LexSYNDICATE BANK versus CHANNA VEERAPPA BELERI AND ORS.
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SYNDICATE BANK A v. CHANNA VEERAPPA BELERI AND ORS. APRIL 10, 2006 [ARUN KUMAR AND R.V. RA YEEND RAN, JJ.) B The Contract Act, 1872: Section 129-Continuing guarantee-Payable on demand- Enforcement of-limitation-Held, the limitation begins to run when the C demand is made and the guarantor commits breach by nqt complying with the demand-Limitation Act, 1963-Articles 55 and 13. The appellant Bank had extended credit facilities by way of overdraft, goods loan, and demand loan supply Bills to a company known as Gadag Forge. Fits (India) Pvt. Ltd., 'company' for short). Respondent 1 was its Managing D Director and Respondents 2 to 7 were its Directors. The credit facilities were renewed and enhanced from time to time. Respondents 1to7 executed different guarantee bonds in favour of the Bank, personally agreeing and undertakings to pay and satisfy the Bank on demand all sums which may be due on account of the credit facilities granted to the company subject to the limits mentioned E therein. On account of the company allegedly incurring losses and stopping its activities, operations in the accounts of the company with the Bank stopped in the middle of 1986. In view of the failure on the part of the company (principal debtor) in paying the amounts due, the Bank sent a letter dated 12.10.1987 to the company and its 7 Directors (Respondents 1 to 7) informing that the following amounts were outstanding in the accounts of the company as on F 30.9.1987 and calling upon the company as principal debtor and respondents 1 to 7 as guarantors to pay the said amounts within 15 days. The company and its Directors (Respondents 1 to 7) sent a reply dated 31.10.1987 stating that the company was passing though a financial crisis inter alia alleging that the Bank had failed to assist the company by making further advances G by way of working capital, on account of which the company sustained heavy loss and the company was reserving liberty to file a suit for damages for an amount which would be more than the amount claimed by the Bank A formal notice through counsel was sent by the Bank on 17.12.1987 demanding 999 H 1000 SUPREME COURT REPORTS [2006] 3 S.C.R. A payment which elicited a reply dated 30.12.1987 denying the demand. The Bank initiated proceedings for winding up against the company on account of its inability to pay its dues, on I I.I 0.1988 and the High Court ordered winding up of the company on 17.3.1989. Therefore, the suit was filed by the Bank on 16.3.1990 only against the Guarantors (Respondents I to 7). B The Bank contended that the respondents were jointly and severally liable to pay the amounts due by the company. It was alleged that the cause of action for the suit against the guarantors (respondent I to 7) arose on 17.12.1987 when the demand was made and on 30.12.1987 when they denied the liability by notice. The statements of account showing the particulars of C amount due as on 31.12.1989 were annexed to the plaint The appellant-Bank further contended that the guarantees executed by the respondents were continuing guarantees; that the guarantors had agreed to pay the amount/s on demand by the Bank; that such a demand was made by the Bank on the guarantors on 12.10.1987 and 17.12.1987, and that the guarantors' refusal to pay the amount demanded is contained in their reply-letters dated D 31.10.1987 and 30.12.1987; and that, therefore, the suit filed on 16.3.1990, within three years from 31.10.1987 was within time. Respondents resisted the suit inter alia on the grounds that (a) The suit was not maintainable only against the Guarantors and was liable to be rejected for non-joinder of the principal debtor, (b) the Bank ran not proceed E against the guarantors without first exhausting of remedies against the principal debtor, (c) the guarantee bonds were executed in the years 1983, 1984 and 1985. As the suit was not filed within three years from the respective dates of the guarantee bonds, in the absence of renewals or acknowledgement by them, the suit was barred by limitation. The respondents also contended F that when the operations ceased and the accounts became dormant, the very cessation of operation of accounts should be treated as a refusal to pay by the principal debtor, as also by the guarantors and, therefore, the limitation would begin to run, not when there is a refusal to meet the demand, but when the accounts became dormant. G The trial
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