Aditya Narayan Chouresia v. Bank Of India — 1999 DIGILAW 1172 (PAT)

Judgment 1. This appeal is by defendant No. 2 in the suit. He was the guarantor for the cash-credit facility extended by the plaintiff-bank/respondent No. 1 to the principal debtor-respondent No. 2. The plaintiff-bank brought the suit for recovery of Rs. 1,04,601.06 which was decreed against the defendants, including the principal-debtor and the guarantors/defendants. There are three defendants in this case. The 1st defendant is the principal-debtor, whereas defendants 2 and 3 are the guarantors. 2. The gist of the case of the plaintiff-bank is that defendant No. 1 (Subodh Kumar), the principal-debtor, ran a grocery shop. He approached the plaintiff for financial assistance by way of working capital and the plaintiff agreed to grant cash-credit facility to him to a limit of Rs. 25,000.00 only re-payable with interest @ 2.85 % over Reserve Bank of India, subject to a minimum of 11.85% per annum, for which he executed a demand promissory note dated 10-10-1980 (exhibit 1), a deed of hypothecation of tangible movable property and defendants 2 and 3 executed a continuing guarantee dated 10-10-1980 taking all the responsibility that they would also be liable to pay the amount to the plaintiff-bank. It is the further case of the plaintiff that on the request made by defendant No. 1, the plaintiff on 4-11-1980 allowed him to over-draw the account to the extent of Rs. 25,000.00 more and defendant No. 1 executed another promissory note with respect thereof (exhibit 1/a). But defendant No. 1 failed to operate the account regularly, though he had availed the cash-credit facility. By the letters of acknowledgment of indebtness dated 3-7-1982 and 25-6-1984 (exhibits 5 and 5/a) respectively, the defendants acknowledged the liability for payment of the entire dues in the cash-credit facility account of the principal-defendant. In spite of demands and vakalat notice, the defendants failed to regularise the accounts or to clear the dues. Hence, the plaintiff-bank brought the suit for recovery of due sum in the account against the defendants. The stand of the plaintiff bank was that defendants are jointly and severally liable to pay the same. 3. Defendants 1 and 2 resisted the suit by filing separate written statements. Defendant No. 1 admitted in the written statement that he had approached the plaintiff-bank on 10-10-1980 for cash-credit facility for Rs. The stand of the plaintiff bank was that defendants are jointly and severally liable to pay the same. 3. Defendants 1 and 2 resisted the suit by filing separate written statements. Defendant No. 1 admitted in the written statement that he had approached the plaintiff-bank on 10-10-1980 for cash-credit facility for Rs. 25,000.00 which was granted to him and that on 4-11-1980 on his request, the plaintiff allowed him to over-draw the account to the extent of Rs. 25,000.00 more, but he has denied to have executed the promissory notes (exhibits 1 and 1/a) or to have agreed to pay the alleged interest at compound rate. His stand was that his signatures were obtained by the plaintiff-bank on blank forms, which might have been converted into the promissory notes. He also denied to have executed the letters of acknowledgment of the debt (exhibits 5 and 5/a). He contended that the suit as framed is not maintainable; that the claim was barred by limitation, estoppel and waiver and that the plaintiff was entitled to no relief.Defendant No. 2 admitted in his written statement that he executed the letter of guarantee dated 10-10-1980 (exhibit 4) for the cash-credit facility of Rs. 25,000.00 only extended by the plaintiff-bank to defendant No 1. According to him, defendant No. 1 never agreed to pay interest at the compound rate and the letter of guarantee (exhibit 4) had lost its force on 9-10-1983 and it was never for the enhanced limit of the cash-credit facility extended by the plaintiff to defendant No. 1 with effect from 4-11-1980 and when such agreement was made by the plaintiff-bank with defendant No. 1 without his consent, he was discharged from the liability of surety for the debt. Further, his stand was that the letters of acknowledgment of liability (exhibits 5 and 5/a) do not bind him and that the claim as against him is barred by limitation. This was the main case put up by him at the trial.Defendant No. 3 did not appear in the suit to contest the claim of the plaintiff-bank. 4. The following issues, on re-cast, were framed for determination in the suit : "1. Is the suit of the plaintiff as framed maintainable ?2. Has the plaintiff got any valid cause of action for the suit?3. 