determined as per terms and conditions of the agreement dated
20.9.1983. The terms of the agreement as noted by the High
Court and referred to by us as above clearly indicate that on
committing a breach of terms and conditions of the agreement
the rights shall accrue to the plaintiff to sue for balance
instalments and the damages for breach of contract. Thus, the
right to sue shall not stand differed till either sale which took
place on 20th May, 1985 or till the last date of payment of the
instalment that is 20th September, 1986. Both the courts
below have rightly taken the view that limitation shall start
running from the date the hirer defaulted in making payment
that is on 20.5.1984 and suit has been filed beyond three years
from the above date was clearly barred by time. Article 55 of
the Limitation Act, 1963 has also come for consideration before
this Court in Syndicate Bank vs. Channaveerappa Beleri
and others,2006 (11) SCC 506. In paragraph 13 of the
judgment following was stated:
“13. What then is the meaning of the said words
used in the guarantee bonds in question? The guarantee
bond states that the guarantors agree to pay
and satisfy the Bank “on demand”. It specifically
provides that the liability to pay interest would arise
upon the guarantor only from the date of demand by
the Bank for payment. It also provides that the guarantee
shall be a continuing guarantee for payment of
the ultimate balance to become due to the Bank by
the borrower. The terms of guarantee, thus, make it
clear that the liability to pay would arise on the guarantors
only when a demand is made. Article 55 provides
that the time will begin to run when the contract
is “broken”. Even if Article 113 is to be applied,
the time begins to run only when the right to sue accrues.
In this case, the contract was broken and the
right to sue accrued only when a demand for payment
was made by the Bank and it was refused by
the guarantors. When a demand is made requiring
payment within a stipulated period, say 15 days, the
breach occurs or right to sue accrues, if payment is
not made or is refused within 15 days. If while making
the demand for payment, no period is stipulated
within which the payment should be made, the
breach occurs or right to sue accrues, when the demand
is served on the guarantor.”
21. In exercise of power under Clause 4 of the agreement
dated 20.9.1983 the plaintiff had taken possession of vehicle
on 9.2.1985 and had immediately vide letter dated 12.2.1985
called upon the defendant to pay them due within 10 days from
the receipt of the letter. The notice dated 12.2.1985 was
received by the first defendant which was also replied by the
first defendant as has been pleaded in the written statement.
Thus,in any event of the matter contract stood broken on the
default and right to sue accrued to the plaintiff on demanding
the amount to be paid within 10 days. Thus, in any view of the
matter suit filed by the plaintiff was beyond three years and
has rightly been dismissed by the trial court.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLATE JURISDICTION
CIVIL APPEAL NO.7245 OF 2008
M/S. SUNDARAM FINANCE LIMITED
V
NOORJAHAN BEEVI AND ANOTHER.
Dated:JUNE 29, 2016.
Citation: (2016) 13 SCC1
The plaintiff-appellant has filed this appeal against the
judgment dated 10th April, 2002 in A.S. No.388 of 1992 of
Kerala High Court by which the High Court dismissed the
appeal filed by the plaintiff-appellant in which appeal the
judgment of the trial court dated 29.05.1991 dismissing the
suit was assailed.
2. The brief facts necessary to be noted in this appeal are :
The plaintiff-appellant is a public limited company
carrying on a business of extending hire purchase facilities for
commercial vehicles. The plaintiff and the first defendant had
entered into an agreement dated 20.09.1983 by which plaintiff
had financed an amount of Rs.1,47,000/-. The first defendant,
the hirer was to clear off entire amount due in 36 monthly
instalments. The first defendant committed default in payment
of instalments with effect from 20th May,1984. The plaintiff
seized the vehicle No. KLI2447 on 9th February, 1985.
Thereafter,the plaintiff vide letter dated 12th February, 1985
called upon the defendants to settle the contract within 10
days from the date of the receipt of the notice. The defendants
did not make any payment. The plaintiff on 30th May, 1985
sold the vehicle and after adjusting the amount received from
sale of vehicle balance of Rs.40,138/- was further demanded.
