Judgment : The Official Receiver representing the estate of the debtors in I.A. No.19 of 1977, pending before the Sub Court, Coimbatore is the revision petitioner. .2. Messrs.United Finance, 299, Raja Street, Coimbatore, was conducting a chit fund in which the first defendant in the suit was one of the subscribers. He bid the chit and executed a promissory note as collateral security, for payment of the future instalments. Ex.A-1, dated 4. 1972 is the said promissory note. Defendants 2 and 3 in the suit executed a deed of guarantee on the same date assuring the chit fund that in case the first defendants commits default in paying the amount, they would pay the amount. The relevant clauses in the deed of guarantee which are material for deciding this case read thus: .“Further I/We hereby agree that you be at liberty to give the said A.Ramalingam such extension of credit or time for payment and take renewals as you may think proper, and to take such documents for the said sums from the said A.Ramalingam either in the style of the firm or in the individual name of the partners viz., severally or jointly with others and that a release of any one or more of several sureties shall not discharge the firm, or other surety or sureties from its or his or their liability. I/We further agree that this does not affect your right to give him/them any additional loan on his/ their personal security or of others in dependent of this. Further I/We agree that undertaking responsibility of payments I/We dispense with notice or dishonour presentment for payment, etc. And I/We further agree that I/We or my/our survivors or heirs or legal representatives shall equally be liable to you for your advances to the said A.Ramalingam for all moneys due by him/ them and that this guarantee shall continue in force until it is terminated by a registered notice served on you at Coimbatore and that no other manner of service of notice shall be adopted or binding. If for any reason whatever you desire to close the transaction, I/We undertake to pay you on demand the balance standing to his/their debit at the time together with interest upto the date of payment.” .3. The chit fund was declared insolvent and a receiver was appointed to take over the assets. According to the petitioner, Ex. If for any reason whatever you desire to close the transaction, I/We undertake to pay you on demand the balance standing to his/their debit at the time together with interest upto the date of payment.” .3. The chit fund was declared insolvent and a receiver was appointed to take over the assets. According to the petitioner, Ex. A-2, deed of guarantee is acontinu-ous guarantee and the suit is not barred by limitation. Various reasons were mentioned to save the period of limitation. It is also stated that the first defendant acknowledged the liability on 20.5.1980 for himself and on behalf of defendants 2 and 3. The time from which the insolvency proceedings were initiated till the receiver took possession of the assets was sought to be excluded under Sec. 15(3) of the Limitation Act. In the suit, which was filed with permission of the court, the revision petitioner sought recovery of a sum of Rs.1,6157 from all the defendants jointly and severally. 4. The first defendant did not contest the suit. 5. The second defendant filed a written statement contending that Ex. A-2 is not a continuing guarantee and the suit is barred by limitation. According to him, the guarantors have not acknowledged the liability and if there is any acknowledgment made by the principal debtor, the rule of limitation is applicable only as against him and not as against the guarantors. 6. Ex.A-4 is the acknowledgment dated 20.5.1980 written by the first defendant. The wording in that document would show that it is an acknowledgment with intent to admit the subsisting liability. 7. The trial court, by judgment dated 37. 1984, passed a decree against all the defendants and held that the acknowledgment of liability by the first defendant will enure to the benefit of the petitioner and hence the suit is not barred by limitation. It binds all the defendants. In this connection, it is also to be noted that the notice of demand was issued only on 211. 1982, for it has also a bearing in deciding the question of limitation. It is Ex.A-3. 8. Defendants 2 and 3 filed a revision before the lower court as C.R.P. No.3 of 1985. By the impugned order, the lower court held that the acknowledgment made by the first defendant will not bind the other defendants and the suit is barred by limitation as against defendants 2 and 3. It is Ex.A-3. 8. Defendants 2 and 3 filed a revision before the lower court as C.R.P. No.3 of 1985. By the impugned order, the lower court held that the acknowledgment made by the first defendant will not bind the other defendants and the suit is barred by limitation as against defendants 2 and 3. The suit was dismissed with costs and against the said defendants. It is the said decision that is challenged by the petitioner in this revision. .9. The only point that has to be decided in this case is, whether the suit is barred by limitation as against the defendants 2 and 3, i.e., the respondents herein, and whether the acknowledgment made by the first defendant binds the respondents herein also. 10. To decide the question, the first point to be decided is, what is the nature of the guarantee that was executed by defendants 2 and 3 as evidenced by Ex.A-2. In the deed of guarantee, they have stated that they themselves, their heirs or legal representatives shall equally be liable to the chit fund for the advance made and the guarantee shall continue in force until it is terminated