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Judgment
N.V. Balasubramanian, J.—This appeal is directed against the judgment and decree of the learned First Additional Judge, City Civil Court,
Chennai in O.S.No.2336 of 1981.
The plaintiff in the suit is the appellant herein. The plaintiff instituted the suit for recovery of a sum of Rs.88,376.94. The claim of the plaintiff was
that all the defendants would be jointly and severally liable for a sum of Rs.34,200/- along with interest thereon from the date of plaint till realisation
and the first defendant would be liable to pay a sum of Rs.54,176.94 along with interest from the date of plaint and also for costs. The first
defendant is the principal debtor and he had entered into a contract with the plaintiff and the second defendant executed a deed of guarantee and
the deed of guarantee was continued by a further deed of guarantee dated 10.3.1967, marked as Ex.B-1. The plaintiff has not produced the
original deed of guarantee, nor the second defendant has produced the guarantee deed executed earlier, but produced the continuous guarantee
deed dated 10.3.1967, Ex.B-1, which was executed in continuation of the original guarantee deed.
The case of the plaintiff is that and there was a breach of contract committed by the first defendant and the second defendant has executed the
guarantee for the due performance of the contract by the first defendant and the guarantee was limited for a sum of Rs.34,200/-. The suit was
resisted by the defendants. Learned trial Judge decreed the suit as against the first defendant for the entire amount claimed by the plaintiff along
with interest. It is stated that the judgment and decree as against the first defendant has become final. Learned trial Judge, however, dismissed the
suit as against the defendants 2 and 3 on the ground that the suit is barred by limitation as against the defendants 2 and 3. Learned trial Judge was
of the view that the clauses found in the guarantee deed (Ex.B-1) would show that the right as well as the remedy under the guarantee was barred
as the suit was instituted on 3.7.1969 on the file of this Court after the period mentioned in the deed and hence, he held that the suit as against the
defendants 2 and 3 was barred by limitation. Learned trial Judge relied upon the judgment of the Supreme Court in State of Maharashtra v.
Dr.M.N.Gaul 38 C.C.1 as well as the decision of the Kerala High Court in Kerala Electrical and Allied Engineering Co. Ltd. Vs. Canara Bank
and Others, : to hold that the suit instituted after the expiry of the period prescribed in the deed of guarantee (Ex.B-1) is barred by limitation and
accordingly, dismissed the suit as against the defendants 2 and 3.
It is relevant to mention here that the deed of guarantee (Ex.B-1) was executed by the second defendant and on the enactment of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970, the rights and liabilities of the second defendant were taken over by the third
defendant and hence, the third defendant was impleaded as a party in the suit.
Notice in the appeal was served on all the respondents and for the respondents 2 and 3 in the appeal, namely, defendants 2 and 3 in the suit,
M/s.Veeraraghavan and Prabhakara Reddy entered appearance and at the time of hearing of the appeal today, Mr.Prabhakara Reddy, learned
counsel submitted that there is a change of vakalat, however, it is seen from the records that no memo has been filed by the counsel for the
respondents 2 and 3 regarding the change of vakalat and the respondents 2 and 3 have also not taken any step to engage another advocate.
Therefore M/s.Veeraraghavan and Prabhakara Reddy are deemed to be the counsel on record for the respondents 2 and 3 as no steps have been
taken for revocation of the power.
We heard learned Additional Government Pleader. Learned Government Pleader referred to the decision of the Supreme Court in the case of
The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, : and submitted that the trial Court was not correct in holding
that the suit is barred by limitation as against the defendants 2 and 3. Learned counsel submitted that the clauses found in the guarantee deed
(Ex.B-1) are to be construed to mean that the time limit provided in the deed would apply for taking action against the guarantor under the deed of
guarantee and not for filing a suit. Counsel for the respondents 2 and 3 has not made any representation.
We have carefully considered the submissions of the learned counsel for the appellant and also perused the records very carefully. The relevant
clause in the deed of guarantee dated 10.3.1967 (Ex.B-1) reads as under:
Our liability under this guarantee is restricted to Rs.34,200/-(Rupees Thirty four thousand and two hundred only). Our guarantee shall remain in
force till 9th March, 1968 and unless a suit or action to enforce a claim under the said guarantee is filed against us before that date, all your rights
under the said guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder.
