South Indian Bank Limited v Kerala State Housing Board & M/s General Construction (represented by J.A. Jacob)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR.JUSTICE M.L.JOSEPH FRANCIS TUESDAY, THE 25TH DAY OF MARCH 2014/4TH CHAITHRA, 1936 AS.No. 593 of 1995 ( ) ----------------------- O.S.NO.328 OF 1988 ON THE FILE OF THE PRINCIPAL SUB COURT, THIRUVANANTHAPURAM APPELLANT/1ST DEFENDANT : --------------------------- SOUTH INDIAN BANK LIMITED, SPENCER JUNCTION, THIRUVANANTHAPURAM. BY ADV. SRI.K.K.JOHN RESPONDENTS/PLAINTIFF & 2ND DEFENDANT : ------------------------------------------ 1. KERALA STATE HOUSING BOARD, NANDAVANAM, THIRUVANANTHAPURAM, REP. BY ITS SECRETARY. 2. J.A.JACOB, REPRESENTING M/S.GENERAL CONSTRUCTION, VRINDAVAN HOUSING COMPOUND, PATTOM, THIRUVANANTHAPURAM. R1 BY ADV. SRI.RAJAN JOSEPH R,1 BY ADV. POOVAPPALLY M.RAMACHANDRAN NAIR,SC.KSHB THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 21.08.2013, THE COURT ON 25.3.2014 DELIVERED THE FOLLOWING: ## **K.M.JOSEPH & M.L.JOSEPH FRANCIS, JJ. ----------------------------------------------A.S.593 of 1995 ----------------------------------------------Dated 25[th] March, 2014.** ## **J U D G M E N T** ## **Joseph Francis, J.** This appeal is filed by the first defendant in O.S.328 of 1988 on the file of the Principal Sub Court, Thiruvananthapuram. The first respondent herein was the plaintiff in that suit, which was filed for realization of money due under a bank guarantee. The case of the plaintiff is briefly as follows : 2. The plaintiff, Kerala State Housing Board, Nadanavanam, Thiruvananthapuram represented by its Secretary tendered the work of construction of certain multi storeyed buildings in the jail compound, Poojappura and was awarded to M/s. General Constructions under agreement No.26/81-82 dt.7.8.1981. For facilitating quick implementation of the contract work, the plaintiff gave a mobilization advance of Rs.5,00,000/- to the contractors on 12.10.1981. The defendant bank at the request of M/s.General Constructions had executed a bank guarantee in favour of the plaintiff on 5.10.1981 holding its liability for any loss or damage that may A.S.593/95 2 be caused to the plaintiff on account of any breach by the said M/s.General Constructions on any of the terms of the contract subject to a limit of Rs.5,00,000/-. 3. As the contractors failed to perform their part of the contract the plaintiff wrote to the defendant on 11.8.1982 through its Executive Engineer demanding payment of the amount of Rs.5,00,000/- guaranteed by it. M/s.General Constructions on coming to know of the step taken by the plaintiff for encashing the bank guarantee given by the defendant a writ petition was filed before this Court as O.P. No.7572 of 1982 against the present plaintiff and the defendant. As per C.M.P. No.21451 of 1982 filed in the said O.P., the plaintiff was restrained by an order of injunction from encashing the bank guarantee. The writ petition was finally dismissed on 7.6.1985. Thereafter on 19.6.1985 the plaintiff wrote a letter to the defendant requesting the payment of the money under the guarantee. In reply to that letter it was stated by the defendant that the original guarantee was for one year from 5.10.1981 to 4.10.1982 and it was subsequently A.S.593/95 3 renewed for another year up to 4.10.1983 and as the term of guarantee has expired the defendant is unable to make the payment. It was further stated that the matter was referred to the defendant's legal department and their advice is awaited. As the defendant did not send any further reply or pay the amount an Advocate notice was issued by the plaintiff on 19.10.1985. The defendant did not reply to the lawyer's notice or make the payment. The plaintiff had already made demand for payment of the amount covered by the guarantee before 5.10.1982 as required in the agreement but it could not collect the amount on account of the order of injunction issued by this Court. So this suit is filed for realisation of the amount covered by the guarantee with interest from the date of suit till realisation and costs. 4. The defendant filed written statement contending as follows : The suit is not maintainable either in law or on facts. It is hopelessly barred by limitation. It is bad for nonjoinder of necessary parties. Plaintiff's contractor M/s.General Constructions mentioned in the plaint is an indispensable party A.S.593/95 4 for proper adjudication of the suit. 5. The bank guarantee issued by the defendant on behalf of the plaintiff's contractor, M/s.General Constructions was only a limited conditional guarantee conditional in respect of the nature, the time and the amount. The original guarantee issued was only for one year from 5.10.1981 and so the defendant stood fully relieved of all obligations under it from 5.10.1982 onwards. 