4. The following issues, on re-cast, were framed for determination in the suit : "1. Is the suit of the plaintiff as framed maintainable ?2. Has the plaintiff got any valid cause of action for the suit?3. Is the plaintiffs claim for recovery of money against defendant No. 2 barred under the provisions of act of limitation?4 Whether the plaintiff is entitled to a decree against the defendants, as claimed for?5. To what relief or reliefs, the plaintiff is entitled to ?" 5. At the trial, the plaintiff-bank examined one witness, namely, Omprakash, as P.W. 1, an agricultural assistant, and tendered documents in evidence in support of its case. Defendant No. 2 examined himself as D. W. 1, whereas defendant No. 1 figured as D. W. 2 in the suit.The trial Court on consideration of the evidence, oral and documentary on record, decided all the issues in favour of the plaintiff and decreed the suit holding that the defendants were jointly and severally liable for the dues of the plaintiff-bank. 6. The appeal has been contested by the plaintiff-respondent. The appeal against the principal debtor-respondents 2 and 3 stands dismissed for non-compliance of the peremptory order to file the requisites for issuance of appeal notices to them. The question whether the whole appeal has become incompetent on this account would be considered at the appropriate place in the judgment. 7. The evidence of P.W. 1 and the two demand promissory notes (exhibits 1 and 1/a), the two letters of acknowledgment of indebtness (exhibits 5 and 5/a) and the extracts of the register of cash-credit facility accounts of the principal defendant establish beyond doubt that he had availed of the over-draft facility extended by the bank and the sum claimed is due to the plaintiff-bank from him and that he had acknowledged his liability with respect thereof and the suit was brought within the period of limitation for recovery of the amount. Even the principal defendant (D.W. 2) admitted to have taken the loan of Rs. 25,000.00 from the bank on 10-10-1980 for the grocery shop. There is nothing to suggest that the principal defendant has preferred any separate appeal against the impugned judgment/decree. 8. Mr. Debi Prasad, learned Sr. counsel for the appellant, did not challenge the finding of the trial Court regarding the liability of the principal-debtor. 25,000.00 from the bank on 10-10-1980 for the grocery shop. There is nothing to suggest that the principal defendant has preferred any separate appeal against the impugned judgment/decree. 8. Mr. Debi Prasad, learned Sr. counsel for the appellant, did not challenge the finding of the trial Court regarding the liability of the principal-debtor. He has pressed the appeal on the ground that the appellant by the guarantee deed (exhibit 4) bound himself for the advance made by the bank to the principal defendant to the extent of Rs. 25,000.00 only and not beyond it and when the bank subsequently raised the over-draft facility of the principal defendant to a further sum of Rs. 25,000.00 without the consent of the appellant-guarantor, the liability of the latter as surety was discharged from the contract, and in the alternative, he urged that the liability of the appellant by the agreement of guarantee (exhibit 4) is limited to the advance made in the sum of Rs. 25,000.00 only and not beyond that. He further contended that the appeal has been filed by the guarantor disowning his own liability and is directed against the plaintiff-bank challenging the liability, the bank for the purpose is necessary party and there would not be in-consistent decrees, though the appeal has abated as against the defendants-respondents 2 and 3 and under Order 41 Rule 33 of the Civil Procedure Code, the appellate Court has the fullest power to do complete justice between the parties, though the appeal does not extend to the whole of the decree and though some of the parties appeal and others do not. 9. Mr. 9. Mr. A. Allam, learned counsel for the respondent-bank, on the other hand, has contended that exhibit 4 is a document of continuing guarantee, which would cover the future transactions till the balance is struck or settled; that the cash-credit account of the principal-debtor is one and running account; that in the contract of continuing guarantee (exhibit 4) there is stipulation that the guarantors have agreed that the plaintiff-bank shall have full discretionary power; without any further consent from the guarantors to vary any contract or any term or terms of any contract entered into with principal-debtor and it would not in any way affect the liability of the guarantors, that the acknowledgements by the principal-debtor of the liability would bind the guarantor (Ref : 1992 (1) Bank CLR 579 (Him Pra) UCO Bank V/s. Ashok Gautam); that the continuing guarantee had not been revoked by the guarantor(s) and as such they are liable for the whole debt. 10. The following points emerge in this appeal for decision :i). Whether the appellant-guarantor is liable for the debt of the principal-defendant (defendant No.1) and, if so, to what extent?ii). Whether the claim of the plaintiff-bank against the appellant is barred by limitation ?iii). Whether the appeal has become incompetent on account of its abatement as against respondents 2 and 3? 