by registered notice served on the chit fund at Coimbatore. It further says that defendants 2 and 3 undertake to pay the chit fund on demand all the balance standing to his or their debit, at the time together with interest upto date of payment. The salient features are: (1) The executants bind themselves along with their survivors, heirs and legal representatives. (2) The guarantee shall continue in force until it is terminated by a registered notice. (3) The defendants 2 and 3 undertake to pay the balance amount outstanding when demand is made. It is on the basis of these salient features, the character of the deed will have to be considered. .11. Sheldon’s Practice and Law of Banking, X Edition, at page 338, deals with the kinds of guarantee. According to the learned Author, there are two kinds of guarantee specific or continuing. It is stated thus: ."The promise to be collaterally answerable may be so warded as to refer to a specified transaction only. Such a guarantee is called a specific guarantee, and it is void on repayment of the special advance it was given to secure. According to the learned Author, there are two kinds of guarantee specific or continuing. It is stated thus: ."The promise to be collaterally answerable may be so warded as to refer to a specified transaction only. Such a guarantee is called a specific guarantee, and it is void on repayment of the special advance it was given to secure. Or the guarantee may be worded so as to cover, within an agreed limit, the fluctuating debit balance of an account from time to time during the continuance of the guarantee. This is called a continuing guarantee, xxxx xxxx xxxx A continuing guarantee is not affected by any payments in, for it is framed to secure the final debit balance." 12. In S.Muthiah v. V.Dhanakodi, 99L. W. 1014, this Court has held that a contract of guarantee is a collateral engagement to perform the promise or discharge of a liability of a third party, in a case of his committing default. It, therefore, follows that such a contract requires the concurrence of three persons, and the section describes the three persons as surety, principal debtor and creditor. Sec.126 of the Contract Act contemplates a case where the relationship of debtor and surety is created by an agreement to which the creditor is a party. But it is possible that the relationship may be established without the creditor being a party. It is also possible that a person may become a surety without the knowledge or consent of the principal debtor, but in such a case, the right of surety will be limited to those mentioned in Secs.140 and 141 of the Indian Contract Act. In the same decision, it is further stated that, ‘The guarantee presupposes the existence of a separate obligation owed or to be owed by the principal debtor to the creditor and the liability of the guarantor or surety is thus necessarily brought into existence only on default by the person primarily liable, the importance of the last qualification can best be illustrated by cases in which the guarantor or surety become insolvent before the default is made by the debtor. In such cases, the creditor cannot prove against the surety’s estate in anticipation of possible default by the original debtor. What continues the default such as to attract the liability of the surety will depend upon the facts of each case. In such cases, the creditor cannot prove against the surety’s estate in anticipation of possible default by the original debtor. What continues the default such as to attract the liability of the surety will depend upon the facts of each case. ‘It is further held in that case as follows: "Whether a guarantee is a continuing one in any given sense, is a question of contraction and no , hard and fast rule can be laid down. Each case must depend on the language used and the document must be examined with reference to the total circumstances of the case. Where there is a floating balance and the guarantee is only of a portion thereof, such a contract must be construed prima facie as applicable to a part of the debt only. But if the liability is not floating balance, but in respect of a debt already ascertained, then prima facie the contract should be construed as security for the old debt. In such cases, it is a question of construction as to whether the intention was to guarantee the whole debt with a limitation on the liability of the surety or to guarantee a part of the debt only. It is however open to parties to contract event in the case of a floating balance, that a limited guarantee shall be applicable to the whole debt. In such a case; the creditor is entitled in the event of the principal’s bankruptcy, to prove the whole debt without any deduction and the surety is not at liberty to stand in the creditor’s shoes until every six pence of the whole debt has been received by the creditors." Sec.129 of the Indian Contract Act defines a continuing guarantee. In view of the peculiar words that are used in Ex.A-2, the salient features of which have been extracted above, it cannot but be held that the document evidences a continuing guarantee. 13. The next question that has to be decided in this case is, whether the suit as against the respondents is barred by limitation. 