West Bengal Industrial Development Corporation Limited and Another vs Niccon Electronics Devices Private Limited and Others

Sanjib Banerjee, J.—The first Petitioner is a government company engaged in granting financial assistance to industrial concerns. Certain provisions of the State Financial Corporations Act, 1951 have been made applicable to the corporation by a notification which is not in dispute. The corporation granted credit facilities to the first Respondent company in or about the year 1983. Simultaneously with the execution of the loan agreement between the corporation and the first Respondent, the original Respondent Nos. 2 to 7 executed a deed of personal guarantee by which they, inter alia, agreed and undertook to repay the corporation, on demand, the money outstanding to the corporation from the principal debtor. The first and twelfth clauses of the deed of guarantee are relevant:

If at any time default shall be made in the repayment of the loan and/or the interest thereon and of any other moneys as and when they may become due and payable by the Company to the Corporation under the said Agreement the Guarantor(s) will jointly and severally pay to the Corporation on demand the said loan, interest thereon and all other moneys for the time being due and payable by the company to the Corporation as aforesaid and will indemnify and keep indemnified saved and defended the Corporation at all times hereinafter against any loss which the Corporation may suffer by reason of any default by the Company in repayment to the Corporation of the said loan of Rs. 55,00,000/-(Rupees fifty five lakhs only) in payment of interest at the rate of 14% or such other higher rate as may be ruling at the time of execution of this agreement, per annum with half-yearly rest as mentioned in the said Agreement and all costs, charges and expenses whatsoever which the Corporation may incur by reason of any default on the part of the Company.

All sums hereby guaranteed by the Guarantor(s) shall be due and payable to the Corporation at Calcutta in terms hereof after notice in writing, requiring payment of the same shall have been delivered to or sent through registered post, addressed to the Guarantor(s) at their aforesaid addresses.

Upon the first Respondent principal debtor having failed to adhere to its obligation to repay the corporation, the creditor issued a notice u/s 29(1) read with Section 30 of the 1951 Act dated September 29, 1995. Such notice was addressed to the principal debtor and all the guarantors though it clearly specified in its caption that it was issued under the aforesaid provisions of the 1951 Act. The corporation asserted, inter alia, as follows:

As you have failed to comply with the terms of the contract with WBIDC Ltd. in the matter of the loan or advance made to you under the Agreements and Security Deeds since executed, the Corporation hereby exercise the rights given in the said deeds to call in the entire amount due and notice is hereby given u/s 30 of the State Financial Corporation''s Act 1951 requiring you to discharge your liabilities in full "in terms of the agreements and security deeds within 15 (Fifteen) days from the date of this notice. In case of default, the provisions of the agreement and security deeds and those of the State Financial Corporation''s Act 1951 shall be enforced against you and further that in exercise of its right u/s 29(1) of State Financial Corporation''s Act 1951, a representative of this Corporation will attend your factory "on or after 27th October 1995" to take possession of your factory without management and this Corporation will proceed to transfer the same "by public auction or private treaty without any further reference to you.

The money did not come despite the demand and possession of the factory of the first Respondent was taken over by the corporation on February 14, 1996. Nearly six years later, on November 5, 2002 notices were published in two newspapers by the corporation inviting offers for sale of the assets at the manufacturing facility of the first Respondent on "as is where is basis." The assets could not, however, be sold within any reasonable time of the publication of the said notices and a further advertisement was issued on August 7, 2003 following which the assets at the first Respondent''s factory were sold to the highest bidder at Rs. 12 lakh on or about March 15, 2004.

On June 5, 2005 the corporation issued individual notices to each of the guarantors informing them that a sum of Rs. 7,37,51,411/- remained due as against the principal debtor as at March 31, 2005. The break-up furnished indicated a principal component of Rs. 36.03 lakh and the rest on account of interest. The corporation''s notices demanded payment of the outstanding amount from the guarantors and referred the noticees to Clause 12 of the deed of guarantee. The essence of the demand is evident from the last two paragraphs of the notices of June 5, 2005:

You are, therefore, required to pay to this Corporation the aforesaid amount of Rs. 7,37,51,411/- due and outstanding from the Company as on 31.3.2005. This may be treated as Notice required under Clause 12 of the aforesaid Deed of Guarantee.

