Shiva Texyarn Ltd (Formerly Annamalai Finance Ltd) v. Retnamma Sankar, George C. Mattom, James C. Mattom

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MRS. JUSTICE C.S. SUDHA FRIDAY, THE 12[TH] DAY OF JANUARY 2024 / 22ND POUSHA, 1945** **RFA NO. 444 OF 2003 (C)** **AGAINST THE JUDGMENT AND DECREE DATED 31.7.2003 IN OS 1/2002 ON THE FILE THE PRINCIPAL SUBORDINATE JUDGE'S COURT, ERNAKULAM** ## **APPELLANT/PLAINTIFF:** **SHIVA TEXYARN LTD (FORMERLY ANNAMALAI FINANCE LTD) REGD OFFICE 252, METTUPALAYAM ROAD, COIMBATORE-641043 AND BRANCH AT 'SUDARSAN', SAHODARAN AYYAPPAN ROAD, VALANJAMBALAM,ERNAKULAM,KOCHI-682016** **BY ADVS.SRI.B.ASHOK SHENOY SRI.ABU MATHEW SRI.ANIL KURIAN THOMAS SMT.LAKSHMI B.SHENOY SRI.SOBHAN GEORGE** ## **RESPONDENTS/DEFENDANTS:** - **1 RETNAMMA SANKAR W/O SANKAR, KUTTIKKATTU MADOM,X/252 KALARCODE,SANATHANAPURAM POST, ALAPPUZHA-688003, AMBALAPPUZHA TALUK,ALAPPUZHA DISTRICT.** - **2 GEORGE C. MATTOM S/O P.V CHACKO,MATTATHIL (H) VI/636, THANNERMUKKOM POST, CHERTHALA,ALAPPUZHA-688527,THANNEERMUKKOM NORTH VILLAGE,CHERTHALA TALUK,ALAPPUZHA DISTRICT.** - **3 JAMES C .MATTOM S/O P.V CHACKO,MATTATHIL HOUSE, VI/636 THANNERMUKKOM POST,CHERTHALA,ALAPPUZHA-688527,THANNEERMUKKOM NORTH VILLAGE,CHERTHALA TALUK,ALAPPUZHA DISTRICT.** - **BY ADVS.SRI.M.NARENDRA KUMAR SRI.SALISH ARAVINDAKSHAN** **THIS REGULAR FIRST APPEAL HAVING COME UP FOR ADMISSION ON** **08.12.2023, THE COURT ON 12.01.2024 DELIVERED THE FOLLOWING:** 2 **R.F.A.No.444 of 2003** ## **C.S.SUDHA, J.** **---------------------------------------------------R.F.A.No.444 of 2003 ----------------------------------------------------** **Dated this the 12[th] day of January, 2024** ## **J U D G M E N T** This appeal under Section 96 CPC has been filed by the plaintiff against the judgment and decree dated 31/07/2003 in O.S.No.1/2002 on the file of the Subordinate Judges' court, Ernakulam. The respondents herein are the defendants in the suit. The parties in this appeal will be referred to as described in the plaint. 2. The plaintiff is engaged in the business of providing finance for the purchase of machinery, motor vehicles and consumer durables under hire purchase or leasing arrangements. The first defendant on 15/03/1996 entered into a hire purchase agreement with the plaintiff for the purchase of an ambassador car. The second and third defendants are the guarantors in the agreement. As per the terms and conditions of the hire purchase agreement, the first defendant agreed to repay the amount of ₹3,39,875/which included the insurance premia and hire purchase charges at the rate of 17.5% per annum, which amount was agreed to be paid in 36 monthly 3 ## **R.F.A.No.444 of 2003** installments starting from 15/04/1996. The first twenty-four monthly installments of ₹9,650/- each was agreed to be paid on or before the 15[th] day of the first 24 months; the next 11 monthly installments at the rate of ₹9,050/- each on or before the 15[th] day of the subsequent 11 months and the last monthly installment of ₹8,725/- on or before 15/03/1999. The first defendant also agreed to pay additional finance charges/interest at the rate of 36% per annum on the amount in the event of default being made on the payment of any monthly installment. As per clause 9 of the agreement, the plaintiff _inter alia_ had the right to take possession of the vehicle, sell it, appropriate the sale proceeds towards monthly installments and other amounts due under the hire purchase agreement and to realise the balance amount outstanding from the first defendant. The first defendant paid a sum of ₹85,550/- covering only the first eight monthly installments leaving unpaid the remaining 28 monthly installments due from 15/12/1996 onwards. Despite repeated demands, the amounts were not cleared. The last payment was made by the defendant on 19/02/1997. Hence, the plaintiff proceeded in terms of clause 9 of the hire purchase agreement and on 18/02/1998 repossessed the vehicle. Even thereafter the first defendant neglected to pay the amounts due to the plaintiff. A notice was sent on 4 ## **R.F.A.No.444 of 2003** 02/03/1998 demanding payment of the outstanding amounts. As the defendants failed in paying the amounts due to the plaintiff, the plaintiff on 05/02/2000 sold the vehicle for a sum of ₹1 lakh and adjusted the sale proceeds towards the total amount of ₹4,68,285,77/- due as on 05/02/2000 on account of defaulted 28 monthly instalments with additional finance charges/interest. The remaining amount including the additional finance charges up to 05/02/2000 is ₹3,68,285.77/-. The first defendant is bound to pay the said amount with interest and costs to the plaintiff. 