Shiva Texyarn Ltd (formerly Annamallai Finance Ltd) v. Abraham Jacob and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MRS. JUSTICE SHIRCY V.** **WEDNESDAY,THE 27TH DAY OF FEBRUARY 2019 / 8TH PHALGUNA, 1940** ## **RFA.No. 50 of 2005** **AGAINST THE JUDGMENT AND DECREE IN OS 542/2001 of II ADDITIONAL SUB COURT,ERNAKULAM DATED 05-06-2004** ## **APPELLANT/PLAINTIFF:** **SHIVA TEXYARN LTD (FORMERLY ANNAMALLAI FINANCE LTD.), REGD.OFFICE 252, METTUPALAYAM ROAD, COIMBATORE 641 043, AND BRANCH AT “SUDARSAN”, SAHODARAN AYYAPPAN ROAD, VALANJAMBALAM, ERNAKULAM KOCHI 682 016.** **BY ADVS. SRI.GIREESH P.S. SRI.H.B.SHENOY SMT.LAKSHMI B.SHENOY SRI.ABU MATHEW SRI.ANIL KURIAN THOMAS SRI.B.ASHOK SHENOY SRI.SOBHAN GEORGE** ## **RESPONDENTS/DEFENDANTS:** **1 ABRAHAM JACOB, S/O. P.N.JACOB, 29/703A, THOPPIL HOUSE,NEAR POWER HOUSE, VYTILA PO, KOCHI 682 019, POONITHURA VILLAGE, KANAYANNUR TALUK, ERNAKULAM DISTRICT.** **2 TOMY ANTONY, S/O.ANTONY, 29/703A, THOPPIL HOUSE,NEAR POWER HOUSE, VYTILA P.O., KOCHI682019, POONITHURA VILLAGE, KANAYANNUR TALUK, ERNAKULAM DISTRICT.** **3 LISAMMA TONY, W/O.TOMY ANTONY, 29/703A, THOPPIL HOUSE, NEAR POWER HOUSE, VYTILA, P.O., KOCHI -682019, POONITHURA VILLAGE, KANAYANNUR TALUK, ERNAKULAM DISTRICT.** > **ADD.R4 SATHISH.N.RAJAN, S/o.N.A.RAJAN, TA INFRA GALLANT, JUSTICE CHANDRASEKHARA MENON ROAD, KOCHI-682011 ADDITIONAL 4TH RESPONDENT IS IMPLEADED VIDE ORDER DaTED 15-11-2017 IN I.A.NO.2022/2017 BY ADVS. SRI.ABRAHAM JOHN-R2 AND R3** RFA No.50 of 2005 2 ## **SRI.B.KRISHNA MANI-ADDL R4** **THIS REGULAR FIRST APPEAL HAVING BEEN FINALLY HEARD ON 27.02.2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** RFA No.50 of 2005 3 ## **JUDGMENT** The plaintiff who was unsuccessful before the court below in a suit for realization of money has come up with this appeal challenging the judgment and decree passed against him in O.S.No.542/2001, by the Additional Subordinate Court, Ernakulam. 2. Briefly the facts are as follows: The plaintiff is a finance company by name Shiva Texyarn Ltd (formerly known as Annamallai Finance Ltd) having the registered office at Mettupalayam, Coimbatore engaged with the business of providing finance for purchase of machinery, motor vehicles, consumer durables etc. under the hire purchase and lease arrangements. The 1[st] defendant/1[st] respondent approached the plaintiff at the branch office at Ernakulam for purchase of a vehicle under the hire purchase scheme. On 14.11.1992 as per an agreement, finance was granted under the scheme and the 1[st] defendant thus purchased a vehicle and the defendants 2 and 3 were the guarantors. The defendants together had promised to repay the amount with interest at the rate of 16% per annum RFA No.50 of 2005 4 within a period of 35 months. The promise was to repay the amount in installments at the rate of Rs.13,460/- on or before 13.1.1993, then at the rate of Rs.13,435/- per mensum for next 23 months and an amount of Rs.12,685/- as the installment of the last month. But the defendants committed default and they were irregular in repaying the money and installments only upto 13.6.1993 was paid. In spite of notice the amount was not paid and hence, the plaintiff was compelled to file the suit for realization of a sum of Rs.5,63,555.20/- with interest at the rate of 18% per annum. 3. The 1[st] defendant did not appear before the court and hence he was set ex-parte. The 2[nd] and the 3[rd] defendants resisted the suit raising various contentions but, admitted the execution of Ext.A3 agreement dated 14.11.1992. It was further contended that after availing the loan the 1[st] defendant purchased the vehicle promising to remit the installments. But he defaulted in making the payments from 13.6.1993 . The plaintiff got acknowledgment of liability from the 1[st] defendant only on 15.4.1996 and from all the defendants together on 12.10.1998. So the suit is barred by limitation against the defendants 2 and 3 as they have not acknowledged the liability within the period of RFA No.50 of 2005 5 limitation. It was further contended that the interest claimed was exorbitant and the plaintiff was not entitled to realize interest at the said rate. An additional written statement was also filed alleging that the original company has defunct to the knowledge of the defendants. 4. Before the court below, PW1 was examined and Exts.A1 to A9 were marked. There was no oral or documentary evidence for the defendants. After evaluation and appreciation of the evidence available on record, the court below dismissed the suit on the finding that the plaint claim is barred by limitation. 