11. Point Nos.i) and ii) : It has been noticed above that defendant No. 2 has admitted in the written statement that he stood as guarantor for the sum of Rs. 25,000.00 only advanced to the principal-debtor (defendant No. 1) and that he had executed a deed of guarantee dated 10-10-1980 (exhibit 4) thereof in favour of the plaintiff-bank. He has also testified to this effect in his evidence. The deed of guarantee (exhibit 4) stipulates that it shall be continuing security, which could be revoked by the guarantors at the expiration of one calendar months notice given by them; that it shall be applicable to the ultimate balance that may become due from the principal in the cash-credit facility account; that the plaintiff-bank-creditor will have full discretionary power to vary the terms of the contract with the principal without their consent and would bind them. It is significant to note that there is a specific provision in the deed of guarantee which runs thus : "Provided always that the total amount which we shall be liable to pay under this guarantee shall not exceed Rs. 25,000.00 together with interest thereon, or on such less sum as may be due, at the rate of 11.85 or at such other rate of interest which may then be payable by the Principal (including in particular interest at an additional or penal rate in the event of default by the Principal in punctual payment of any instalment and/or of interest).............." The plaintiff-bank has not brought on record any other deed of guarantee, executed by defendants 2 and 3 with respect to the enhancement of the overdraft limit in the cash credit loan account of the principal defendant with effect from 4-11-1980. So the liability of the guarantors has to be adjudicated on the basis of the deed of guarantee (exhibit 4). Where the surety has given a continuing guarantee, limited in amount, to secure the floating balance which may from time to time be due from the principal-debtor to the creditor, the guarantee is prima-facie to be construed as being of part only of the debt. A continuing guarantee may even be for the fixed period (Ref : AIR 1986 Calcutta 61 Eastern Bank Ltd. V/s. Parts Services of India Limited). It is well settled that the guarantor cannot be made liable beyond the terms of the agreement (Ref :- AIR 1967 SC 1634 : State of Maharashtra V/s. M. N. Kaul).In the instant case, the guarantors under exhibit 4 have bound themselves to the maximum limit of Rs. 25,000.00 as the principal debt, besides the interest payable on it. The liability does not extend beyond that. In other words, they are not liable for the whole debt, but the part of the debt, agreed between the parties in terms of the deed of guarantee. 12 It has now to be considered whether the claim of the plaintiff-bank against the guarantor(s) is barred by limitation. The liability does not extend beyond that. In other words, they are not liable for the whole debt, but the part of the debt, agreed between the parties in terms of the deed of guarantee. 12 It has now to be considered whether the claim of the plaintiff-bank against the guarantor(s) is barred by limitation. In the instant case, the principal-debtor acknowledged the indebtness to the plaintiff-bank under the letters dated 3-7-1982 and 25-6-1984, vide exhibits 5 and 5/a. Acknowledgment of the debt by the principal-debtor binds a guarantor as well (Ref : Ashok Gautams case (1992 (1) Bank CLR 579)(supra) and 1992 (2) Bank C.L.R. 210 (Him Pra) : Oriental Bank of Commerce V/s. Shivram Thakur. The suit was brought within three years of the acknowledgment of the debt by the principal-debtor under exhibits 5 and 5/a. By the acknowledgment of the debt, by the principal debtor, there is no renewal of the debt and no new debt is created and the debt remains the same, i.e. the debt guaranteed. It is now well settled that the agreement executed by the guarantors is a separate and collateral contract and it is distinct from the contract of the debt between the principal and the creditor. This is clear from the fact that the Article for the period of limitation with regard to the contract for the guarantee is Article 55. It has been noticed above that in the contract of guarantee (exhibit 4) there is stipulation that the guarantee shall be the continuing security and binding on defendants 2 and 3. But the security is for the sum of Rs. 25,000.00 only, besides interest, which may be found due from the principal-debtor to the plaintiff-bank on the ultimate balance in his account. The effect of such an agreement has been considered by the Apex Court