You are also informed about your liability as surety of the Company above-named as the principal debtor u/s 31(1)(aa) of the State Financial Corporations Act, 1951, as amended up-to-date, whereby you are also required to discharge your liability as surety and make payment of the outstanding dues of Rs. 7,37,51,411/- to this Corporation calculated upto 31st March, 2005. You are, therefore, requested to pay to this Corporation the amount of Rs. 7,37,51,411/- within a fortnight from the date of receipt of this letter. Please further note that in the event of non-compliance of your liability as surety this Corporation shall enforce your liability as surety before the appropriate Court of Law without further reference to you.

ASFC No. 3 of 2005 was filed in September, 2005 invoking Sections 31(1)(aa) and 32 of the 1951 Act. The petition claims that the cause of action against the guarantors arose on June 22, 2005 "since inspite of the said demand notices the Respondents have not discharged their joint and several liabilities The prayers made include the sale of the assets of the guarantors to discharge their liability.

On September 7, 2005 an order was passed by this Court calling upon the Respondents to show cause in terms of prayer (b) as to why they should not be required to discharge the liability and why their assets and properties detailed in schedule A to the petition should not be sold in pro tanto satisfaction of the claim. By an order dated March 22, 2006, the court noticed that despite service of the application and the order dated September 7, 2005, the Respondents had neither filed any affidavit nor moved any application. The order directed the properties mentioned in schedule A to the petition to be sold by public auction through joint receivers after assessing the value thereof. The order dated March 22, 2006 was modified by an order dated April 19, 2006. Though the petition relating to such application did not specifically referred to the point of limitation, in course of the hearing thereof the guarantors referred to Section 3 of the Limitation Act, 1963 and contended that the claim lodged against them was barred by the laws of limitation. GA No. 1939 of 2006 was allowed by an order dated January 22, 2008 and ASFC No. 3 of 2005 was found to be barred by limitation. The order noticed Clause 12 of the deed of guarantee and observed that the demand required to be made by the corporation on the guarantors in terms thereof was not to be in any special form. The order read the demand of September 29, 1995 issued by the corporation to the principal debtor and the guarantors to also be a notice to the guarantors within the meaning Clause 12 of the deed of guarantee, apart from it being a notice under Sections 29(1) and 30 of the Act to the principal debtor.

It is necessary that parts of the order dated January 22, 2008 (reported at West Bengal Industrial Development Corpn. Ltd. and Another Vs. Nicon Electronics Devices Pvt. Ltd. and Others, be referred to:

Clause 12 of the deed of guarantee does not require a demand to be made in a special form. The letter of September 29, 1995 is not confined merely to the corporation giving notice to the borrower that it would take over the hypothecated assets upon its demand not being met by the borrower within the time indicated. The words in such letter indicate that the notice was also in exercise of powers other than those available to the corporation u/s 29 of the 1951 Act. Such other powers included the creditor''s general power to call upon the guarantor to repay the debt owing from the principal-debtor. In addressing such letter to all the guarantors, the corporation issued a demand in writing to the guarantors to repay. It was not as if the letter of September 29, 1995 was addressed to the borrower and the guarantors were marked copies thereof for their information. It was a demand made on the principal-debtor and the guarantors, which a creditor is entitled to make as the liability is co-extensive.

