TaxTMI 
TaxTMI 
1992 (3) TMI 369
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....Nos. 2 and 3, though they are neither the parties to the execution nor given their consent? 3. Whether the period of limitation would start running only upon the demand being made to the principal debtor as well as guarantors thereby extending the statutory provisions of limitation of 3 years. (This ground is not raised in the memo of appeal. Being, agitated during the course of argument it was opposed by the other side). 2. The facts giving rise to file the suit, in brief, are as under :- The appellant/plaintiff alleges that it is a body Corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, having its Head Office at Bombay. The Divisional Office of the plaintiff is situated at Kamptee Road, Nagpur. The suit transaction took place at the Station Road Branch of the plaintiff at Nagpur. On 6th October, 1971, the plaintiff sanctioned and advanced the loan of Rs. 23,950/- to the defendant No. 1 Awarkhan Chhotekhan for purchase of Ambassador Car to run as a Taxi on the guarantee of the defendant Nos. 2 and 3 i.e. Ali Mohamed s/o Mohamed Hussain and Hazi Wazir s/o Dadumiya (who died during the penden....
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.... and 6th October 1974. 3. The defendant No. 1 the principal borrower filed his written statement and admitted that he procured the loan of Rs. 23,950/-, as also that the defendant Nos. 2 and 3 were his guarantors for the repayment of his loan. However, he denied to have agreed to pay the rate of interest as alleged. Similarly, he admitted the fresh loan of Rs. 1,400/- and also the execution of Promissory Note dtd. 6th October 1974 for Rs. 22,000/-. However, he denied to have agreed to pay the higher rate of interest as alleged. The defendant No. 2/respondent No. 1 submitted his written statement vide Exh. 40 and denied all the plaint allegations. He contended that his signatures were obtained on the printed guarantee bond without explaining the contents thereof and, therefore, the terms did not bind him. He further contended that the plaintiff did not consult him when the fresh loan of Rs. 1,400/- was given to the principal borrower on 15th July 1972, as also while executing the fresh promissory note for Rs. 22,000/- on 6th October, 1974. He specifically contended that the suit of the plaintiff against him is barred by limitation, he not being the party to the transaction dtd....
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....d on me/us either by actual delivery thereof to me/us or by dispatch thereof to me/us by registered post at my/our address written hereunder or any other address in India to which I/we may by written intimation given to the Bank request notices addressed to be dispatched. Term No. 7: I/We hereby consent to your making any variance that you may think fit in the terms of your contract with the principal to your determining, enlarging or varying any credit to them to your making any composition with them or promising to give them time or-not to sue them and your parties with any security you may hold for the guarantee debt. I/We also agree that I/We shall not be discharged from my/our liability by your realising the principals or by any act or omission of yours the legal consequence of which may be to discharge the principals or by any act of yours which would but for this present provision be inconsistent with my/our rights as sureties or by your omission to do any act which, but for this present provision your duty to me/us would have required you to do. Though as between the principals and myself as sureties only, we agree that as between yourselves and me I/we am....
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....edgement does not involve the making of another contract under sections 134 and 135 whereby the creditor discharges the debtor or makes a composition with him. Nor is section 137 of the Contract Act attracted because mere forbearance to sue even for a time beyond the period of limitation does not operate to discharge the surety. An acknowledgement does not also impair the remedy of the surety against the debtor under section 139 of the Contract Act. 7. The learned counsel for the appellant/plaintiff relied on the case of Kanchanlal Chandulal Patikh vs. Bank of India, reported in I (1991) BC 119 (DB) Bombay High Court. Their Lordships held that: Under the guarantees "the undersigned jointly and severally hereby guarantee that due payment two days after demand in writing, of all advances. liability" would be made. The period of limitation would, therefore, start running only upon a demand being made. The suit is filed within 3 years of the demand being made and is, therefore, in time. It is further held that : We see no novation, expressed or implied. The liability of the 3rd and 4th defendants under the guarantees executed by them remained and was not in any ....
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.... of the said accounts Nos. 1 and 2. On March 20. 1975 and March 25/27, 1975 respectively the plaintiff's advocates called upon the first defendant and the second, third and fourth defendants and the fifth defendant to pay the amounts due in respect of the said Accounts Nos. 1 and 2. The suit was filed on September 26, 1975. On December 2. 1981 the suit was decreed. The learned Judge rejected the submission made on behalf of the defendants that the suit was barred by limitation and that it was not maintainable. He held that there was no novation which absolved the second, third and fourth defendants of their liability under the deeds of guarantee. Considering the facts before Their Lordships it has been rightly held by Their Lordships that there was no change either of the amount or in terms and conditions in the subsequent acknowledgements of the earlier contract, expressly or impliedly because from time to time the defdts. had executed the deed of guarantee in respect of the advance. 8. Shri Manwarbhai, the learned counsel for the respondent No. 2 resisted the claim of the appellant and submitted that it has been rightly held by the learned trial Court that the suit i....
