The court established that a petition filed by a State Financial Corporation for enforcing the liabilities of sureties co-extensive with the principal debtor is not barred by limitation under Article 137 of the Limitation Act.

The Order of the Court was as follows :

This is a petition filed under Ss. 31 (1) (a) (aa) and 32 of the State Financial Corporations Act, 1951 seeking to pass an order against the respondents 2 to 5 jointly and severally to pay the petitioner a sum of Rs. 40,18,225.05 together with interest at contractual rate from the date of filing of the petition till the date of realisation and in default to proceed against them personally and their properties and costs.

2. The case of the petitioner in brief is as follows :-

"The petitioner-Corporation was incorporated to grant loan and advances to industrial concerns in the State of Tamil Nadu, on the security among other mortgages, hypothecation, etc. of the moveables and immoveables of such industrial concerns. The respondents 2 to 4, the partners of the registered firm, the first respondent, approached the petitioner-Corporation for term loan for purchase of land, construction of building and for purchase of machineries. The petitioner sanctioned a term loan of Rs. 21.52 lakhs on 14-6-1988. The respondents 1 to 4 had agreed to abide by the terms and conditions stipulated in the sanction order dated 14-6-1988 and executed a deed of hypothecation on 4-5-1989. The respondents 2 to 5 executed a deed of guarantee on the same date for the repayment of the loan. However, the respondents 1 to 4 did not repay the loan as per the terms and conditions and thereby committed breach of the same. Therefore, the petitioner took possession of the assets in exercise of the powers conferred under the deed of hypothecation and brought them for sale by public auction on 9-4-1996. The assets were sold for a sum of Rs.7 lakhs. The said sale consideration was credited to the loan account of the first respondent. On 30-6-1997 the petitioner issued a lawyer's notice calling upon them to pay the balance amount. Since the amount was not paid, the petitioner has approached this Court through this petition."

3. Two separate counter-statements were filed, one on behalf of the respondents 1 to 4 and another on behalf of the fifth respondent. According to the respondents, the interest rate of 16% and 18.25% claimed by the petitioner is excessive. As the industry could not even commence production, claiming such high rate of interest is unjust. The original petition filed by the petitioner is hopelessly barred by limitation. The date of public aution cannot be taken as starting point of limitation. Hence, the petition is liable to be dismissed.

4. On the above pleadings, the following points would arise for consideration :-

1) Whether the petitioner is entitled to claim the petition amount?

2) Whether the claim is barred by limitation as contended by the respondents?

5. As stated in the petition, the respondents 1 to 4 obtained a loan of Rs. 21.52 lakhs on 14-6-1988 by two term loan "A" account and "B" account and the respondents 2 to 4 agreed to pay the said loan with interest at the rate of 16% and 18.25% per annum respectively by executing a deed of hypothecation on 4-5-1989 and the respondents 2 to 5 executed a deed of guarantee on the same date for the repayment of the loan.

6. Document No.1 is the sanction order detailing the terms and conditions which contains the signatures of respondents 2 to 4. Document No. 2 is the deed of hypothecation which was signed by them.

This shows the details of the description of the machineries available in the factory. Document No.3 is the deed of guarantee in which the fifth respondent also signed as guarantor along with respondents 2 to 4. The reading of this documents would show that the respondents received the term loan and in violation of the terms and conditions of the agreement, they did not repay the loan. Document No.4 is the confirmation of auction which would show that the auction was held on 9-4-1996 and the sale consideration was Rs. 7 lakhs. Document No.5 is the notice issued by the counsel on behalf of the petitioner on 30-6-1997 calling upon the respondents