Friday 19 November 2021

Hiralal Chhotalal Shah Vs. Central Bank Of India. - Extension of Limitation of Surety's liability, Interplay of Sec. 20(2) of "The Limitation Act" with Sec. 128 of "The Contract Act".

HC Ahmedabad (21.11.1980) In Hiralal Chhotalal Shah Vs. Central Bank Of India. [Civil Appeal No. 98 Of 1978] held that;

  • Debts are deemed distinct the same result follows upon a true construction of sec. 20 itself. Sec. 128 of the Contract Act which makes the liability of the surety co-extensive with that of the principal debtor is of no assistance to the plaintiff as it must be read along with the provisions of the Limitation Act;

  • A payment of one person cannot keep alive the remedy against another unless the circumstances are such that payment by the one may be regarded as a payment for the others.

  • But even then the part payment or acknowledgment of liability by one of the joint debtors viz. defendant No. 1 cannot ipso facto extend the period of limitation against the present appellant who may be treated to the at the highest a joint debtor on account of the recitals in the surety bond Ex.43 sec. 20(2) of the Limitation Act in terms states : Nothing in the said sections rendered one of several joint contractors partners executors or mortgagees chargeable by reason only of a written acknowledgment signed by or of a payment made by or by the agent of any other or others of them. 

  • Consequently even if the recitals in the surety bond Ex. 43 elevate the present surety to the status of a joint promisor even then in the light of sec. 20 (2) of the Limitation Act the decision has got to be against respondent No. 1 Bank for the simple reason that even if defendant No. I might have acknowledged or partly paid the dues of the bank the said acknowledgment or part payment will not extend the period of limitation against diffident No. 1 the present appellant.


Excerpts of the order;

(5) The trial court raised issues at Ex. 13 and came to the conclusion after recording evidence that the execution of the promissory note on 19/09/1968 by defendant No. 1 was duly proved and that defendant No. 2 has stood surety for the amount of the promissory note borrowed by defendant No. 2. On the question of limitation the court took the view that the suit was within limitation only against defendant No. 1 and held that acknowledgement made by defendant No. 1 was not binding on defendant No. 2 nor was the period of limitation against defendant No. 2 extended by various part payments of the loan amount made by defendant No. 1. It was therefore held that the suit against defendant No. 2 was barred by limitation. The result was that the suit of the bank against defendant No. 2 was dismissed while it was decreed against defendant No. 1.

 

(6) The trial courts decree resulted into an appeal at the instance of the plaintiff bank before the District court Surat. The bank contended in its appeal before the District court that the trial court ought to have passed a decree against surety defendant No. 2 also. So far as original defendant No. 1 was concerned he did not challenge the decree passed against him by the trial court and it became final against him.

 

(7) The appellate court took the view that looking to the terms of the surety bond Ex. 43 defendant No. 2 had accepted his position as the principal debtor and as per the terms of the surety bond he would be liable to make good the suit amount as the payments made by the co- debtor defendant No. 1 would extend the period of limitation against defendant No. 2 also. In the view of the matter the learned appellate Judge allowed the banks appeal and passed an additional decree against defendant No. 2 the present appellant also. As stated earlier that has brought dissatisfied defendant No. 2 to this court by way of the present second appeal.

 

(8) It is apparent that now the dispute centres round the plaintiff bank on one hand and the surety defendant No. 2 on the other. The banks decree against defendant No. 1 principal debtor has become final and the principal debtors liability is therefore no longer in controversy at the present stage.

 

(9) Mr. Shethna the learned Advocate appearing for the appellant defendant No. 2 contended that the appellate court had committed an error of law when it held that the suit was not barred against defendant No. 2 who was a surety. Mr. Shethna contended that even though as per the surety bond Ex. 43 the surety had accepted his liability to be treated as a co-promissor and joint debtor even then as per sec. 20 of the Limitation Act 1963 part payment of the joint debt or any acknowledgement by a co-debtor cannot extend the period of limitation against non-paying or non-acknowledging co-debtor or co-promissor. Mr. Sheth relying upon two Division Bench judgments of the Bombay High Court and other decisions of other High courts contended that part payment or acknowledgement by the principal debtor cannot extend period of limitation against the surety and the suit against the surety was obviously barred by limitation.

