TMI Blog2004 (10) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute are that the original writ petitioner was appointed on 11.10.1965 as an Inspecting Officer in the Bihar State Co-operative Bank Ltd. and after serving the Institution for almost 34 years he stood retired on 31.1.2000 from the post of Deputy General Manager (Accounts). According to the petitioner though he was entitled to an amount of Rs. 1,58,443.76 towards leave encashment but to his shock and surprise he found that an amount of Rs. 94,875.65 only have been credited to his account and on his enquiries he was informed that the said amount has been credited in full and final settlement of his leave encashment and, as such a sum of Rs. 63,568.10 was deducted from the aforereferred amount. The writ petitioner thereafter made a representation to the respondents on 15.12.2000 but the respondents did not respond to it. The petitioner thereafter sent a reminder but that was not replied. According to the petitioner, before deducting the amount of Rs. 63,568.10 for any good, bad or indifferent reason neither a notice to show cause was issued to him nor any reason was furnished to him for making such a deduction/cut into his entitlement. The petitioner in the aforereferred premises ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt otherwise also due is added to these three overdraft accounts, the Bank was justified in deducting Rs. 63,568.10. It is submitted that a sum of Rs. 19,013 which was deducted towards provident fund deduction has been refunded to the petitioner. On 27.4.2001. It is the submission of the Bank that in a meeting wherein the Branch Managers were directed to take steps for recovering all overdraft amounts from the borrowers/debtors/defaulters, the petitioner was also asked to recover the amount but the petitioner did not do anything. They have also relied upon letter No. 192 dated 16.5.1998 to submit that the Bank has issued the aforesaid letter to the Branch Managers informing them that if the outstanding amount towards the loan amount is not recovered then the same would be recovered from the employees/officers of the Bank, who stood guarantors. It is submitted by them that in overdraft sanctioned advice it was specifically mentioned as a condition that overdraft facility had been extended to the borrower ion the recommendation of the Branch Manager and it would be the personal responsibility of the Branch Manager/Guarantor to recover the dues in time. According to them, the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould become impossible for him to recover the money from the original debtor/borrower because the amount paid by the employee guarantor was not legally payable by the original debtor on the date of adjustment as no action under law could be taken against the original debtor. 9. Section 126 of the Indian Contract Act defines 'Contract of guarantee', 'Surety', 'Principal-debtor' and 'Creditor'. It says that a 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal-debtor', and the person to whom the guarantee is given is called the 'creditor'. 10. A guarantee is promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another party, who is in the first instance, liable to such payment or performance. A guarantee is an accessory contract by which the promisor undertakes to be answerable to the promise for the debt, default or miscarriage of another person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal. The Supreme Court further observed that in the matter in hand the plaintiff could obtain a decree against the surety and the principal-debtor. In the said matter, the plaintiff filed a suit and could obtain a decree against the principal-debtor so also against the surety with an embargo that plaintiff should be at liberty to enforce its dues against the surety only after exhausting its remedies against the principal debtor. The Supreme Court observed that direction for postponing the payment of decretal amount must be specific and must give sufficient reasons. It was further observed that the surety was duty bound to pay the decretal amount and on such payment the would be subrogated to the rights of the creditor under Section 140. The Apex Court was also of the opinion that such a direction would make the decree useless and would also make the surety useless. In the said matter, the creditor proceeded against the original debtor so also against the surety and in the joint action he could secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e looked with the provisions of the Limitation Act and not in a manner so as to nullify its provisions limiting the time within which a suit must be brought after the accrual of the cause of action. Where a claim is time barred against the principal debtor, but not against the surety, the plaintiff is entitled to a decree against the surety. If the guarantee is a continuing guarantee then question of limitation would not arise against the surety so long as the Account is a levy account in the sense that it is not settled, and there is no refusal on the part of the guarantor to carry out the obligation. It is settled law that the right to recover the debt continues to exist notwithstanding that the remedy is barred by limitation. Though the remedy to recover the debt from the principal debtor may be barred by time, a creditor certainly can appropriate the accounts from the amounts which it has to pay to the surety. 