SANJIB BANERJEE, J. - (1.) THE first petitioner is a government company engaged in granting financial assistance to industrial concerns. Certain provisions of the State Financial Corporations Act, 1951 have been made applicable to the corporation by a notification which is not in dispute. THE corporation granted credit facilities to the first respondent company in or about the year 1983. Simultaneously with the execution of the loan agreement between the corporation and the first respondent, the original respondent nos. 2 to 7 executed a deed of personal guarantee by which they, inter alia, agreed and undertook to repay the corporation, on demand, the money outstanding to the corporation from the principal debtor. THE first and twelfth clauses of the deed of guarantee are relevant: 1. If at any time default shall be made in the repayment of the loan and/or the interest thereon and of any other moneys as and when they may become due and payable by the Company to the Corporation under the said Agreement the Guarantor(s) will jointly and severally pay to the Corporation on demand the said loan, interest thereon and all other moneys for the time being due and payable by the company to the Corporation as aforesaid and will indemnify and keep indemnified saved and defended the Corporation at all times hereinafter against any loss which the Corporation may suffer by reason of any default by the Company in repayment to the Corporation of the said loan of Rs. 55,00,000/- (Rupees fifty five lakhs only) in payment of interest at the rate of 14% or such other higher rate as may be ruling at the time of execution of this agreement, per annum with half-yearly rest as mentioned in the said Agreement and all costs, charges and expenses whatsoever which the Corporation may incur by reason of any default on the part of the Company.? 12. All sums hereby guaranteed by the Guarantor(s) shall be due and payable to the Corporation at Calcutta in terms hereof after notice in writing, requiring payment of the same shall have been delivered to or sent through registered post, addressed to the Guarantor(s) at their aforesaid addresses.?
(2.) UPON the first respondent principal debtor having failed to adhere to its obligation to repay the corporation, the creditor issued a notice under Section 29(1) read with Section 30 of the 1951 Act dated September 29, 1995. Such notice was addressed to the principal debtor and all the guarantors though it clearly specified in its caption that it was issued under the aforesaid provisions of the 1951 Act. The corporation asserted, inter alia, as follows: ?As you have failed to comply with the terms of the contract with WBIDC Ltd. in the matter of the loan or advance made to you under the Agreements and Security Deeds since executed, the Corporation hereby exercise the rights given in the said deeds to call in the entire amount due and notice is hereby given under Section 30 of the State Financial Corporation?s Act 1951 requiring you to discharge your liabilities in full ? in terms of the agreements and security deeds within 15 (Fifteen) days from the date of this notice. In case of default, the provisions of the agreement and security deeds and those of the State Financial Corporation?s Act 1951 shall be enforced against you and further that in exercise of its right under Section 29(1) of State Financial Corporation?s Act 1951, a representative of this Corporation will attend your factory ?on or after 27th October 1995 ? to take possession of your factory without management and this Corporation will proceed to transfer the same ? by public auction or private treaty without any further reference to you.? The money did not come despite the demand and possession of the factory of the first respondent was taken over by the corporation on February 14, 1996. Nearly six years later, on November 5, 2002 notices were published in two newspapers by the corporation inviting offers for sale of the assets at the manufacturing facility of the first respondent on ?as is where is basis.? The assets could not, however, be sold within any reasonable time of the publication of the said notices and a further advertisement was issued on August 7, 2003 following which the assets at the first respondent?s factory were sold to the highest bidder at Rs.12 lakh on or about March 15, 2004. On June 5, 2005 the corporation issued individual notices to each of the guarantors informing them that a sum of Rs.7,37,51,411/- remained due as against the principal debtor as at March 31, 2005. The break-up furnished indicated a principal component of Rs.36.03 lakh and the rest on account of interest. The corporation?s notices demanded payment of the outstanding amount from the guarantors and referred the noticees to clause 12 of the deed of guarantee. The essence of the demand is evident from the last two paragraphs of the notices of June 5, 2005: You are, therefore, required to pay to this Corporation the aforesaid amount of Rs.7,37,51,411/- due and outstanding from the Company as on 31.3.2005. This may be treated as Notice required under clause 12 of the aforesaid Deed of Guarantee. You are also informed about your liability as surety of the Company above-named as the principal debtor u/s 31(1)(aa) of the State Financial Corporations Act, 1951, as amended up-to-date, whereby you are also required to discharge your liability as surety and make payment of the outstanding dues of Rs.7,37,51,411/- to this Corporation calculated upto 31st March, 2005. You are, therefore, requested to pay to this Corporation the amount of Rs.7,37,51,411/- within a fortnight from the date of receipt of this letter. Please further note that in the event of non-compliance