14. Art.55 of the Limitation Act says that the limitation starts when the contract is broken, or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases. A period of three years is provided for instituting the suit. 14. Art.55 of the Limitation Act says that the limitation starts when the contract is broken, or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases. A period of three years is provided for instituting the suit. The question came for consideration in the decision reported in Mrs.Margaret Lalita Samuel v. Indo Commercial Bank Limited, A.I.R. 1979 S.C. 102: (1979)2 S.C.C. 396 : (1979)1 S.C.R. 914 . In that case, their Lordships have held thus: "In the case of a continuing guarantee and an understanding by the defendant to pay any amount that may be due by a company to a Bank on the general balance of its account or any other account, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of guarantor to carry out the obligation, the period of limitation for a suit to enforce the bond could not be said to have commenced running. Limitation would only run from the date of breach under Art.115. (old Act of 1908)". In that case, their Lordships took into consideration the different view that was being agitated by English Court and finally approved the decision in Wright v. New Zealand Farmers Co-operative Association of Cantorbury Limited, 1939 A.C. 439. The following passage was cited with approval by their Lordships: "This guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing to you by the William Nosworthy and Robert Nosworthy on their current account with you for goods supplied and advances made by you as aforesaid and interest and other charges as aforesaid." A contention was raised in that case that the liability of the guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of advance. The Judicial Committee of the Privy Council expressed the opinion that the matter had to be determined by the true construction of the guarantee. The Judicial Committee of the Privy Council expressed the opinion that the matter had to be determined by the true construction of the guarantee. Proceeding to do so, the Judicial Committee observed (at P.499): "It is no doubt a guarantee that the Association will be repaid by the Nosworthys advance made and to be made to them by the Association together with interest and charges; but it specifies in Col.2 how that guarantee will operate namely, that it will apply to (i.e., the guarantor/ guarantees repayment of) the balance which at any time thereafter is owing by the Nosworthys to the Association. It is difficult to see how effect can be given to this revision except by holding that the repayment of every debit balance is guaranteed as it is constituted from time to time, during the continuance of the guarantee, by the excess of the total debits over the total credits. If that be the true construction of this construction of this documents, as their Lordships think it is, the number of years which have expired since any individual debit was incurred is immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted." Later it was again observed (at P.450) thus: "That document, in their opinion, clearly guarantees the repayment of each debit balance as constituted from time to time during the continuance of the guarantee, by the surplus of the total debits over total credits, and accordingly at the date of counter-claim the Association’s claim against the plaintiff for payment of the unpaid balance due from the nosworthys with interest, was not statute-barred." Rowlatt "On Principal and Surety," 4th Edition, page 192, deals with the claims against surety. The learned author says: "Time begins to run under the Statutes of Limitations in favour of a surety from the date of accrual of the cause of action; that is to say, from the date on which the surety may have been sued." In the same page, it is further stated: "Where a surety is only liable to pay after demand, time does not being to run till after it has been made." The learned author has also cited a decision in Wright v. New Zealand Farmers Cooperative Association of Cantorbury Limited, 1939 A.C. 439, of the Privy Council and stated that ‘repayment of every debit balance was guaranteed as it was continued from time to time by the excess of total debits over total credits and, therefore, the time which had expired since an individual debt was incurred was immediately and the period of limitation could run only from the time at which the balance guaranteed sued for has been constituted. ‘Chitty ‘On Contracts’ 25th Edition, Section 1847 deals with Principal and Surety. The learned author has stated thus: "Unless otherwise agreed under the contract of guarantee, the surety’s liability to the creditor arises on the principal debtor’s default so that time begins to run in favour of both of them at that moment. If the surety undertakes to pay on demand, a demand is a condition precedent to liability and the creditor’s cause of action accrues only when a demand is made and not complied with. Where it was agreed that the guarantee should be a continuing one and should apply, balance that was within or might at any time thereafter be owing, it was held that this was a guarantee of his debit balance as it was constituted so that the cause of action occurred not when each advance was made to the principal debtor, but when the debit balance in question was constituted." In Paget’s Law of Banking - 9th Edition - at page 521, the learned author says thus: "The view taken in Parr’s Baning Company Limited v. Yates, is, altogether inconsistent with intention and effect of a continuing guarantee. The object of such guarantee is the extension of a working credit to the principal debtor. The object of such guarantee is the extension of a working credit to the principal debtor. There could be no right to action against the guarantor unless there was also one against the principal debtor, and the guarantee would be meaningless if the creditor could demand and enforce repayment of every overdraft within 24 hours or less from the time which was