Notice dated 12th July, 1985/22.07.1985 was sent by the
plaintiff. Reply to the notice was given on 30th July, 1985. The
plaintiff filed Original Suit No.148 of 1988 on 25.5.1988
praying for decree of sum of Rs.40,138/- along with interest.
The second defendant, the husband of first defendant was also
impleaded as guarantor. A written statement was filed by the
first defendant where execution of hire purchase agreement
was admitted. The default in payment of instalments wasPage 3
admitted. It was further pleaded that provisions in Clause 4 of
hire purchase agreement regarding termination without notice
is contrary to the statutory provisions. It was further stated
that the vehicle was not sold on best price. The defendant
pleaded that plaintiff is not entitled for any relief. The trial
court framed 8 issues. One of the issues, issue No.7 was:
“whether the suit is barred by limitation”. The trial court after
considering the facts held that suit is barred by limitation. It
was held that default is from 20th May, 1984 the suit ought to
have been filed within 20.5.1987. Suit was filed on 25th May,
1988 being beyond three years was to be dismissed.
3. The plaintiff filed an appeal in the Kerala High Court. The
Kerala High Court also affirmed the judgment of the trial court
and held that suit is barred by limitation. Plaintiff has come in
this appeal questioning the correctness of the judgment of the
High Court.
4. The only question which needs to be considered was as to
whether suit filed by the plaintiff was barred by limitation.
Relevant provisions of Limitation Act, 1963 are Article 55 and
Article 113 which are to the following effect: Page 4
Article Description of suit Period of
limitation
Time from which
period begins to run
55. For compensation for the
breach of any contract,
express or implied not herein
specially provided for.
Three
years
When the contract is
broken or (where
there are successive
breaches) when the
breach in respect of
which the suit is
instituted occurs or
(where the breach is
continuing) when it
ceases.
113. Any suit for which no period
of limitation is provided
elsewhere in this Schedule.
Three
years
When the right to
sue accrues.
5. The submissions which have been pressed by the learned
counsel for the plaintiff that last instalment was to be paid on
20th September, 1986 and the balance liability of the defendant
could be ascertained only after the sale of the vehicle which
took place on 30th May, 1985 and the suit was filed within
three years from the date of sale of the vehicle as well as
within three years from the last date of payment of instalment,
hence, it could not have been said to be barred by time. The
present was a case which was to be governed by Article 113 of
the Limitation Act, 1963. The Courts below erred in applying
Article 55. The case was fully covered by the judgment of the
Madras High Court in Bell Alloys Steels Private Limited vs.
The National Small Industries Corporation Limited(1980Page 5
Legal Surveyor 85). The default in payment of each of the
instalments would constitute default. Therefore, a “continuing
breach”, hence, the suit is well within time from the date of
default of payment of last instalment that is 20th September,
1986.
6. Learned counsel appearing for the respondents refuting
submissions made by the learned counsel for the appellant
contended that the trial court was correct in dismissing the
suit as barred by time. Learned counsel for the respondent has
also placed reliance on the judgment of this Court in Deepak
Bhandari vs. Himachal Pradesh State Industrial
Development Corporation Limited,2015 (5) SCC 518.
7. We have gone through the records and considered the
submissions raised by the learned counsel for the parteis.
8. As noted above, the trial court framed issue No.7, as to
whether the suit was barred by time. In paragraph 10 of the
judgment this issue was dealt with in the following manner:
“10.ISSUE NO.7 :- According to the learned counsel
for the defendants the suit is barred by limitation for
the reason that the date of agreement is 20.9.83 and
the last date of payment is 20.4.84 but the suit is
filed only on 26.5.88. He has invited by attention to
clause 4 to the effect that if any instalment is not
paid within the stipulated time whether legally
demanded or not; break or fail to perform or observePage 6
any conditions on their part therein contained, then
and in such cases the rights of the hirer under the
agreement shall forth with be determined ipso facto,
without any notice to the hirer. Therefore, according
to him on 20.4.84 itself to contract was also
determined. But the learned counsel for the plaintiff
would argue that clause 4 contains provisions for
seizure of vehicle and unless the vehicle is sold to
balance in any cannot be ascertained and therefore
the plaintiff would get course of action only on
30.5.85, the date of sale of the vehicle. Though I
went through the different provisions of Ext.A2
agreement, I could not find any provision for sale of
the vehicle. Even in Ext.A3 there is no such
provisions. So this argument cannot hold good. In the
case on hand, the default is from 20.5.84, the suit
ought to have been filed within 20.5.87. Therefore,
the suit is barred by limitation.