The corporation would have been right if it had issued no notice to the guarantors along with its demand under Sections 29 and 30 on the borrower in September, 1995. Again, the two key aspects of the Supreme Court judgment cited by the corporation are - live account with the borrower; and, refusal to pay on the part of the guarantor. The refusal in this case was upon the guarantors failing to pay heed to the simultaneous demand issued by the corporation on September 29, 1995. The live accounts in this case would be the accounts between the corporation and the borrower. In the sense that the borrower''s debt was to be discharged by the value of the sale proceeds, the accounts between the corporation and the borrower remained alive even after the sale was concluded. But the guarantors had already been called upon to pay up by the notice of September 1995 and the guarantors had refused to pay despite the borrower not meeting the corporation''s demand pursuant to the notice under Sections 29 and 30 of the Act. For the purpose of a claim u/s 31(1)(aa) of the Act, the time is circumscribed by Article 137 of the schedule to the Limitation Act. Such time begins running from the date of breach on the guarantor''s part. The breach, in the present case, on the part of the guarantors has to date back to the first notice or the period allowed by the corporation to the borrower and the guarantors under the first notice. The applicable period of limitation would not exclude the time taken by the creditor to proceed against the assets of the principal-debtor, for the liability of both the principal debtor and the guarantors are co-extensive.

In making the petition, the corporation has acknowledged in the 16th paragraph thereof that it was only the liability of the guarantors that the corporation''s was pursuing. On a reading of clauses 8 and 12 of the deed, it would appear that even if the liability under the guarantee continued, the liability of the guarantors would arise upon notice in writing being delivered by the corporation to them. Such notice in writing was issued on September 29, 1995 but was not pursued within time. Clause 8 of the deed would not keep the claim u/s 31(1)(aa) of the Act alive to a period beyond three years from the expiry of the time afforded by the corporation''s first notice.

The order was carried in appeal by the corporation and was set aside on March 25, 2009. The submission on behalf of the corporation before the appellate court was that the notices for invocation of the guarantees were issued only in June, 2005 and the period of limitation had to be reckoned from such date and not from September 29, 1995 as had been held in the order dated January 22, 2008. A judgment reported at Maharashtra State Financial Corporation Vs. Ashok K. Agarwal and Others, was cited before the appellate court. Such judgment settled the issue as to what provision of the schedule to the Limitation Act 1963 would govern a claim of the present nature. The Supreme Court held that the residuary Article 137 would be the applicable provision. It is of some relevance that the order of January 22, 2008 had also held that Article 137 would apply to a claim under the 1951 Act and not Article 55 as contended by the corporation.

The appellate court referred to paragraphs 15 to 20 of the judgment in Ashok K Agarwal and rendered the following opinion on the basis thereof:

On consideration of the above observations of the Hon''ble Supreme Court, there cannot remain any manner of doubt whatsoever that the liability of a surety or a guarantor to repay loan of the principal-debtor arises only when a default is made by the latter. From the relevant portion of the notice dated 29th September, 1995, quoted hereinbefore, it is clear that the subject matter of the notice was for recovery of loan by invoking Section 29(1) read with Section 30 of State Financial Corporations Act, 1951, upon making a demand for payment of a sum of Rs. 1,92,49,284/- (Rupees one crore ninety two lakh forty nine thousand two hundred eighty four) with further interests, compound interest, all costs, charges expenses and other monies in terms of the agreements and security deeds within 15 (fifteen) days from the date of notice. The demand was, therefore, specifically made and default had admittedly not occurred on the part of the ''industrial concern;'', as of date of the said notice, so as to enable WBIDC to invoke the provision of Section 31 of the Act for enforcing the liability of any surety.

In the circumstances, computation of limitation from 29th September, 1995, so far as the guarantors are concerned, cannot be sustained, in the light of the observations made by the Hon''ble Supreme Court in the later case of Karnataka State Financial Corporation (supra). We are, therefore, of the opinion that the judgment and order dated 22nd January, 2008 passed by the learned Single Judge cannot be sustained in law is liable to be set aside and is hereby set aside.

The guarantors applied for review of the appellate court order on the ground that the conclusion recorded in the order did not follow from the reasoning in the body of the judgment. The appellate court noticed the contention of the review Petitioners that in accordance with the judgment of March 25, 2009, the period of limitation had to run from 15 days after the notice of September 29, 1995. The review petition was dismissed on July 27, 2009, with the operative part of the order reading,

We have considered the submissions made by the learned Counsel. We are unable to agree with the submissions made. We are of the opinion that the judgment does not suffer from any error apparent on the face of the record. There is no other justifiable cause for entertaining the review petition. The same is, accordingly, dismissed.