3. The first defendant is _ex parte_ . Defendants 2 and 3 filed written statement contending that the suit was barred by limitation. The plaintiff was to pay the monthly instalments by the 15[th] day of every calendar month starting from 15/04/1996. The suit filed beyond 3 years of the date on which each instalment of hire charges was due is barred by limitation. Under clause 9 of the hire purchase agreement, in the event of the hirer defaulting the payment of instalments, the agreement would stand terminated/determined forthwith and so the cause of action for realization of the amounts due under the contract arose on the date of default of payment of the instalment. Even according to the plaintiff, the default occurred on 15/12/1996. Therefore, the cause of action arose on and after 15/12/1996. 5 ## **R.F.A.No.444 of 2003** Invoking the provisions contained in clause 9 of the hire agreement, the plaintiff took possession of the vehicle on 18/02/1998. At any rate the suit filed beyond 3 years from 18/02/1998 is barred by limitation. 4. On completion of pleadings, the parties went to trial. The question whether the suit was barred by limitation was heard as a preliminary issue. Exts.A1 to A18(a) were marked on the side of the plaintiff. No oral evidence was adduced by either side. No documentary evidence was adduced by the defendants. The trial court by the impugned judgment held that the suit was barred by limitation relying on Article 55 of the Limitation Act, 1963 and hence dismissed the suit. Aggrieved, the plaintiff has come up in appeal. 5. The points that arise for consideration in this appeal are - (i) was the trial court right in concluding that the suit was barred by limitation by virtue of Article 55 of the Limitation Act; (ii) is there any infirmity in the findings of the trial court calling for an interference by this Court. 6. Heard both sides. 7. The execution of Ext.A1 agreement as well as the default in repayment is admitted. The only controversy is whether the suit has been filed within the period of limitation. The learned counsel for the plaintiff 6 ## **R.F.A.No.444 of 2003** quite strenuously and persuasively argued that the trial court grossly erred in finding that the suit was barred by limitation by relying on Article 55 of the Limitation Act. According to him, the cause of action arose only when the actual damages was quantified, which was possible only after the vehicle was repossessed and sold. The plaintiff was able to get only ₹1 lakh as sale proceeds and hence for realization of the balance, the suit had to be filed. The period of limitation could have only commenced on 05/02/2000, the date on which the car was sold, and the sale proceeds adjusted to the amount due from the defendants. When so computed, the suit filed on 01/01/2002 is well within the period of limitation. In support of the argument reference was made to the dictums in **Deepak Bhandari v. Himachal Pradesh State Industrial Development Corporation Limited, (2015)5 SCC 518** ; **Himachal Pradesh Financial Corporation v. Pawna, (2015)5 SCC 617** ; **Sundaram Finance Ltd. v. Noorjahan Beevi, (2016)13 SCC 1** and **Bell Alloy Steels Pvt. Ltd. v. The National Small Industries Corp. Ltd., Legal Surveyor, 1980(1) Madras 85** . 7.1. _Per contra_ , it was submitted by the learned counsel for the defendants that the moment the breach was committed, that is, when the payment of the installments was defaulted, which was on 15/12/1996, the 7 ## **R.F.A.No.444 of 2003** cause of action arose. The suit has apparently not been filed within the period of three years from the date of default of the monthly installment and hence the trial court was right in holding that the suit was barred by limitation. It was also pointed out that even assuming that 15/12/1996 was not the starting point of limitation, the clock certainly started ticking once Ext.A2 notice dated 02/03/1998 was sent calling upon the first defendant to remit the dues and also informing her that in case of failure, the vehicle which was repossessed on 18/02/1998 would be sold and the sale proceeds adjusted to the amounts due and in case of any shortfall, the same would be recovered from all the defendants. Reference was made to the decisions in **Delta Foundations & Constructions v. Kerala State Construction Corporation Ltd., 2003(1) KLT 626; Syndicate Bank v. Channaveerappa Beleri, (2006)11 SCC 506** and **Thomas Mathew v. Construction Engineer, K.L.D.C.Ltd., (2018)12 SCC 560** . 