The point that arises for consideration is whether on the true construction of the said clause of the deed of guarantee (Ex.B-1), the suit as against
the respondents 2 and 3 is barred by limitation.
We find that a similar question was considered by the Supreme Court in The Food Corporation of India Vs. The New India Assurance Co.
Ltd. and others, : and the Supreme Court held that such a clause should be construed to mean that the time limit stipulated is only for enforcement
of rights under the deed of guarantee and the clause should not be construed to mean that suit is also required to be instituted within the time
provided in the clause. The Supreme Court is of the view that if such an interpretation is given to the clause, it would offend the provisions of
section 28 of the Contract Act, 1872 and the terms of contract should not be construed so as not to bar the remedy of suit.
In this connection, it is also relevant to notice an earlier decision of the Bombay High Court in Baroda Spg. and Wvg. Co. Ltd. v. Satyanarayen
Marine and Fire Insurance Co. Ltd. ILR 38 Bom. 344 wherein the agreement contained a clause which reads as under:-
if the claim to be made and rejected, an action or suit be not commenced within three months after such rejection ... all benefits under the policy
shall be forfeited.
The Bombay High Court construed the said clause to mean that the clause extinguished the right and not the remedy. The above decision of the
Bombay High Court was quoted with approval by the Supreme Court in The Food Corporation of India Vs. The New India Assurance Co. Ltd.
and others, :
Applying the ratio of the decision of the Supreme Court The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, :
we are of the view that the said clause in the guarantee deed (Ex.B-1) should be construed only to mean that the clause extinguishes the right under
the contract only and it does not extinguish the remedy to file a suit. The plaintiff has produced Ex.A-89, a letter dated 17.2.1968 where a demand
was made on the second defendant informing that the agreement with the principal debtor had been terminated and directing the second defendant
to pay the money due under the guarantee deed. The second defendant issued a letter dated 29.2.1968 wherein the second respondent
acknowledged the receipt of the letter of the plaintiff dated 17.2.1968. The above documents show that the plaintiff has made a claim within the
period mentioned in the guarantee deed, namely, 9.3.1968 and thereafter instituted the suit on 3.7.1969. We are of the view that the learned trial
Judge was not correct in holding that the suit also should be instituted within 9.3.1968.
The decision of the Supreme Court in The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, : establishes two
principles; (i) the period prescribed in the deed of guarantee is only to enable the insured to make a demand within the time stipulated; and (ii) if the
demand has been made within the time provided in the deed of guarantee, then suit can be instituted even after the period prescribed in the
guarantee deed, subject to the law of limitation. We find that the demand has been made within the time prescribed in the deed of guarantee and
the suit has been instituted within the time prescribed in the law of limitation. Applying the ratio of the decision of the Supreme Court in The Food
Corporation of India Vs. The New India Assurance Co. Ltd. and others, : the demand in the instance case was made on the guarantor to pay the
money due within the time stipulated in the guarantee deed and as the demand has been made within that time, we hold that the suit was filed within
the period of limitation as prescribed in the Limitation Act. We therefore hold that the learned trial Judge was not correct in dismissing the suit as
against the defendants 2 and 3. Since the above decision of the Supreme Court covers the entire issue, it is necessary to consider the decisions
referred to by the learned trial Judge.
As already observed by us, the second defendant has restricted its liability only to Rs.34,200/- and since the liability has been restricted under
the deed of guarantee, the defendants 2 and 3 also along with the first defendant would be jointly and severally liable to pay to the
appellant/plaintiff a sum of Rs.34,200/- with interest at the rate of 6% p.a. from the date of plaint. Accordingly, the judgment and decree of the trial
Court in so far as it relates to the defendants 2 and 3 is set aside and there will be a decree as prayed for against the defendants 2 and 3 also. The
appeal stands allowed. Since the respondents have not been represented, there will be no order as to costs.