6. It is true that the defendant received a letter from the Executive Engineer on 11.8.1982 demanding payment of Rs.5,00,000/- without specifying that the said amount is due from M/s.General Constructions towards the balance due in the mobilisation advance. By that time several letters and registered notices were issued by the Contractor prohibiting the defendant from paying any amount under the guarantee to the plaintiff. It was alleged that several lakhs of rupees by way of bills for the work executed are outstanding to be paid by the plaintiff and they are wrongly withheld. 7. The contractor has filed a suit as O.S. No.1077 of A.S.593/95 5 1982 before the Munsiff's Court, Thiruvananthapuram for a permanent injunction restraining the defendant from making any payment to the plaintiff under the bank guarantee on the basis of demand made on 11.8.1982. Subsequently the contractors filed Writ Petition, O.P. No.7572 of 1982 before this Court impleading the plaintiff and defendant seeking prohibition of encashment of the bank guarantee issued by the defendant on 5.10.1981. In C.M.P. No.21451 of 1982 filed in that case the court passed order that “if the petitioner renews the bank guarantee in time there will be a direction that the 1[st] counter petitioner the Housing Board should not draw the amount covered by the bank guarantee from the bank until further orders”. 8. In response to the order of this court, the defendant gave a fresh renewed guarantee in plaintiff's favour as requested to be in force only from 5.10.1982 till 4.10.1983. The matter was duly informed to the plaintiff herein. After 4.10.1983 it was never renewed. So after 4.10.1983 the defendant has no obligation to the plaintiff to indemnify any A.S.593/95 6 amount on behalf of plaintiff's contractor M/s.General Constructions. 9. Basing on the contention raised by the original defendant in its written statement, the contracting company M/s.General Constructions was impleaded as additional 2[nd] defendant. It filed a written statement raising the following contentions:- The suit is not maintainable as against the 2[nd] defendant. Though the 2[nd] defendant has been impleaded in the suit as representing M/s.General Constructions, Thiruvnanthapuram there is absolutely no averment in the plaint to connect it with the reliefs claimed in the plaint. 10. Plaintiff filed a replication traversing the contentions raised in the written statements filed by both the defendants and reiterating the plaint averments. It is further explained that the demands made by the plaintiff on 11.8.1982 for encashment of the bank guarantee was in force and so the defendant is bound to honour the demand without demur. So the plaintiff prays for decreeing the suit as prayed in the plaint. 11. In the Sub Court, no oral evidence was adduced A.S.593/95 7 by both sides. Exts.A1 to A7 were marked on the side of the plaintiff and Exts.B1 to B4 were marked on the side of the defendants. Learned Sub Judge, on considering the evidence, decreed the suit, allowing the plaintiff to realise a sum of Rs.5,00,000/- with 12% interest per annum from the date of the suit till date of decree and thereafter, at 6% per annum till realization and proportionate costs from the original defendant and its assets. Additional second defendant is directed to suffer its costs. Against the said judgment and decree, the first defendant filed this appeal. 12. Heard learned counsel for the appellant and the learned counsel for the respondents. At the time of argument, learned counsel for the appellant raised the following contentions : 13. The lower court fell into an error in holding that the injunction order passed by the High Court was vacated as per order dated 7.6.1985 and the suit filed on 4.6.1988, that is within three years from the date vacating the order, is within time. The lower court should have found that the interim A.S.593/95 8 order of the High Court was conditional that the petitioner therein, the 2[nd] defendant, renews the bank guarantee within time. Admittedly the 2[nd] defendant or the plaintiff did not get the bank guarantee renewed after 5.10.1983 and hence the interim order of the High Court ceased to operate on 5.10.1983. The lower court should have found that the suit filed on 4.6.1988 is barred by law of limitation. The lower court should have found that the exclusion of period under Section 15 of the Limitation Act, 1963 will not save the period after 5.10.1983. The lower court should have found that the interim order granted by the High Court did not continue after 5.10.1983. The lower court should have found that the appellant-bank was discharged from all its liabilities under the bank guarantee after 5.10.1983. The lower court should have found that the letter dated 11.8.1982 did not subsist after 4.10.1982 under the renewed bank guarantee and there was no demand during the subsistence of the renewed bank guarantee. 