8. Clause 9 of Ext.A1 agreement reads - - _“9. In case the Hirer shall during the continuance of this Agreement do or suffer any of the following act or things viz either._ - _a) fail to pay any of the hiring instalments within the_ - _stipulated time, whether demanded or not:_ 8 ## **R.F.A.No.444 of 2003** _b) dies become Insolvent, or compounds with his creditors:_ _c) the Hirer, being a Limited company, shall pass a_ _resolution for voluntary winding-up or shall have a petition_ _for winding-up presented against it or if a Receiver be appointed of its undertaking:_ _d) pledge or sell or assign or attempt to pledge or sell or assign or part with possession of or otherwise alienate or transfer the vehicle;_ _e) do or suffer any act or thing whereby or in consequence of which the said vehicle may be distrained, or taken in execution under legal process or by any public authorities._ _f) fail to keep the vehicle comprehensively insured during the period of Agreement._ _g) fail to pay to the Government or any public authority any taxes or surcharge or other levy or levies due in respect of the vehicle._ _h) removes the vehicle to another state, gets it re-registered there:_ _i) break or fail to perform or observe any conditions on his part herein contained_ _then and on the occurrence of any such event the rights of Hirer under this Agreement shall forthwith stand determined ipso facto without any notice to the Hirer all the instalments previously paid by the Hirer shall be absolutely forfeited to the Owner who shall thereupon be entitled to enter any house or place where the said vehicle may then be remove and retake possession of the same and_ 9 ## **R.F.A.No.444 of 2003** _to sue for the balance amount of the the instalment due and specified under this Agreement and for damages for the breach of the Agreement and for all the costs of retaking possession of the said vehicle and all costs occasioned by the Hirer's default for realisation of the amount due to them and the Owner shall also be entitled to sell the vehicle. If, in the event of said, there is any deficiency in respect of the amount due to them, the Owner will also be entitled to proceed against the Hirer and Guarantors jointly and severally for the recovery of such deficiency.”_ 9. As per the aforesaid clause, when default in payment of the instalment was committed by the hirer/first defendant the following was the consequence- - (i) The right of the hirer/first defendant under the contract stood determined/terminated. - (ii) All the installments paid by the first defendant stood forfeited by the owner/plaintiff. - (iii) The owner/plaintiff had the right to take possession of the vehicle and to sue for- (a) the balance amount of the instalments due; (b) damages for the breach of the agreement; (c) the costs incurred in retaking possession of 10 **R.F.A.No.444 of 2003** the vehicle and (d) the costs incurred for realisation of the defaulted amount. In addition to the above, the plaintiff/owner also was entitled to sell the vehicle and in the event of sale, if there was any deficiency in respect of the amount due to them, they would be entitled to proceed against the hirer/first defendant and the guarantors/defendants 2 and 3 jointly and severally for the recovery of such deficiency. Now, the question is, did the cause of action arise on the default of payment of instalment on 15/12/1996 or after the plaintiff repossessed the car on 18/02/1998 and sold it on 05/02/2000? 10. In **Pawna** ( _Supra_ ) the question that arose was as to when the period of limitation for recovery of the balance due after sale of mortgaged property would arise. The appellant Corporation had given a loan to the respondent partnership firm and as security a mortgage deed was executed. Clause 7 of the mortgage deed reads - _“Without prejudice to the above rights and powers conferred on the Corporation by these presents and by Sections 29 and 30 of the State Financial Corporations Act, 1951 and as amended in 1956 and 1972 and the special remedies available to the Corporation under the said Act, it is hereby further agreed and declared that if the partners of the industrial concern fail to pay the said principal_ 11 ## **R.F.A.No.444 of 2003** _sum with interest and other monies due from them under these presents to the Corporation in the manner agreed, the Corporation shall be entitled to realise its dues by sale of the mortgaged properties, the said fixtures and fittings and other assets, and if the sale proceeds thereof are insufficient to satisfy the dues of the Corporation, to recover the balance from the partners of the industrial concern and the other properties owned by them though not included in this security." (_ Emphasis supplied) The Apex Court held that to conclude that the loan transaction and the mortgage deed are one composite transaction which are inseparable, is entirely erroneous. It is settled law that a contract of indemnity and / or guarantee is an independent and separate contract from the main contract. The right to sue on the contract of indemnity arose only after the assets were sold off. It is only at that stage that the balance due could be ascertained. It is at that stage that a suit for recovery of the balance could be filed. Merely because the Corporation acted under S.29 of the Financial Corporations Act , 1951 did not mean that the contract of indemnity had come to an end. S.29 merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main contract. It may be that on the Corporation taking action under S.29 and on their taking possession they 12 ## **R.F.A.No.444 of 2003** became deemed owners. The mortgage may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. Therefore, it was held that only after the date of the sale, the question of right to sue on the indemnity contained in clause 7 would arise and hence the suit filed within the period of three years from the date of sale was well within the period of limitation. 