C P SREELAL Vs. DISTRICT COLLECTOR THIRUVANANTHAPURAM

JUDGEMENT

(1.) Appellant is the petitioner in O.P. No. 19471/2002, which was dismissed by a learned single Judge of this Court by judgment dated 1-2-2006. The issue involved in that original petition was the enforceability of a personal guarantee issued by the appellant to the Kerala Financial Corporation as the Managing Director of an industry by name Mothi Chemicals to which the Kerala Financial Corporation had advanced a loan of Rs. 30 lakhs. There was a loan agreement between the Company and the KFC mortgaging properties belonging to the Company as security for the loan. In addition to the same, a personal guarantee was also given by the appellant as Managing Director of the said Company. The Company defaulted payments of the amount of loan. Recovery proceedings were initiated. The land belonging to the Company, which was mortgaged to the KFC, was acquired by the Government. LAR No. 105/1992 was filed for enhancement of compensation before the civil Court. The sale proceeds of the movables of the defaulted Company and the compensation including enhanced compensation awarded by the civil Court amounting to Rs. 29.72 lakhs were paid over to the KFC on 11-6-1996. After receipt of the award amounts, the KFC initiated revenue recovery proceedings against the appellant on the basis of his personal guarantee on 22-5-1998 for the balance amounts due from the Company towards the loan account. Since the appellant did not pay the amount, proceedings under Section 65 of the Revenue Recovery Act were initiated by Ext. P6 notice. The appellant filed Ext. P8 reply to the same on 6-7-2002 and then filed the writ petition immediately thereafter. The main contention of the appellant in the writ petition was that the recovery of the same was barred by limitation in view of the Supreme Court decision in State of Kerala v. V.R. Kalyanikutty . The contention of the appellant-petitioner in the writ petition was that al-though the liability of the appellant as a guarantor is co-extensive with that of the principal debtor, namely, the Company, the guarantee executed by the appellant is a separate and distinct contract. In the above circumstances, the period of limitation for recovery of money on the basis of personal guarantee is three years from the date of default committed by the Company in payment of the loan amounts. According to the appellant-petitioner, in this case, the default occurred in 1986 itself and so viewed, the period of limitation ran out in 1989. He further contended that as per the loan agreement, loan was repayable in 13 half yearly instalments commencing from 10-11-1986 and ending on 10-11-1992. Therefore, the latest date on which the default could have occurred is 10-11-1992 and even going by that date, the period of limitation expired on 10-11-1995, i.e. three years from 10-11-1992. However, the learned single Judge did not accept the contentions of the appellant-petitioner. The learned single Judge held that since the personal guarantee is not an independent agreement and the liability under the agreement is directly related to the loan agreement with the Company, recovery in fairness has to be first made against the borrower though nothing bars that KFC from proceeding for recovery against the appellant after default. The learned Judge was of the view that since the last instalment of the compensation awarded for acquisition of the property of the defaulter Company was received by the KFC on 11-6-1996, revenue recovery notice issued on 22-5-1998 is perfectly within the period of limitation. Further, it was held that since the loan was covered by a mortgage executed by the borrower-Company, and the last date for payment as per the loan agreement was 10-11-1992, recovery could be initiated both under the guarantee agreement and the loan agreement in time before 10-11-2004, i.e. before the expiry of 12 years from the last date for payment under the loan agreement. There was also further directions to the revenue recovery authorities to collect the details regarding the appellant's property and the appellant was also given the liberty to raise all his objections against Section 65 proceedings under the Recovery Act, before the District Collector and the District Collector was directed to complete the proceedings for recovery against the appellant including Section 65 proceedings within three months from the date of production of copy of the judgment. Certain observations also were made directing the KFC to settle the matter by giving reduction in the rate of interest. The said judgment of the learned single Judge is under challenge in this writ appeal.

(2.) The appellant's main contention is that the period of limitation for recovery of money due pursuant to a personal covenant is covered by Articles 19 and 28 of the Limitation Act. He would submit that the personal guarantee executed by the appellant is distinct from the loan agreement and if the Company does not pay the amount on the dale provided in the agreement, the personal guarantee has to be invoked within three years from the date fixed for payment, in the agreement by the principal debtor. The findings of the learned single Judge that the limitation period of 12 years would be applicable to the personal guarantee as well, is also challenged by the appellant. According to the counsel for the appellant, the recovery in the appellant s case is not on the basis of the mortgage but on the basis of the personal guarantee by the appellant. Based on the decisions in Krishna Das Narayana Brahmananda Thirthar v. Valli Nadachi Lekshmi Nadachi ILR 1955 TC Series 1174 and State v. Jathavedan Namboothiripadu AIR 1959 Kerala 1 (FB) counsel contends that the period of 12 years would not apply in cases where recovery is attempted personally. On the basis of the decision in AIR 1923 Mad 340, he would contend that although the liability of the appellant was co-extensive with that of the principal debtor, for the purpose of limitation, different periods would apply. There is another contention also that since the mortgaged property has been acquired by the Government, there can be no recovery on the basis of the mortgage and the 12 year limitation period would not apply in that case, in any event.

(3.) The appellant would also strongly dispute the contention that the limitation would start running from the date of payment of the compensation amount to the KFC. He would submit that time which has once begun to run, as a rule would continue to do so even though subsequent events occur which makes it impossible to bring an action for recovery. On that contention, the appellant would submit that the date of payment of the compensation amount cannot be taken as the stating period of limitation. Lastly, the appellant would contend that when remedy against the principal debtor has been impaired by the acquisition proceedings which fact was known to the creditor, the surely stands discharged. On these contentions, the appellant submits that the judgment of the learned single Judge is liable to be set. aside and the recovery proceedings against the appellant should be quashed.