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2013 DIGILAW 2504 (BOM)

EDC Limited v. Penthouse Builders Pvt. Ltd.

2013-12-05

U.V.BAKRE

body2013
JUDGMENT 1. Heard Mr. Pangam, learned Counsel appearing on behalf of the petitioner and Mr. Menezes, learned Counsel appearing on behalf of respondents no. 2 to 4. None present for respondent no.1. 2. In terms of order dated 24/9/2013 passed by this court, respondents were already notified that the petition may be heard and disposed of finally at the admission stage. 3. Rule. Rule is made returnable forthwith. Mr. Menezes waives service of notice on behalf of the respondents no. 2 to 4. By consent heard forthwith. 4. By this petition, the petitioner has challenged the order dated 21/09/2011 passed by the learned Principal District Judge, North Goa, Panaji ('trial Court' for short) in Civil Miscellaneous Application No.143/2008. 5. The petitioner, which is a deemed “Financial Corporation” under Section 2(b) of the State Financial Corporations Act, 1951 (SFC Act, for short) and to which the provisions of Sections 29, 30 and 31 of SFC Act apply, in view of Government of India Notification dated 4/1/1993, had sanctioned and disbursed an aggregate term loan of Rs.63,35,000/- to respondent no.1, and the respondents no. 2 to 4 gave continuing guarantees for repayment of the said loan liability. The loan was sanctioned in the year 1987-1988 and the guarantees were also furnished in or about the same year. Since respondent no.1 defaulted in repayment of the loan in terms of the schedule, a recall notice dated 28/02/2001 was issued to respondent no.1 giving time upto 29/03/2001 to repay the outstanding dues of Rs.3,98,46,513/-. Respondent no.1, however, did not comply with the recall notice. The petitioner, therefore, invoked the provisions of Section 29 of the SFC Act, and on 03/04/2001, took over the assets of respondent no.1. Out of the auction of the said assets, the petitioner could recover an amount of Rs.1,36,00,000/- and thereafter, the petitioner on 15/06/2005 issued notice to respondents no. 2 to 4 to pay the dues of Rs.5,77,76,866.70, which was outstanding from respondent no.1. The said respondents were also called upon to pay penal interest. Since respondents no. 2 to 4 failed to comply with the said notice dated 15/06/2005, the petitioner filed a petition under Section 31 of SFC Act before the learned trial Court and that came to be numbered as Civil Miscellaneous Application No.143/2008. 6. In the said Civil Miscellaneous Application, respondents no. Since respondents no. 2 to 4 failed to comply with the said notice dated 15/06/2005, the petitioner filed a petition under Section 31 of SFC Act before the learned trial Court and that came to be numbered as Civil Miscellaneous Application No.143/2008. 6. In the said Civil Miscellaneous Application, respondents no. 2 to 4 filed an application dated 17/11/2008 raising objections to the maintainability of the application under Section 31(1)(aa) of SFC Act, on the ground of limitation. The petitioner filed reply dated 29/10/2010. Vide order dated 21/09/2011, impugned in this petition, the learned trial Court upheld the objections and held that the proceedings are barred by limitation. The trial Court, therefore, dismissed the proceedings. The trial Court observed that the recall notice was issued on 28/2/2001, almost 13 years after the respondents no. 2 to 4 had executed deeds of guarantees. The trial court held that there were no pleadings whatsoever about the repayment by the principal borrower as spelt out in the reply filed by the petitioner. The trial Court relied upon the judgment of the Apex Court in the case of “Syndicate Bank Vs. Channaveerappa Beleri and others” [ (2006) 11 SCC 506 ]. The trial Court observed that the applicant (petitioner) had amended its pleadings to incorporate that the principal borrower had admitted as late as February 2002 i.e. almost more than 13 years after the loan, to repay the loan and with no concurrence whatsoever of respondents no. 2 to 4. The trial court held that respondent no.1, for all purposes and effects, is a legal entity separate and distinct from respondents no. 2 to 4, who were the guarantors to the loan. According to the trial Court, the applicant (petitioner) could not show that there was any acknowledgment of the liability by any of the respondents no. 2 to 4 and hence, even assuming without admitting that respondent no.1 had agreed on the fresh repayment schedule to the applicant (petitioner), it would not bind respondents no. 2 to 4. Therefore, the objections lodged by the respondents no. 2 to 4 came to be upheld and the application under Section 31(1)(aa) of the SFC Act, filed by the petitioner came to be dismissed. 7. 2 to 4. Therefore, the objections lodged by the respondents no. 2 to 4 came to be upheld and the application under Section 31(1)(aa) of the SFC Act, filed by the petitioner came to be dismissed. 