10.1. In **Deepak Bhandari** ( _Supra_ ) also, the Apex Court relying on **Pawna** ( _Supra_ ) held that in a suit for realisation of sale proceeds of mortgaged /hypothecated assets, limitation begins from the date when the amount due for recovery is ascertained and that the same can take place only after adjusting the amounts received from sale of mortgaged/hypothecated assets and not from the date of notice recalling the loan amounts. 10.2. In **Bell Alloy Steels** ( _Supra_ ), the hirer as per clause 11 of the hire purchase agreement had the option to determine the hiring at any time by notice in writing to the owner and by actually returning the property to the owner at the hirer’s risk and cost in the same condition and order as when delivered to him (fair wear and tear alone being excepted) and paying to the owner all his dues under the agreement together with the charges and 13 ## **R.F.A.No.444 of 2003** expenses of and incidental to the original delivery and to the return the property. Further, before the return of the property in the aforesaid manner, the hirer at his expense had to get the property duly examined in his own premise by an expert appointed by the owner and obtain a fitness certificate regarding the same. If the expert found the machinery to be not in the same condition subject to fair wear and tear as when delivered to the hirer, the expert had to assess the compensation for depreciation in the value of the machinery caused otherwise than by fair wear and tear and specify the amount of the depreciation. The said certificate binding on both the parties was to be sent by the hirer along with his notice. The hirer was bound to pay the amount of compensation as assessed by the expert over and above the amount due by way of hire or any other account under the agreement if he wished to terminate the agreement of hiring. Clause 15 of the agreement under which the plaintiff exercised its right to sell all the machinery surrendered and to seek recovery of the resultant loss reads- “ _In the event of machine(s) being withdrawn by the owners from the Hirer due to Hirer’s default in payment of the instalment(s) or poor maintenance of machine(s) by him or breach of any of the terms of agreement on his part, or the machine(s) being returned by the Hirer voluntarily, the owners reserve the_ 14 ## **R.F.A.No.444 of 2003** _right to sell the machine(s) by private or public option or by any other means at its discretion and if the resale value of the machine(s) falls short the balance outstanding on the Hirer’s account, the resultant loss shall be made good by the Hirer"._ Question arose as to whether a suit for damages for breach of contract of hire purchase would be governed by Article 55 of the Limitation Act as per which the suit had to be filed within 3 years from the date of breach, that is, the date of the repudiation of the contract by the defendant by surrendering the machinery or whether the cause of action arose when the damages was ascertained or was ascertainable. The High Court of Madras held that the expression ‘resultant loss’ in clause 15 of the hire purchase agreement clearly indicated that the cause of action for the plaintiff arose only on the sale of the machinery. If the resale fetched price more than the original price, there would not have been any resultant loss in such a case there would be no cause of action for the plaintiff to file the suit. The cause of action arose only on the date of the resale and not before. It was therefore of the view that the suit fell within Article 113 of the Limitation Act which provides for a period of 3 years when the right to sue accrues. The right accrued only on the resale of the machinery which was necessary to find out whether there was any resultant loss or not. The suit 15 ## **R.F.A.No.444 of 2003** having been filed within 3 years from the date of the resale of the machinery, was held to be filed within time. 11. Relying on the aforesaid dictums, the argument advanced on behalf of the plaintiff is that clause 9 of Ext.A1 contains two independent agreements/contracts, that is, the first part deals with the loan transaction or the hire purchase agreement and the second part dealing with the right of the plaintiff to sell the vehicle and realise the balance dues, is a contract of indemnity which is independent and separate from the main contract. The right to sue under the contract of indemnity arose only after the car was sold, which was on 05/02/2000. Therefore, the suit filed on 01/01/2002 is certainly within the period of limitation, goes the argument. 