A combined petition for special leave to appeal was carried to the Supreme Court from both orders of the appellate court dated March 25, 2009 and July 27, 2009. The petition was dismissed on November 23, 2009 but the names of the second and third Respondents before this Court were required to be deleted from the memorandum of parties. Accordingly, the names of the second and third Respondents are deleted, but no substitution has been sought or is necessary since the heirs of such deceased Respondents are already on record.

The corporation says that the question of limitation has been conclusively decided by the appellate court order of March 25, 2009 and cannot be reopened. The surviving guarantors insist that the appellate order merely set aside the judgment and order of January 22, 2008, but did not hold that the claim against the guarantors was not barred by the laws of limitation. The surviving guarantors urge that the reasoning in the appellate judgment has become binding on the parties and that would imply, (a) that the liability of a guarantor to repay the loan of the principal debtor would arise ''only when a default is made by the latter''; and, (b) the ''default had admittedly not occurred on the part of the ''industrial concern'', as of date of the said notice (of September 29, 1995), so as to enable WBIDC to invoke the provision of Section 31 of the Act for enforcing the liability of any surety.'' The guarantors emphasise that in the final paragraph of the appellate order all that was held was that the ''computation of limitation from 29th September, 1995, so far as the guarantors are concerned, cannot be sustained The guarantors assert that notwithstanding the judgment and order of January 22, 2008 being set aside, the appellate order indisputably held that the entitlement of the corporation to proceed against the guarantors would accrue upon the default on the part of the principal debtor to meet the creditor''s demand; and such default obviously occurred upon the expiry of the 15-day period stipulated in the notice of September 29, 1995.

The corporation has not claimed against the principal debtor company in the present proceedings. Indeed, the principal debtor company may not be in existence except on paper since its manufacturing facility has long been taken possession of by the corporation. The corporation has invoked Section 31(1)(aa) of the 1951 Act read with Sub-sections (1A), (4A), (6) and (7)(da) of Section 32 of the Act. Section 31 is the substantive provision for a state financial corporation, or any other body to which the provisions of the said Act are extended, to apply to a District Judge, within the limits of whose jurisdiction the industrial concern carried on the whole or a substantial part of its business, for the reliefs which are enumerated therein. Section 32 of the Act stipulates the procedure to be adopted upon receipt of an application u/s 31 thereof. The substantive provision invoked by the petitioning corporation lays down as follows:

Special provisions for enforcement of claims by Financial Corporation.- (1) Where an industrial concern, in breach of any 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 or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance u/s 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 any officer of the Financial Corporation, generally or specially authorized by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carried on the whole or a substantial part of its business for one or more of the following reliefs namely:

(aa) for enforcing the liability of any surety:

The surviving guarantors reason that the two pre-conditions entitling the creditor to invoke the guarantees would be: a default on the part of the principal debtor; and, a notice in writing to the guarantors demanding payment consequent upon the principal debtor''s default. The guarantors urge that the default had already been committed by the principal debtor by the time the notice dated September 29, 1995 was issued to both the principal debtor and the guarantors. They suggest that the written demand of September 29, 1995 complied with both conditions envisaged in the deeds of guarantee since default had by then been committed by the principal debtor and, notwithstanding the reference to Sections 29 and 30 in such notice, there was a straight-forward demand on all the noticees to make payment of the money due to the corporation. They argue that if one of the guarantors had tendered payment in terms of the demand of September 29, 1995, the corporation could not have proceeded to exercise its right u/s 29 of the Act. They repeat that the corporation''s cause of action to proceed against the guarantors u/s 31 of the Act arose upon the guarantors receiving the identical letters of September 29, 1995 and failing to adhere to the demand therein. They assert that in as much as the appellate order of March 25, 2009 held that there was no default on the part of the principal debtor as act of the date of the notice of September 29, 1995, it implied that the default was made by the principal debtor in not meeting the demand within 15 days of receipt of the notice. The 15-day period afforded by the notice dated September 29, 1995, according to the guarantors, ran out sometime in October, 1995. They submit that the claim against the principal debtor remained alive, for reckoning the period of limitation, for three years from the date of the default and ran out by October, 1998 within which time no claim had been made on the guarantors. They guarantors say that it is no longer possible for the corporation to maintain that any period in excess of what is available under Article 137 of the Schedule to the Limitation Act would apply to a claim u/s 31 of the Act against the guarantors.

