The limitation period for invoking a guarantee starts from the demand for payment, and if the principal debt is time-barred, the guarantee is unenforceable.

JUDGMENT :

VIJAYKUMAR A. PATIL, J.

This appeal is filed by the guarantor under Section 32(9)of the State Financial Corporation Act, 1951 (hereinafter referred to as 'the SFC Act') assailing the order dated 22.02.2016 passed in Misc.No.944/1994 on the file of the XXXVII Additional City Civil & Sessions Judge, Bengaluru. By the said order, the petition filed by respondent No.1 under Section 31(1)(aa) of the SFC Act is allowed and the appellant and respondent No.3 are directed to pay jointly and severally a sum of Rs.1,34,26,588.90 (Rupees One Crore Thirty Four Lakhs Twenty Six Thousand Five Hundred Eighty Eight and Ninety paise only) as on 10.06.1994 with future interest at 17% on Rs.1,31,14,360.74 and compound interest at 15.5% on Rs.3,12,228.16 from 10.06.1994 till the date of payment on quarterly rests.

2. The appellant was respondent No.2, respondent No.1 was the petitioner, respondent Nos.2 & 3 were respondent Nos.1 & 3, respectively before the trial Court. For the purpose of convenience, the parties are referred to henceforth according to their ranks before the trial Court.

3. Brief facts leading to filing of this appeal are as follows:-

i. The petitioner-KSFC sanctioned loan of Rs.24,00,000/- in favour of respondent No.1-Company, the same was availed. Again the petitioner sanctioned Rs.5,70,000/- in favour of respondent No.1. Respondent Nos.2 & 3 executed the deed of continuing guarantee on 20.05.1977 and 19.04.1979 respectively undertaking to pay the amounts borrowed by respondent No.1 with interest.

ii. The petitioner-KSFC issued notice of demand to the respondent No.1-Company and marked the copy of the notice to other respondents notifying that the respondent No.1 failed to pay the dues.

iii. Respondent No.1-Company committed default and its secured assets were auctioned. Petitioner-KSFC purchased the entire unit in the auction conducted by the revenue authorities on 15.11.1984 for a sum of Rs.81,00,000/-. Thereafter, the petitioner-KSFC sold the said unit in favour of M/s.Gemini Dyeing & Printing Mills Pvt. Ltd., for a sum of Rs.1,05,00,000/-.

iv. It is pleaded that respondent No.1-Company was liable to pay certain amounts to KIADB, KSIIDC, KEB, etc. As per pari-passu agreement with KSIIDC and others, the payment of Rs.24,69,000/- made to KIADB & KEB, balance amounts were adjusted towards the loan account of respondent No.1-Company. Even after adjusting that amount there was outstanding debt in the account of respondent No.1 - Company payable to the petitioner-KSFC.

v. It is further pleaded that despite demand, the dues of the petitioner were not cleared, hence the petitioner invoked the deeds of guarantee on 22.09.1992 calling upon respondent Nos.2 & 3 to pay a sum of Rs.1,48,60,000/- with interest at16.5% from 20.06.1992 till the amount is realised.

vi. The petitioner on paying the dues of KSIIDC as per pari-passu, a sum of Rs.1,34,26,588.90 as on 10.06.1994 is still due from respondent No.1. It is also pleaded that inspite of invoking the deeds of guarantee executed by respondent Nos.2 and 3, they have failed to pay the dues of the petitioner-KSFC. Hence, the petitioner filed the petition under Section 31(1)(aa)of the SFC Act.

4. (i). Respondent Nos.2 & 3 filed written statement denying the claim of the petitioner. They contended that petitioner itself auctioned the unit of respondent and realised the amount in the year 1984, cause of action has arisen in the year 1984 itself, the petition filed after the lapse of 9 years is hopelessly barred by time.

(ii). They contended that in the y