TMI Blog2014 (1) TMI 1753X X X X Extracts X X X X X X X X Extracts X X X X ..... have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. The right to sue on the contract of indemnity arose after the assets were sold. The present case would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old Limitation Act, 1908. The right to sue on a contract of indemnity/ guarantee would arise when the contract is broken. Therefore, the period of limitation is to be counted from the date when the assets of the Company were sold and not when the recall notice was given. - CIVIL APPEAL NO. 1019/ 2014 Arising out of Special Leave Petition (Civil) No. 30825 of 2010 - - - Dated:- 29-1-2014 - K.S. RADHAKRISHNAN A.K. SIKRI JJ. J U D G M E N T A.K. SIKRI, J. 1. Leave granted. 2. Present appeal raises an interesting question of law pertaining to the starting point of limitation for filing the suit for recovery by the State Financial Corporations constituted under the State Financial Corporation Act. We make it clear at the outset itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52.54 lacs 6. The Company defaulted on the repayments of the loan amount disbursed to it by the Corporation. The Corporation issued a Recall Notice bearing No. PAC 84/ 90/ 6705 dated 21.5.1990 recalling an amount of ₹ 77,35,607/-(Rupees seventy seven lakhs thirty five thousand six hundred and seven only) plus further interest to be accrued from 10.9.1990. 7. The Company failed to make the repayment and accordingly the Corporation, proceeded under Section 29 of the State Financial Corporations Act, 1951 to take over the mortgaged/ hypothecated assets of the Company. The assets of the Company were taken over by the Corporation on 10.7.1992. The mortgaged/ hypothecated assets of the Company were sold by the Corporation on 31.3.1994 for a sum of ₹ 96,00,000/- (Rupees Ninety Six Lakhs only) by inviting offers by means of publishing advertisements in the leading newspapers. 8. Since the company was also indebted to HP Financial Corporation, amount realised from the sale of the company's assets was apportioned between these two secured creditors. After adjusting the sale proceeds against the outstanding debts of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uit for recovery of the balance outstanding filed by the Corporation. 12. As per the defendants 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. The Corporation, on the other hand, contended that action for selling the mortgage/ 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 realization of sale proceeds only, 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. 13. The learned Single Judge deciding in favour of the Corporation, held the suit to be well within limitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation is prescribed for an application under Sections 31 and 32 of the Act, Article 137 would apply. The additional District Judge upheld the contention of the respondents and the application of the Corporation was dismissed as barred by limitation. The appellant Corporation filed an appeal against the said order in the High Court of Judicature at Bombay, Bench at Panaji. The appeal was dismissed by the High Court by the impugned order dated 22.7.1998. The High Court upheld the reasoning of the Additional District Judge. This Court affirmed the order of the High Court holding that Article 137 of the Limitation Act would apply and the suit was to be filed within a period of three years. Contention of the Financial Corporation predicating its case on Article 136 of the Limitation Act on the ground that application under Section 138 was in the nature of execution proceedings and, therefore, period of 12 years for execution of the decrees is available to the Financial Corporation, was repelled by the Court. The Court categorically held that Section 31 of the Act only contains a legal fiction and at best refer to the procedure to be followed, but that would not mean that there is a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bined effect of the above. A decision is an, authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a Court has been decided is alone binding as a precedent.( See: State of Orissa v. Sudhansu Sekhar Misra and Ors. (1970) ILLJ 662 SC and Union of India and Ors.v. Dhanwanti Devi and Ors. (1996) 6 SCC 44 . A case is a precedent and binding for what it explicitly decides and no more. The words used by Judges in their judgments are not to be read as if they are words in Act of Parliament. In Quinn v. Leathern (1901) AC 495 (H.L.), Earl of Halsbury LC observed that every judgment must be read as applicable to the particular facts proved or assumed to be proved, since the generality of the expressions which are found there are not intended to be exposition of the whole law but governed and qualified by the particular facts of the case in which such expressions are found and a case is only an authority for what it actually decides. 11. Courts should not place relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished judge. 17. Other case of this Court, which is relied upon by the High Court as well, is the decision dated 18.12.2003 in C .A. No. 1971 of 1998 titled as HP Financial Corporation v. Pawana Ors. In that case recall notice was given to the defaulting Company on 4.1.1977; possession of mortgage/ hypothecated assets of the Company was taken over on 25.10.1982 in exercise of powers under Section 29 of the Act; these assets were sold on 29.3.1984 and 14.3.1985; notice for payment of balance amount was issued to the guarantors on 22.5.1985 and suit for recovery of the balance amount was filed on 15.9.1985. 18. A single Judge of the Himachal Pradesh High Court held that the period of limitation for such a suit started after the sale and when balance was found due and, therefore, suit was within the period of limitation. However, when the suit reached hearing before another Judge of the High Court he disagreed with the earlier view and referred the matter to a larger Bench. The Division Bench of the High Court answered the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets were sold of. The judgment was also rested on another pertinent aspect viz. since the mortgage deed was executed, the period of limitation would be 12 years if a mortgage suit was to be filed. Following discussion in the said judgment on this aspect squarely answers the contention of the learned Senior Counsel for the appellant: 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 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch makes the position abundantly clear and is quoted below: Where nay 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 installment 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. 22. It is thus clear that merely because the Corporation acted under Section 29 of the State Financial Corporation 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 only 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 cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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