2014 (1) TMI 1945 - HC - Indian Laws

Maintainability of suit - time limitation - decree for suit for recovery of legitimate dues against the respondents-defendants No. 1, 2 and 3 jointly and severally - HELD THAT - Admittedly, the appellant-bank preferred a suit before the learned trial court with the prayer for decreeing the suit for recovery of its legitimate dues against the respondents-defendants No. 1, 2 and 3 jointly and severally. The learned trial court reached to the conclusion that all the documents were executed by the defendants in favour of the Bank and accordingly decreed the suit against the respondents-defendants No. 1 and 2, however, learned trial court dismissed the suit as against the respondent-defendant No. 3 on the ground that it is instituted against him beyond the period of limitation. So far as the main contention raised by the counsel for appellant-bank regarding the suit being within limitation in respect of defendant No. 3 in the light of the provisions Section 18 of the Limitation Act on the basis of acknowledgment letter executed by the defendants No. 1 and 2 confirming the balance due to acknowledging the liability, is concerned, it is to be noticed here that the defendant No. 3 executed guarantee agreement (Ex. 23) which bears the signature of the Guarantor from A to B . A perusal of Section 18 of the Limitation Act, makes it clear that where before expiration of the limitation prescribed in Limitation Act for filing a suit, an acknowledgment of the liability is accepted by the borrower or Guarantor or any person authorized by the Guarantor, then such acknowledgment made, shall also be applicable on the person on whose behalf it is given and fresh period of limitation shall be calculated from the date and time when the acknowledgment was signed and such acknowledgment can be signed by the borrower or Guarantor either personally or by the agent duly authorized in this behalf - a conjoint reading of the provisions of Section 18 of the Limitation Act and the condition No. 9 of the Guarantee Agreement, makes the position clear that the acknowledgment of the liability made by the principal borrowers i.e. Respondents No. 1 and 2 should be considered as an acknowledgment of the liability on behalf of the Guarantor i.e. the respondent-defendant No. 3 also, which shall be binding on him and would provide fresh period of limitation for filing suit against the defendant No. 3 either from the time it was signed by the principal borrower. The present case is also relating the recovery of the loan amount by the sale of immovable property of defendant No. 3 which was mortgaged with the Bank to secure the loan amount - it is settled law that the liability of the principal borrower and the guarantor in respect of recovery of the loan amount is coextensive and not distinct and therefore, in the opinion of this Court, the acknowledgment for the purpose of the liability vide Ex. 21 made by the principal debtors/borrowers is also binding on the respondent-defendant No. 3 Guarantor and since the suit was filed claiming relief for recovery of the loan amount, out of the sale proceeds of the immovable property of the defendant No. 3, the suit is clearly covered under the provisions of Article 62 of the Limitation Act prescribing limitation of twelve years and accordingly, it was filed, which can be treated within the limitation. The judgment and decree impugned passed by the trial court dated 16.8.2003 dismissing the suit as against the defendant-respondent No. 3 as barred by limitation by deciding the issue No. 2 and 3 against the appellant-bank and in favour of the respondent-defendant No. 3 is therefore, liable to be set aside and the appeal filed by the appellant-bank deserves to be allowed against the defendant No. 3 - Appeal allowed.

Summary

Issues Involved:
1. Whether the suit against respondent-defendant No. 3 was barred by limitation.
2. Applicability of Article 62 of the Limitation Act.
3. Effect of acknowledgment of debt by the principal borrower on the guarantor.
4. Liability of the guarantor under the guarantee agreement.

Detailed Analysis:

Issue 1: Whether the suit against respondent-defendant No. 3 was barred by limitation.

The trial court dismissed the suit against respondent-defendant No. 3 on the basis that it was filed beyond the period of limitation. The appellant-bank argued that the trial court erred in treating the suit as barred by limitation and contended that the suit was within the limitation period as per Article 62 of the Limitation Act, which prescribes a 12-year period for suits involving immovable property mortgaged. The trial court had computed the limitation period from 4.10.1995, the date of the enhanced loan facility, and dismissed the suit filed on 6.2.1999 as barred by the 3-year limitation period.

Issue 2: Applicability of Article 62 of the Limitation Act.

The appellant-bank argued that the suit should be governed by Article 62 of the Limitation Act, which provides a 12-year limitation period for suits to enforce payment of money secured by a mortgage of immovable property. The trial court, however, treated the limitation period as 3 years, applicable to suits for recovery of money. The High Court agreed with the appellant-bank, stating that since the suit involved recovery of money secured by the mortgage of immovable property, the 12-year limitation period under Article 62 was applicable.

Issue 3: Effect of acknowledgment of debt by the principal borrower on the guarantor.

The appellant-bank contended that the acknowledgment of debt by the principal borrowers (respondents No. 1 and 2) should also be binding on the guarantor (respondent No. 3) as per Section 18 of the Limitation Act and the terms of the guarantee agreement. The guarantee agreement authorized the principal borrowers to acknowledge the liability on behalf of the guarantor, which should provide a fresh start of the limitation period. The High Court agreed with this argument, stating that the acknowledgment of liability by the principal borrowers should be considered as an acknowledgment on behalf of the guarantor, thereby extending the limitation period.

Issue 4: Liability of the guarantor under the guarantee agreement.

The guarantee agreement executed by respondent No. 3 included a clause authorizing the principal borrowers to acknowledge the liability on behalf of the guarantor. The High Court held that this acknowledgment was binding on the guarantor and provided a fresh start of the limitation period. The acknowledgment made by the principal borrowers on 28.7.1997 was thus applicable to the guarantor, making the suit filed on 6.2.1999 within the limitation period.

Conclusion:

The High Court set aside the trial court's judgment and decree dismissing the suit against respondent-defendant No. 3. The High Court held that the suit was within the limitation period as per Article 62 of the Limitation Act and that the acknowledgment of liability by the principal borrowers was binding on the guarantor. The guarantor was held liable to pay the decretal amount of Rs. 1,49,459.45 with interest and costs as awarded by the trial court. The appeal filed by the appellant-bank was allowed, and the trial court's judgment was modified accordingly.