in Margaret Lalita V/s. Indo Commercial Ltd., AIR 1979 SC 102 and it has been observed thus (at pp. 25,000.00 only, besides interest, which may be found due from the principal-debtor to the plaintiff-bank on the ultimate balance in his account. The effect of such an agreement has been considered by the Apex Court in Margaret Lalita V/s. Indo Commercial Ltd., AIR 1979 SC 102 and it has been observed thus (at pp. 106-07) : "In the case of a continuing guarantee and an undertaking 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 an account is a live account in the sense that it is not settled and there is no refusal on the part of the 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. The limitation would only run from the date of breach under Article 115." In the instant case, before institution of the suit, the guarantors did not withdraw their guarantee or there was no occasion for the refusal on the part of the guarantors to carry out the obligation. It has been laid down by the Apex Court that so long the account is a live account, the guarantors are liable and a live account is one that is not settled, that means which has not been discharged by payment or by any other arrangement. Article 55 of the Indian Limitation Act, 1963 , corresponds to Article 115 of Old Limitation Act, 1908.In this case, there is no dispute that the amount due to the bank has not been paid by the principal-debtor or the guarantors. Defendant No. 2 appellant has not pleaded in the written statement nor produced any document to show that any sum towards the debt has been paid or realised from him. A debt, though barred by limitation is not extinguished. In the instant case, the principal-debtor had postponed the bar of time against recovery by acknowledgments. In this case, there is un-discharged live liability and the guarantors (defendants 2 and 3) are liable under the agreement to the extent of Rs. A debt, though barred by limitation is not extinguished. In the instant case, the principal-debtor had postponed the bar of time against recovery by acknowledgments. In this case, there is un-discharged live liability and the guarantors (defendants 2 and 3) are liable under the agreement to the extent of Rs. 25,000.00 only, besides the interest thereon.The period of limitation under Article 55 of the Indian Limitation Act, 1963 (the Act for short) for enforcing the liability of the defendants under the surety bond is three years, when the contract is broken or the breach of the contract occurs. The guarantors did not pay the due sum inspite of the registered vakalatnama notice given by the plaintiff-bank vide exhibits 6, 7 and 7/b. The instant suit was brought on 1-7-1985 within the period of limitation. As laid down under Article 55 of the Act. So the claim of the plaintiff-bank against the guarantors to the extent indicated above is not barred by limitation.Point Nos. i) and ii) are thus answered. 13 Point No. iii): The suit was brought by the plaintiff-bank against the principal-debtor as well as the guarantors. The creditor could even sue a surety without proceeding against the principal-debtor. The liability of the principal-debtor and a surety is joint and several. There is no conflict in the claim of the appellant vis-a-vis the principal-debtor-respondent No. 2. The instant appeal is for ascertainment of the liability of the appellant as a guarantor and the real controversy in the appeal is between the appellant and the plaintiff-bank. Therefore, there would be no inconsistent decrees, inasmuch as the main decree against the principal-debtor remains untouched. Hence, in my considered view, the appeal as a whole has not become incompetent simply because it stood dismissed as against defendants-respondents 2 and 3 for non-compliance of the peremptory order. Even though, respondent No. 2 (the other guarantor) has not appealed against the decree and since his liability is at par with that of the appellant, it is necessary for the ends of justice under Order 41, Rule 33 of the Civil Procedure Code to interfere with the impugned decree modifying his liability to the extent as discussed above to avoid unequal relief being granted to similarly placed parties.This point is decided accordingly. 14. In the result, the appeal is allowed in part only. 14. In the result, the appeal is allowed in part only. The impugned judgment and decree under challenge is modified to the extent that the liability of the appellant and the respondent No. 3 is limited to the sum of Rs. 25,000.00 only with interest thereon at the agreed rate under the contract of guarantee (exhibit 4) till the date of the institution of the suit and interest-pendente lite and future on such due sum at the rate of 6% per annum. However, in the circumstances of the case, there would be no order as to costs.Appeal partly allowed.