The main legal point established in the judgment is the interpretation of Clause 16 of the Hypothecation Deed and Section 29 of the State Financial Corporation Act, 1951 in determining the limitation period for the recovery of a loan.

Deepak Gupta, J.

1. This Appeal is directed against the judgment and decree dated 19.4.2000 passed by a learned Single Judge of this Court whereby he dismissed the suit filed by the appellant (hereinafter referred to as the plaintiff) against the respondents (hereinafter referred to as the defendants) for recovery of Rs. 23,77,049.55 alongwith interest and costs etc.

2. Briefly stated the facts giving rise to the present case are that the defendant No. 1 M/s.. Manson (India) Pvt. Ltd. is a Company incorporated under the Indian Companies Act, 1956. It is not disputed that defendants 2 and 3 were the Directors of the said Company and they applied for grant of term loan of Rs. 21.49 lakhs for setting up an industrial unit. It is not disputed that an amount of Rs. 14.74 lacs as loan was sanctioned in favour of defendant No. 1 on 24.3.1984 and further loan amount of Rs. 6.75 lakhs was sanctioned on 10.10.1985. Loan documents were duly executed and the defendants 2 and 3 on behalf of the Company executed loan documents on 30.7.1985 and 22.11.1985. The defendants also executed personal deeds of guarantee on 30.7.1985 and 22.11.1985 in favour of the plaintiff Corporation promising to indemnify the plaintiff for repayment of the principal amount, interest and other moneys due to the plaintiff from the defendant No. 1 in connection with the loan. According to the plaintiff the defendant had created equitable mortgage by deposit of title deeds with the HPFC which was impleaded as proforma defendant No. 4.

3. The plaintiff, on the basis of the aforesaid documents filed the suit for recovery of the amount. According to the plaintiff, a notice had been served upon the defendants to pay the entire outstanding amount of loan plus interest on 26.7.1988 within 30 days of the notice failing which the entire loan would be recalled. The plaintiff further alleges that the industrial unit was financed jointly by the plaintiff and defendant No. 4. Since the defendant was in default of payment of the loan advanced by defendant No. 4, the HPFC in exercise of the powers vested in it under Section 29 of the State Financial Corporation Act, 1951 issued a take over notice and took over the entire mortgaged/hypothetic assets on 30.12.1988. These assets were sold by the HPFC for Rs. 44 lakhs and out of this amount of Rs. 44 lakhs the HPFC gave some amount to the plaintiff and thereafter the balance due from the defendant to the plaintiff was Rs. 20,53,729/- which had swollen to Rs. 23,77,049.55 as on 31.7.1992.

4. The defendants 2 and 3 who are father and son and were the original directors of the Company contested the suit on various grounds. According to them, they, with the knowledge and consent of the plaintiff Corporation and other financial institutions had transferred their shares in defendant No. 1 Company to M/s. Goverdhan Dass, Bhajan Lal and Ramesh Kumar in January, 1987 and thereafter their personal guarantees had been discharged. According to the defendants the new Directors had taken over the Company with the approval of the plaintiff and therefore they stood absolved of the guarantees executed by them. They also alleged that in fact the suit should have been filed against Bhajan Lal and Ramesh Kumar. It was pleaded that the suit was not within limitation. Various other grounds were raised.

5. The learned Single Judge held that the cause of action arose in favour of the plaintiff on 10.3.1988 when the default in payment of installment took place and the loan was recalled. Therefore, the suit should have been filed on or before 10.3.1991. Since the suit was actually filed on 17th September, 1992 it was held to be time barred. The learned Single Judge rejected the plea of the plaintiff that the suit was within time from the date when the assets were sold by the HPFC. While holding so the learned Single Judge relied upon a judgment of a Division Bench of this Court in case HPFC v. Tek Chand and Ors. Latest HLJ 2003 (HP) 889.

6. The learned Singl