5. Aggrieved by the said finding and dismissal of the suit on the question of limitation, this appeal has been preferred by the plaintiff. 6. Heard, Adv.Sri.Gireesh P.S, the learned counsel for the appellant/plaintiff and Sri.Abraham John, the learned counsel for the respondents/defendants. 7. Admittedly, the 1[st] defendant had availed finance from the plaintiff business concern for purchase of a vehicle on execution of an agreement on 14.11.1992. As per the agreement the defendants 2 and 3 are the guarantors of the transaction. The installments fixed as per Ext.A3 agreement started from RFA No.50 of 2005 6 13.1.1993 and it was for a period of 35 months which ended by 13.11.1995. According to PW1 the defendant was irregular in remitting the amount and installments only upto 13.6.1993 was paid and thereafter the amount was in default. But on 15.4.1996 the 1[st] defendant had acknowledged his liability by executing Ext.A8 certificate of balance acknowledging the liability as Rs.5,58,922/- as on 31.12.1995. So by execution of Ext.A8 dated 15.4.1996 the 1[st] defendant the principal debtor had acknowledged the liability within the period of limitation. It is further revealed from Ext.A9 that on 12.10.1998 all the defendants together had executed the document acknowledging their liability towards the loan transaction. It was specifically stated that they could not repay the monthly installments from 13.6.1993 due to the circumstances beyond their control and they were ready to pay the outstanding amount under the purchase agreement at the earliest possible. So by Ext.A9 dated 12.10.1998 all the defendants together had acknowledged their liability. The plaintiff had filed the suit on 17.9.2001. But the court below on the finding that the suit ought to have been filed within three years from the date of default dismissed the suit as barred by limitation. RFA No.50 of 2005 7 8. Assailing the judgment the learned counsel for the plaintiff had pointed out that there are two limbs of argument to support the case of the plaintiff that it was not barred by limitation. Firstly, he argued that default was committed by the defendants on 13.6.1993 and if three years period is calculated the suit ought to have been filed on or before 13.6.1996. But within the period of three years, ie; on 15.4.1996 the 1[st] defendant had executed Ext.A8 acknowledging the liability towards the debt. Thereafter all the defendants together executed Ext A9 on 12.10.1998 and the suit was filed on 17.9.2001 within the period of limitation. Therefore, the plaint claim was not barred by limitation. On the other hand the learned counsel for the defendants would argue that Ext.A8 was not binding on the defendants 2 and 3 as there was variance in the terms of contract. Whether execution of Ext.A8 for extension of time is sufficient to term it as variance to discharge the sureties, is the crucial question. 9. To appreciate the said argument it is apposite to reiterate Section 133 of the Contract Act which reads as follows: “ **133. Discharge of surety by variance in terms of contract -** Any variance, made without the surety's consent, in RFA No.50 of 2005 8 the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.” 10. According to the learned counsel for the defendants by executing Ext.A8 there was variance in the terms of the contract and hence the plaintiff was not entitled to get a decree for realization of money on the basis of the original agreement which was marked as Ext.A3. In **Wandoor Jupiter Chits (P) Ltd. v. K.P.Mathew [1979 KHC 170]** a Single Bench of this Court had observed in paragraph 13 as follows: “To sum up, the making of an acknowledgment by the principal debtor does not involve any variance of the contract within the meaning of S.133 of the Contract Act. It also does not involve the making of another contract under S.134 and 135 whereby the creditor discharges the debtor or makes a composition with him. In fact ,the effect of an acknowledgment is just the contrary. Nor is S.137 attracted because it has been held that mere forbearance to sue even for a time beyond the period of limitation does not operate to discharge the surety. An acknowledgment does not also impair the remedy of the surety against the debtor ,under S.139.It follows that there is nothing in S.18 and 20(2) of the Limitation Act,or in the