation is repugnant to the context include in the case of the guarantor, his heirs, executors, administrators and assigns and in the case of the Corporation its successors and assigns.
IN WITNESS WHERE OF, I. K. RAJA RAO have hereunto set my hands at Hyderabad on 17/8/'88.
GUARANTEE FOR REPAYMENT OF
RUPEE TERM LOAN PERSONAL GUARANTEE
The Andhra Pradesh Industrial Place: Hyderabad
Development Corporation Ltd., Date: 17-08-88
Parisrama Bhavanam', Basheerbagh,
HYDERABAD - 500 029.
In consideration of Andhra Pradesh Industrial Development Corporation Limited agreeing to our request to grant to M/s. Rama Organics Private Limited (who is hereinafter referred to as the Borrower) accommodation by way of Rupee Term Loan of Rs.12,45,000/- (Rupees Twleve lakhs forty five thousand only) on condition amount others that the repayment of the said loan and service charges be secured by the demand promissory note to be executed by the Borrower in favour of the Corporation and further that the loan should be guaranted by Sri. K. Raja Rao in his personal capacity as regards repayment of principal amount and payment of service charge to the Corporation as per the letter of sanction No.FND/DM/(R & M)/SCA/ROPL/989/85, 26.2.1985 addressed to the borrower Sri K. Raja Rao Here by undertake in his personal capacity to guarantee repayment of the principal and payment of service charge to the Corporation and remaining unpaid on account of the said Rupee Term Loan, until notice in writing that the same is enclosed, is given by the said Corporation to me on the understanding that the said Corporation shall be at liberty to take steps to enforce payment of the said promissory Note at any time after notice in writing, demanding payment there of, posted to me to my usual or last known address and default being made in payment for three days after the posting of such notice. And, I agree that the fact of the said Corporation not taking steps to enforce payment of the said loan or of the said promissory notice until expiry of a period of three days after posting of such notice or otherwise granting time to me shall in no way release me from my liability under the said Promissory Note. And I further agree that it shall not be necessary for the said Corporation to present the said promissory note for payment to the borrower before demanding repayment from me or suing thereon.
I further agree that the said Soft Loan shall be made up with service charge in accordance with the practice of the said Corporation and that the service charge payable under the said Promissory Note shall be applicable to the payment and satisfaction of the service charge accruing upon as much of the moneys becoming payable to the said Corporation in respect of the said demand loan as is secured by the said promissory Note.
I further agree that no failure in the observance or performance of any of the stipulations or terms of said document and no default of the said corporation in requiring or enforcing the observance of performance of any of the said stipulations or terms shall have the effect of releasing me from the liabilities or of prejudicing the said Corporations rights or remedies against me under the said Promissory Note.
I agree that the said Corporation shall be at liberty to take other securities for the said loan account or any part there of and to release or forbear to enforce all or any of its remedies upon or under such securities any collateral security and that no such release of forbearance, as aforesaid shall have the effect of releasing me from my liability or of prejudicing the said Corporation's rights and remedies against me and that I shall have no right to the benefit of any other security that may be held by the said Corporation until the claim of the said Corporation against the Borrower in respect of the said Soft Loan and of all (of any) other claims of the Corporation against the Borrower or any other account whatsoever shall had been fully satisfied and then in so far only, as such security shall not have been exhausted for the purpose of realizing the amount of the said Corporation's claims and (if any) entitled to the benefit of such securities respectively.
I agree that if the Borrower shall become insolvent bankrupt or make an agreement or composition with creditors, the Corporation may (not withstanding payment to the said Corporation by me or any other person of the whole or any part of the amount hereby secured) rank as creditors and proceed against the estate of the BORROWER for full amount of all the said Corporation's claims against the Borrower or agree to and accept any composition in respect there of and the said Corporation may receive and retain the whole of the dividends composition or other payments there of until all the said Corporation's claims are fully satisfied and I will not, by paying off the amount payable by me or any part there of or otherwise prove or claim against the estate of the Borrower have been satisfied and the said Corporation may enforce and recover payment from me of the full amount payable by me not withstanding any such proof of composition as aforesaid.
I further agree that any other Promissory Note or Notes that may thereafter be given by the Borrower in renewal of or substitution for the said Promissory Note or any renewal there of shall be held by the said Corporation upon and subject to the same terms and conditions as are here in expressed and contained with reference to the said Promissory Note.
I further agree that the corporation shall be at liberty to sue me in respect of such liability and to proceed to judgment and execution at the option of the Corporation until its claim is fully satisfied.
The expression 'BORROWER' AND THE Corporation here in before used shall unless such an interpretation is repugnant to the context include in the case of the borrower, his heirs, executors, administrators and assigns and in case of the corporation its successors and assigns.
I witness where of I have hereunto set my hands at Hyderabad on 17-8-88.
Sd/- K. Raja Rao.
