' This is a suit for recovery of Rs, 1,93,533.08 filed by the plaintiff against for defendants. Defendant No. 1 who is a limited company is the principal borrower, whereas defendants 2 to 4 are the sureties. Defendants Nos. 1, 3 and 4 are ex parte. The only contesting party in the suit is defendant No, 2 who is a guarantor in his personal capacity.
2. In view of the concession made by the learned Advocate for defendant No, 2 w:hereby he did not challenge the statement of accounts filed by the plaintiff us Annexure 'A' to the plaint, the issues were re-cast on 4-11- 1978 and only the following three issues were pressed by him :
(1) Whether the claim is barred by time?
(2) Whether at the material times the registered office of business place of defendant No. 1 was at Chittagong. If so, what is the effect?
(3) Relief.
3. I have heard the arguments of the learned counsel for the parties. It is an admitted position that loan facility was granted to defendant No. 1 on 29-10-1967. A promissory note was also executed by them. According to the admitted statement of accounts (Exh. 9) the last operation of the account was made by the defendant No. 1 on 6th June 1969. It is also admitted that the plaintiff sent a notice of demand to the guarantor, defendant No, 2 on 7-2-1974. The liability of defendant No, 2 was denied through their Advocate's reply dated 20th February 1974 (Exh. 13). The plaintiff then filed the above suit on 10-3-1976. Now I propose to give my finding on each issue.
4. Issue No. 1.-The contention of the learned counsel for defendant No 2 is that the letter of guarantee was executed by defendants Nos. 2, 3 and 4 on 29th October 1967. The period of limitation will thus start from the date of its execution and it will expire on 28-10-1970 but since it being a continuing guarantee the liability under the said guarantee could only be continued up to 3 years from the date of the last transaction. In the present case the last transaction having taken place on 6th June 1969, the guarantee could be enforceable against them up to 5th June 1972 under Articles 65, 67 and 115 of the Limitation Act. In the alternative, he submitted that the guarantee at the most could be said to be enforceable against the defendants for a period of 6 years under Article 120 and thus the suit could be filed on or before 5th June 1975. The suit having been filed on 10-3- 1976 it is clearly barred by time. He placed his reliance on a number of authorities, namely, National and Commercial Bank Limited v. Muhammad Tufail and another (1), Commerce Bank Limited v. Crescent Paint, Colour and Warnish Works Limited (2), Sreenath Roy and others v. Peary Mohan Mukkerji (3) and Dialunial v.
Nadu Shaw Dev Rai & Co. (4). {{FOOT NOTE}}
(1) PLD 1975 Kar. 671 (2) PLD 1975 Kar. 504
(3) AIR 1917 Cal. 154 (4) AIR 1931 Lah., 691 {{FOOT NOTE}}
5. In PLD 1975 Kar. 671 the question of limitation was not found necessary to be discussed elaborately and the authority in the case of Srinath Roy and others v. Hari Mohan (1) was simply referred to for the proposition that the three years' period of limitation will run from the date of execution of a guarantee irrespective of the date of the subsequent demand for repayment. In the case there was only one transaction of receiving overdraft/loan in the name of some fictitious borrower and the guarantee was signed by a person who had actually received the amount from the Bank.
6. In PLD 1975 Kar. 504, the Court came to the conclusion that the liability of the debtor and surety though arising out of the same transaction were distinct and the payment of interest by the principal debtor cannot extend the period of limitation for the institution of a suit for recovery of the debt from his surety, and that even if that is deemed to be joint, section 21(2) of the Limitation Act shows that the payment by one of them (the debtor) does not extend the time against the other. As regards the application of section 128 of the Contract Act which makes the liability of surety co-extensive with that of the principal debtor, the Court came to the conclusion that it was of assistance to the creditor as it must be read alongwith the provisions of the Limitation Act and that section 128 defines the measure of liability and has no reference to the extension of liability by operation of the statute of limitation. In the said case the Court came to the conclusion that when either a principal debtor or a surety makes a payment towards the debt he thereby starts a fresh period of limitation only for himself and not the other and it is obvious that the same principle will apply in relation to an acknowledgement by one or the other.
7. The case reported in AIR 1917 Cal. 154 as referred to in PLD 1975 Kar. 671 was for recovery of a debt on promissory note against the surety and in that case the limitation was held to begin from the date of execution of document of surety and as such Article 115 was held applicable. The Court held that the obligation had arisen with the execution of the document and there being no contingency to be found in the case Article 65 was held inapplicable.
8. In the case reported in AIR 1931 Lah. 691 the dates for repayment of the loan being specified, the liability of the surety was also held to begin to run from the same date and was held to be governed by Article 115.