granted." The learned author has also cited a passage from House of Lords in Rouse v. Bradford old Banking Company, 1894 A.C. 586 at 596: "It is obvious that neither party would have it in contemplation that when the bank had granted an overdraft, it would immediately without notice, process to sue for the money, and the truth is that, where there was any legal obligation to abstain from so doing or not, it is obvious that, having regard to the course of business, if a bank which had agreed to give an overdraft were to act in such a fashion, the results to its business would be of the most serious nature." The learned author further says that ‘there is another consideration which makes the question one of little practical importance. In Bradford Old Bank Limited v. Sutcliffe, (1918)2 K.B 833, it was pointed out that the contract of the surety was collateral, not a direction and that in such case, demand was necessary to complete and cause of action and set the statute running. [Italics supplied] Moreover, bank guarantees invariably specify that the liability of the surety is to pay a demand, and in this connection, the words are not devoid of meaning or effect, even with reference to this statute, as is the case with a promissory note payable on demand, but makes the demand a condition precedent to suing the surety, and so the statute does not being to run till such demand has been made and not complied with. In Union Bank of India, Ernakulam y,. Stephen and others, A.I.R. 1990 Ker. 180, a bench of that High Court held that in case of continuing guarantee so long as the debt is alive, the guarantors will be liable to pay. Their Lordships relied on an earlier decision of a single Judge of that Court reported in Popular Bank Limited v. The Union Coir Factories, I.L.R. (1961)1 Ker. 493. 15. 180, a bench of that High Court held that in case of continuing guarantee so long as the debt is alive, the guarantors will be liable to pay. Their Lordships relied on an earlier decision of a single Judge of that Court reported in Popular Bank Limited v. The Union Coir Factories, I.L.R. (1961)1 Ker. 493. 15. In this case, there is nothing in evidence that the guarantors have sent any registered notice intimating their intention to terminate the guarantee. So long as that has not been done by the respondents, they cannot say that their liability to pay the amount has ceased or that the guarantee is not in force. The absence of sending a registered notice terminating the guarantee gains importance from the fact that it is admitted that the first defendant acknowledged his liability under Ex. A-3 and has kept the debt alive. So long as the debt is kept alive by the principal debtor, the guarantee also will continue. Further, it is clear from the evidence in this case that the first demand was made only under Ex.A-3 dated 211. 1982. In the salient features (which I have narrated supra) I have stated that the issue of a notice of demand is a condition precedent. When that was done only in 1982, and when the debt is alive, by no stretch of imagination, can it be held that the suit filed on 26. 1983 is barred by limitation? In this connection, it is worthwhile to make mention of a passage from Rustomji on Limitation, 7th Edition, 1992 at page 645: "As between surety and creditor, the statute runs in favour of the surety when he was liable on account of a demand to the creditor. If the guarantor is to pay on demand or on request, time runs only from the demand or request. So, where a surety covenanted jointly with the mortgagor and also separately to pay on demand, time in the surety’s favour ran only from demand." The learned Author was commenting on Art.27 of the Limitation Act 1963. The decision of the Supreme Court was followed in Lilavati v. Bank of Baroda, I.L.R. 1987 Karn. 964 at 969 of the said decision, the learned Judge held thus: "Further surety bond says that it is a continuing guarantee. If it is a continuing guarantee, the question of limitation will not crop up at all. The decision of the Supreme Court was followed in Lilavati v. Bank of Baroda, I.L.R. 1987 Karn. 964 at 969 of the said decision, the learned Judge held thus: "Further surety bond says that it is a continuing guarantee. If it is a continuing guarantee, the question of limitation will not crop up at all. " 16. The lower court was of the view that the acknowledgment made by the first defendant will only save him and not the sureties. For the said purpose, the lower court has relied on a decision reported in Suwalal Vemichand v. Fazia Hussain Rajabalai Behra,A.l.R. 1939 Nag 31. The case followed by the lower court has no application to the facts of this case since that was not case of a continuing guarantee. The lower court was also of the view that the acknowledgment evidenced by Ex.A-3 is not binding on the respondents hereafter since it was signed by the first defendant alone in his individual capacity and not on behalf of the defendants 2 and 3. Even if the first defendant has signed the acknowledgment only in individual capacity, in view of Ex.A-2, the cause of action as against the respondents herein all arise only when a demand is made or when the respondents terminated the guarantee by registered notice. Till then there is no cause of action as against them. As stated earlier, the cause of action as arisen as per Ex.A-4 in 1982, and the suit can be filed against them thereafter. In view of this, I have to set aside the order of the learned District Judge and restore that of the trial court. 17. In the result, the civil revision petition is allowed, and the suit is decreed in terms thereof as against the defendants 2 and 3 as well. No costs.