16. The guarantee deed executed for term loan of Rs.56.80 lakhs would show that it is a simple deed of guarantee and the petitioner has guaranteed for repayment of the amount of Rs.56.80 lakhs sanctioned to the Company on 13.11.1984 including the interest on due dates in his personal capacity and would abide by all terms and conditions contained in the deed of Hypothecation/Mortgage and if the Principal Debtors commit default, the Corporation was given the liberty to recover the same from the petitioner from his movable and immovable properties notwithstanding the remedies which the Corporation may have against the Principal Debtors and the properties hypothecated/mortgaged and/or to be hypothecated/mortgaged under the said deed of hypothecation/mortgage. Therefore, notwithstanding the remedies available to the Corporation against the Company, the Corporation has the authority to demand and proceed with the guarantor when the debt was crystallized.
17. The second guarantee deed relates to Term Loan of Rs.12.45 lakhs sanctioned to the Company on 26.2.1985. Unlike the deed of guarantee for Rs.56.80 lakhs, this deed is exhaustive. Repayment of this loan amount was secured by way of demand promissory note to be executed by the principal debtor in favour of Corporation for which the petitioner guaranteed the same in his personal capacity. The deed stipulates that the Corporation shall be at liberty to take steps to enforce payment of the promissory note at any time after notice in writing, demanding payment thereof was issued to the petitioner to his usual or last known address when default was made in payment within three days after the posting of such notice. Further, the Corporation not taking steps to enforce payment of the loan or of the promissory note until expiry of a period of three days after posting of such notice or otherwise granting time to the petitioner shall in no way release him from his liability under the promissory note. The Corporation shall also have the liberty to take other securities for the loan account or any part thereof and to release or forbear to enforce all or any of its remedies upon or under such securities any collateral security. However, no such release of forbearance shall have the effect of releasing him from his liability or of prejudicing the right of Corporation and remedies against him and he shall have no right to the benefit of any other security that may be held by the said Corporation until the claim of the said Corporation against the borrower in respect of the said soft loan and of all (of any) other claims of the Corporation against the borrower or any other account whatsoever shall had been fully satisfied and then in so far only, as such security shall not have been exhausted for the purpose of realizing the amount of the Corporation's claims and (if any) entitled to the benefit of such securities respectively. Therefore, the movables and immovable given as security by the petitioner are not to be released until the claim of Corporation against the Company is exhausted in respect of the existing term loan and all other claims of Corporation against the Company or any other account whatsoever had been fully satisfied. So, not only against the term loan of Rs.12.45 lakhs the Company has charge over the movables and immovable property given as security it has charge also against any other claim of the Corporation against the principal debtor or amount due under any other account to the Corporation. This deed of guarantee, therefore, gives right to the Corporation to proceed against the movables and immovable properties given as security even in respect of the loan covered under the first deed of guarantee also.
In our view, the deeds of guarantees are not continuing guarantees but are only in the nature where payments are required to be made on demand when the principal debtor commits default under the first deed of guarantee for Rs.56.80 lakhs and within three days on issuing a notice of demand in respect of the second deed of guarantee for Rs.12.45 lakhs. Even in respect of a continuing guarantee also, there must be a demand from the creditor.
18. Admittedly, the debt against the guarantors was crystallized when the Corporation issued sale notice under Section 29 SFC Act on 28.3.1990 even if we ignore the sale notice dated 18.10.1989 and other notices which were not placed on record. Though under the first deed of guarantee the Corporation has the option to proceed against the guarantor notwithstanding the remedies available to it against the principal debtor, it has not chosen to do so but inclined to proceed against the principal debtor only at the first instance. It may be noted herein that though two separate guarantee deeds were executed for the two different loans, the Corporation at no point of time has chosen to make demands independently, but opted to make demand consolidating the loans together. The letter dated 28.3.1990 enclosing the proforma sale notice was addressed to the principal borrower and only copies of the same were furnished to the guarantors. The said letter reads as under:
By Regd. Post Ack due No. SDM(Mon)ICS/ROPL/511/89 Date: 28-3-90 The Managing Director, Rama Organics Private Ltd., 8-3-222/6, Yousufguda Road, Srinagar Colony, Hyderabad - 500 873.
Dear Sir, Sub:- Your loan account with us - Defaults - Action for recovery of outstanding amounts - Action under Section-29 of SFC's Act - Reg., Ref:- 1) Our letter No.SDM(Mon).ICS/RCPL/ 7020/88, dt.12-1-90.
2) Our letter No.SDM (Mon) AFP/ ROPL/ 611/88, dt.8-2-89.
3) Our letter No.SDM (Mon)/ ROPL/ 8281/89, dt.9-3-89.
4) Our letter No.DCM (M&A) /ROPL /1935/89, dt:16-6-89.
With reference to the above, we find that your account continues to be irregular inspite of several concessions shown and letter reminders and even notices issued to you, an amount of Rs.37,97,000/- (Rupees Thirty seven lakhs ninety seven thousands only) is outstanding towards interest against term loan.
In view of the above, we are taking steps for recovery of an amount of Rs.75,81,000/- (Rupees Seventy five lakhs eighty one thousands only). This amount includes outstanding term loan amount plus interest amount, which is outstanding in your account as on 28.3.'90 and other amounts debitable to the account by sale of your unit under section 29 of the SFC Act, 1951, by advertisement in the newspapers, if necessary, as per the proforma enclosed with appropriate variations.
Please note that if the sale does not materialize or the proceeds thereof are not sufficient, we will proceed against you jointly and severally for the recovery of outstanding or the shortfall as the case may be under the other provisions of SFC's Act and other Laws at your cost and deeds. However, if the amounts are paid on or before 15 days from the ate of this notice, the proposed action will be dropped.