The substance of the guarantors'' submission is that the period of limitation had to be computed, in so far as the claim against the guarantors was concerned, from the date of default on the part of the principal debtor to meet the demand contained in the corporation''s notice of September 29, 1995 and the appellate court order of March 25, 2009 implies it. As a result, the guarantors contend, that the claim against the guarantors could not be made after October, 1998.

The corporation has referred to a judgment reported at Karnataka State Financial Corporation Vs. N. Narasimahaiah and Others, for the proposition that the liability of a guarantor to repay a corporation under the said Act would arise only upon default by the principal debtor to repay the same. In that case, the relevant state financial corporation, in purported exercise of the authority u/s 29 of the Act, attempted to take over possession of the properties of the guarantors. The guarantors challenged the decision by instituting proceedings under Article 226 of the Constitution of India before the Karnataka High Court. The High Court quashed the orders passed by the state financial corporation authorising its officers to take possession of the properties of the guarantors. The Supreme Court held that the default referred to in Section 29 of the Act would be the default of the industrial concern. The decision is an authority for the proposition that Section 29 of the Act does not empower any state financial corporation to proceed against a guarantor even if any property is mortgaged or hypothecated by the guarantor in its favour.

The corporation has also cited a judgment reported at Syndicate Bank Vs. Channaveerappa Beleri and Others, The corporation says that the tenor of the guarantee furnished in that case was similar to the relevant clause in the present case. The guarantors in that case agreed ''to pay and satisfy to (the creditor) on demand all and every sum and sums of money which are now or shall at any time be owing to (the creditor) The document also permitted the creditor to stipulate the rate of interest payable by the guarantors from the date of the demand by the creditor. The maximum liability was specified and the guarantors agreed that this guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to (the creditor) by the borrower not exceeding The claim arose in a bank suit filed before the Recovery of Debts Due to Banks and Financial Institutions, 1993, or the ordinance that preceded it, came into force. The bank in that case had extended credit facilities to the principal debtor company and the guarantors were the directors of such company. The principal debtor stopped servicing the account and its bank operations in the middle of 1986 and the bank wrote to the principal debtor and the guarantors on October 12, 1987 to pay the amount owed to it within 15 days of the notice. The principal debtor and the guarantors sent a joint reply on October 31, 1987, in effect, blaming the bank for the financial crisis faced by the principal debtor and reserving their right to file a suit for damages for an amount in excess of the sum claimed by the bank. A further notice followed from the bank on December 17, 1987 which elicited a denial on December 30, 1987. The bank applied for winding-up of the principal debtor company and by March, 1989 such company was directed to be wound up. The suit was filed by the bank against the guarantors on March 16, 1990 and the plaint asserted that the bank''s cause of action against the guarantors arose upon the bank issuing the notice on December 17, 1987 and the bank receiving the denial on December 30, 1987. One of the arguments made on behalf of the Defendant guarantors was that since the guarantee bonds were executed in 1983, 1984 and 1985 and the suit was filed beyond three years from the last of them, it was barred by limitation. An issue was framed by the trial court on limitation and, despite all other issues being answered in favour of the bank, it was held that the suit was barred by time, though not by reckoning the period from the dates of execution of the deeds. An appeal preferred by the bank before the High Court was dismissed on the reasoning that since the guarantors were liable to pay on demand, it implied that the money was always payable and an express demand was not a condition precedent for the liability to arise.

Against the general backdrop of the discussion in the Supreme Court judgment being in respect of a continuing guarantee, the court held as follows:

What then is the meaning of the said words used in the guarantee bonds in question'' The guarantee 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 guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is ''broken''. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment 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 making 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 demand is served on the guarantor.