14. Article 58 of the Limitation Act in fact provides that the period will run from the date on which the right to sue A.S.593/95 9 first accrues. Article 113 on the other hand speaks about limitation accruing from the date when the right to sue accrues. No doubt, in the decision reported in **Union of India and others v. West Coast Paper Mills Ltd. and another** [(2004) 2 Supreme Court Cases 747], it was held as follows : “21. A distinction furthermore, which is required to be noticed is that whereas in terms of Article 58 of the period of three years is to be counted from the date when “the right to sue first accrues”, in terms of Article 113 thereof, the period of limitation would be counted from the date “when the right to sue accrues”. The distinction between Article 58 and Article 113 is, thus, apparent inasmuch as the right to sue may accrue to a suitor in a given case at different points of time and, thus, whereas in terms of Article 58 the period of limitation would be reckoned from the date on which the cause of action arose first, in the latter the period of limitation would be differently computed depending upon the last day when the cause of action therefor arose.” 15. Learned counsel for the first respondent/plaintiff, relying on the decision reported in **Shakti Tubes Ltd. v. State of Bihar** (AIR 2009 Supreme Court 1200) argued that the A.S.593/95 10 period spent in Writ Petition filed by the contractor is to be excluded in computing the limitation for filing the money suit. As far as the decision in **M/s.Shakti Tubes Ltd. v. State of Bihar** (AIR 2009 SC 1200) is concerned, that was a case where the plaintiff as a government contractor filed a suit for recovery of dues as per the escalated price. He had earlier filed a writ petition for the direction to the Government to pay the dues and for interest. The petition was partly admitted. As regards the claim for interest the Court took the view that the time spent in the writ petition was liable to be excluded in computation of the limitation for filing money suit. The Court inter alia referred to the decision of the Apex Court in Union of India and others v. West Coast Paper Mills Ltd. and Another (2004 (3) SCC 458) wherein the Court held as follows: “The expression “other cause of like nature” came up for the consideration of this Court in Roshanlal Kuthalia v. R.B.Mohan Singh Oberoi and it was held that Section 14 of the Limitation Act is wide enough to cover such cases where the defects are not merely jurisdictional strictly so called but others more or less neighbors to such deficiencies. Any circumstance, legal or factual, which A.S.593/95 11 inhibits entertainment or consideration by the court of the dispute on the merits comes within the scope of the section and a liberal touch must inform the interpretation of the Limitation Act which deprives the remedy of one who has a right.” 16. Under Section 3 of the Limitation Act, 1963, it is the duty of the court to dismiss the suit which is barred by limitation irrespective of the fact that the point of limitation has not been set up as a defence. 17. The plaintiff filed the above suit, alleging that the additional second defendant/contractor failed to perform their part of contract. In this connection, it is relevant to note that the contractor filed the arbitration suit as O.S.194/84 before the Sub Court, Thiruvananthapuram, alleging that the plaintiff herein committed breach of the above contract. Ext.B4 is the arbitration award dated 10.4.1990 in Arbitration O.S.194/84 on the file of the Sub Court, Thiruvananthapuram, in which it is stated that the claimant/plaintiff/contractor is entitled to get Rs.9,23,428/- together with interest at the rate of 12% per annum from the date of suit till 31.1.1989 and A.S.593/95 12 thereafter, from the date of award till the date of decree or payment, whichever happens earlier. Ext.B1 is the letter dated 5.8.1986 sent by the additional second defendant/contractor to the Chief Manager of the first defendant/bank, in which it is stated that ignoring the legal and factual position, if the first defendant makes payment to the plaintiff on a lapsed guarantee it will be at the risk and cost of the first defendant/bank. Ext.B2 is the copy of the statement of facts and claim submitted by the plaintiff/contractor against the defendant/Housing Board before the Arbitrator appointed in O.S.194/84. That dispute relates to the present agreement No.26/81-82 dated 7.8.1981. Ext.B3 is the copy of the written statement filed by the defendant/Housing Board before the Arbitrator. In Ext.B4, it is stated that the terms of reference are stated in the judgment dated 18.9.1985 in O.S.(Arbitration) No.194/1984 on the file of the Principal Sub Court, Thiruvananthapuram. 