Thanking you, Yours faithfully, for A.P.I.D.C. Limited, Sd/- X X X (T. RAMGOPAL) GENRAL MANAGER,MONITORING & RECOVERIES Encl: Sale Notice Proforma.
Copy to:
1)Sri P. Seshagiri Rao, H.No.8-3-222/6, Yoursufguda, Srinagar Colony, Hyderabad.
2)Sri A. Nageshwara Rao, 6-3-668/10/4, Durganagar Colony, Panjagutta, Hyderabad.
3)Sri K. Raja Rao, 8-3-678/2, Near LIC Colony, Yellareddyguda, Hyderabad.
4)The Managing Director, A.P. State Financial Corporation, Chirag Ali Lane, Hyderabad.
5)The Manager,
State Bank of India,
Narayanguda Branch,
Hyderabad. "
19. The letter dated 28.5.1992 together with the sale notice intimating that steps will be taken under Section 29 of the SFC Act was also addressed to the Managing Director of the Company and only a copy of the same was sent to the petitioner and not communicated to other guarantors. The said letter reads as under:
By Regd. Post Ack due.
The Managing Director D/28.5.1992 M/s. Rama Organics Pvt., Ltd., No.8-3-222/6, Yousufguda Road, Srinagar Colony, HYDERABAD - 500 873.
Dear Sir, Sub:- Your Loan Account with us - Defaults - action for recovery of outstanding amounts under Sec.29 of SFC's Act - Reg.
With reference to the above, we find that your account continue to be irregular inspite of several reminders and even Notices issued to you. An amount of Rs.51,96,869/- (Rupees fifty one lakhs ninety six thousand eight hundred and sixty nine only) is due as on 28-2-1992 towards Term Loan instalments/interest.
In view of the above, we are taking steps for the recovery of an amount of Rs.71,27.180/- which is outstanding in your account as on 28-2-1992 and other amounts debitable to the account by sale of your Unit under Section-29 of the State Financial Corporations Act, 1951, by advertisement in the newspapers, if necessary, as per the proforma enclosed with appropriate variations.
Please note that if the sale does materialize and the proceeds thereof are not sufficient, we will proceed against you jointly and severally for the recovery of outstanding or the shortfall as the case may be under the other provisions of SFCs Act and other Laws at your cost and deeds.
However, if the amounts are paid on or before 15-6-1992 proposed action will be dropped.
Thanking you, Yours faithfully for A P I D C LIMITED S V REDDY GENERAL MANAGER (M&R) Encl: Sale Notice proforma Copy to : Shri K. Raja Rao S/o Shri Nagabhushanam No.8-3-678/2, Near LTC Colony, Yellareddyguda, HYDERABAD - 500 873."
20. As already stated notice was issued on 18.10.1989 for sale of the assets of the company under section 29 of the SFC Act, again notice was issued on 28.3.1990 and another notice was issued on 28.5.1992. It is not clear from the material placed on record what steps the Corporation had taken pursuant to the notice dated 18.10.1989 and 28.3.1990 as it could secure the amount to the extent of Rs.61.00 lakhs by sale only on 29.12.1993. Even after this also there was no demand by the Corporation demanding payment of the balance amount. It was only on 22.3.1996 for the first time demand was made by the Company demanding the petitioner to pay the arrears to the tune of Rs.131.14 and to recover the same under the Revenue Recovery Act. The said demand reads as under.
By Regd. Post Ack due.
Ref.No.ED(P)/RRD/ROL/466/96 dt:22-3-1996. Mr. Kodali Raja Rao S/o K. Nagabhushnam H.No.8-3-678/2, (8-3-678/2), Yellareddiguda Near LIC Colony, Hyderabad - 500 016.
Sub:- APIDC - Recovery of over dues under Revenue Recovery Act from the Guarantor of M/s Rama Organics (P) Lte - Reg.
Ref:- Your agreement of guarantee dt.17-8-1988.
The APIDC Limited has advanced a loan of Rs.56.80 lakhs to M/s. Rama Organics (P) Limited situated at Bollaram (V) Jinnaram (M), Medak District. While releasing the earlier guarantors you have undertaken guarantee on 17-8-1988 to the effect that if the principal debtor commits default in repayment of the loan, the Corporation will be entitled to recover the same from your persons and property both movable and immovable notwithstanding remedies which the Corporation may have against the Principal debtor.
M/s. Rama Organics (P) Ltd has committed default in repayment of loan instalments. Hence the APSFC which has also financed the unit has seized it U/s.29 of SFCs Act and disposed off to recover the dues of Financial Institutions. After adjustment of Rs.50.00 lakhs sale proceeds received towards the share of APIDC the company is in arrears of following amounts to the APIDC.
Principal - Rs. 59.69 lakhs
Interest - Rs. 71.45 lakhs
---------------------
Total - Rs. 131.14 lakhs
---------------------
The Government of A.P., vide notification No.80 published in the A.P.Gazette No.28A dated 11-8-1988 have declared the loans and advances and other sums due to the APIDC to be recovered as arrears of land Revenue U/s.58 A of A.P. Revenue Recovery Act. The Corporation has decided to initiate action under R.R.Act against the guarantors for recovery of above dues. You are therefore hereby called up on to pay the above stated amount at an early date.