We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful:

Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was ''live'' against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15-9-1994 would not be valid or enforceable.

Be that as it may.

On a parity of reasoning as evident from the illustration in the Supreme Court judgment, if the present guarantees are regarded as continuing guarantees, the claim of the corporation here remained alive - for the purpose of any claim under the 1951 Act - against the principal debtor for a period of three years after the expiry of 15 days from the receipt of the notice of September 29, 1995 by the principal debtor. The argument of the guarantors here is that assuming that it was a continuing guarantee that the guarantors furnished, a valid demand in writing in respect of the claim could be made till sometime in October, 1998; but that was clearly not done and the demand was only raised on the guarantors on June 5, 2005. The appellate order opined that the ''computation of limitation from September 29, 1995 so far as the guarantors are concerned, cannot be sustained in the light of the observations made by the Hon''ble Supreme Court in the later case of Karnataka State Financial Corporation (Supra).? The appellate order did not expressly consider the caveat recorded in paragraph 14 of the report and as to whether there was any live claim against the principal debtor as at the date of demand against the guarantors.

The guarantors say that the appellate order of March 25, 2009 has to stand on its own and the rejection of the review petition would merely confer finality on the appellate order but not enlarge the scope thereof. They emphasise that the order of dismissal of the SLP would lend no added force to the appellate order than what is evident on a plain reading thereof.

The guarantors refer to a judgment reported at Sajjadanashin Sayed Md. B.E.Edr. (D) By Lrs. Vs. Musa Dadabhai Ummer and Others, for the proposition that the principle of res judicata implies that matters which were directly and substantially in issue and had been decided would be binding, but any decision on the matters which had been collaterally and incidentally in issue would not operate as res judicata. The guarantors submit that what was directly and substantially in issue before the appellate court was as to whether the period of limitation in respect of the present claim against the guarantors was to be reckoned from September 29, 1995. Such issue, the guarantors contend, was answered by interpreting the notice dated September 29, 1995 to be a notice issued to the principal debtor and not to the guarantors; and, by holding that the default on the part of the principal debtor could not be said to have arisen prior to the expiry of the period afforded to the principal debtor by the notice of September 29, 1995 to make the payment. The guarantors maintain that the appellate court did not consider any further matter and though the trial court order was set aside, it was so done since the trial court order had found that the period of limitation qua the claim against the guarantors would begin to run from September 29, 1995. The guarantors say that as to whether the claim against the guarantors was otherwise barred by the laws of limitation was not considered at all in the appellate court order. The guarantors assert that since the appellate court confined itself to the effect of the demand of September 29, 1995, nothing beyond that should be read into such order since even if other matters had been collaterally and incidentally taken up, a decision on them would not have attained any finality.

The guarantors rely on a judgment reported at B. Shama Rao Vs. The Union Territory of Pondicherry, for the proposition that it is the ratio of a judgment that is binding and not the conclusion thereof. The judgment would have been more apposite if the appellate court order of March 25, 2009 was cited here merely as a precedent and not having any other effect on the course of the present proceedings.

Section 3 of the Limitation Act, 1963 is cited by the guarantors as they emphasise that such provision mandates that proceedings instituted after the prescribed period "shall be dismissed" although limitation has not been set up as defence. They reason that limitation hits at the very root of the court''s authority to consider a claim.

The guarantors suggest that in view of Sections 17 and 18 of the 1993 Act and the embargo thereunder, despite the exception carved out in respect of the 1951 Act by Section 34(2) of the 1993 Act, a claim of the present nature has to be taken before a Debts Recovery Tribunal constituted under the 1993 Act and not before any other forum. They suggest that Section 46-B of the 1951 Act has been overridden by Section 18 of the 1993 Act. They have referred to a judgment reported at Central Bank of India Vs. State of Kerala and Others, in such regard for the general principles as to interpretation of statutes and the effect of the presence of overriding provisions in two or more special statutes which overlap in their operation.

