Vijaya Bank v. Elsy Jose and Rajan T Kuruvilla

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR & THE HONOURABLE SMT. JUSTICE P.V.ASHA TUESDAY, THE 27TH DAY OF MAY 2014/6TH JYAISHTA, 1936 RFA.No. 527 of 2009 (E) --------------------------------AGAINST THE JUDGMENT IN OS 269/2008 of PRINCIPAL SUB COURT, KOCHI, DATED 23-01-2009 APPELLANT(PLAINTIFF): - ------------------------------------- VIJAYA BANK, REPRESENTED BY ITS BRANCH MANAGER, WILLINGTON ISLAND BRANCH, WILLINGTON ISLAND, KOCHI-682 003. BY ADVS.SRI.D.KRISHNA PRASAD SRI.O.K.SANTHA SMT.MARY TREASA P.L. RESPONDENTS/(DEFENDANTS): - ----------------------------------------------- ## 1. ELSY JOSE, WIFE OF JOSE P.MATHEW, AGED ABOUT 37 YEARS, RESIDING AT PARAYATHUKATTIL HOUSE, 11/189A SOUTH EROOR P.O., THRIPUNITHURA. 2. RAJAN T.KURUVILLA, S/O.T.V.KURUVILLA, AGED ABOUT 49 YEARS, RESIDING AT THANAVELLI, MARAYOOR P.O., IDUKKI DISTRICT. THIS REGULAR FIRST APPEAL HAVING BEEN FINALLY HEARD ON 27-05-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: DMR/- ## **T.R. RAMACHANDRAN NAIR** **&** ## **P.V. ASHA, JJ.** ---------------------------------------------------- ## **R.F.A. No. 527 of 2009** ---------------------------------------------------Dated this the 27[th] day of May, 2014. ## **JUDGMENT** ## P.V. Asha J. The appellant is the plaintiff in a suit for realisation of money on the basis of a loan availed by the plaintiff. The first defendant, the first respondent herein, availed of a credit facility secured loan of Rs.2,00,000/- from the appellant Bank on 20.11.2002, agreeing to repay the said amount with interest at the rate of 12% per annum with monthly rests on or before 20.11.2007 in 60 equal monthly instalments. The second defendant who is the second respondent herein was the guarantor in respect of the transaction and Exhibit A4 is the letter of guarantee executed by him. In the said letter of guarantee, provision is provided for due repayment of the amounts under the transaction making himself liable for all such amounts. 2. The Court below decreed the suit allowing the appellant to realize a sum of Rs.2,64,443/- together with R.F.A. No. 527 of 2009 2 interest at the rate of 14% with monthly rests from the date of suit till the date of decree and thereafter at 6% per annum till realisation from the assets of the first defendant. At the same time, the suit as against the second defendant was dismissed on the ground that it was barred by limitation. This appeal is as against that part of judgment and decree. 3. The Court below in Paragraph 5 of the judgment found that the acknowledgment of liability on 21.10.2005 was only by the first defendant and the plaintiff has not proved acknowledgment regarding liability on the part of the second defendant. 4. The respondents remained ex parte in the Court below. In this appeal also respondents have not entered appearance. 5. We heard the learned counsel for the appellant. Learned counsel for the appellant relying on Section 129 of the Contract Act, says that the guarantee executed by second respondent extends to a series of transactions and is a 'continuing guarantee' and that the same is governed by Article 55 of the Limitation Act. It is asserted by the learned counsel for the appellant that as far as a continuing guarantee R.F.A. No. 527 of 2009 3 is available, there is no question of limitation. It is also her further case that as far as the principal debtor has acknowledged the liability, there is no further necessity for acknowledgment of liability at the instance of the guarantor. She relied on the judgment reported in 1989 (1) KLT 627 Union Bank of India V. Stephen rendered by the Division Bench of this Court, which held as follows: “12. Here the question is, what is the real content and width of the contract of guarantee executed by defendants 2 and 3. It has to be understood from the contract of guarantee executed by defendants 2 and 3. Admittedly, it is a continuing guarantee and the main clause of the guarantee stipulates that this guarantee shall be a continuing security binding on defendants 2 and 3. When in the agreement, defendants 2 and 3 unequivocally agree that they undertake a guarantee that it shall be a continuing security, the court has to examine as to what is the exact meaning, purpose and nature of this obligation of the guarantor. For what purpose, the security is given is made clear in Ext. A2 agreement. The security is for whatever amount that is due to the Bank from the principal debtor. So long as the agreement Ext. A2 is alive and in force, defendants 2 and 3 are liable for the amount due to the Bank because they have secured the amount by executing