Indian Bank vs C.K. Syed Mohammed and Another

D. Sreedevi, J.—This Civil Revision Petition is directed against the Decree and judgment dated 9th April 1992 in S.C.S. No. 33 of 1991 on the file of the Munsiff''s Court, Aluva. Plaintiff is the revision Petitioner.

The Plaintiff bank filed S.C.S. No. 33 of 1991 for realisation of money. The first Defendant obtained financial assistance from the Plaintiff for the purpose of, purchasing a country boat and fishing net. The first Defendant was granted a loan of Rs. 3,000 on 7th April 1982, by way of security the first Defendant executed a demand promissory note on 7th April 1982 for a consideration of Rs. 3,000 together with interest at the rate of 121/2 per cent per annum with quarterly rests. It was agreed to pay the amount in 24 instalments. As a further security for the term loan, the second Defendant executed an agreement of guarantee dated 7th April 1982. In renewal of the promissory note, the first Defendant executed a demand promissory note dated 28th January 1985 for a sum of Rs. 3,000 and interest. By letter dated 28th January 1985 addressed to the manager, the first Defendant acknowledged the liability under the note. Subsequently, the first Defendant in renewal of the demand promissory note dated 28th January 1985 executed another demand promissory note on 28th October 1988 for a sum of Rs. 1,475.20 with interest at 10 per cent per annum with half yearly rests. The Plaintiff sues for money on the basis of the demand promissory note dated 28th October 1988, the Plaintiff prays for realisation of money. The Defendants'' contention was that there is no acknowledgement of debt by the Defendants and hence the suit is barred by limitation. The Small Cause Court held that the suit is beyond time and hence it had dismissed the suit. Aggrieved by the said Decree and judgment this revision has been filed.

The learned Counsel for the revision Petitioner submitted that the court below went wrong in appreciating the question of law involved in the case. It is submitted for the revision Petitioner that the demand promissory note dated 28th October 1988 is a fresh promissory note for consideration which is time barred debt due to the bank. Section 25(3) of the Contract Act provides that time barred debt is a good consideration for contract. It reads:

An agreement made without consideration is void, unless-it is a promise made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

Thus on a reading of Section 25(3) it can be seen that "time barred debt is a good consideration for a fresh contract". It is the settled law of this country that the statute of Limitation only bars the remedy but does not extinguish the debt. Section 28 of the Limitation Act provides that when the period limited to a person for institution of a suit for possession of any property has expired, his right to such property is extinguished. And the authorities have held that when the property is incapable of possession, as for example, a debt, the section has no application, and lapse of time does not extinguish the right of a person thereto. But u/s 25(3) of the Contract Act, a barred debt is good consideration for a fresh promise to pay the amount.

In American Jurisprudence, Vol. 84, page 314, the law is thus stated:

A majority of the courts adhere to the view that a statute of limitations, as distinguished from a statute which prescribes conditions precedent to a right of action, does not go to the substance of a right, but only to the remedy. It does not extinguish the debt or preclude its enforcement, unless the debtor chooses to avail himself of the defence and specially pleads it. An indebtedness does not lose its character as such merely because it is barred: it still affords sufficient consideration to support a promise to pay, and gives a creditor an insurable interest.

In the light of Section 25(3) of the Contract Act and the above observation, I can find that the promissory note dated 28th October 1988 is supported by consideration and therefore the Plaintiff is entitled to sue for money due on the promissory note.

The cause of action for the suit has arisen on 28th October 1988, the date of demand promissory note. The suit is within time. Therefore, the Decree and judgment of the court below are liable to be set aside and the case has to go back to the court below as no finding was entered on other issues by the court below.

In the result, the Civil Revision Petition is allowed, and the case is remanded to the court below for fresh disposal in the light of the above observation and in accordance with law.