7. Learned Counsel appearing on behalf of the petitioner submitted that the trial Court could not have dismissed the application as time barred since no issues were framed nor any evidence was led to decide the question of limitation which was a mixed question of facts and law. He invited my attention to the averments made by the petitioner in paragraphs 1 of the application, about the recall notice dated 28/02/2001 sent to the principal borrower which notice was not complied with; paragraph 13, regarding the notice dated 15/06/2005 sent through petitioner's Advocate to respondents no. 2 to 4, invoking their guarantees and paragraph 17 wherein specifically the facts as to when cause of action arose, have been pleaded. He submitted that all the relevant documents including the statement of account, balance sheets, correspondence, etc. were annexed to the application. He urged that the question whether the principal borrower had made repayments in between 24/08/1991 till 13/08/1998, as claimed by the petitioner in its reply, was a question of fact. He submitted that in the reply filed by the petitioner to the application of respondents no. 2 to 4, the petitioner had clarified as to how as per the statement of account, balance sheet and other correspondence, there were repayments made by the principal borrower during the said period and during further period also. He invited my attention to the balance sheet wherein there is reference to last payment made by principal borrower on 31/03/2002. He relied upon the judgments of Calcutta High Court in the case of “Pandam Tea Company Ltd. Vs. Darjeeling Commercial Co. Ltd.”, reported in [1977(47) Company Cases 15] and in the case of “in re : Deepika Housing Projects Vs. Unknown”, [AIR 2007 Calcutta, 280] in support of his submission that acknowledgment made in the balance sheet is good and valid for extension of limitation period. 8. On the other hand, learned Counsel appearing on behalf of respondents no. 2 to 4, at the outset, submitted that the impugned order is dated 21/09/2011 whereas the present writ petition is filed on 30/07/2012 due to which the petition should fail on account of delay and laches. 8. On the other hand, learned Counsel appearing on behalf of respondents no. 2 to 4, at the outset, submitted that the impugned order is dated 21/09/2011 whereas the present writ petition is filed on 30/07/2012 due to which the petition should fail on account of delay and laches. He further submitted that the procedure in respect of the applications under Section 31 of SFC Act is given in Section 32 of the said Act. He pointed out that direction for enforcement of the liability of the surety or rejection of the claim made in this behalf is covered by Section 32(7)(da), and in terms of clause (9) of Section 32, appeal lies to the High Court. He, therefore, submitted that equally efficacious remedy was available to the petitioner. He further submitted that the application under Section 31 of SFC Act has been filed at Panaji when the Court at Panaji had no territorial jurisdiction. He pointed out that the notice of recall of entire loan to the principal borrower was given on 28/02/2001 due to which the limitation as against the principal borrower had expired in 2004. He submitted that the notice has been issued to respondents no. 2 to 4, who are the guarantors, on 15/06/2005 whereas the application under Section 31 of the SFC Act was filed on 29/08/2008. He submitted that the case is covered by Section 137 of the Limitation Act. He relied upon “Maharashtra State Financial Corporation Vs. Ashokkumar Agarwal and others” [ 2006 (3) Supreme 264 ]. According to him, the application has not been filed within the prescribed period of limitation under Section 137 of the Limitation Act. According to him, the cause of action against respondents no. 2 to 4 had arisen on 10/07/2005 i.e on their refusal to comply with the said notice dated 15/6/2005 after the time fixed therein and, therefore, the application was barred by limitation. He relied upon the judgment of the Supreme Court in the case “Syndicate Bank” others” (supra). 9. In rejoinder, the learned Counsel appearing on behalf of the petitioner submitted that after receipt of the notice sent to respondents no. He relied upon the judgment of the Supreme Court in the case “Syndicate Bank” others” (supra). 9. In rejoinder, the learned Counsel appearing on behalf of the petitioner submitted that after receipt of the notice sent to respondents no. 2 to 4, by the trial court, the trial Court did not proceed to investigate the claim of Financial Corporation in accordance with the provisions of the C.P.C. as applicable and did not make any order under sub-section (7) of section 32 of the Act He submitted that it is the order under sub-section (7) of Section 32 which is appealable under sub-section (9). He, therefore, submitted that the writ petition is maintainable. According to the learned Counsel for the petitioner, insofar as the principal borrower is concerned, Article 62 of the Limitation Act is applicable, since there was mortgage of immovable property. He, therefore, urged that the impugned order is liable to be quashed and set aside and the matter remanded to the trial Court for deciding the matter on merits. 