The limitation period for initiating recovery actions under Section 31 of the State Financial Corporation Act begins from the date of the original cause of action, not from subsequent actions or notices.

CAV JUDGMENT

(PER: HON'BLE MR JUSTICE SREENIVAS HARISH KUMAR)

This is an appeal preferred under Section 32 (9) of the State Financial Corporation Act (‘SFC Act’ for short). The material facts that led to this appeal being filed are as below:

2. The appellant initiated action under Section 31 (1) (aa) of SFC Act to recover a sum of Rs.2,98,30,100.04 with interest from the respondents 2 and 3 who were sureties to the loan granted by the appellant to the first respondent. Initially, a sum of Rs.30 Lakhs was sanctioned to the first respondent in the year 1981, and at that time itself respondents 2 and 3 stood as sureties by executing an irrevocable deed of continuing guarantee. The first respondent having become a defaulter approached the BIFR in the year 1989. The BIFR directed the appellant to sanction a further sum of Rs.25 Lakhs, and it was sanctioned also. Rs.66.26 Lakhs was the sum that had accrued towards interest on the original loan amount of Rs.30 Lakhs, and it was funded, however penal interest of Rs.8,47,627.67 was waived. Again the respondent became a defaulter. The BIFR declared the first respondent a sick company and ordered for its winding up. In the meantime the appellant initiated action under Section 29 of the SFC Act against the first respondent and thereafter by issuing a notice dated 29.12.2000, invoked the deed of guarantee executed by respondents 2 and 3. According to the appellant, the respondents 2 and 3 did not receive the notice and they did not discharge their obligation also. This resulted in a petition being filed under Section 31 (1)(aa) of the SFC Act on 8.6.2001 before the City Civil Court, Bengaluru. The petition was later on transferred to District Court, Mysuru, as it was the Court which had territorial jurisdiction.

3. The second respondent filed statement of objections prominently contending that the petition under Section 31 (1)(aa) was time barred. The District Judge, Mysuru, held an enquiry, and by his order dated 5.3.2012 in Mis.No.38/2010, dismissed the petition holding it as barred by limitation. Hence this appeal.

4. We heard the argument of Sri Venkatesh S Arbatti, learned advocate for the appellant and Sri G.Krishna Murthy, learned Senior Advocate, who argued on behalf of learned advocate Smt.Bhavana G K, for respondent No.2.

5. The main points urged by Sri Venkatesh S Arbatti are these: The respondents do not dispute their suretyship for the loan transaction and the execution of a deed of continuing guarantee. The first respondent became a defaulter, not even a single pie was repaid. There was restructuring of loan due to intervention of BIFR, and even thereafter the first respondent failed to repay the sum borrowed by it. On 29.6.1998, the appellant took over the assets of the first respondent by exercising power under Section 29 of the SFC Act. On 21.7.2000, the BIFR passed an order declaring the first respondent a sick company and it should be wound up. On 29.12.2000, a notice was issued under Section 30 of the SFC Act recalling the loan amount. Petition under Section 31 (1)(aa) of the Act was filed on 08.06.2001 at City Civil Court, Bengaluru which was later on transferred to District Court, Mysuru. The petition was filed within three years according to Article 137 of the Limitation Act from the date of recalling of the loan amount under Section 30 of SFC Act.

5.1. Before proceeding under Section 31 (1)(aa) of the Act, the appellant had taken recourse to action under Section 29 of the SFC Act. And since the action under Section 31 (1)(aa) of the Act against the sureties was for the balance that remained after adjustment of dues under Section 29 of the Act, period of limitation has to be reckoned from the date of closure of proceeding under Section 29 , and thus seen, the petition was filed within three years from 29.06.1998, which was the date on which the assets of the first respondent were taken over under Section 29 of the Act. The order impugned therefore suffers from lega