9. The learned Advocate for the plaintiff, on the other band, contended that the letter or guarantee (Exh. 11) provided a contingency inasmuch as the liability of the guarantor to repay the loan due from the principal borrower was to arise within 2 days after demand. It also provided that "the guarantee shall not be discharged or prejudiced by discharge of the principal by operation of law or for any other reason". He, therefore, contended that the liability of the borrower arising out of loan was inherent in the loan itself whereas the liability of the guarantor was based on contract which specifically stipulated that the liability would arise to repay the loan by the guarantor only 2 days after the demand is made against him. The period of limitation, it was asserted, would run against the guarantor two days after making demand by the plaintiff against the defendant No,
2. The demand having been made on 7-2-1974 the liability will accrue against the guarantor on 9-2-1974 and the period of limitation will start from that date expiring on 8-2-1977. The suit having been filed on 10th March 1976 was, therefore, within time. In support of his contention he relied {{FOOT NOTE}}
(1) AIR 1917 Cal. 154 {{FOOT NOTE}} ' on a number of English cases as well as decisions of the Courts of this Sub-continent. Besides, he placed reliance on several passages in standard books on the Law of Banking.
10. In Parr's Banking Company v. Yates (1), the defendant had signed a continuing guarantee which did not include the phrase "on demand" in writing in the deed of guarantee and, when the bank brought an action against the guarantor, he pleaded that the claim was barred by statute of limitation on the ground that no fresh advances had been made to the principal debtor after the end of 1890, a period of more than 6 years from the date of writ. The Court of appeal accepted this argument. In the words of Vaughan Williams, L. J.-(page 223): "For this reason the clause of undertaking by the guarantor to pay on demand was included in a deed of guarantee. The efficacy of the said clause was proved in Breadford Old Bank Ltd. v. Sutcliffe (1918) 2 K B 833 another decision of the Court of Appeal, where Pickfold. L. J. Said: "In my opinion there was no cause of action till after demand, and the plea of the statute of limitation, therefore, fails."
11. In another case Re: Prounce Estate Brown v. Brown (2), it was held that if a guarantor promises to pay the principal debt "on demand" the demand must be made upon him before he can be sued.
12. Conversely, in the case of Eshelby v. Federated European Bank Limited (3), the suit for recovery of the amount against the guarantor was dismissed in the absence of notice of demand for recovery of the suit amount, due under the guarantee prior to filing the suit which stipulated that a notice of demand prior to institution of suit was to be given by the plaintiff to the defendant/guarantor.
13. The question of interpretation of the phrase "repayment guaranteed by me on demand" also came under judicial scrutiny in several cases of Indian jurisdiction. In the case of Brojenro Kissore Roy Ch. v. Hindustan Cooperative Insurance Society (4), it was held by Mukkerji, J. "that the liability of the creditor against the surety may continue notwithstanding that the remedy against principal debtor has become barred".
14. In another case of Somnath Rajoo v. Rama Moorti (5), it was held that in the case of a promissory note payable on demand being a debt in praesenti and payable on demand, the limitation begins to run from the date of its execution, and the liability of the surety being collateral will always depend upon the form of the contract as entered into between the surety and the creditor. It was further held, in that case, that section 128 of the Contract Act which makes the liability of the surety co-extensive with that of the principal debtor, has reference only to the quantum of the liability and is not intended to affect the application of the statute of limitation.
15. However, before considering the effect of the words of the guarantee which stipulates a prior notice of demand by the creditor to the guarantor {{FOOT NOTE}}
(1) (1898) 2 Q B 460 (2) (1893) 2 C H 300 k3) (1932) 1 K B 423 (4) AIR 1918 Cal. 707
(5) AIR 1957 Orissa 106 {{FOOT NOTE}} ' it seems necessary to examine the various Articles of Limitation Act cited at the bar by the learned counsel of the parties.
16. The learned counsel for the defendant submitted that Articles 59, 60, 65, 67 and 115 or, in the alternative Article 120 were applicable to the facts of the case. The learned counsel for the plaintiff on the other hand submitted that Articles 65, 69 and 73 of the Limitation Act were applicable.
17. I will examine these articles together. Article 59 provides a period of limitation for 3 years for a suit for money lent on an agreement that it shall be payable on demand. The period of limitation is to run when the loan is made. Article 60 relates to a suit for money deposited under an agreement that it shall be payable on demand, including the money of a customer in the hands of a banker so payable. The period has been provided as 3 years to run from the day when the demand is made Article 65 relates to a suit for compensation for breach of a promise to do anything at specified time or on the happening of a specific contingency. The period for filing a suit has been fixed as 3 years when the time specified arrives or the contingency happens. Article 67 provides 3 years' period of limitation from the date of execution of the bond when the suit is based on a single bond and no such day is specified. Article 69 relates to a suit on a bill of exchange or promissory note payable at a fixed time for which 3 yews' period has been provided for filing the suit with time to run when the bill or note falls due.