10. I have perused the entire material on record and considered the submissions made by the learned Counsel appearing on behalf of the respective parties. 11. Section 32 of the SFC Act provides for procedure of district judge in respect of applications under Section 31. In terms of sub-section (1A), the trial Court had issued notice to the sureties to show cause as to why their liabilities should not be enforced. If cause was shown, then in terms of sub-sections (6) and (7), the trial Court had to proceed to investigate the claim of the petitioner in accordance with the provisions contained in C.P.C. and upon completion of such investigation, had to make appropriate order. In the present case, the respondents in stead of filing detailed reply on merits showing cause as to why the liability should not be enforced, chose to file preliminary objection of limitation by seeking leave to file detailed reply on merits in the event of dismissal of their objection. Therefore, the question of filing appeal under sub-section (9) of Section 32 did not arise as there was no investigation of the claim on merits, in accordance with the provisions of C.P.C. 12. In the case of “Syndicate Bank” (supra), it has been held that a guarantor's liability depends upon the terms of his contract. A 'continuing guarantee' is different from an ordinary guarantee. In the case of “Syndicate Bank” (supra), it has been held that a guarantor's liability depends upon the terms of his contract. A 'continuing guarantee' is different from an ordinary guarantee. There is difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor and a guarantee which does not contain such a condition. It is further observed that depending upon the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. It is observed that a claim may be even time barred against the principal debtor, but still enforceable against the guarantor. In the circumstances above, in the case supra, it has been held that when a demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. The Apex Court has held that if the debt had already become time barred as against the principal debtor, the question of creditor demanding the payment thereafter for the first time as against the guarantor would not arise. It has been held that when the demand is made against the guarantor, if the claim is a live claim (i.e. the claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of said demand and refusal/noncompliance. Therefore, it was necessary for the trial Court to find out the nature of the guarantees executed by respondents no 2 to 4. The deeds of guarantees, thus, had to be produced on record and tested by way of cross-examination to know their nature. Prima facie, a bare perusal of the guarantees reveal that they are continuing guarantees different from ordinary guarantees and there is no stipulation that the guarantor is liable to pay only on demand by the creditor. 13. Then, it had to be seen by the trial court whether the claim was time barred as against the principal borrower. Prima facie, a bare perusal of the guarantees reveal that they are continuing guarantees different from ordinary guarantees and there is no stipulation that the guarantor is liable to pay only on demand by the creditor. 13. Then, it had to be seen by the trial court whether the claim was time barred as against the principal borrower. Prima facie looking at the documents annexed to the application under Section 31(1)(aa), of the SFC Act, it does not appear at this stage that the claim of the principal borrower was time barred when the notice was sent to the respondents no. 2 to 4. In the case of “Deepika Housing Projects” (supra), the scope of Section 18 of the Limitation Act, 1963, the material part of which is in pari materia with Section 19(1) of the 1908 Act was considered. The petitioner had relied upon the acknowledgment made in the balance sheet. A reference has been made to the judgment in the case of “Bengal Silk Mills Vs. Ismail Golam Hossain Ariff” ( AIR 1962 Cal. 115 ), in which there was a balance-sheet which showed the amount claimed in that suit as debt owing by the company to the plaintiff under the liabilities of the company and it was relied on by the plaintiff in that suit as acknowledgment. It was contended that it was not a sufficient acknowledgment within Section 19 of the Limitation Act, 1908 because it had been prepared under compulsion of statue and of the Articles of the Association of the company and did not contain admissions of liability existing on the date on which admission was made and it was not signed by the person duly authorised on behalf of the company to make acknowledge of liability to the plaintiff. It was held that a document was not taken out of the purview of section 19 merely on the ground that it was made under compulsion of law. It was held that an admission of indebtedness in balance sheet was a sufficient acknowledgment under Section 19 of the Limitation Act, 1908. Again, in the case of “Pandam Tea Company Ltd.”