You are further informed that if you are disputing the correctness of the amount, you must state the reasons and the basis on which you are disputing the correctness of accounts. Further, if you wish to verify the accounts of the corporation you may do so within 15 days from the date of receipt of this notice.
You are hereby informed that if no reply is received within the above stipulated period, it will be deemed that you are not disputing the facts stated above and further action as per the rules will be taken for realization of dues.
for A.P. INDUSTRIAL DEVELOPMENT CORPORATION LTD, Sd/- x x x EXECUTIVE DIRECTOR."
From a perusal of the above letter, it is clear that for the first time a demand was made against the petitioner and no time was prescribed for payment of the amount and straightaway the Corporation was inclined to initiate proceedings under the Revenue Recovery Act.
21. To the above demand, the petitioner denied his liability by letter dated 20.5.1996. It would be appropriate to quote the letter, which reads thus:
" K. Raja Rao B.Tech(CPE) May, 20, 1996 To The Executive Director, A.P.Industrial Development Corporation Ltd., Parishram Bhavan, Basheerbagh, Hyderabad.
Sir, I have received your letter No.ED(T)RRD/RDL/466/96 dated 22-03-1996 on 22- 04-1996 at your office and I am herewith submitting my reply to your notices.
1. The allegations made in your notice are distortion of facts. I have joined as a Director of M/s. Rama Organics Pvt., Ltd., in place of Dr.A.K.Chatterje. At the time of joining as Director in 1988 I have given a personal guarantee on 17-08-1988 to you. The Directorship of Rama Organics Pvt., Ltd., and surety ship are co-terminus.
2. Long after the account became sticky the unit was auctioned by S.E.C under Section 29 during the end of 1993. Subsequently, you have sent a notice to Dr. A.K. Chatterjee on 29-07-1994 as a Guarantor for recovery of the balance amount and you have choses to release Dr. A.K. Chatterjee from the suretyship vide your Letter No.GM(LHA)/RoPL/APIDC/4826/94 dated 25-11-1994, for which the reasons are best known to you. Dr. A.K. Chatterjee was released on 25-11-1994 from the suretyship. On 16-10-1989 I have retired from the Directorship and relieved from my personal guarantees by the Board and the same was informed to you by my letter dated 16-04-1990 informing you that I am no longer concerned with the Directorship and suretyship by the M.s Rama Organics Pvt. Ltd.,. The Registrar of Companies was also informed. As already stated above I ceased to be a guarantor from 16-10-1989 itself. I have been writing letters to you to that effect, denying my liability. In my place Col. K.S. Rao (Retired) has been inducted as Director and he also executed documents as Surety in my place. Instead of pursuing the remedies against Col. K.S.Rao (Retired) you have chosen to issue notice to me. By virtue of being a Director, a person become surety. Once a person retires as Director he ceases to be surety. More over, as long as Dr. A.K. Chatterjee continued as Guarantor till he was released, the question of my self becoming guarantor does not arise i.e., till 25th November, 1994. According to your conduct I am nothing to do with suretyship. Hence, it is not permissible under law to reply on the surety bond executed by me in August, 1988. It is nominal sham and un enforceable.
3. You have vitiated the terms of the surety bonds executed by me. As the State Government undertaking established for the growth of Industries, you have to act in accordance with the terms of surety bond.
4. You have kept myself in utter darkside by directly dealing with the company M/s Rama Organics Pvt. Ltd., quite prejudicial to my interest.
5. Even assuming without admitting that I am still a guarantor to M/s. Rama Organics Pvt., Ltd., even after my retirement as director, your claim against myself is hopelessly time barred. Suffice it to say that the account of M/s Rama Organics Pvt. Ltd., has turned out to be sticky, irregular and out of order in 1988 itself. M/s Rama Organics Pvt. Ltd., has become a chronic defaulter in making payment to you in 1989 itself. Nothing prevented you to pursue against the guarantors in 1989 itself. All the while you have maintained stoic silence. Long after a period of six years, you have chosen to issue a notice calling upon to pay the outstanding dues even though you have recalled the loan on 28-03- 1990 itself.
6. You have issued a notice on 28-03-1990 to M/s Rama Organics Pvt. Ltd., that Rs. 75,81,000/- was the outstanding dues as on 28-03-1990 and that you would be taking steps for recovery by way of sale under Section 29 of the State Financial Corporation Act, 1951. I am in no way liable to pay any amount to you. Your claim against me is untenable and not maintainable in Court of law.
7. Except thrusting the company that you would take steps for recover of the amounts through your notice dated 28-03-1990 and another letter dated 28-05- 1992, you have neither taken steps under Section 29 of SFC Act, not filed any Civil Suit.
8. Now in your notice dated 22-03-1996 you have chosen to say AP State Financial Corporation has sold to unit and Rs.50.00 lakhs has been paid to you. It is a violation of terms of survey bond that there is no whisper about the sale conducted by SFC in those notices. Now, for the first time you have chosen to say SFC sold the unit.