The argument on such score does not appeal. Section 34 of the 1993 Act recognises that the 1993 Act would have primacy over, inter alia, "any other law for the time being in force," but Section 34(1) of the 1993 Act is subject to Section 34(2) thereof which provides that the provisions of the 1993 Act or the rules made thereunder "shall be in addition to, and not in derogation of, " the State Financial Corporations Act, 1951�" The contention of the guarantors is that though the substantive provisions of the 1951 Act would be in force in view of the exception carved out in respect thereof in the 1993 Act, the forum must now be the Debts Recovery Tribunal and not the court of any District Judge as provided in Section 31 of the 1951 Act. Nothing in the 1993 Act would allow such a strained interpretation since the operation of the entirety of the 1951 Act has been left untouched by Section 34(2) of the 1993 Act and no distinction has been made between the substantive provisions thereof and the procedural matters covered thereby. Indeed, in most cases where the assets secured in favour of a state financial corporation are inadequate to meet the claim of the corporation or where the other assets of the industrial concern are not available, a creditor corporation has per force to lodge a money claim under the 1993 Act before the appropriate Debts Recovery Tribunal. But it does not follow that when a creditor corporation can apply against an industrial concern under the 1951 Act in respect of any asset of the industrial concern, or the corporation is authorised to proceed under the 1951 Act against any surety, such right - substantive or procedural - has, in any manner, been affected by the 1993 Act.

The corporation urges that even though the provisions of Article 137 of the Limitation Act would be applicable to any proceedings launched by a corporation under the 1951 Act, for the purpose of reckoning as to whether there is a live claim against the principal debtor to entitle the corporation to proceed against the guarantor, Article 137 of the schedule to the Limitation Act would not apply. The corporation concedes that in view of the judgment in Channaveerappa Beleri it is no longer open to question that for a valid demand being made by a state financial corporation on a guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor as at the date of the demand on the guarantor. The corporation submits that money would be legally due to a corporation and recoverable from the principal debtor provided an action for realisation of the claim against the principal debtor is maintainable on such date. In other words, the corporation says, that if a corporation has a right to institute legal proceedings against the principal debtor to recover its dues as on the date the demand for such amount is raised on the guarantor, that would suffice. The corporation has referred to the special status that it enjoys as a government company: the period of limitation for instituting a claim under the general law (and here, the 1993 Act has to be regarded as the general law and the 1951 Act as the special law) against an industrial concern in respect of credit facilities accorded to it is thirty years. The corporation says that it can today maintain a claim before the appropriate forum against the first Respondent herein for realisation of its dues. The corporation asserts that as at June 5, 2005 it had a live claim against the first Respondent herein and once such condition was satisfied, all that was required to be seen was whether the corporation had invoked Section 31 of the 1951 Act against the guarantors within three years of its demand on the guarantors made on June 5, 2005. The corporation insists that even after the expiry of three years from June 5, 2005 the corporation could have made a claim before the appropriate Debts Recovery Tribunal, by virtue of the extended period of limitation applicable to it, both against the first Respondent company herein and the guarantors; though its right to invoke the provisions of the 1951 Act against the guarantors would be for a period of three years from the date of the notice of demand on them.

The corporation has also relied on a judgment reported at Gujarat State Financial Corporation Vs. Natson Manufacturing Co. Pvt. Ltd. and Others, for the proposition that a financial corporation cannot claim a mere money decree against an industrial concern under the provisions of the 1951 Act. The judgment was rendered in the context of whether court fees were payable by a corporation while instituting proceedings u/s 31 of the 1951 Act. Though the legal issue answered in such judgment remains unaffected, the decision was rendered prior to the substantive amendment to the 1951 Act in 1985.