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....e Indian Contract Act, the original contract dtd. 6-10-1971 was not in force and is wiped off. Thus, none of the terms of the agreement remained operative. Section 62 of the Indian Contract Act, 1872 reads as under:- Effect of novation, recession and alteration of a contract - If the parties to the contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Shri Ashokkumar Wani (P.W. 2) the sub-accountant in the plaintiff's Station Road Branch at Nagpur in the cross-examination stated that; The original agreement dtd. 6-10-1971 was continued till the change of documents in 1974. In view of this admission, it cannot be said that it is merely a minor enlarging the scope of the contract or varying the terms of the contract. The document Exh. 57 dtd. 6-10-1974 a Promissory Note also does not speak that this is an acknowledgement in respect of the earlier two loans advanced. On behalf of the plaintiff the extract of accounts in respect of the account of the principal borrower is placed on the record. There is no entry dtd. 6-10-1974 to the effect that a Promissory Note was executed, the earlier a....
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.... in the form of promissory note Exh. 57, admittedly to which the respondents were not the parties. Therefore, in view of the provisions of section 62 of the Indian Contract Act, 1872, the original contract ceases. 11. Exhibit 54, the guarantee deed does not expressly provide that the acknowledgement of the principal borrower will bind the sureties even though they will not be the parties to the acknowledgement. In the case of Federal Bank of India Ltd. vs. Som Dev Grover and others reported in AIR 1956 P&H 21, it is held that: Unless it appears otherwise in the terms of the surety's contract, an acknowledgement or payment by a debtor does not extend limitation against the surety. Similar question has been discussed in the case of Hazara Singh Gujjar Singh vs. Bakhshish Singh Muta Singh and another, AIR 1962 P&H 495. The learned Judge has considered the scope of section 19 of the Limitation Act. Section 19 is in these terms:- 19(1). Where, before the expiration the period prescribed for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the part....
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....ct, it is held that the guarantor Vithoba was liable to pay the amount on the day when the liability accrued as against Devidas. The acknowledgement given by the principal debtor would not save limitation as against the surety. The claim against Vithoba will, therefore, be time barred and, therefore, the decree was passed against the defendant No. 2 Devidas and the suit was dismissed against the defendant Vithoba the - guarantor. 13. Shri Manwarbhai, the learned counsel for the respondent attracted my attention to the sections 133, 134. 135, 139 and 141 of the Indian Contract Act, 1872. Section 133 of the Indian Contract Act, reads as under:- Discharge of surety by variance in terms of contract - Any variance, made without the surety's consent, in the terms of the contract between the principal (debtor) and the creditor, discharges the surety as to transactions subsequent to the variance. Section 134 of the Indian Contract Act, reads as under:- Discharge of surety by release or discharge of principal debtor - The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or....
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....o also there is a composition and thereby granted time to the principal borrower to satisfy the loan amount and thereby discharged the sureties as there was no assent of the sureties to the fresh contracts. A reliance has been placed on the case of State Bank of India vs. Machine Well Industries and others, reported in Company Cases Vol. 53, 1983 at page 830, wherein His Lordship considered sections 133 and 135 of the Indian Contract Act and discussed at page 840 as under:- But the question still remains as to whether a surety can waive his rights under section 133 or 135 of the Contract Act and give consent in advance to the future acts in contravention of the provisions of those sections. The language of those sections indicates that a consent in advance could not be given. The language of section 133 debars a creditor from making a variance in the terms of the contract without the consent of the surety. That means that if there is a variance, the surety must consent to the same simultaneously and not in advance. The words "without the surety's consent" clearly indicate that the consent should be given along with or at the time of the variance and there could not ....
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....:- Where a person stands surety for a debtor called upon under Order 38, Rule 5 to furnish security for production of property and the suit is compromised, provided the rights of the surety are prejudiced by the compromises and provided the compromise was not contemplated by the surety when entering into suretyship the passing of the decree in terms of the compromise has the effect of discharging the surety. In the case of Parvatibai Harivallabhdas Vani vs. Vinayak Balvant Jangam and others, AIR 1939 Bom. 23 (D.B.), Their Lordships discussed the relations of principal debtor and surety and held that:- The general principles underlying the law of suretyship (and in particular the principle that the rights of surety are not to be interfered with without his consent) may be applied and ought to be applied, even though the provisions of the Contract Act do not govern the case. In the case before Their Lordships security bonds were executed by sureties during the pendency of a suit against their principal debtor. A decree having been passed against the principal debtor, the decree-holder took out execution proceedings. The principal debtor i.e. the judgment-debto....
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....application for the recovery of the loan should be instituted within the stipulated period of 3 years from the date of execution of promissory note. Section 3 of the Limitation Act, 1963, specifies that in case the suit, appeal or application filed after the prescribed period, it shall be dismissed although the limitation has not been set up as defence. The provisions of section 18 of the Limitation Act, 1963 extend the period of limitation if before expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been executed in writing and signed by the party against whom such property or right is claimed. Article 21 of the schedule of the Limitation Act, 1963 is in respect of the transaction where money lent under an agreement that shall be payable on demand and the period of limitation is 3 years and the time begins to run when the loan is made. Article 35 deals with the bill of exchange or promissory note payable on demand and not accompanied by any writing restraining or postponing the right to sue. The period of limitation is again 3 years and the period begins t....