12. Now coming to the decisions relied on by the defendants in this case. In **Delta Foundations and Constructions** ( _Supra_ ), a Division Bench of this court held that the moment the breach occurs, time begins to run and the starting point of limitation for a suit for compensation for breach of the contract is when the contract is broken. This decision has been confirmed by the Apex Court, which fact has been referred to in paragraph 6 of the judgment in **Thomas Mathew** ( _Supra_ ). Reference was also made to **Sundaram Finance Ltd.** ( _Supra_ ) which was also a case involving a hire 16 ## **R.F.A.No.444 of 2003** purchase agreement. There was default in the repayment of installments. It was held that the limitation period for filing a suit for recovery begins from the default in repayment. Committing default in payment of installment is nothing but a breach of the agreement and hence relying on Article 55 of the Limitation Act, it has been held that the period of limitation begins from the date of default by the hirer. 12.1. In **Channaveerappa Beleri** ( _Supra_ ), the bank had extended credit facilities by way of overdraft, goods loan, and demand loan against supply Bills to a Company. Because of the Company incurring losses and stopping its activities, operations in the accounts of the Company with the bank stopped. The bank initiated proceedings for winding up the Company on account of its inability to pay its dues and the same was allowed by the Court. In view of the failure on the part of the Company (principal debtor) in paying the amounts due, suit was instituted against the guarantors for realisation of the dues. Question arose as to when the period of limitation arose. The guarantee bond in the case stated that the guarantors agreed to pay and satisfy the bank 'on demand'. It specifically provided that the liability to pay interest would arise upon the guarantor only from the date of demand by the bank for payment. It also provided that the guarantee shall be 17 ## **R.F.A.No.444 of 2003** a continuing guarantee for payment of the ultimate balance due to the bank from the borrower. The terms of guarantee, thus, made it clear that the liability to pay would arise on the guarantors only when a demand was made. The Apex court noticing that the guarantee deeds in the case specifically stated that the guarantors had agreed to pay and satisfy the bank on demand, held that the liability of the guarantors would arise only from the date of demand and that in a case where the guarantee is payable on demand, the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand. When a demand is made requiring payment within a stipulated period, say 15 days, the breach would occur or the right to sue accrue, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or the right to sue accrues, when the demand is served on the guarantor. 13. Therefore, relying on the aforesaid dictums, the argument advanced by the learned counsel for the defendants is that the cause of action did arise when Ext. A2 notice was served on the defendants, and they failed 18 ## **R.F.A.No.444 of 2003** to clear the dues and that the cause did not get deferred till the sale of the vehicle was conducted. 14. As pointed out by the learned counsel for the plaintiff, in none of the decisions relied on by the defendants, an indemnity clause like the one contained in clause 7 of **Pawna** ( _Supra_ ) was there and hence the reason why the period of limitation was held to begin from the date of default. The indemnity clause in Clause 9 of Ext.A1 is similar to the clause contained in **Pawna** . As held in **Pawna** ( _Supra)_ a contract of indemnity and / or guarantee is an independent and separate contract from the main contract. The right to sue on the contract of indemnity arose only after the vehicle was sold off. It is only at that stage that the balance due to the plaintiff Company could be ascertained. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. Here the sale was conducted on 05/02/2000. The suit was filed on 01/01/2002. In the light of the dictum in **Pawna** ( _Supra_ ), it can only be held that the suit is within the period of limitation. Hence the trial court went wrong in dismissing the suit on the ground of limitation. In the result, the appeal is allowed. The judgment and decree by which the suit was dismissed solely on the ground of limitation is set aside. 19 ## **R.F.A.No.444 of 2003** As the suit is of the year 2002, the trial court shall dispose of the suit on merits as expeditiously as possible, in any event within 6 months of receipt of a copy of this judgment. The parties shall appear before the trial court on **01/03/2024** . The appellant/plaintiff in the light of Section 67(1) of the Kerala Court Fees and Suits Valuation Act, 1959, is entitled to refund of the court fees paid on the memorandum of appeal. Interlocutory applications, if any pending, shall stand closed. Sd/- **C.S.SUDHA** **JUDGE** ami/