1992 (3) TMI 369 - HC - Indian Laws

Summary

Issues Involved:
1. Whether the terms 1 and 7 of the Guarantee Bond override the provisions of sections 133, 134, 139, and 141 of the Contract Act?
2. Whether an acknowledgment or execution of the promissory note by the principal debtor will save the limitation against the sureties-defendant Nos. 2 and 3, though they are neither the parties to the execution nor given their consent?
3. Whether the period of limitation would start running only upon the demand being made to the principal debtor as well as guarantors, thereby extending the statutory provisions of limitation of 3 years?

Issue-wise Detailed Analysis:

1. Override of Guarantee Bond Terms Over Contract Act Provisions:
The court examined terms 1 and 7 of the Guarantee Bond against sections 133, 134, 139, and 141 of the Indian Contract Act. Term 1 stated that the guaranteed amount would be payable upon notice served to the guarantors. Term 7 allowed the creditor to vary the terms of the contract with the principal debtor without discharging the guarantors. The court found that these terms could not override statutory provisions. Sections 133 and 135 prevent a creditor from varying the contract terms or giving time to the principal debtor without the surety's consent. The court cited precedents, including the case of State Bank of India vs. Machine Well Industries, which held that statutory rights of a surety cannot be abridged by contractual provisions unless explicitly allowed by law.

2. Acknowledgment and Limitation Against Sureties:
The court addressed whether the principal debtor's acknowledgment of debt would extend the limitation period against the sureties. The principal debtor executed a promissory note on 6-10-1974, but the sureties were not parties to this acknowledgment. The court referenced several cases, including Federal Bank of India Ltd. vs. Som Dev Grover, which held that an acknowledgment by the principal debtor does not extend the limitation period against the surety unless explicitly stated in the surety's contract. The court concluded that the original contract ceased to exist under section 62 of the Indian Contract Act due to the new agreement between the creditor and the principal debtor, which the sureties did not consent to.

3. Period of Limitation and Demand:
The court considered whether the limitation period would start only upon the demand being made to the principal debtor and guarantors. The appellant argued that the cause of action arose only when the demand for payment was made. However, the court referred to Article 21 and 35 of the Limitation Act, which state that the limitation period begins from the date of the loan or promissory note, not from the date of demand. The court emphasized that extending the limitation period based on the demand would render the statutory provisions redundant. The court cited V. E. A. Annamalai Chettiar vs. S. V. VS. Veerappa Chettiar, which differentiated between deposits and loans, emphasizing that the limitation period for loans begins from the date of execution.

Conclusion:
The court dismissed the appeal, holding that the terms of the Guarantee Bond could not override statutory provisions, the acknowledgment by the principal debtor did not extend the limitation period against the sureties, and the limitation period began from the date of the loan or promissory note, not from the date of demand. The respondents/sureties were discharged from their liabilities, and the suit against them was barred by limitation.