2016 (5) TMI 1527 - HC - Indian Laws

Bank's Suit Revived: Promissory Letters Revive Debt, Appellate Court Restores Trial Court's Decision

STATE BANK OF INDIA Versus KANAHIYA LAL & ANR

The Appellant Bank, State Bank of India, filed a suit for recovery of a claimed amount, initially decreed in their favor by the Trial Court. The First ... Recovery of cash credit/loan amount alongwith interest - time limitation - Section 18 of the Limitation Act, 1963 - acknowledgement of liability made before the expiration of the period of limitation for any suit - It was argued by the respondent/defendant that since the two letters were obtained/written after the period of limitation expired for preferring the suit, and therefore those letters could not have been treated as validating letters - HELD THAT:- From a bare reading of two letters (Ex.PW2/2 and Ex.PW2/3), it would appear that the respondents have clearly admitted their liability of the outstanding dues towards the Bank, only for the purposes of restituting the Bank. The contents of the aforesaid two letters are nothing short of an acknowledgment of the dues as also an implied promise to pay. The promise to pay as required under Section 25(3) of the Indian Contract Act need not be express and can be implied or inferred as well. Any acknowledgment of liability is necessarily an admission of the fact that the maker owes money to the creditor. The only corollary of such an acknowledgment is that the same is payable and that the person making the acknowledgement would pay such amount or else there would be no requirement of making any such acknowledgment. No doubt, there is a distinction between an acknowledgement under Section 18 of the Limitation Act and a promise under Section 25 (3) of the Indian Contract Act inasmuch as though both have the effect of giving a fresh lease of life to the creditor to sue the debtor, but, for an acknowledgement under Section 18 of the Limitation Act to be applicable, the same must be made on or before the date of expiry of the period of limitation whereas such a condition is non-existent so far as the promise under Section 25 (3) of the Indian Contract Act is concerned - also, implied promise is not unknown under the Indian Contract Act. The letters indicate the categorical endorsement of the liability to make the payments, and thus, it could be treated as an implied promise to pay. The circumstances under which such an acknowledgement was made, viz. after the reminders by the Bank for repayment of the loan amount, further lends support to the hypothesis that the aforesaid letters are in the nature of a promise to pay. Prior to the aforesaid acknowledgements, there was a confirmation of the balance amount by the respondent/defendant. Any written acknowledgment after the confirmation of the balance amount can safely be treated as a promise to pay and not mere acknowledgement - the First Appellate Court was not justified in dismissing the suit of the appellant on the ground of the same being time barred. The letters are in the nature of a promise and therefore there was no requirement of the same having been obtained/written within a period of three years to be counted from 02.09.2002 - appeal allowed. Issues Involved:1. Entitlement of the appellant Bank to recover the claimed amount.2. Applicability of the law of limitation to the recovery suit.3. Interpretation of letters dated 18.11.2006 and 20.11.2006 under Section 18 of the Limitation Act, 1963 and Section 25(3) of the Indian Contract Act, 1872.Detailed Analysis:1. Entitlement of the Appellant Bank to Recover the Claimed Amount:The appellant, State Bank of India, filed a suit for recovery of Rs. 2,42,199.37 from the respondents, which was initially decreed by the Trial Court. The court declared the appellant entitled to the claimed amount along with interest at 10% p.a. from the date of filing of the suit until realization, and awarded the cost of the suit to the appellant.2. Applicability of the Law of Limitation to the Recovery Suit:The First Appellate Court reversed the Trial Court’s judgment, dismissing the suit as barred by the law of limitation. The respondents argued that the last payment towards the credit facility was made on 02.09.2002, and the suit for recovery should have been filed within three years from that date. The letters dated 18.11.2006 and 20.11.2006, which the Bank claimed as revival letters, were written after the limitation period had expired.3. Interpretation of Letters under Section 18 of the Limitation Act, 1963 and Section 25(3) of the Indian Contract Act, 1872:The substantial question of law was whether the letters dated 18.11.2006 and 20.11.2006 constituted a promise to pay the debt, thus affecting the limitation period.- Section 18 of the Limitation Act, 1963: This section extends the limitation period if an acknowledgment of liability is made in writing before the expiration of the prescribed period. The respondents contended that the letters were written after the limitation period expired and thus could not extend the limitation period.- Section 25(3) of the Indian Contract Act, 1872: This section states that a promise to pay a time-barred debt made in writing and signed by the debtor is enforceable. The appellant Bank argued that the letters were not merely acknowledgments but promises to pay the debt, thus reviving the claim even after the limitation period had expired.The court analyzed the contents of the letters and concluded that they were not just acknowledgments of liability but also implied promises to pay. The letters indicated the respondents' clear admission of their liability and an implied promise to pay, which falls under Section 25(3) of the Indian Contract Act. The court referenced the case of Adivelu vs. Narainachari, suggesting a liberal construction of acknowledgments and promises.The court differentiated between an acknowledgment under Section 18 of the Limitation Act, which must be made before the expiration of the limitation period, and a promise under Section 25(3) of the Indian Contract Act, which can revive a time-barred debt even after the limitation period has expired.Conclusion:The court found that the First Appellate Court erred in dismissing the suit as time-barred. The letters dated 18.11.2006 and 20.11.2006 were deemed to be in the nature of promises to pay, thus reviving the debt under Section 25(3) of the Indian Contract Act. Consequently, the impugned judgment was set aside, and the judgment by the Trial Court was restored, allowing the appeal.