18. Ext.A1 is the bank guarantee dated 5.10.1981 executed by the first defendant in favour of the A.S.593/95 13 plaintiff/Housing Board stating that the first defendant Bank undertake to pay the plaintiff the amount outstanding in the mobilization advance to the additional second defendant, subject to a maximum of Rs.5,00,000/- against any loss or damage caused to or suffered or could be caused to or suffered by the plaintiff/Housing Board by reason of any breach by the additional second defendant/contractor of any of the terms or conditions contained in the agreement. In Ext.A1 it is stated that unless a demand or claim under that bank guarantee is made to the bank in writing on or before 5.10.1982, then bank shall be discharged from all liabilities under the guarantee. Ext.A2 is the letter dated 11.8.1982 sent by the plaintiff to the first defendant/bank, in which it is stated that Rs.5,00,000/- was paid to the second defendant on 12.10.1981 against Ext.A1 bank guarantee. In Ext.A2 it is stated that additional second defendant carried out some portion of the work and suddenly stopped the work on reason of their own, and left the site almost deserted. The plaintiff requested the first defendant/Bank to honour Ext.A1 bank guarantee and take A.S.593/95 14 immediate action to repay mobilization advance of Rs.5,00,000/- to the plaintiff. Ext.A3 is the copy of the order in C.M.P.No.21451/82 in O.P.7572/82 on the file of this Court dated 5.10.1982. That was the writ petition filed by the additional second defendant/contractor herein against the plaintiff and first defendant/bank. In Ext.A3 order, it is stated that if the petitioner in that O.P. renews the bank guarantee in time, there will be a direction to the first counter petitioner (the plaintiff herein) not to draw the amount covered by the bank guarantee mentioned in Ext.A2 letter. Ext.A4 is the copy of the judgment in O.P.No.7572/82 of this Court dated 7.6.1985 by which that O.P. was dismissed stating that a dispute as to who committed breach could not be determined in that proceedings. Ext.A5 is the copy of the letter dated 19.6.1985 sent by the plaintiff to the first defendant/bank stating that since that O.P.7572/82 was dismissed the stay for encashment of bank guarantee was in force was dismissed and the plaintiff hereby demands the bank guarantee for mobilization advance of Rs.5,00,000/- with interest to be encashed and credited to the A.S.593/95 15 plaintiff. Ext.A6 is the letter dated 17.9.1985 sent by the first defendant bank to the plaintiff stating that the bank guarantee was issued only for one year from 5.10.1981 to 4.10.1982 and it was renewed for only one year more upto 4.10.1983. So the bank guarantee expired on 4.10.1983 and that the first defendant is unable to comply with the request of the plaintiff. Ext.A7 is the lawyer notice dated 19.10.1985 sent by the plaintiff to the first defendant bank stating that the plaintiff had made demand on 11.8.1982 to honour the bank guarantee and to pay sum of Rs.5,00,000/-. 19. The main contention of the first defendant/bank is that the suit is barred by limitation. In paragraph 13 of the plaint, it is stated that the cause of action for the suit arose on 11.8.1982 when the plaintiff wrote to the first defendant bank for encashing the bank guarantee. In paragra[h 14 of the plaint, it is stated that the plaintiff was prevented from recovering the money from the first defendant/bank from 5.10.1982 to 7.6.1985 by order of injunction issued by the High Court and the said period has to be excluded in reckoning the A.S.593/95 16 period of limitation and therefore, the suit is not barred by limitation. The learned Sub Judge found that the suit is not barred by limitation as it is filed on 4.6.1988 that is within three years from the date of vacating the order. 20. In the plaint, the plaintiff is not claiming any amount on the basis of the renewed bank guarantee. Section 9 of the Limitation Act lays down that when time begins to run it would not stop running because of the subsequent disability or inability to institute the suit. Section 15 of the Limitation Act provides that in computing the period of limitation for any suit the time of continuation of the injunction/stay has to be excluded. As per Article 113 of the Limitation Act, the period of limitation for filing suits which are not otherwise provided for is three years from the date when the right to sue accrues. In the present suit, the cause of action arose on 11.8.1982 and the suit was filed only on 4.6.1988. There was an injunction from this Court in O.P.7572/82 from 5.10.1982 to 7.6.1985. Even after deducting that period, the suit is not filed within three years from the date of accrual of cause of action. Hence, we A.S.593/95 17 are of the view that the suit is barred by limitation. Therefore, the learned Sub Judge is not justified in decreeing the suit. 21. Accordingly, this appeal is allowed and the judgment and decree in O.S.328/1988 on the file of Principal Sub Court, Thiruvananthapuram is set aside and that suit is dismissed as barred by limitation without costs. Parties are directed to suffer their respective costs in this appeal. Sd/- ## **K.M.JOSEPH, JUDGE.** Sd/- ## **M.L.JOSEPH FRANCIS, JUDGE.** tgs (true copy)