9, Needless to state that having issued recall notice on 28-03-1990 and 28- 05-1992 you have chosen to threaten me after adjusting payment made by SFC. It Is a clear violation of law. Your notice is silent about your earlier sale notices. Hence, it is crystal clear that from 28-03-1990 you have not taken any steps. For the first time you have chosen to issue notice to me stating that I am a guarantor, the ealier notices issued to the Rama Organics Pvt., Ltd., and copy was marked to me.
10. I further state that invoking revenue recovery act is opposed to law you can not enforce a claim against me which is hopelessly time barred and un- enforceable. Unless and until the claim is proved and to be valid and to be intimate within three years from the date of recall of loan against the main borrowers namely M/s. Rama Organics Pvt., Ltd., you can't claim any amount by revoking revenue recovery Act.
I hereby request you to withdraw the notice and advise desist from filing any claim either under the revenue recovery act or in any civil court.
Yours faithfully, Sd/- xx xx K. Raja Rao.
22. In his reply the petitioner has pointed out about the failure of the Corporation to take expeditious steps for recovery of the amounts pursuant to the letter dated 28.3.1990 and 28.5.1992 when the company was found to be irregular in payment. It was clearly pointed out in the reply that since no steps have been taken under the Revenue Recovery Act from 28.3.1990 when the liability was crystallized, the letter dated 22.3.1996 seeking to initiate the proceedings under the Revenue Recovery is without jurisdiction, the liability being time barred and unenforceable.
Under the first deed of guarantee, though the Corporation has the option to proceed against the petitioner when the principal borrower has committed default as also to make a demand under the said deed of guarantee, it has not chosen to do so, but only proceeded against the borrower under section 29 of the SFC Act. On 22.5.1996 the Corporation addressed letter to the District Collector, Hyderabad to initiate action under the Revenue recovery Act and on 15.7.1996 the Mandal Revenue Officer, Golconda issued distraint warrant, but, it appears that no steps have been taken and again notice was given on 23.6.1998 to the petitioner for payment of Rs.135.33 lakhs and thereafter no steps appears to have been taken and finally the impugned notice dated 6.1.2000 was issued by the 2nd respondent. From the above, it is clear that though the Corporation issued notices to the principal debtor from time to time for sale of the Unit of the Company no concrete steps have been taken for realization of the debt due by sale of the Unit of the Company and it could realize the debts to the extent of Rs.61.00 lakhs only on 29.12.1993. Nothing prevented the Corporation to proceed against the guarantors for realization of the debt due simultaneously when the proceedings under section 29 SFC Act are taken up against the Company for sale of the Unit by issuing a demand for payment of the amount due. It failed to initiate the steps for realization of the debt from the guarantor within the period of limitation of three years ie from 28.3.1990 when the liability of the petitioner was crystallized. Even if we take the letter dated 28.5.1992 into consideration as the date when the debt was crystallized the demand made against the petitioner on 22.3.1996 is clearly time barred. Article 137 of the Limitation Act provides that any other application for which no period of limitation is provided elsewhere in the Act, it provides that the period of limitation begins to run when the right to apply accrues. The Supreme Court in MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS held that the liability of the sureties would crystallize when the proceedings under the State Financial Corporation Act would be initiated for sale of properties of the borrower company. Therefore, whether we take the date of crystallization of debt as 28.3.1990 or 28.5.1992 the letter of demand issued to the petitioner on 22.3.1996 is clearly beyond the period of limitation.
23. It appears that subsequent to the notice dated 28.3.1990 no steps have been taken for recovery of the amount due by sale of the unit of the Company because again on 28.5.1992 another sale notice was issued for Rs.71,27,180/-. From this it is evident that some amount has been paid to the Company, but the respondents have not placed any material on record evidencing the same. Be that as it may, even assuming that there was some payment made subsequent to 28.3.1990 to the principal debtor and the latter notice dated 28.3.1992 can be treated as the date when the liability of the guarantor was crystallized, even then the notice dated 22.3.1996 seeking to recover the amount due from the petitioner is beyond the period of limitation of three years as no steps have been taken for recovery of the amount from the petitioner within the period of limitation. Right to sue or to initiate proceedings under the Revenue Recovery Act against the guarantor would be alive for a period of three years from 28.3.1990 i.e. upto 28.3.1993 or 28.3.1995 if we take 28.3.1992 as the date when the liability of the petitioner had crystallized. In any event, the notice dated 22.3.1996 seeking to recover the amount from the petitioner under the provisions of the Revenue Recovery Act is beyond the period of limitation and hence cannot be sustained. Even if the letter dated 28.3.1990 is treated as a demand against the petitioner even then the proceedings sought to be initiated by the Collector on 4.6.1996 are beyond the period of limitation.