of your liability as surety this Corporation shall enforce your liability as surety before the appropriate Court of Law without further reference to you.? ASFC No. 3 of 2005 was filed in September, 2005 invoking Sections 31(1)(aa) and 32 of the 1951 Act. The petition claims that the cause of action against the guarantors arose on June 22, 2005 ?since inspite of the said demand notices the respondents have not discharged their joint and several liabilities ?? The prayers made include the sale of the assets of the guarantors to discharge their liability. On September 7, 2005 an order was passed by this court calling upon the respondents to show cause in terms of prayer (b) as to why they should not be required to discharge the liability and why their assets and properties detailed in schedule A to the petition should not be sold in pro tanto satisfaction of the claim. By an order dated March 22, 2006, the court noticed that despite service of the application and the order dated September 7, 2005, the respondents had neither filed any affidavit nor moved any application. The order directed the properties mentioned in schedule A to the petition to be sold by public auction through joint receivers after assessing the value thereof. The order dated March 22, 2006 was modified by an order dated April 19, 2006. Though the petition relating to such application did not specifically referred to the point of limitation, in course of the hearing thereof the guarantors referred to Section 3 of the Limitation Act, 1963 and contended that the claim lodged against them was barred by the laws of limitation. GA No. 1939 of 2006 was allowed by an order dated January 22, 2008 and ASFC No. 3 of 2005 was found to be barred by limitation. The order noticed clause 12 of the deed of guarantee and observed that the demand required to be made by the corporation on the guarantors in terms thereof was not to be in any special form. The order read the demand of September 29, 1995 issued by the corporation to the principal debtor and the guarantors to also be a notice to the guarantors within the meaning clause 12 of the deed of guarantee, apart from it being a notice under Sections 29(1) and 30 of the Act to the principal debtor.
(3.) IT is necessary that parts of the order dated January 22, 2008 (reported at AIR 2008 Cal 71) be referred to: 13. Clause 12 of the deed of guarantee does not require a demand to be made in a special form. The letter of September 29, 1995 is not confined merely to the corporation giving notice to the borrower that it would take over the hypothecated assets upon its demand not being met by the borrower within the time indicated. The words in such letter indicate that the notice was also in exercise of powers other than those available to the corporation under Section 29 of the 1951 Act. Such other powers included the creditor?s general power to call upon the guarantor to repay the debt owing from the principal-debtor. In addressing such letter to all the guarantors, the corporation issued a demand in writing to the guarantors to repay. IT was not as if the letter of September 29, 1995 was addressed to the borrower and the guarantors were marked copies thereof for their information. IT was a demand made on the principaldebtor and the guarantors, which a creditor is entitled to make as the liability is co-extensive.? 18. The corporation would have been right if it had issued no notice to the guarantors along with its demand under Sections 29 and 30 on the borrower in September, 1995. Again, the two key aspects of the Supreme Court judgment cited by the corporation are ? live account with the borrower; and, refusal to pay on the part of the guarantor. The refusal in this case was upon the guarantors failing to pay heed to the simultaneous demand issued by the corporation on September 29, 1995. The live accounts in this case would be the accounts between the corporation and the borrower. In the sense that the borrower?s debt was to be discharged by the value of the sale proceeds, the accounts between the corporation and the borrower remained alive even after the sale was concluded. But the guarantors had already been called upon to pay up by the notice of September 1995 and the guarantors had refused to pay despite the borrower not meeting the corporation?s demand pursuant to the notice under Sections 29 and 30 of the Act. For the purpose of a claim under Section 31(1)(aa) of the Act, the time is circumscribed by Art. 137 of the schedule to the Limitation Act. Such time begins running from the date of breach on the guarantor?s part. The breach, in the present case, on the part of the guarantors has to date back to the first notice or the period allowed by the corporation to the borrower and the guarantors under the first notice. The applicable period of limitation would not exclude the time taken by the creditor to proceed against the assets of the principal-debtor, for the liability of both the principaldebtor and the guarantors are co-extensive. 20. In making the petition, the corporation has acknowledged in the 16th paragraph thereof that it was only the liability of the guarantors that the corporation?s was pursuing. On a reading of clauses 8 and 12 of the deed, it would appear that even if the liability under the guarantee continued, the liability of the guarantors would arise upon notice in writing being delivered by the corporation to them. Such notice in writing was issued on September 29, 1995 but was not pursued within time. Clause 8 of the deed would not keep the claim under Section 31(1)(aa) of the Act alive to a period beyond three years from the expiry of the time afforded by the corporation?s first notice. ;