The invocation of Section 29 of the 1951 Act pre-supposes a default on the part of the industrial concern. In any event, the notice dated September 29, 1995 issued by the corporation to the industrial concern and the guarantors asserted that there was a default on the part of the industrial concern in meeting its obligation to repay the loan. Even though the Section does not strictly provide for a notice to be issued by a state financial corporation to the industrial concern before resorting to the measures recognised in Section 29 of the 1951 Act, it has been judicially interpreted that the extraordinary right u/s 29 of the Act is subject to the principles of natural justice and even a representation by the defaulter following a notice must be considered and the decision communicated before the right can be exercised. It follows that the default on the part of the principal debtor should have taken place prior to the issuance of a notice u/s 29 of the Act and the corporation''s right to resort to the measures under such provision would arise upon the default not being remedied within a reasonable time to be afforded by the notice. Section 30 of the Act specifically provides for a notice in writing to be issued by the state financial corporation to the industrial concern, since the power to call for repayment of any loan or advance before the agreed period may, in such case, be exercised even if there is no default on the part of the industrial concern to make repayment in terms of the agreement with a state financial corporation.

The implication of the requirement to issue a notice and afford a reasonable time to the industrial concern to make good the default is that the state financial corporation''s right to adopt the extraordinary measure of taking over the management or possession or both of the industrial concern remains suspended for the duration of the reasonable time afforded by the notice issued by the state financial corporation to the industrial concern u/s 29 of the Act. The default, therefore, that is ordinarily a pre-condition for a state financial corporation to pursue a claim against the guarantors would have taken place upon the issuance of the notice u/s 29 of the Act. The surviving guarantors here suggest that in view of the finality of appellate order of March 25, 2009, the default in this case has been held to have been made by the industrial concern upon the expiry of the period afforded by the notice dated September 29, 1995 to repay the loan. But the appellate order, and the finality conferred thereby on the matter in issue, must be read to imply that the demand on the guarantors could only have been made by the corporation after the industrial concern defaulted in complying with the notice; and, since the only notice issued to the guarantors after such default committed by the industrial concern was on June 5, 2005, the point of limitation urged by the guarantors was unmeritorious. In view of the finality of such order it is no longer open to the guarantors to contend that the claim of the corporation was not alive as against the industrial concern as at the date that the corporation made a demand on the guarantors to repay the money outstanding.

There is a difference between a judgment in another matter being cited on a proposition of law and a judgment of a superior forum rendered in the same matter. In addition to the legal and factual issues that are decided in an order of a superior forum rendered in the same matter and which has attained finality, the principle of res judicata also comes into play. The doctrine of res judicata and the public policy embodied therein - rests not on the correctness of a previous order that has become conclusive, but on the finality thereof. If, as the guarantors here suggest, the default on the part of the principal debtor in this case, according to the appellate order of March 25, 2009, arose not on the date of the written demand of September 29, 2005, but on the expiry of 15 days from the receipt thereof by the principal debtor, the trial court order of January 22, 2008 would not have been set aside but would have been modified as the starting point of limitation would then have been set back by 15 or 20 days which would still have made this corporation''s present claim u/s 31 of the Act hopelessly barred by limitation.

It has to be understood that the appellate order of March 25, 2009 altogether scotched the issue of limitation raised by the guarantors. It has necessarily to be implied in the appellate order, whether or not it expressly said so, that there was a live claim against the principal debtor as on the date of the demand by the corporation against the guarantors on June 5, 2005. There was legal and factual basis to the appellate court recognizing that as at the date of the corporation''s demand on the guarantors on June 5, 2005, the corporation had a live claim against the principal debtor; since the corporation could, on such date, have instituted appropriate proceedings against the principal debtor to recover its dues. The corporation has not attempted to supplement the reasons given by the appellate order. The corporation is not called upon to reestablish before an inferior forum what has already been accepted by implication by a superior forum in respect of a matter that was clearly in issue in the appeal and the order rendered wherein has attained finality.

In view of the appellate order of March 25, 2009 and the issue as to limitation as it answered therein against the guarantors, there is no scope to hold at this level that notwithstanding such order, the claim in ASFC No. 3 of 2005 cannot be prosecuted. As a consequence, and since the joint receivers are deemed to have continued by reason of the order dated January 22, 2008 having been set aside, such joint receivers are directed to complete the sale of the assets as directed by the orders dated March 22, 2006 and April 19, 2006 within six weeks from date. GA No. 2824 of 2010 is allowed as above without any order as to costs. ASFC No. 3 of 2005 will appear as adjourned motion in the monthly list of December, 2011.

Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.