the agreement. The effect of such an agreement has been considered very clearly by the Supreme Court in A.I.R. 1979 S.C. 102 (Margaret Lalita v. Indo Commercial Bank Ltd.) The Supreme Court observed thus:- R.F.A. No. 527 of 2009 4 “In the case of a continuing guarantee and an undertaking by the defendant to pay any amount that may be due by a company to a Bank on the general balance of its account or any other account, 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 for a suit to enforce the bond could not be said to have commenced running. Limitation would only run from the date of breach under Art.115.” Before the limitation of the suit, the guarantors did not withdraw their guarantee or there was no occasion for the refusal on the part of the guarantors to carry out the obligation. The Supreme Court has said that so long as the account is a live account the guarantors are liable. Further the Supreme Court has made it clear what exactly is a live account when it is said that a live account is one that is not settled, that means a live account is one which has not been discharged by payment or by other arrangement. xxxx xxxx xxxx 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 Article 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. Hence there will be a decree for the amounts decreed by the trial court as against defendants 2 and 3 R.F.A. No. 527 of 2009 5 also. We allow the appeal. In the circumstances, we do not think that this is a fit case where we should order costs.” 6. We find that the very same principle is laid down in the judgment of the Hon'ble Supreme Court in Syndicate Bank Vs. Channaveerappa Beleri & Others (2006) 11 SCC 506 (see para 11). The issue has been elaborately discussed in Gopinathan V. Nedungadi Bank Ltd. 2013 (3) KLT 115. As per the dictum laid down therein, the acknowledgment of liability by one of the parties would keep the liability alive as against the guarantor also. In the case of a continuing guarantee, so long as the guarantee has not been withdrawn or so long as the guarantors have not refused to perform their obligation under the agreement of guarantee and a suit has not been filed within the time prescribed under Article 55 of the Limitation Act, the guarantors are liable to make payment of the amounts found due to the creditor along with the principal debtor. In the present case, there is no withdrawal of the obligations under the guarantee by the guarantors. Here, the respondents have not filed any written statement indicating any act on their part for terminating the guarantee executed by them. R.F.A. No. 527 of 2009 6 ## 7. The finding of the Court below to the effect that the suit will not lie against the second respondent on the ground of limitation is therefore erroneous. In the letter of guarantee produced by the appellant before the Court below as Exhibit A4, the relevant clause reads as follows: “I/We expressly declare that this Guarantee shall be for the period before mentioned a continuing guarantee to you for any amount from time to time not exceeding as aforesaid the said sum of Rs.2,00,000/- (Rupees Two lakhs only) on the whole due on the said account/s together with interest and charges thereon and whether or not from time to time there be nothing owing on any or all the said account/s or the same be from time to time brought to credit.” 8. Therefore, it can be seen that what is executed is a continuing guarantee and the second respondent is equally liable for repayment of the amount of loan as in the case of principal debtor. 9. But, we see that the Court below has decreed the principal amount of Rs.2,64,443/- together with interest at 14% with monthly rests from the date of the suit till the date of decree and thereafter at 6% per annum till realization from the assets of the first defendant. But what is provided by the agreement is repayment along with interest at the rate of 12% R.F.A. No. 527 of 2009 7 per annum with monthly rests. Therefore, the operative portion of the judgment requires a modification to the extent it awards interest at the rate of 14% with monthly rests. The rate of interest shall be only 12% from the date of suit till the date of decree. Further, the Court below has awarded interest at the rate of 6% per annum only from the date of decree till realization. The rate of interest for the period from the date of decree till realization, is modified as 9% per annum. The judgment and decree of the Court below is modified to the above extent. Appellant is also entitled to the cost throughout. Appeal is accordingly allowed. ## **T.R. RAMACHANDRAN NAIR JUDGE** ## **P.V. ASHA JUDGE** DMR/-