ANNAMMA JOSE Vs. KERALA FINANCIAL CORPORATION

JUDGEMENT

(1.) The petitioners have approached this Court challenging the revenue recovery proceedings initiated against them as per Exts. P1 and P2. Ext P1 is dated 10.2.1999. They claimed that these recovery proceedings were initiated against them as they were guarantors in respect of the loan granted by the Ist respondent to a company of which they were also Directors. It is an admitted fact by the respondent that revenue recovery steps were initiated against the petitioners in their capacity as guarantors. The petitioners submitted that the guarantee deed was executed in the year 1986, to be more specific on 20th February, 1986. There was default in repayment of the loan by the company. This resulted in Ext. P4 notice produced along with CMP No. 54218/99 calling upon the guarantors including the petitioners to clear off the amount and threatening the revenue recovery action in case of failure to remit the amount. It is based on that notice, further action is now being pursued as per the impugned notices Exts. P1 to P2. Ext. P4 is dated 6.2.1992. Revenue recovery notices were issued only on 10.2.1999. Such notices show that proceedings were initiated only in the year 1999. This is beyond 7 years of Ext. P4. The limitation to enforce the guarantee in terms of Art.55 of the Limitation Act read with S.29 of the Contract Act is three years from the date of breach which can be taken as 6.2.1994 the date of Ext. P4. Therefore, Exts. P1 and P2 are bad, the petitioners contend. They rely on the decision reported in State of Kerala v. V.R. Kalliyanikutty, 1999(2) KLT 146. The Supreme Court has held that even if a financial institution is empowered to take revenue recovery steps to recover the loan amount, it cannot initiate such proceedings beyond the statutory period of limitation to recover the amount as per the law. Therefore taking the period of limitation from the date of Ext. P4, the initiation of the recovery proceedings in 1999 is bad, as being beyond the period of limitation, the petitioners contend.

(2.) This contention is countered by the first respondent stating that the guarantee executed by the petitioners was a continuing guarantee. So long as the liability subsists with the borrower company and so long as borrower company has acknowledged the debt, the guarantee also survives and continues. On the strength of affidavit, respondents 1 and 2 contended that the company has acknowledged the debt and thereby the guarantee is extended.

(3.) Of course Ext. R1(a) contains acknowledgment of the debt. Ext. R1(a) is a letter from the company and the letter has been signed on behalf of the company by its Managing Director who is none other than the second petitioner. Ext.R1(a) letter addressed by the company was signed by the second petitioner in his capacity as Managing Director. It cannot be taken as a acknowledgment by a guarantor or extension of guarantee. It can at the best be termed as acknowledgment of debt by the company. The guarantee deed produced along with the memo dated 25.1.2002 described the parties in their permanent address whereas Ext. R1(a) described the second petitioner in his capacity as a Managing Director of the company. Ext.R1 binds only the company and it cannot have the effect of extension of guarantee. The notice Ext. P4 is not disputed by the first respondent, the financial institution. Ext. P4 shows that there was default by the Company in repayment and therefore the Ist respondent was attempting enforcement of the guarantee. The period of limitation begins from the date of Ext. P4, the intimation from the first respondent to recover the defaulted amount or the guaranteed amount by way of Revenue Recovery. The demand notices Exts. P1 and P2 are admittedly beyond 3 years from 6.2.1992. Naturally the decision of the Supreme Court in State of Kerala v. V.R. Kallyanikutty ( 1999 (2) KLT 146 ) stares at the first respondent, so that they cannot initiate revenue recovery proceedings. It is as clear as day light that the revenue recovery proceedings initiated against the petitioners in their capacity as guarantors is beyond the period of limitation and is therefore incompetent. Exts. P1 and P2 are accordingly quashed. This will not stand in the way of first respondent enforcing the debt against the company, as the company had acknowledged it as per Ext. R1(a).