24. Further, it is only subsequent to 28.5.1992, the unit of the Company was seized on 9.7.1993 and unit was sold out on 29.12.1993. At least after this the respondents should have diligent enough and taken appropriate steps for recovery of the amount from the petitioner, but had slept over the matter and had chosen to issue notice under the Revenue Recovery Act only on 22.3.1996 by which time the right of the Corporation to sue or to initiate proceedings under the Revenue Recovery Act had extinguished. It is only subsequent to 22.3.1996, the letter dated 22.5.1996 was addressed to the District Collector, Hyderrabad to initiate proceedings under the Revenue Recovery Act and therefore the Collector on 4.6.1996 addressed the Mandal Revenue Officer, Golconda to proceed with the matter by attaching the properties of the petitioner and subsequently distraint order has been issued by the Mandal Revenue Officer on 15.7.1996 and after a lapse of more than three years the impugned notice dated 6.1.2000 was issued. All these facts would clearly go to show that as on 22.3.1996 the proceedings sought to be initiated against the practitioner under the Revenue Recovery Act are beyond the period of limitation as no amount of debt legally recoverable from the petitioner is alive as on that date and hence all the subsequent proceedings initiated under the Revenue Recovery Act are void ab initio and cannot be sustained in law. The amount sought to be recovered from the petitioner as on 22.3.1996 is a time barred debt and is unenforceable under the provisions of the Revenue Recovery Act, therefore, the impugned notice is without jurisdiction. The contention of the respondent that since recovery was made on 27.12.1998 by sale of the unit of the Company and since by that time the recovery proceedings were already initiated by issuing a distraint warrant on 15.7.12996, the notice dated 2.1.2000 is within the period of limitation has no merit. In the light of the law laid down by the Supreme Court, as analyzed above, since the liability of the petitioner was crystallized on 28.3.1990, it is not permissible to hold that the proceedings initiated by the Mandal Revenue Officer, Golconda on 4.6.1996 are within the period of limitation.
25. The learned counsel for the Corporation has not placed before us any provision which empowered the Corporation for enlargement of a claim which was legally recoverable but was ceased to be legally recoverable on the date when recovery proceedings are undertaken. The Supreme Court in STATE OF KERALA v. V.R. KALLIYANIKUTT categorically held that all claims which are legally recoverable and are not time-barred on the date when the process for recovery of the amounts by the sale of movable or immovable properties as land revenue was taken up by the District Collector can be recovered under the Revenue Recovery Act. In the instant case, the process for recovery of the amounts by the sale of immovable properties as land revenue was initiated by the Corporation on 22.5.1996 by addressing a letter to the District Collector and the Collector in turn taken up the proceedings by directing the MRO, Golconda to initiate proceedings under the Revenue Recovery Act by letter dated 4.6.1996. Since the debt sought to be recovered by the Corporation is a time barred debt as on 22.5.1996 or 4.6.1996 the proceedings taken up under Section 52-A of the Land Revenue Recovery Act cannot be sustained, consequently the distraint warrant dated 15.7.1996 and the impugned notice dated 6.1.2000 cannot also be sustained.
26. The contention that the proceedings under the Revenue Recovery Act were initiated by reason of the letter dated 4.6.1996 of the District Collector and distraint order dated 15.7.1996 which culminated into the notice dated 6.1.2000 and as such the proceedings are within limitation has no merit. The Supreme Court held that the liability of the sureties would crystallize when the proceedings under the SFC Act would be initiated for sale of properties of the borrower company. As already noticed, in the instant case, the proceedings for the sale of the unit of the borrower company were initiated on 28.3.1990 on which date the liability has been crystallized whereas the proceedings by the Collector under the Revenue Recovery Act were initiated on 4.6.1996. Therefore, when the initiation of the proceedings on 4.6.1996 are itself are barred by limitation, the impugned notice dated 6.1.2000 cannot be sustained. It appears that the authorities of the Corporation have not properly pursued for recovery of the debt and allowed the debt to be time barred. The learned single Judge has not taken into consideration the decisions of the Supreme Court and applied to the case. It may be that the proceedings under Section 29 of SFC Act have been commenced for realization of the dues by sale of mortgaged properties of the principal debtor within the period of limitation, but the learned single Judge failed to note that the proceedings initiated under the Revenue Recovery by reason of the letter dated 22.3.1996 against the petitioner were time barred and without jurisdiction. The liability of the guarantor having been crystallized on 28.3.1990, proceedings under the Revenue Recovery ought to have been commenced within the period of three years therefrom. Therefore, the finding of the learned single Judge that the proceedings for realization of the debt having been commenced for realization of the dues by sale of mortgaged properties within limitation, the further proceedings for realization of the balance amount by taking recourse to the Revenue Recovery Act is continuation of the process of recovery proceedings initiated earlier is not correct. Recovery proceedings from the principal borrower initiated under Section 29 of the SFC Act and the proceedings under the Revenue Recovery Act from the guarantor are different and would commence on different dates. The Supreme Court held that the liability of the surety would crystallize when the proceedings under the SFC Act would be initiated for sale of properties of the borrower. It is not that the Corporation is prevented from proceeding against the petitioner simultaneously or independently by initiating the proceedings under the Revenue Recovery Act or by filing a civil suit within the period of limitation. Having failed to do so, the Corporation cannot proceed under the Revenue Recovery Act for recovery of a time barred debt which is legally unenforceable.
27. The contention of the Corporation that no period of limitation has been prescribed for recovery of the dues of the Corporation for instituting the proceedings under the Revenue Recovery Act has also no merit. Section 52-A of the Revenue Recovery Act only equates the debts of the banks, Governmental corporations, as stated above, as akin to land revenue and are recoverable on par with land revenue. Thus, the recovery of land revenue as well as the dues falling under Section 52-A of the Revenue Recovery Act stand on the same footing and can be recovered only in accordance with the provisions of the Limitation Act, as has already been held by the Supreme Court in STATE OF KERALA v. V.R. KALLIYANIKUTTY.