19. Placing reliance upon the judgment of the Supreme Court in the matter of Punjab National Bank and Ors. v. Surendra Prasad Sinha AIR 1992 SC 1815 it is submitted by the learned counsel for the Appellant-Bank that the amount which the Bank is required to pay to the sure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by limitation. Only exception in which the remedy also becomes barred by limitation, if the right is destroyed, the Supreme Court observed that except in such cases which are specially provided under the right to which remedy relates in other case the right subsists. Though the right to enforce the debt by judicial process is barred under Section 3 read with the relevant Article in the Schedule, the right to debt remains. The time barred debt does not cease to exist by reason of Section 3. The right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed. The Supreme Court was of the opinion that such debt for which remedy has become barred under the Limitation Act continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt. It is settled law that the creditor would be entitled to adjust, from the payment of a sum by a debtor, towards the time barred debt. It is also equally settled law that the creditor when he is in possession of an adequate security, the debt due could be adjusted from the security in his possession and custody. The Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot as an employee of the Bank. It is further to be seen that in the matter of Punjab National Bank (supra) the FDRs were entrusted and handed over to the Bank as security. The Bank was holder of the security. The Bank could adjust the amount on default on the part of the original debtor even before the maturity of the FDRs or could reserve its right to adjust the amount at the time of the maturity. That was not a case where the Bank was to adjust certain future deposits. The Bank was already possessed of the FDRs which in fact could be converted into cash at any point of time. When a guarantor gives the guarantee and deposits the security either in cash or in form of FDRs then on a default on the part of the original debtor, a creditor/Bank would be entitled to adjust the cash security or the Fixed Deposit Receipts either before its maturity or on the date of its maturity being in possession of the security i.e. the FDRs. The said judgment is not an authority to hold that if in future certain amounts become payable to a person then the creditor/Bank would be entitled to adjust the amount and take the surety by surprise. 21. Reliance was also placed upon the judgment in the matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only result of striking out the debtors from the action was to preclude the bringing by the creditors of a fresh suit in respect of the subject-matter against them, and was not to release or discharge the principal debt, then the debt remains a debt though the creditor by reason of a rule of procedure could not himself bring an action upon it. It was also observed that the surety alone could be held liable. The said judgment, in our considered opinion, has no application to the present matter. 22. In the said matter an action was jointly brought against both and because of certain lapses or the follies committed by the plaintiff, the original defendants were discharged. 23. Learned counsel for the Appellant-Bank also placed reliance upon yet another judgment of the Supreme Court in the matter of Bombay Dyeing Manufacturing Co. Ltd. v. The State of Bombay and Ors. AIR 1958 SC 328. After going through the said judgment, we are of the considered opinion that the said judgment has no application to the facts of the case in hand. In the said matter, the Supreme Court was required to consider the provisions of Bombay Labour Welfare Fund Act, Limitation Act, Payment of Wages Act and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor arise, not from the liability of the debtor, but from the discharge of his own liability; and it recommended adding an explanation to that effect to the main Section but unfortunately the report of the Law Commission has not been translated into law. If the payment by the surety is of a time-barred debt or which otherwise could not be recovered by filing a suit against the principal-debtor or against the surety then such payment of amount cannot be held to be rightfully paid. 25. Taking into consideration the legal position, we are of the considered opinion that the Bank was absolutely unjustified in adjusting the amount from the amount payable to the petitioner which they had to recover from the borrowers. 26. It is also to be seen from the records that one of the borrowers deposited a sum of Rs. 27,000/- with the Bank on 10.7.2000 and despite that payment the amount of Rs. 40,000/- plus which included the above referred amount of Rs. 27,000/- was deducted from the retiral dues of the plaintiff on 5.12.2000. The said amount of Rs. 27,000/- had been paid to the writ petitioner almost after about 18 months. The Bank has not given any reason for not refunding the amount rig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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