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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPEALLATE JURISDICTION

CIVIL APPEAL NO.7245 OF 2008

M/S. SUNDARAM FINANCE LIMITED       … APPELLANT

VERSUS

NOORJAHAN BEEVI AND ANOTHER          … RESPONDENT

J U D G M E N T

ASHOK BHUSHAN, J.

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

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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  was

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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:

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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(1980

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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 observe

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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  the

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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 for

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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 shall

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begin with effect from the date of sale this is 30 th 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  the

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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 the

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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 Corpo- rations 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 Corpora- tion 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 indus- trial 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 outstanding

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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 judg- ment 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 en- tirely erroneous. It is settled law that a contract of in- demnity  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 Corpora- tion acted under Section 29 of the Financial Corpora- tions Act did not mean that the contract of indemnity came to an end. Section 29 merely enabled the Cor- poration to take possession and sell the assets for re- covery 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 in- dependent contract, did not. The right to claim for the

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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:

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“11. As per the defendants, the cause of action for filing the recovery suit arose on 21-5-1990 when re- call notice was issued by the Corporation to the Com- pany 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 pro- visions of Section 29 of the Act and the sale of these assets were fructified on 21-3-1994. It is on the reali- sation  of  the  sale  proceeds  only,  that  the  balance amount payable by the guarantors could be ascer- tained. 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 Corpora- tion would be in a position to know as to whether there  is  a  shortfall  or  there  is  excess  amount  re- alised, only after the sale of the mortgaged/hypothe- cated assets. This is clear from the language of sub-

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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 prop- erty 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

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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 guar- antee 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 guar- antee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by

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the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guar- antors only when a demand is made. Article 55 pro- vides that the time will begin to run when the con- tract is “broken”. Even if Article 113 is to be applied, the time begins to run only when the right to sue ac- crues. In this case, the contract was broken and the right to sue accrued only when a demand for pay- ment 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 mak- ing 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 de- mand 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

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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.