9. The trial court has elaborately considered the
submissions of both the parties and has referred to relevant
clauses of agreement dated 20.9.1983.
10. On the question of limitation while referring to Clause 4
of the agreement dated 20.9.1983 in para 4 of the judgment
following was observed:
“4.....Ext.A2 agreement dated 20.9.83 contains the
terms and conditions to be followed by the parties.
As per clause 4 of Ext. A2, the plaintiff is entitled to
seize the vehicle even without notice in case of
default of instalments or other conditions mentioned
therein. Admittedly, the defendants have committed
default of instalments. If the hirer commits breach of
the agreement, the rights of the hirer commits breach
of the agreement, the rights of the hirer under the
agreement shall forthwith be determined ipso facto
without any notice to the hirer and all thePage 7
instalments previously paid by the hirer shall be
absolutely forfeited to the owners who shall
thereupon be entitled to enter any house or place
where the said vehicle may then be seize, remove
and retake possession of it and to sue for all the
instalments due and for damages for breach of the
agreement and for all the costs occasioned by the
hirer's default. So, as per the defendants, the
financier invoked Clause 4 of the agreement and the
vehicle was seized and subsequently sold. The
cause of action arose on 20.4.1984. The plaintiff
ought to have filed the suit within three years from
20.4.1984. but the suit was filed only on 26.5.1988.
The agreement between the parties were determined
on the date of default itself.”
11. The High Court has come to conclusion that as per
Clause 4 if the hirer commits breach of the agreement, the
rights of the hirer under the agreement shall forthwith be
determined ipso facto without any notice to the hirer and all
the instalments previously paid by the hirer shall be
absolutely forfeited to the owners who shall thereupon be
entitled to enter any house or place where the said vehicle
may then be seize, remove and retake possession of it.
Further in paragraph 6 of the judgment of the High Court
following further was observed:
“As per the agreement, the financier is at liberty to
terminate the agreement ipso facto and also seize the
vehicle without notice. There is no question of
surrender of the vehicle and as stated above, the
vehicle belonged to the first defendant at the time of
the agreement. The suit is being one for damages forPage 8
breach of contract of hire purchase, it is governed by
Article 55 of the Limitation Act and therefore, the suit
should have been filed within three years from the
date of the breach. Here, the breach has been
committed on 20.4.84. In pursuance of clause 4 of
the agreement, the vehicle was seized by the
plaintiff. So, he ought to have filed the sit within
three years from the date of breach of the agreement.
The contract was determined on 20.4.84 itself. The
argument of the learned counsel for the plaintiff that
the vehicle was sold only on 30.05.1985 and the
amount was credited and then only the cause of
action will arise cannot be accepted since it is a loan
transaction between the parties and the contract has
ipso factor determined on the date of breach of
contract. It is clear from clause 4 of the agreement
that the financier is at liberty to forfeited the previous
payment made by the hirer and also seized the
vehicle and sue for all the instalments due and for
damages for breach of the agreement and for all the
costs of retaking possession of the said vehicle and
all costs occasioned by the hirer's default. Since the
plaintiff invoked the said provision, the argument
advanced by the learned counsel for the plaintiff that
the last instalment is due only on 20.09.1986 and
the suit is within time cannot be accepted. Since,
there is no provision to sell the vehicle and credit the
amount to the loan advanced there is no question of
waiting till the sale of the vehicle.”
