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SANJIB BANERJEE, J.
West Bengal Industrial Development Corpn. Ltd. and Anr.
versus
Nicon Electronics Devices Pvt. Ltd. and Ors.
G. A. No. 1939 of 2006 and ASFC No. 3 of 2005
Decided on : 22 -1 -2008.
STATE FINANCIAL CORPORATION ACT, 1951 - Section 31(l)(aa) - LIMITATION - Guarantors' liability - Co-extensive with principal-debtor - Notice under Section 29 issued to principal-debtor and guarantors - Demand on guarantors to pay amount owed by borrower - Limitation period begins from date of breach by guarantors - Continuing guarantee - Clause in deed requiring notice in writing to guarantors - Notice issued on September 29, 1995 but not pursued within time - Claim under Section 31(l)(aa) barred by limitation.
Fact of the Case:
Five of the six guarantors sued by the petitioner State Financial Corporation applied for recalling orders passed in the proceedings, claiming lack of authority of the Court to receive the petition under Section 31(l)(aa) of the State Financial Corporation Act, 1951, and later asserting that the petition could not be entertained due to inordinate delay on the part of the petitioner Corporation.
Finding of the Court:
The Court found that the corporation's cause of action against the guarantors arose upon the notice under Section 29 being issued or, at the very least, upon the principal-debtor failing to pay up in accordance with demand. The Court held that the corporation's right to pursue the claim against the guarantors did not remain suspended following the issuance of the notice under Section 29 for a special notice to be issued by such subsequent date as the corporation chose, calling upon the guarantors to make good the claim or pay up the amount not realized out of the sale of the principal-debtor's assets.
Issues: 1. Whether the High Court has jurisdiction to receive a petition under Section 31(l)(aa) of the State Financial Corporation Act, 1951. 2. Whether the petition is barred by limitation.
Ratio Decidendi: 1. The Court held that the guarantors' liability is co-extensive with that of the principal-debtor and that the limitation period for a claim under Section 31(l)(aa) of the Act begins running from the date of breach on the guarantor's part. 2. The Court held that the notice issued on September 29, 1995, was a demand on the guarantors to pay the amount owed by the borrower and that the guarantors' refusal to pay despite the borrower not meeting the corporation's demand constituted a breach. 3. The Court held that the continuing guarantee would be co-terminus with the breach on the part of the principal-debtor and the simultaneous breach on the part of the guarantors to heed the notice of September 29, 1995.
Final Decision: The Court allowed the application, vacated the orders passed on the corporation's petition, and dismissed the petition on the ground of limitation.
2. The principal ground originally put forth has been abandoned by the applicants. The applicants do not any longer insist that a High Court has no jurisdiction to receive a petition of such nature. The applicants were, of course, dissuaded from pursuing the primary basis of the application upon the State Financial Corporation citing the Supreme Court judgment reported at 1991 (1) Comp LJ 315 : (1991 AIR SCW 612).
3. Upon the application being robbed of its main plank, the applicants changed tack to assert that this Court could not have entertained the petition for the inordinate delay on the part of the petitioner Corporation. The Corporation was taken by surprise by the change of course midstream by the applicants and obtained an adjournment to address the issue of limitation.
4. The applicants refer to paragraphs 8, 12 and 13 of the Corporation's petition to suggest that by the time the corporation woke up to press its claim against the applicants, there was no live claim to be pursued. Paragraphs 8, 12 and 13 of the petition recount the notice issued under Sections 29 and 30 of the State Financial Corporation Act, 1951 by the petitioner Corporation, the notices issued to the guarantors and trace the clock of limitation to have started ticking from after a fortnight of the issuance of the notices to the guarantors.
"8. The respondent No. 1 has failed to pay the dues of petitioner No. 1 as such the petitioner No. 1 issued notice under Section 29(1) read with Section 30 of the said Act, asking the respondent No. 1 to liquidate the dues within a stipulated period, but as the respondent No. 1, failed to liquidate its dues in accordance with the said notice of the petitioner No. 1, petitioner No. 1 took over all secured assets of the respondent No. 1 on 14-2-1996.
Xerox copy of the notice dated 29-9-1995 issued under Section 29(1) read with Section 30 of the said Act along with the minutes of taking over physical possession of the assets of respondent No. 1 dated 14-2-1996 are annexed hereto and marked collectively with letter 'D'."
"12. The petitioners sent demand notices invoking guarantee of respondents Nos. 2 to 7 by the said notices petitioners called upon the respondents to pay the sum of Rs. 7,37,51,411.00 which sum of money was due and payable by the respondent No. 1 to the petitioner No. 1 as on 31-3-2005 within a fortnight from the date of notices.
Xerox copies of the said demand notices invoking guarantee along with those of postal acknowledgment cards are annexed here to and marked collectively with the letter 'F'.
"13. The cause of action of the present application arose on 22-6-2005 within the jurisdiction of this Hon'ble Court since in spite of the said demand notices the respondents have not discharged their joint and several liabilities towards your petitioners, whatsoever."
5. The applicants submit that the liability of a guarantor is co-extensive with that of the principal-debtor. The debtor-company was called upon to discharge its debt by the notice issued under Sections 29 and 30 of the 1951 Act dated September 29, 1995. The applicants seek to demonstrate t
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