relevant provisions of the Contract Act,as contended for,to render the surety's collateral obligation unenforceable by reason of a written acknowledgment by the principal debtor .” ## 11. The learned Counsel for the plaintiff has also invited RFA No.50 of 2005 9 my attention to the decision of a Division Bench of this Court in **Union Bank of India v. Stephen ( 1989 (1)KLT 627** ) where ## in it was held as follows: “11..............Under S. 128 of the Contract Act it is plainly clear that the liability of the surety is co-extensive with that of the principal debtor unless it is specifically provided in the contract. Under S.134 of the Contract Act, the surety gets a discharge if the creditor enters into a contract with the principal debtor to discharge the latter. Similarly, if the principal debtor and the creditor enter into a contract by which the creditor makes a composition with the debtor, or promises to give him time or not to sue, (of course, it is conditioned) normally it is applicable only if a surety does not assent to such a contract. When a contract is made by the principal debtor with the creditor that he will not sue the principal debtor, the surety's liability is discharged. But, the same is not the case if the creditor forbears from instituting a suit after obtaining an acknowledgement of liability for he is not discharging the liability of the principal debtor but keeps it wakeful and animate. So, in this case, the sureties cannot get themselves extricated from their liability under those provisions of the Contract Act which enable them to escape from the liability.” ## The relevant observations in para 13 and 21 are as follows : “13.In this case there is no dispute that the amount due to the Bank has not been paid by the principal debtor or by the guarantors. So, in this case, there is an undischarged live liability for which the guarantors have obliged by their agreement that they will be responsible for that liability of the principal debtor.” RFA No.50 of 2005 10 “21. To sum up, we hold that in a case of a continuing guarantee so long as the guarantee has not been withdrawn or so long as the guarantors have refused to perform their obligation under the agreement of guarantee and a suit has not been filed within the time prescribed under Art.55 of the Limitation Act, the guarantors are liable for the agreement for the amounts found due to the creditor from the principal debtor. In this case there is no withdrawal of the obligations under the guarantee by the guarantors and there was no previous refusal by the guarantors before the institution of the suit. In the circumstances, we hold that defendants 2 and 3 are also liable for the amounts claimed in the suit. ….........''. 12. Execution of Ext.A8 was in fact for extension of time as it was unable to pay the debts. Therefore, Ext.A8 cannot be treated as variance to the contract within the meaning of Section 133 of the Contract Act so as to discharge the liability of the sureties. In fact the debt is not extinguished and it remained alive making the guarantors also liable. 13. The second limb of the argument of the learned counsel for the plaintiff is that by execution of Ext.A9 by all the defendants a fresh cause of action was created and on that count also the suit filed on 17.9.2001 is not barred by limitation. The words used by the defendants in Ext.A9 in paragraph 2 is to the effect that : RFA No.50 of 2005 11 “We undertake to pay the amounts outstanding due to you in this regard, in terms of the aforesaid Hire purchase Agreement, at the earliest possible. For the purpose, we request that some time more may be granted to us” 14. According to the learned counsel for the plaintiff under Section 25(3) of the Contract Act, the execution of Ext.A9 can be treated as a fresh cause of action and a promise to pay a debt barred by limitation. Hence, the plaint claim is not barred on that count also. Relying on the decision in **District Collector, Kannur and another v. K.Kunhambu Nairs (2017 KHC 3563)** it was argued that by executing Ext.A9 a fresh promise to pay the debt was made by the defendants which would constitute a fresh contract and a fresh cause of action. In paragraph 10 it was observed as follows: “10. On an analysis of the aforesaid provision, it is well discernible that a debt, barred by law of limitation of suits, can be realised, notwithstanding the bar under the Limitation Act, provided that there must be a fresh promise to pay