12. There is no dispute between the parties that the hirer
committed default in payment of instalments on 20th May,
1984. The High Court has further held that there is no clause
in agreement permitting the plaintiff to sell the vehicle. The
submission of the learned counsel for the appellant that
limitation to file the suit for recovery of balance amount shallPage 9
begin with effect from the date of sale this is 30th May,1985,
does not appeal to us. The contract was to be determined ipso
facto on default being committed. The power of seizing the
vehicle and to take possession as contemplated under Clause 4
of the agreement was consequent to default being committed by
the hirer.
13. This Court on 12th June, 2012 passed the following order:
“Learned counsel for the appellant shall place
on record a copy of the hire purchase agreement
dated 20th September, 1983.
List thereafter.”
The copy of the agreement dated 20th September, 1983
having not been placed before us, we have no option except to
rely on the contents of Clause 4 as noted by the High Court in
its judgment. The High Court has noted that agreement does
not contain any provision for sale of the vehicle hence, taking
starting point of limitation from the date of sale of vehicle
cannot be accepted.
14. As noted above, in paragraph 4 of the judgment of the
High Court while noticing the contents of Clause 4 of the
agreement it has been observed that “if the hirer commits the
breach of the agreement, the rights of the hirer under thePage 10
agreement shall forthwith be determined ipso facto without any
notice to the hirer and all the instalments previously paid by
the hirer shall be absolutely forfeited to the owners who shall
thereupon be entitled to enter any house or place where the
said vehicle may then be seize, remove and retake possession
of it and to sue for all the instalments due and for damages for
breach of the agreement....” (underlined by us).
15. Thus, as per Clause 4 the right to sue accrues when the
hirer commits breach of the agreement. Committing default in
payment of instalement is nothing but a breach of the
agreement and thus courts below has rightly taken a view that
period of limitation for filing a suit under Article 55 shall begin
with effect from 20th May, 1984 when the default was
committed by the hirer.
16. In this case it is relevant to refer the judgment of this
Court in Himachal Pradesh Financial Corporation vs.
Pawna and others, 2015 (5)SCC 617. In the above case
Himachal Pradesh Financial Corporation had given a loan to a
partnership firm. As security for that loan, a mortgage deed
was executed. Clause 7 of the mortgage deed contemplated that
without prejudice to the rights and powers conferred on thePage 11
Corporation under the State Financial Corporations Act, 1951,
in the event, the partners of the industrial concern fail to pay
the said principal sum with interest, the Corporation shall be
entitled to realise its dues by sale of the mortgaged properties,
and if the sale proceeds thereof are insufficient to satisfy the
dues of the Corporation, to recover the balance from the
partners of the industrial concern. Clause 7 of the agreement
was to the following effect:
“3. Clause 7 of the mortgage deed is important. It
reads as follows:
“Without prejudice to the above rights and powers
conferred on the Corporation by these presents and
by Sections 29 and 30 of the State Financial Corporations
Act, 1951 and as amended in 1956 and 1972
and the special remedies available to the Corporation
under the said Act, it is hereby further agreed and
declared that if the partners of the industrial concern
fail to pay the said principal sum with interest and
other monies due from them under these presents to
the Corporation in the manner agreed, the Corporation
shall be entitled to realise its dues by sale of the
mortgaged properties, the said fixtures and fittings
and other assets, and if the sale proceeds thereof are
insufficient to satisfy the dues of the Corporation, to
recover the balance from the partners of the industrial
concern and the other properties owned by them
though not included in this security.”