 

(11) As stated above the rival contentions of the learned Advocates for both the sides raise a short question about limitation and the question lies in a very narrow compass in the background of the admitted facts. The promissory note in question was executed on 19/09/1968 and on that very day the surety bond was executed by the present appellant. The principal debtor-original defendant No. 1 went on making various part payments towards the promissory note dues upto 2/06/1970. Thus by virtue of sec. 19 of the Indian Limitation Act 1963 so far as the principal debtor or concerned the creditors remedy against him to enforce the balance of the loan amount would get extended upto a period of three years more from 2-6-1970 while the suit has been filed on 10-10-1971. Thus on the date of the suit the remedy of the creditor against the principal debtor to enforce the promissory note dues was quite alive as it had gone extended by various part payments of the loan amount by the principal debtor. The only short question is whether such extension of limitation for enforcing the creditors remedy against the principal debtor was also available against the surety present appellant when he himself had not made any part payments towards the suit dues nor had he made any acknowledgement himself nor had he authorised the principal debtor-defendant No. 1 to make any part payment or acknowledgement on his behalf. It is further an admitted fact that on 10-10-1971 in reply to the suit notice defendant No. 1 original principal debtor also made acknowledgement of his subsisting liability to pay the balance of the dues under the said promissory note. In the background of these proved and admitted facts the short question which has been posed for my consideration has to be answered as to whether the part payment and acknowledgement of liability on the part of the principal debtor qua creditor would extend the period of limitation for enforcement of the creditors remedy also against the surety present appellant when the present appellant has made no such acknowledgement or part payment nor had he authorised the principal debtor to do so on his behalf.

 

(12) Mr. Shethna learned Advocate for the appellant has invited my attention to a Division Bench judgment of the Bombay High Court in Gopal Daji Sathe v. Gopal bin Sonu and Others 5 B. L. R. 1020. The Division Bench of the Bombay High Court consisting of Lawrence Jenkins C. J. and Aston J. in terms considered the very question which has been posed for my consideration in the present proceedings. The question before the Division bench was whether payment of interest by the debtor within limitation does not give a fresh starting point of limitation against the surety under sec. 20 of the Limitation Act 1877 which is equivalent to sec. 19 of the present Act of 1963. The Division Bench speaking through Jenkins C. J. in this connection observed :

  • In the absence of a prohibition by the surety against the payment of interest by the debtor on his account the payment of interest by the debtor within limitation does not give a fresh starting point for limitation against the surety also under sec. 20 of the Limitation Act 1977 

 

Analysing the nature of surety's liability it was observed in the aforesaid decision that surety's liability was a distinct liability as defined by sec. 126 of the Contract Act. Thus there were two liabilities in two different persons. One was the liability of the principal debtor and another that of the surety. Having considered this position a question was posed by the learned C. J. as to how then can the payment of interest by the principal debtor create a new period of limitation for the surety's debt ? Analysing the provisions of sec. 20 of the Limitation Act 1887 it was observed that as per the said section the principal is not the person liable to pay the debt of the surety: so that even if the payment of interest could be regarded as a payment of interest on the debt of the surety still it was not made by a person liable to pay the surety's debt. A further question was posed. Can it then be said that there was a payment of interest on the surety's debt by an agent duly authorised in this behalf ? In this connection it was observed that apart from the difficulty of treating the interest as due on the surety's debt they thought this question must be answered in the negative. It was further observed that the question propounded in the reference excluded an express authority and the relation of principal and surety does not give rise to any implied authority. The Division Bench further observed that it was no doubt provided by sec. 128 of the Contact Act that the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract but that section must be read together with the Limitation Act and not so as to nullify the provision in that Act contained limiting the time within which a suit must be brought after the accrual of a cause of action. It was accordingly held that payment of interest by the debtor within limitation did not give a fresh starting point of limitation against the surety. The aforesaid decision of the Bombay High Court was followed by a later Division Bench judgment of the Bombay High Court in Raghavendra Gururao Naik v. Mahipat Krishna Shollapur A.I.R. 1926 Bom. 244. In that decision another bench of the Bombay High Court consisting of L. A. Shah Acting C. J. and Kincaid J. referred with approval the decision of the Bombay High Court in Gopal Dajas case (supra) and also a decision of the Calcutta High Court which had followed that decision and observed as under 

  • Further it has been held by this Court in Gopal Dayi v. Gopal bin Sonu that the payment of interest by the debtor within limitation does not give a fresh starting point for limitation against the surety. Having regard to the ratio decidendi of this case and that of Brajendra Kishore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. it is clear that surety may effectively keep alive his liability by his own act without in any way affecting the plea of limitation in favour of the principal debtor. According to these two cases the principal debtor and the surety can each keep his liability alive though the remedy of the creditor may be barred as against the other on account of limitation.

 

The aforesaid two Division Bench judgments of the Bombay High Court which are directly on the point are binding on me and they squarely cover the controversy posed for my consideration. Mr. Shethna also invited my attention to a decision of the Calcutta High Court in Brajendra Kishore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. I. L. R. 44 Cal. 978 which has referred with approval by the earlier judgment of the Bombay High Court in Gopal Dajis case (Supra) Sanderson C. J. in the aforesaid Culcutta case speaking for the Division Bench held as under:

  • That the fresh period of limitation created under sec. 20 of the Limitation Act by the payment of interest by the principal debtor could be only in respect of the debt upon which the interest was paid viz. the debt of the principal debtor. The fact that the interest was paid with the knowledge and consent of the surety and even at his request made no difference unless the circumstances could be said to render the payment one on behalf of the surety.

