Margaret Lalita Samuel vs Indo Commercial Bank Ltd - We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained a live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."

 Supreme Court (25.09.1978) In Margaret Lalita Samuel vs Indo Commercial Bank Ltd [Civil Appeal No. 2133 of 1968, 1979 AIR 102, 1979 SCR (1) 914] held that;

• In order to ascertain the nature of the liability of the defendant it is necessary to refer to the precise terms of the guarantee bond rather than embark into an enquiry as to the nature of an overdraft account.

• We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained a live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."

• The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and used for had been constituted".

Excerpts of the Order;

The Judgment of the Court was delivered by CHINNAPPA REDDDY, J.-The defendant in the action is the appellant in this appeal by special leave. The respondent- plaintiff is the Indo Commercial Bank Ltd., Madras, now taken over and represented by the Punjab National Bank. We will hereafter refer to the plaintiff as the Bank. In 1943 Kawasji Karanjia and JaI Karanjia and C. B. Samuel, husband of the defendant, floated a company known as the Modern Hindustan Food Products Ltd. at Poona. Jal Karanjia, C. B. Samuel and the defendant were Directors of the Company. The Company opened a current account with the plaintiff bank in 1943 which was later converted into an overdraft account with the maximum limit of Rs. 25,000/-. By a subsequent arrangement dated 19th June, 1944, the limit of the overdraft account was raised to Rs. 10 lacs. C. B. Samuel, as Managing Director of the Company, executed a promissory note for Rs. 10 lacs and he and his wife Margaret Samuel (defendant) executed a guarantee Bond (Exhibit 57) by which they jointly and severally guaranteed to the bank the repayment of all money which shall at any time be due to the Bank from the Company on the general balance of their account with the bank, or on any account whatever. The guarantee was to be a continuing guarantee to the extent of Rs. 10 lacs at any one time. We will have occasion to refer to the terms of the bond in detail later. The overdraft facility was utilised by the Company and amounts were drawn from the Bank at various times. The Company ceased business on 30th June 1946, and thereafter the Company entered into an arrangement with the plaintiff bank by which the plaintiff bank was authorized to receive all amounts due from the Director General of Food Supplies, Government of India, or from any other person or Department and appropriate the sums collected towards the money due to the bank from the Company. An irrevocable power of attorney authorizing the bank to do so was executed by C. B. Samuel as Managing Director of the Company. All Bills and documents were accordingly handed over to the plaintiff bank for realization of the amount due to the Company. C. B. Samuel died on 27th April 1951. By her letter Exhibit 55 dated 2nd February 1952, the defendant acknowledged her personal guarantee to repay to the plaintiff the sum of Rs. 2,71,531-8-6 which was stated to be the balance due to the plaintiff from the Company as on 31st December, 1951. Adding a sum of Rs. 21,886-6 Ans-0 ps. by way of interest from 1st January 1952 till 30th September, 1953, and deducting a sum of Rs. 57,964-14-6 said to be the amount recovered between those dates, the balance due on 8th November, 1954, was stated to be Rs. 2,35,453-1-

0. On 8th November, 1954 the present suit was filled by the Bank to enforce the guarantee bond against the defendant Margaret Samuel and to recover a sum of Rs. 1,50,000/- from her. It was stated in the plaint that a sum of Rs. 85,453-1- 0 was remitted and the suit was laid to recover the sum of Rs. 1,50,000/- only. Alongwith the plaint an extract of the account subsequent to 1946 was filed.

# 1. We may first consider the question of limitation. As already mentioned by us, the submission of Shri Bal was that every item of an overdraft account was an independent loan, limitation for the recovery of which was determined by Article 57 of the schedule to the Limitation Act, 1908. Limitation, according to the learned Counsel, started to run from the date of each loan. He relied on Basante Kumar Mitra v. Chota Nagpur Banking Association Ltd,.(1) Brajendra Kishore Ray Chowdhury v. Hindustan Cooperative Insurance Society Ltd. National and Grindlays Bank Ltd. v. Tikam Chand Daga & Anr., and Uma Shankar Prasad v. Bank of Bihar Ltd. & Anr. In our view it is unnecessary for the purposes of the present case to go into the question of the nature of an overdraft account. The present suit is in substance and truth one to enforce the guarantee bond executed by the defendant. In order to ascertain the nature of the liability of the defendant it is necessary to refer to the precise terms of the guarantee bond rather than embark into an enquiry as to the nature of an overdraft account. Exhibit 57 is the guarantee bond executed by the defendant and her husband on 23rd October, 1944. It is addressed to the Indo- Commercial Bank Ltd., Madras, and is in the following terms:

"Dear Sirs, In consideration of your having agreed to allow overdraft accommodation upto Rs. 10,00,000/- (Rupees Ten Lakhs only) to the Modern Hindustan Food Products Ltd., Poona, we, C. B. Samuel and M. L. Samuel, the undersigned do hereby jointly and severally guarantee to you, the Indo-Commercial Bank Limited the repayment of all money, which shall at any time be due to you from the said Modern Hindustan Food Products Ltd., on the general balance of their accounts with you or on any account whatever (such balances to include all interest, charges, commission and other expenses which you may charge as bankers) and also the due payment at maturity of any promissory note or other negotiable instrument on the security or in respect of which any credit or advance shall be made.

And we hereby declare that this guarantee shall be a continuing guarantee to the extent at any one time for Rs. 10,00,000/- (Rupees Ten Lakhs only) and shall not be considered wholly or partially satisfied by the payment at any one time or at different times of any sums of money due on such general balance of account but shall extend and cover and be a security for every and all further sums at any time due to you thereon. And we further declare that you may grant to the Modern Hindustan Food Products Ltd., any indulgence without discharging our liability."

# 10. The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, 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 the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach, under Article 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J. C. Shah, J., speaking for the Court said:

"On the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever ..... We are not concerned in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond ........ We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained a live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."

# 11. We agree with the view expressed by Shah, J. The intention and effect of a continuing guarantee such as the one with which we are concerned in this case was considered by the Judicial Committee of the Privy Council in Wright and Anr. v. New Zealand Farmers Cooperative Association of Canterbury Ltd. The second clause of the guarantee bond in that case was in the following terms:

"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."

# 12. 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. Proceeding to do so, the Judicial Committee observed (at p. 449):

"It is no doubt a guarantee that the Association will be repaid by the Nosworthys advanced 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 provision 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 true construction of this document, 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 used for had been constituted".

# 13. Later it was again observed (at p. 450):

"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 the total credits, and accordingly at the date of the counterclaim the Association's claim against the plaintiff for payment of the unpaid balance due from the Nosworthys, with interest, was not statute-barred."

# 14. This was precisely the view which J.C. Shah, J., expressed in the passage already extracted by us, with which we expressed our agreement. We may add here that in Wright's case the Privy Council appeared not to approve of the decision in Parr's Banking Company Ltd. v. Yates(1), where it had been observed that the statutory limitation would run from the date of each advance. As noticed in Paget's Law of Banking (8th Edition) at pp. 82-83, the authority of Parr's case has been overruled so far as the guarantor is concerned by the judgment of the Court of Appeal in Bradford old Bank Ltd. v. Sutcliffe(1).

# 15. Now, the overdraft account which was guaranteed by the defendant by the execution of the guarantee bond dated 23rd October, 1944, continued to be a `live' account even after the Company ceased its business on 30th June, 1946. A power of Attorney was executed by the Company in favour of the plaintiff bank and amounts due to the Bank were realised and credited in the overdraft account. A sum of Rs. 2,19,784-4-0 was received from the Director General of Food Supplies on 27th June, 1950. On 6th September, 1950, another sum of Rs. 1,15,229-15-0 was received from the Director General of Food Supplies and credited to the account or the Company. Again on 27th January, 1951, 14th March, 1951 and 29th September, 1952, several amounts received by way of refund of Income- tax were credited to the Company in its account. The amount credited on 29th September, 1952 was Rs. 24,022-0-10. The overdraft account was thus a live account at least till 29th September, 1952. The Company executed various promissory notes and letters of acknowledgement. The defendant herself as guarantor executed, on 2nd February, 1952, Exhibit 55, acknowledging her liability in respect of the guarantee given by her. Paragraph (a) of the letter is as follows:

"In respect of the personal guarantee which myself and my husband have given to the bank, the amount due to the bank as on 31st December, 1951 is Rs. 2,71,531- 8,6."

# 16. Thus far from repudiating her liability and breaking the contract of continuing guarantee, the defendant accepted her obligation under the guarantee bond in respect of the overdraft account which continued to be live at least upto 29th September, 1952. The suit which was filed on 8th November, 1954, was therefore, clearly within time under Article 115 of the schedule to the Limitation Act, 1908.

# 17. We may mention here that it was the contention of Shri Bal that the letter dated 2nd February, 1952, was obtained from the defendant by fraud. Both the Trial Court and the High Court have found that there was no fraud and that the letter was written by the defendant voluntarily and with full knowledge of its contents. We accept the finding of the Trial Court and the High Court that the letter was not obtained by any fraud practiced upon the defendant.

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