(emphasis supplied)”
17. In the above case the assets were sold on 28.3.1984 and
14.3.1985. The sale amount could not satisfy the outstandingPage 12
hence, the notice was issued on 27.5.1985 and thereafter suit
was filed on 15.9.1985. The High Court has dismissed the suit
as barred by limitation. In the appeal this Court set aside the
judgment of the High Court by making following observations
in paragraphs 10 and 11:
“10. Whilst considering the question of limitation
the Division Bench has given a very lengthy judgment
running into approximately 50 pages. However,
they appear to have not noticed the fact that under
Clause 7 an indemnity had been given. Therefore,
the premise on which the judgment proceeds i.e. that
the loan transaction and the mortgage deed are one
composite transaction which was inseparable is entirely
erroneous. It is settled law that a contract of indemnity
and/or guarantee is an independent and
separate contract from the main contract. Thus, the
question which they required to address themselves,
which unfortunately they did not, was when does
the right to sue on the indemnity arose. In our view,
there can be only one answer to this question. The
right to sue on the contract of indemnity arose only
after the assets were sold off. It is only at that stage
that the balance due became ascertained. It is at
that stage only that a suit for recovery of the balance
could have been filed. Merely because the Corporation
acted under Section 29 of the Financial Corporations
Act did not mean that the contract of indemnity
came to an end. Section 29 merely enabled the Corporation
to take possession and sell the assets for recovery
of the dues under the main contract. It may be
that on the Corporation taking action under Section
29 and on their taking possession they became
deemed owners. The mortgage may have come to an
end, but the contract of indemnity, which was an independent
contract, did not. The right to claim for thePage 13
balance arose, under the contract of indemnity, only
when the sale proceeds were found to be insufficient.
11. In this case, it is an admitted position that the
sale took place on 28-3-1984 and 14-3-1985. It is
only after this date that the question of right to sue
on the indemnity (contained in Clause 7) arose. The
suit having been filed on 15-9-1985 was well within
limitation. Therefore, it was erroneous to hold that
the suit was barred by the law of limitation.”
18. The above case was based on Clause 7 of the agreement
as well as a specific power given to the Corporation under the
State Financial Corporations Act, 1951, there is no such clause
akin to Clause 7 of the mortgage deed in the present case.
19. In Deepak Bhandari vs. Himachal Pradesh State
Industrial Development Corporation Limited,2015 (5) SCC
518 while considering Article 55 of the Limitation Act, 1963,
this Court was considering the question whether the limitation
period begins from notice recalling loan amounts or from
realisation of sale proceeds of mortgaged/hypothecated assets.
It was held that limitation for such suit beginsfrom the date
when amount of dues for recovery are ascertained, and that
can take place only after adjusting amounts received from sale
of mortgaged/hypothecated assets. In paragraph 11 and 12
facts of the case were noted which are to the following effect:Page 14
“11. As per the defendants, the cause of action for
filing the recovery suit arose on 21-5-1990 when recall
notice was issued by the Corporation to the Company
and the guarantors. Therefore, the suit was to
be filed within a period of 3 years from the said date
and calculated in this manner, last date for filing the
suit was 20-5-1993. It was, thus, pleaded that the
suit filed on 26-12-1994 was beyond the period of 3
years from 21-5-1990 and, therefore, the same was
time-barred.
12. The Corporation, on the other hand, contended
that action for selling the mortgaged/hypothecated
properties of the Company was taken under the provisions
of Section 29 of the Act and the sale of these
assets were fructified on 21-3-1994. It is on the realisation
of the sale proceeds only, that the balance
amount payable by the guarantors could be ascertained.
Therefore, the starting point for counting the
limitation period is 31-3-1994 and the suit filed by
the Corporation on 26-12-1996 was well within the
period of limitation.”
This Court has also referred to the judgment of the
Himachal Pradesh Financial Corporation(supra). In
paragraph 27 of the judgment the following was stated:
“27. We thus, hold that when the Corporation
takes steps for recovery of the amount by resorting to
the provisions of Section 29 of the Act, the limitation
period for recovery of the balance amount would
start only after adjusting the proceeds from the sale
of assets of the industrial concern. As the Corporation
would be in a position to know as to whether
there is a shortfall or there is excess amount realised,
only after the sale of the mortgaged/hypothecated
assets. This is clear from the language of sub-Page 15
section (1) of Section 29 which makes the position
abundantly clear and is quoted below:
“29. Rights of Financial Corporation in case
of default.—(1) Where any industrial concern, which
is under a liability to the Financial Corporation under
an agreement, makes any default in repayment of
any loan or advance or any instalment thereof or in
meeting its obligations in relation to any guarantee
given by the Corporation or otherwise fails to comply
with the terms of its agreement with the Financial
Corporation, the Financial Corporation shall have the
right to take over the management or possession or
both of the industrial concern, as well as the right to
transfer by way of lease or sale and realise the property
pledged, mortgaged, hypothecated or assigned
to the Financial Corporation.”