 

Mookerjee J. concurring with the above view observed :

  • Though the liabilities of the debtor and the surety arise out of the same transaction the liabilities of the two persons are distinct for the purposes of the application of sec. 20 of the Limitation Act. 

 

Mookerjee J. in terms relied upon the decision or the Bombay High Court in Gopal Dajis case (supra). It was further observed :

  • The surety under the terms of the contract is either jointly or separately liable along with the principal debtor; if the debts are deemed joint sec. 20 (2) of the Limitation Act shows that the payment by one of them (the debtor) does not extend the time; on the other hand if the debts are deemed distinct the same result follows upon a true construction of sec. 20 itself. Sec. 128 of the Contract Act which makes the liability of the surety co-extensive with that of the principal debtor is of no assistance to the plaintiff as it must be read along with the provisions of the Limitation Act; it defense the measure of the liability and has no reference to the extinction of liability by operation of the Statute of Limitation.

 

It was further observed :

  • A payment of one person cannot keep alive the remedy against another unless the circumstances are such that payment by the one may be regarded as a payment for the others. There is nothing in there lotion of principal and surety itself which makes payment by the principal binding as a payment by the surety As I have already stated above the aforesaid Calcutta decision in Brajendra Kishores case (supra) has been referred to with approval by the later Division Bench judgment of the Bombay High Court in Raghvendra Gurudeos case (supra).

 

(13) Mr. Shethna also invited my attention to a judgment of the Punjab High Court in Hazara Singh Gujjar Singh v. Bakhshish Singh Mula Singh and Another A.I.R. 1942 Pun. 495 where a learned Single Judge following the aforesaid Bombay decisions and other decisions on the point took the view that under sec. to the acknowledgment has to be by a party or person against whom the right is claimed. Where the debt is sought to be recovered both against the principal debtor as well as the surety the acknowledgment by the surety does not save the period of limitation as against the principal debtor. The right will only be saved qua the surety and not qua the principal debtor by whom there is no acknowledgment.

 

(14) My attention was also invited to a Patna High Court judgment by Mr. Shethna In Baikunth Narain Mishra v. Mt. Kesar Kali Kuer and Another A.I.R. 1969 Patna 160 a learned Single Judge of the Patna High Court having considered the provisions of secs. 18 and 21 of the Limitation Act took the view that acknowledgment by one of two joint executors of a promissory note will save the limitation against him only and not against other joint executor of the promissory note.

 

(15) The aforesaid decisions clearly take the view that in case of part payment or acknowledgment by the principal debtor of his liability qua the creditor within the period of limitation the period of limitation for enforcing the dues of the creditor against the principal debtor gets extended qua the principal debtor only but not against the surety in absence of the surety's own acknowledgment or part-payment or it being shown that the acknowledgment or part-payment by the principal debtor was made by the principal debtor as authorised agent of the surety.

(25) It must be stated at this stage that the appellate court took the view against the present appellant in spite of the fact that the Division Bench judgment of the Bombay High Court was cited before it solely on account of the recitals in the surety-bond Ex. 43. The relevant recitals in the surety bond Ex. 43 read as under:

  • I hereby bind myself to repay the ultimate balance that may be due to you in the said account as the principal debtor and whatever arrangement you make with. out my knowledge or consent with my co-debtor shall be binding on me and I shall not be exonerated by giving the time to my co-debtor or the neglect or forbearance of the bank in requiring or enforcing payment of the principal moneys and interest or any part thereof or any variation in terms of the arrangement and I hereby undertake that I would be liable and responsible to you as principal debtor in the said loan account even though the said account is opened by you in the name of my codebtor at my request for the sake of convenience and that I shall be debarred from raising the contention that I signed the promissory note merely as a surety and ordinary rules relating to suretyship and guarantee will not apply to me and under no circumstances I shall be discharged from the liability by any arrangement you may enter into without my knowledge or consent with my co-debtor. 

 

The aforesaid recitals at the highest show that the appellant-surety agreed to be treated as a joint-debtor alongwith the principal debtor. But even then the part payment or acknowledgment of liability by one of the joint debtors viz. defendant No. 1 cannot ipso facto extend the period of limitation against the present appellant who may be treated to the at the highest a joint debtor on account of the recitals in the surety bond Ex.43 sec. 20(2) of the Limitation Act in terms states : Nothing in the said sections rendered one of several joint contractors partners executors or mortgagees chargeable by reason only of a written acknowledgment signed by or of a payment made by or by the agent of any other or others of them. 

 

Consequently even if the recitals in the surety bond Ex. 43 elevate the present surety to the status of a joint promisor even then in the light of sec. 20 (2) of the Limitation Act the decision has got to be against respondent No. 1 Bank for the simple reason that even if defendant No. I might have acknowledged or partly paid the dues of the bank the said acknowledgment or part payment will not extend the period of limitation against diffident No. 1 the present appellant. Under these circumstances the result is inevitable that the appeal filed by the present appellant has got to succeed.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.