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2020 Supreme(Pat) 394
IN THE HIGH COURT OF JUDICATURE AT PATNA
Sanjay Karol, S. Kumar, JJ.
Hari Narayan Sinha - Appellant
Versus
State of Bihar - Respondent
Letters Patent Appeal No. 417 of 2010
Decided On : 15-12-2020
Manik Vedsen, Advocate, Subhash Chandra Bose, Advocate, Nikhil Kumar Agrawal, Advocate
The period of limitation for a continuing guarantee commences from the date of confirmation of sale and adjustment of the amount due.
Headnote:
Limitation - Recovery of Dues against Guarantor - SFC Act - Section 32G - [Indian Contract Act, 1872 - Sections 124 to 181; Limitation Act, 1963 - Article 55] - The court considered the action of the Creditor for recovering the dues against the guarantor under Section 32G of the State Financial Corporation, 1951 (SFC Act) and discussed the provisions of the Indian Contract Act, 1872 related to indemnity and guarantee, as well as Article 55 of the Limitation Act, 1963. The court emphasized the concept of continuing guarantee and the commencement of the period of limitation from the date of confirmation of sale and adjustment of the amount due.
Fact of the Case:
The petitioner, a guarantor for a company, challenged the action initiated by the Creditor under Section 32G of the SFC Act for recovering dues. The company had availed credit facilities from financial institutions, and after default, the Creditor initiated proceedings against the guarantor. The petitioner contended that the action was barred by the law of limitation.
Finding of the Court:
The court found that the action of the Creditor for recovering the dues against the guarantor was not barred by the law of limitation. It held that the period of limitation for a continuing guarantee commences from the date of confirmation of sale and adjustment of the amount due.
Issues: The main issue was whether the action of the Creditor for recovering the dues against the guarantor under Section 32G of the SFC Act was within the period of limitation or not.
Ratio Decidendi: The court relied on the provisions of the Indian Contract Act, 1872 related to indemnity and guarantee, and Article 55 of the Limitation Act, 1963 to determine the commencement of the period of limitation for a continuing guarantee.
Final Decision: The court dismissed the appeal and upheld the view taken by the learned Single Judge, stating that the action of the Creditor for recovering the dues against the guarantor was not barred by the law of limitation.
The section in question pertains to the provisions of the Indian Contract Act, 1872, specifically related to guarantees and indemnities. It discusses the legal nature of a contract of guarantee, including the roles of the surety, principal debtor, and creditor, as well as the liability of the surety being co-extensive with that of the principal debtor unless otherwise specified (!) .
The section also elaborates on the concept of a continuing guarantee, which extends to a series of transactions, and highlights the rights of the surety to revoke such a guarantee through notice or upon the surety's death (!) (!) (!) .
Furthermore, it emphasizes that the liability of the surety is not discharged by actions or inactions of the creditor or principal debtor unless explicitly provided for or resulting from specific circumstances such as discharge, variation of contract, or performance by the surety (!) .
The section clarifies that the initiation of legal proceedings by the creditor under specific statutory provisions does not automatically bar the claim or alter the period of limitation, especially in the context of a continuing guarantee. Instead, the period of limitation begins from the date when the contract is broken or the guarantee is deemed to have been breached, which, in the case of a continuing guarantee, is generally when the account is settled or when the obligation is otherwise discharged or modified (!) (!) .
In summary, the section underscores that the period of limitation for a claim under a guarantee, particularly a continuing guarantee, is determined by the date of breach or the date when the guarantee's obligation is deemed to have been discharged, rather than the date of the initial agreement or proceedings initiated by the creditor.
JUDGMENT
Sanjay Karol, C.J. - Whether the action of the Creditor for recovering the dues against the guarantor under Section 32G of the State Financial Corporation, 1951 ( hereinafter referred to as the SFC Act) is within the period of limitation or not? is the issue which arises for consideration in the present appeal.
2. Creditors' action in initiating such proceedings stands affirmed by the learned Single Judge. His opinion rendered in terms of the impugned judgment dated 2nd December, 2009 in CWJC No.10565 of 2008 titled as Hari Narayan Sinha Versus The State of Bihar & Ors. is a subject matter of consideration in the present appeal, preferred under Clause 10 of the Letter Patent Constituting the High Court of Judicature at Patna.
3. We need not go into the extent or scope of power in the exercise of jurisdiction under the Letter Patent Constituting the High Court of Judicature at Patna, for it not to be an issue in question.
4. We also need not go into the scope of an inquiry or the applicability of the provisions of Section 32G of the State Financial Corporation, 1951, for petitioner/appellant does not lay any challenge to the same, perhaps rightly so, given the discussions and the view taken by the learned Single Judge, based on the decision rendered by Hon'ble the Apex Court in Delhi Financial Corporation V. Rajiv Anand, (2004) 11 SCC 625.
5. Here only we may add that the said view of the Apex Court, dealing with intent, purport and scope of the said Section stands reaffirmed and reiterated in Karnataka State Financial Corpn. v. N. Narasimahaiah, (2008) 5 SCC 176, and Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230.
6. The limited point urged before us, is such action of the Creditor in initiating the proceedings, to be barred by law of limitation.
7. In support of his contention, Shri Manik Vedsen, learned counsel for the appellant, seeks reliance upon the decisions of the Hon'ble Apex Court in New Delhi Municipal Committee Versus Kalu Ram and another, (1976) 3 SCC 407 (two-Judge Bench); State of Kerala and others Versus V.R. Kalliyanikutty and another, (1999) 3 SCC 657 (three-Judge Bench); and Syndicate Bank Versus Channaveerappa Beleri and others, (2006) 11 SCC 506 (two-Judge Bench).
8. Opposing the appeal, Shri Nikhil Kumar Agrawal, learned counsel for the respondents seeks reliance upon a decision of the Hon'ble Apex Court in Deepak Bhandari Versus Himachal Pradesh State Industrial Development Corporation Limited, (2015) 5 SCC 518 (two-Judge Bench), and the Punjab and Haryana High Court in Jagdish Rai v. Haryana Financial Corporation, (2008) AIR(P&H) 50.
9. The facts, which are not in dispute are as under:
10. Petitioner Hari Narayan Sinha, promoted a Company, duly registered under the Companies Act, by the name Patna Rolling Mills (P) Limited (referred to as the Company), of which he was the Director. For creating infrastructure, certain credit facilities by way of a loan were availed by the Company from certain financial institutions, including, Bihar State Financial Corporation and Bihar State Credit and Investment Corporation, (in brief referred to as BSFC and BICICO respectively). It was a consortium of BSFC and BICICO which extended the credit facilities, about which the properties and the assets of the Company stood mortgaged. The charges of the institutions ran pari-passu over the mortgaged property of the Company. The petitioner stood guarantor against such loans taken by the Company. On 7th January, 1987, the Financial Institution recalled the loan amount and in default thereof, initiated proceedings as per law. On 28th June, 1996, the BICICO, the co-financer (consortium partner) took over possession of the assets of the Company and sold it on 5th March, 2002, with the possession handed over to the successful bidder on 16th March, 2002.
11. Challenging such sale, the Company of which the present petitioner was a promoter and a Director, initiated several proceedings which attained finality only with