28. Another contention advanced on behalf of the respondent- Corporation is that as on 22.3.1996 the debt recoverable against the principal debtor is alive, therefore, the proceedings initiated against the petitioner under Revenue Recovery Act are in continuation of the same and thus within the period of limitation. There is no merit in the contention. It may be that the debt against the principal debtor may be alive as the same were initiated against him within the period of limitation, but since the respondent failed to initiate the proceedings against the guarantor within the period of limitation the liability against him having been crystallized on 28.3.1990, the proceedings initiated against the petitioner under the Revenue Recovery Act are barred by limitation and without jurisdiction. As already stated the Supreme Court in MAHARASHTRA STATE FINANCIAL CORPORATION v. ASHOK K. AGARWAL AND OTHERS categorically held that the liability of guarantor would crystallize when the proceedings under the SFC Act are initiated for sale of the properties of the borrower. The properties of the borrower herein were sought to be proceeded for sale under Section 29 of the SFC Act on 28.3.1990. Therefore, the limitation against the guarantor start to run from 28.3.1990 and would expire by 28.3.1993, hence the proceedings sought to be initiated under the Revenue Recovery Act by letter dated 22.3.1996 of the respondent is without jurisdiction.
29. In GODAVARI PLYWOODS LTD. HYDERABAD v. UNION OF INDIA on which reliance has been placed by the learned counsel for the respondent, Section 11-B of the Central Excise and Salt Act which was introduced by Amendment Act 25 of 1978 providing for refund of excise fell for consideration. Under the amended Section 11-B of the said Act refund of excise duty can be sought for within a period of six months. The question is whether High Court can grant refund beyond six months and upto three years as per the limitation provided under the Limitation Act. This Court on an analysis of the settled position of law held that the technical rules of the procedure like limitation though has no application in its direct sense, the prescription of limitation for suit provided under the Limitation Act, 1963 has been adopted as sound principle as analogy to grant relief under Article 226. The extent and manner of interference is for the Court to decide depending on the facts and circumstances of each case and held that no relief can be granted contrary to the amended law. In our view this decision has no application to the facts on hand. The question that arose for consideration herein is whether the proceedings initiated under the Revenue Recovery Act are within the period of limitation, as such, the question of maintainability does not arise.
In the light of the discussion made above, Point No.1 is answered in the affirmative.
30. Point No.2: The petitioner resigned as Director of the Company on 6.10.1989 and requested to relieve him immediately and also requested to take steps to relieve him from all his personal guarantee/undertakings provided to various financial institutions. In the Board meeting of the Company held on 16.10.1989 the request of the petitioner was accepted and a resolution was passed by the Board that he will be relieved from all guarantees/undertakings furnished to APIDC, IDBI, SFC, Bankers subject to the approval of the financial institutions. The Managing Director was authorized to take necessary steps to relieve him immediately from all his personal guarantees/undertakings with all institutions by providing suitable guarantees undertakings to them and the Executive Director Sri A. Nageswara Rao was authorized to file Form No.32 before the Registrar of Companies. In the place of the petitioner one Lt. Col (Retd.) K.S. Rao was inducted as a director of the Company and to furnish all the guarantees /undertakings to the financial institutions, Bankers which were earlier furnished by the petitioner herein and the Executive director was authorized to file Form kNo.32 before the Registrar of Companies. A resolution was also passed for transfer of shares valuing Rs.4,80,000/- from the petitioner to other directors and the newly inducted director K.S.Rao subject to the approval of APIDC/IDBI. But, it appears that no action has been taken by the Corporation to relieve the petitioner from all his personal guarantees/undertakings given by him to the financial institutions/bankers. No material has been placed on record to that effect. No material has also been placed on record whether any guarantee deeds were executed by the newly inducted director Lt. Col. K.S. Rao like the petitioner herein. In the absence of the same, it would be difficult to conclude that the petitioner has been relieved of his liability to the Corporation basing on the resolution of the Board of the Company. It may, however, be noted that the resolution of the Board of Directors is not final as the resolution of the Company to relieve the petitioner from his liability is subject to the approval of the financial institutions.