the debt, made in writing, signed by the debtor or is authorised agent to pay the debt wholly or in part and such promise would constitute a fresh contract which would give rise to a fresh cause of action also.” ## It is further observed in paragraph No.14 that “14. In the above analysis, the lower appellate court is RFA No.50 of 2005 12 justified in finding that the suit is not barred by limitation, as a fresh cause of action has been arisen under S.25(3) of the Contract Act to realise the time barred debt. Thus, it is answered that the promise made by the debtor to the creditor, in writing with signature, to pay the time barred debt, after the period of limitation, would constitute a fresh cause of action to realise the amount under S.25(3) of the Contract Act. In other words, the promise to pay a time barred debt would revive the debt to the extent of that promise and can be recovered by the creditor on the fresh cause of action under S.25(3) of the Contract Act.” 15. The learned Counsel also relies on the decision of a Single Bench in **Gopinathan P V** _**.**_ **Nedungadi Bank Ltd., Pallippuram and others [2013 (2) KHC 769]** . In para No.14 it was observed as follows: “14. Otherwise, liability of the guarantor on the strength of continuing guarantee is settled by the decisions in Mrs. Margaret Lalita Samuel v. Indo Commercial Bank Ltd;, Union Bank of India, Ernakulam v. T.J.Stephen and Others and B.G.Vasantha v. Corporation Bank, Mangalore and Another (supra). In the first of the above decisions, it is held that the 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, the period of limitation would not commence to run.A Division Bench of this Court in Union Bank of India, Ernakulam v. T.J.Stephen, 1989 KHC 154 : AIR 1990 Ker. 180 : 1989 (1) KLT 627 : 1989 (1) KLJ 759:ILR 1989 (2) Ker.513 : 1989 (1)C.Cur.CC 650 : 1989 (60)Com.Cas. 96: 1989(2) Bank CLR 218 : 1980 (2) Bank LJ 107 : 1989(2) COM LJ 105 considered the same question and after RFA No.50 of 2005 13 reference to the decisions including Mrs.Margaret Lalita Samuel v. Indo Commercial Bank Ltd. (supra) held that the agreement executed by the guarantor is a separate and collateral contract distinguished from the contract of debt between the principal debtor and creditor and that in such situation Art.55 of the Limitation Act would apply to the contract of guarantee. It was held that so far as the debt remains alive in the sense that it is not settled notwithstanding that liability of the principal debtor is extinguished by the law of limitation, the guarantors will continue to be liable unless there is a refusal on their part to pay amount in which case the period of limitation will run from the date of the refusal.” ## In paragraph 18 it has been held as follows: **“** The very purpose of getting a continuing guarantee executed is to get over the period of limitation so far as the debt remained alive in the sense that it is not settled or discharged otherwise. In the circumstances contending that there could be no waiver against the period of limitation (as stated in Ext.A3), the appellant cannot successfully claim that the suit as against him is time barred. **”** 16. By Ext.A9 all the defendants had acknowledged their liability and sought for extension of time for repayment of the debt. Ext.B9 can also be treated as a fresh promise to pay the debt. Therefore, even if the debt is time barred as contended by the contesting defendants by Ext.A9 dated 12.10.1998 executed by all the defendants, a fresh cause of action has been arisen RFA No.50 of 2005 14 under Section 25(3) of the Contract Act. So both the limbs of argument urged on behalf of the plaintiff only support the case of the plaintiff either way that an interference with the finding of the court below is warranted. The suit was dismissed only on the ground of limitation. As there is no cross appeal by the defendants 2 and 3 who are contesting the matter it is not necessary to verify the other matters involved. In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The judgment and decree are set aside. The plaintiff is entitled to realize the plaint amount with reasonable rate of interest. In the result, the suit is decreed in favour of the plaintiff for a sum of Rs.5,63,555.20/- with interest at the rate of 6% per annum from the date of the suit till realization from all the defendants and their assets. The parties shall bear their respective costs. **Sd/-** **SHIRCY V.** **JUDGE** smm