(supra), an admission of indebtedness in balance sheet was considered as sufficient acknowledgment under the Limitation act. As observed by the trial Court there was moratorium period of 1.5 years, which started from 25/3/1987 and ended on or about 23/8/1988. Again, in the case of “Pandam Tea Company Ltd.”(supra), an admission of indebtedness in balance sheet was considered as sufficient acknowledgment under the Limitation act. As observed by the trial Court there was moratorium period of 1.5 years, which started from 25/3/1987 and ended on or about 23/8/1988. The statement of account was annexed to the application and said statement reveals that there were repayments made by the principal borrower on 29/1/1988, 29/12/1989, 19/03/1990, 09/04/1992, 27/05/1993, 29/07/1994, 13/01/1995, 29/03/1996 and 13/08/1998. The recall notice to the principal debtor was issued on 28/2/2001. According to the petitioner, by letter dated 8/3/2002, the principal borrower had acknowledged the debt and had effected repayment on 30/3/2002. The balance sheet reveals that payment was made by the principal borrower to the petitioner on 31/03/2002. Then, in the balance sheet of 31/2/2005, filed before the Registrar of Companies, Goa, Daman and Diu on 3/9/2005, the principal borrower had acknowledged the debt. In paragraphs (17) and (18) of the application under Section 31(1)(aa) of SFC Act, the petitioner has averred as follows: “(17) The cause of action for filing present application for the first time arose on 10/7/2005 when the Respondents failed to repay the loan amount despite having received the said demand notice dated 15/06/2005. The Respondent No. 1 again in its Balance Sheet for the year ended on 31/03/2005, filed in the office of Registrar of Companies at Panaji on 03/09/2005 has admitted the said loan dues and therefore fresh cause of action arose on 03/09/2005 and the same is continuing. (18) The application is not barred by Law of Limitation” 14. In the circumstances above, the observation made by the trial Court that there were no pleadings whatsoever about the repayment made by the principal borrower as spelt out in the reply filed to the preliminary objection, does not appear to be correct, since the documents were annexed to the said pleadings, which showed the repayments. 15. In the case of “Maharashtra State Financial Corporation” (supra), relied upon by the learned Counsel for the respondents no. 2 to 4, it has been held that the application under Sections 31 and 32 of SFC Act is not by way of execution of a decree or order of any Civil Court and that Article 137 of the Limitation Act applies. 2 to 4, it has been held that the application under Sections 31 and 32 of SFC Act is not by way of execution of a decree or order of any Civil Court and that Article 137 of the Limitation Act applies. In terms of Article 137 of the Limitation Act, limitation for filing an application for which no period of limitation is provided, is three years and time from which period begins to run is when the right to apply accrues. It may be that insofar as respondents no. 2 to 4 are concerned, Article 137 of the Limitation Act is applicable as contended by Mr. Menezes, learned Counsel appearing for them. However, prima facie, there is no force in the submission of the learned Counsel for the said respondents that the cause of action against the said respondents arose on 10/07/2005 i.e. from the date of refusal to perform their obligation and thus the application filed on 29/8/2008 is barred by limitation. Since the liability of the principal borrower had remained alive on account of its acknowledgment of debts, the liability of the respondents, on account of continuing guarantee, also remained alive. In such circumstances, it cannot be said that the application was barred by limitation. 16. Be that as it may, the question of limitation in the present case is a mixed question of law and facts and such a question cannot be decided without the issues being framed and evidence being led on either side. Unless all the documents relied upon by the petitioner are produced on record and there is evidence in support thereof and against the same, there cannot be an effective decision on the point of limitation. Therefore, the impugned order is liable to be quashed and set aside and the case remanded to the trial Court for adjudication on the point of limitation along with other issues, on merits. 17. In the result, the petition is allowed. (a) The impugned order dated 21/09/2011 passed by the Principal District Judge, North Goa, Panaji, in Civil Miscellaneous Application No.143/2008 is quashed and set aside. (b) The point of limitation shall be treated as a mixed question of law and facts and shall be decided on merits along with the other issues. (c) The parties shall appear before the learned Principal District Judge on 14/01/2014 at 10.00 a.m. 18. (b) The point of limitation shall be treated as a mixed question of law and facts and shall be decided on merits along with the other issues. (c) The parties shall appear before the learned Principal District Judge on 14/01/2014 at 10.00 a.m. 18. Rule made absolute in aforesaid terms, with no order as to costs. The petition stands disposed of.