31. However, by letter dated 25.11.1994, the Corporation relieved Dr.A.K. Chatterjee in whose place the petitioner was inducted as Director earlier from the guarantee obligations executed by him in favour of the Corporation for the loan extended to the Company on the ground that the petitioner has executed his personal guarantee in favour of the Corporation for the loans extended to M/s Rama Organics Pvt. Ltd. Interestingly, such a letter relieving the petitioner from his liability to the Corporation was not issued by the Corporation though in fact a resolution was passed by the Board of Directors in their meeting held on 16.10.1989 to relieve him from the liability. Probably, this may be because Lt. Col. K.S. Rao who was inducted as director in place of the petitioner might have not furnished any deed of guarantee in favour of the Corporation. As already stated no material has been placed on record by the petitioner to show that in fact Sri K.S. Rao has furnished deed of guarantee but the Corporation has failed to relieve him of the liability. So long as the petitioner is not relieved of his personal liability to the Corporation, the petitioner cannot be said to be absolved of his liability to the Corporation. It is not for this Court to examine for what reasons the Company has not obtained guarantee deeds from the newly inducted director Lt. Col. K.S. Rao though such deed of guarantees were obtained from the petitioner when he was inducted as director in the place of Dr.A.K. Chatterjee. If he had any grievance in this regard, he should have taken appropriate proceedings before the appropriate forum to relieve him from his personal guarantee given to the Corporation. Having not done so, the petitioner cannot be permitted to contend that in view of induction of Col.K.S.Rao in his place and on his resignation having been accepted by the Board of directors by the resolution dated 16.101989 he is relieved of his liability to the Corporation. Similarly, the contention of the petitioner that till Dr. A.K. Chatterjee is relieved on 25.11.1994 he is not liable for payment of the amount due cannot also be accepted. Once the petitioner has executed guarantee deeds on his induction in place of Dr. Chatterjee and holding the field, it is only the petitioner who is liable for the amount till he is relieved of his liability and it cannot be said that the guarantee deeds are deemed to have been revoked consequent on the acceptance of the resignation. Further, no action has been taken by the petitioner after Dr.A.K. Chatterjee was relieved of his liability. If the petitioner really believes that Dr.A.K. Chatterjee is also liable till he was relieved of the liability he ought to have taken appropriate steps claiming that relieving of Dr.A.K. Chatteriee is not in accordance with law or the terms and conditions of the guarantee or any other provision of law.
32. The contention of the petitioner that since the guarantee was furnished by him as a guarantor the same is co-terminus with the directorship has also no merit. The guarantee being personal in nature, his liability to pay the amount continues notwithstanding with the termination of his directorship with the Company. Further, there is nothing in the deed of guarantee that though it was executed in the personal capacity of the petitioner the same would stand terminated on the termination or resignation of the petitioner as director of the Company.
We answer the point No.2 accordingly against the petitioner.
33. Point No.3: We have earlier taken note that this Court in B.C. MULAJKAR v. STATE OF ANDRA PRADESH held that the provisions of the Revenue Recovery have to be interpreted in such a manner so as to accord with the principles of natural justice and that the party sought to be proceeded against should at least have the minimum safeguard of having an opportunity to know the basis and the material on which the liability is sought to be imposed upon and to rebut the same by placing necessary material in that behalf. As rightly pointed out by the learned counsel for the petitioner none of the letters sent to the petitioner indicated what are the dates on which the Company has committed default in payment of the amount due to the Corporation, on what dates payments were made, what was the amount due towards principal and interest from to time to time etc. The various letters placed on record show different amounts and it is not clear from those on what dates the Company paid the amounts to the Corporation. The letter dated 22.3.1996 has merely indicated that an amount of Rs.59.69 lakhs is due towards principal and Rs.71.45 lakhs towards interest totaling to Rs.131.14. There are no details as to how the said amounts were arrived at. Therefore, there was no proper determination of the liability of the petitioner. The learned single Judge in his order referred to the letter dated 22.3.1996 of the Corporation permitting the petitioner to verify the accounts of the Corporation but the petitioner has failed to do so. In our view, mere verification of the accounts of the Corporation would not be enough to arrive at the liability. The Corporation was under an obligation to determine the liability of the petitioner duly stating the amounts paid by the Company towards principal and interest from time to time and the balance due as on a particular date. The Corporation has not furnished such statement of details in any of the letters communicated to the petitioner. In the absence of the same, it would be difficult for the petitioner to know exactly what the amount due was on a particular date and whether the amount sought to be recovered was legally recoverable date and not a time barred debt. Even the proceedings initiated under the Revenue Recovery Act have not indicated the details determining the liability of the petitioner. Therefore, no opportunity was afforded to the petitioner to know the basis and the material on which the liability is sought to be imposed upon him and to rebut the same by placing necessary material in that behalf before the concerned authority. We are, therefore, of the view that there was no proper determination of the liability of the petitioner to the Corporation and he was deprived of an opportunity to rebut his liability in full and to what extent the Corporation is justified in making him liable for the amount unpaid by the Company by virtue of the deed of guarantees executed by him. Therefore, this point is answered in favour of the petitioner.
33. Though we have held under Point No.2 that the petitioner is not relieved of his liability to the Corporation, in view of our finding on Point No.1 that there was no legally enforceable debt which can be recovered from the petitioner as on the date notice was issued to the petitioner on 22.3.1996 or even on 4.6.1996 when the proceedings were initiated by the District Collector under the Revenue Recovery Act and the finding on Point No.3 that there was no proper determination of liability of the petitioner to the Corporation, the Writ Petition is liable to be allowed and the proceedings initiated under the Revenue Recovery Act are liable to be set aside as without jurisdiction.
34. In the result, the Writ Appeal is allowed. The order of the learned single Judge is set aside. Consequently, the Writ Petition is allowed. The distraint warrant dated 15.7.1996 of the Mandal Revenue Officer, Golconda and the consequential notice dated 6.1.2000 are set aside. There shall be no order as to costs.
PINAKI CHANDRA GHOSE, CJ VILAS V. AFZULPURKAR, J January 4th , 2013