The acknowledgment of debt by the principal borrower waives the earlier demands made against the guarantors, and the terms of the guarantee influence the liability of the guarantors and the commencement of the limitation period.

Valmiki J. Mehta, J. (Oral)

1. In the present Regular Second Appeal, the following substantial question of law was framed on 27.1.2012:-

“Whether the acknowledgment of debt by principal debtor would not extend limitation qua the guarantor?”

2. Appellants are the guarantors. Respondent no.1/plaintiff gave a loan to the principal borrower in the year 1991 for which the appellants signed the deed of guarantee on 31.10.1991. The principal borrower/defendant no.1 signed the balance confirmatory cum acknowledgment on 21.7.1994 and suit was filed by the respondent no.1/bank within three years thereafter on 6.6.1997.

3. Appellants who are guarantors contended that the suit against them is barred by limitation inasmuch as prior to the acknowledgment given by the defendant no.1/principal borrower on 21.7.1994 demands were raised upon the appellants by the respondent no.1/bank and therefore suit not having been filed within three years from such demands the same is barred by limitation.

4. In the present case, the guarantee in question which has been executed by the appellants, contains the following clauses:-

“2. We the undersigned Sh. Gulab Chand, Subhash Chand and Faujdar hereby guarantee to the said Bank the payment on demand of all moneys at any time and from time to time thereafter due to the said Bank by the Borrower in respect of the said accommodation with interest thereon at ½% above/below State Bank of India Advance rate rising and failing therewith, with a minimum of the rate of 18.5 per cent per annum from the date of demand and the due performance and observance by the borrower of all the terms pertaining to the accommodation aforesaid and the payment of all costs and expenses incurred by the said Bank relation to the premises and we/I also agree to pay and make good to the said Bank on demand all losses, costs, damages and expenses occasioned to the said Bank by reason of the non-payment of the said moneys, costs and expenses or any part thereof or the breach or non-performance or non-observance of any of the terms aforesaid.

7. We/I further agree that the guarantee herein contained is a continuing one for all amounts due to the Bank by the Borrower under or in respect of the aforesaid advance granted as aforesaid as also for all interest, cost and other moneys which may from time to time become due and remain unpaid to the Bank hereunder.

10. We/I hereby further agree and undertake forthwith on demand made by the Bank to deposit with the Bank such sum or security or further sums of securities as the Bank may from time to time specify for the due fulfillment of our/my obligations under this guarantee and any security so deposited with the Bank may be sold by the Bank after giving to us/me a reasonable notice of the sale and the said sums or proceeds of sale of the securities be appropriated in or towards satisfaction of the said obligation and liability arising out of non-fulfillment thereof by us/me.” (emphasis added)

5. A reading of the aforesaid clauses shows that not only the guarantee is a continuing guarantee but the payment which is to be made to the bank has to be on demand by the respondent no.1/bank. In a case such as the present the suit against the appellants/guarantors will be very much within limitation because as against the principal borrower the suit became barred by limitation only on 21.7.1997, and the suit was filed before that date on 6.6.1997.

6. Learned counsel for the appellants sought to place reliance upon para 14 of the judgment in the case of Syndicate Bank Vs. Channaveerappa Beleri & Ors. AIR 2006 SC 1874 to argue that once the liability against the principal borrower is barred by time, the liability against the guarantor cannot be revived by making of a demand with respect to a time barred debt given to the principal borrower. Para 14 of the judgment in the case of Syndicate Bank (supra) reads as under:-

“14. We have to, however, enter a caveat here. When the demand is made by the creditor on t