A petition filed under Section 31(1) of the State Financial Corporation Act, 1951, to enforce a continuing guarantee is not barred by limitation under Article 137 of the Limitation Act, provided it is filed within three years after the public auction.

1. Petition filed under Section 31 (l) (aa) of the State Financial Corporation Act, directing respondents 2 and 3 to pay the petitioner a sum of Rs. 24,19,380.20 with further interest at 16% per annum from the date of filing till the date of realisation.

2. The case in brief is as follows:

The 1st respondent through its partners applied for a term loan for business for manufacturing audio cassettes and a term loan of Rs. 7.35 lakhs was sanctioned, by an order dated 30.6.82 by the petitioner. The terms of repayment and rate of interest are specified in the sanction order. The 1st respondent executed a deed of hypothecation on 211. 92 thereby hypothecating the machineries financed by the petitioner. Respondents 2 and 3 executed a deed of guarantee on 211. 82 thereby fully guaranteeing the due repayment of the above loan. The guarantee is a continuing one. It is also joint and several. The first respondent did not care to repay the loan and became a chronic defaulter. In spite of reminders and warnings, they failed to pay the instalments. The loan was foreclosed on 11. 92 and even then, the loan was not repaid, and brought the hypothecated assets through auction cum tender after due publicity in the leading dailies. The sale was held on 18. 94 and the machineries were sold for a sum of Rs. 1.01 lakhs and the said sale consideration was credited to the loan account.

3. The petitioner caused a notice dated 30.6.97 to the respondent calling upon them to pay the remaining amount. As on 8. 97, a sum of Rs. 24,19,380.20 is due and payable and as such the petitioner is filing this Petition invoking the deed of guarantee dated 282.

4. The 3rd respondent alone filed a counter statement and denied the various averments. The availing of loan by the first respondent as well as the deed of guarantee executed are admitted. While the loan extended was Rs. 7.35 lakhs, only a sum of Rs. 5.15 lakhs was drawn and deducting an amount of Rs. 75,000 from Rs. 5.15 lakhs, being subsidy not disbursed by the petitioner to the respondent. The actual amount availed by the first respondent comes to Rs. 4.40 lakhs only. He sought for extension of time for repaying the amount, but the petitioner prematurely foreclosed the loan in the year 1992. The petitioner brought the hypothecated assets for sale through public auction. If they had carried on their business of music recording, they would have realised about Rs. 5.25 lakhs. When the loan was foreclosed in 1992 and the sale was held in 1994, there was no communication also. The petitioner has not given details as to what amount of the loan was outstanding on the date of the sale and how much exactly was credited to the loan account. Now the interest has been claimed at Rs. 19,75,734.35 without stating how it has been worked out. The claim is also barred by time. Between 1994 and 1997, there is absolutely no communication from the petitioner to the respondents. The petitioner ought to have instituted the proceedings much earlier. Hence, the petition is liable to be dismissed.

5. On the above pleadings, the following issues arise for consideration:MADRAS

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

.(2) Whether the claim is barred by time as contended by the 3rd respondent ?

.(3) To what relief?

6. Issues 1 to 3: The first respondent through the partners applied for a term loan for business for manufacturing audio cassettes and availed a loan of Rs. 7.35 lakhs. The instalments have not been paid properly. The 1st respondent also executed a deed of hypothecation. Respondents 2 and 3 also executed a deed of guarantee on 292. Learned counsel for the petitioner contended that the guarantee is a continuing one. The loan was foreclosed by the petitioner Corporation on 11. 92 and hypothecated assets were brought to auction and a sum of Rs. l.01 lakhs was realised and it was given credit to the loan account. Now the petition has been filed to enforce the guarantee again