This Court while taking the above view has referred to the
statutory power given to the Corporation under the State
Financial Corporations Act.
20. The above judgment of this Court was a case where the
Court had taken into consideration the statutory power given
to Financial Corporation under Section 29 of the State
Financial Corporation Act,1951 where the Corporation is
entitled to take possession of the assets and transfer by way of
lease or sale. Present is not a case where plaintiff can claim to
exercise any power akin to Section 29 of the State Financial
Corporations Act, 1951. The rights of the parties have to be
determined as per terms and conditions of the agreement dated
20.9.1983. The terms of the agreement as noted by the High
Court and referred to by us as above clearly indicate that on
committing a breach of terms and conditions of the agreement
the rights shall accrue to the plaintiff to sue for balance
instalments and the damages for breach of contract. Thus, the
right to sue shall not stand differed till either sale which took
place on 20th May, 1985 or till the last date of payment of the
instalment that is 20th September, 1986. Both the courts
below have rightly taken the view that limitation shall start
running from the date the hirer defaulted in making payment
that is on 20.5.1984 and suit has been filed beyond three years
from the above date was clearly barred by time. Article 55 of
the Limitation Act, 1963 has also come for consideration before
this Court in Syndicate Bank vs. Channaveerappa Beleri
and others,2006 (11) SCC 506. In paragraph 13 of the
judgment following was stated:
“13. What then is the meaning of the said words
used in the guarantee bonds in question? The guarantee
bond states that the guarantors agree to pay
and satisfy the Bank “on demand”. It specifically
provides that the liability to pay interest would arise
upon the guarantor only from the date of demand by
the Bank for payment. It also provides that the guarantee
shall be a continuing guarantee for payment of
the ultimate balance to become due to the Bank by
the borrower. The terms of guarantee, thus, make it
clear that the liability to pay would arise on the guarantors
only when a demand is made. Article 55 provides
that the time will begin to run when the contract
is “broken”. Even if Article 113 is to be applied,
the time begins to run only when the right to sue accrues.
In this case, the contract was broken and the
right to sue accrued only when a demand for payment
was made by the Bank and it was refused by
the guarantors. When a demand is made requiring
payment within a stipulated period, say 15 days, the
breach occurs or right to sue accrues, if payment is
not made or is refused within 15 days. If while making
the demand for payment, no period is stipulated
within which the payment should be made, the
breach occurs or right to sue accrues, when the demand
is served on the guarantor.”
21. In exercise of power under Clause 4 of the agreement
dated 20.9.1983 the plaintiff had taken possession of vehicle
on 9.2.1985 and had immediately vide letter dated 12.2.1985
called upon the defendant to pay them due within 10 days from
the receipt of the letter. The notice dated 12.2.1985 was
received by the first defendant which was also replied by the
first defendant as has been pleaded in the written statement.
Thus,in any event of the matter contract stood broken on the
default and right to sue accrued to the plaintiff on demanding
the amount to be paid within 10 days. Thus, in any view of the
matter suit filed by the plaintiff was beyond three years and
has rightly been dismissed by the trial court. The High Court
has also not erred in dismissing the appeal by taking the view
that the suit was barred by limitation.
22. In view of the foregoing, we do not find any merit in this
appeal. The appeal is dismissed accordingly.
………………….…...........................J.
(ABHAY MANOHAR SAPRE)
………………..…...........................J.
(ASHOK BHUSHAN)
NEW DELHI,
JUNE 29, 2016.
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