Article 73 relates to a suit on a bill of exchange or promissory note payable on demand and not accompanied by any writing restraining or postponing the right to sue 3 years' period has been provided for filing the suit with time to run from the date of the bill or note. Article 115 provides for a suit for compensation for breach of any contract, express or implied, not in writing, registered and not herein specifically provided for. The period fixed is 3 years from the date when the contract is broken. Article 120 is a residuary Article which provides a period of 6 years for suit for which no time of limitation is provided elsewhere in the Schedule and the time to run is reckoned when the right to sue accrues. So far as the applicability of these Articles to the facts and circumstances of this case is concerned, it can be said without hesitation that Article 59 refers to cases whether the loan advanced is repayable at once or on demand. Thus where money lent is, either by virtue of an oral or written agreement, repayable on demand, the case would fall within Article 59. The result is that when money lent is repayable on demand, either under an implied or express agreement, oral or written, the terminus quo is the date of the loan. With the result that in case of a promise to pay a present debt on demand, no demand is necessary and limitation runs through date of the promise in this Article. But in a case where money is lent from time to time and no date for repayment is fixed, limitation runs, as regards each amount of loan, from the respective dates of the advances, and thus advances are recoverable which were made within three years immediately preceding institution of the suit. Thus, when a person promises to pay a sum of money on demand which it is his liability to pay, whether a demand is made or not, the money becomes payable at once and the statute of limitation runs forthwith and no actual demand is necessary before a suit can be brought. When a promise is made which is collateral in nature, i,e, a promise is made in consideration of some collateral thing being done on demand, then the demand must be made before payment can be enforced and accordingly the statute of limitation will run only from actual demand. In other words, when there is no complete cause of action, without a prior demand, that is, where money lent is repayable by a guarantor in terms of the contract on and after an actual demand is made on him the statute will run only from the date when the demand is made and accordingly limitation in such a case would run under Article 115 from the date fixed for repayment. Article 69 of the Limitation Act, 1908, makes the limitation run, it seems, from the time when the bill falls due. This Article is entirely inapplicable to the facts of this case. Article 73 speaks of a writing restraining or postponing the right to suit. If no such writing is accompanied by a bill of exchange or promissory note the date of the bill or note will be the starting point of limitation. But when a note is made payable on demand, but at the same time an agreement is executed which is to be taken alongwith it, and by the promise of which the note is only to become payable on a certain contingency, the stature will run only when contingency arises. Article 73 may stipulate a writing to prevent limitation running from the date of the note or bill. In the facts and circumstances of the case the letter of guarantee accompanying the grant of loan may be construed as a writing restraining or postponing the right to sue against the guarantor. Article 65 of the Limitation Act, 1908, applies in general to all contracts which are to be performed at an specified future date or on the happening of a specified contingency. Anyhow, the combined effect of Article 65 and Article 115 is to postpone the running of the statute of limitation upon a claim payable upon a contingency which by its nature must be such as to effect in postponing or suspending the right of action, A suit by a creditor on a contract of guarantee against the surety or guarantor is not specifically provided for in the Limitation Act. The view which should, therefore, prevail is that Article 65 read with Article 115 applies to the suit against the guarantor and the liability based on the deed of the guarantee being in the nature of ex contract, the omnibus Article 120, that is, the period of six years' limitation has no application.
18. According to the contention of the learned counsel for the plaintiff the time to fulfil the promise or undertaking of the repayment of loan by defendant No, 2, in terms of Article 65, Limitation Act, 1908 will be at a specified time or upon the happening of a specified contingency, that is, within 2 days after making demand upon him by the creditor of all the moneys which were due to the Bank from the defendant No. 1 which in this case will be reckoned from 9-2-1974 and thus the suit will be within time.
19. The learned counsel for the defendant, on the other hand, contended that the cause of action, in this case, will accrue to the plaintiff on 6-6-1969 when the last transaction, under the continuing guarantee, took place. He further contended that any condition postponing the period of limitation running against plaintiff was illegal within the meaning of section 23 of Contract Act as it defeats the provision of law, that is, the Limitation Act. He placed his reliance on two authorities, namely, Islamic Republic of Pakistan v. Nazardin Khattak (1) and Federation of Pakistan v. Muhammad Shafi & Sons (2). In the first case the parties by a private agreement themselves fixed a period within which rights were to be enforced. By this agreement the period of limitation prescribed for institution of a suit of the like nature was 3 years from the date on which the contract was rescinded or was to be completed. This period of limitation was curtailed by an agreement. It was thus held that "the agreement to the extent of its clause 33(i) which limits the time within which rights are to be enforced {{FOOT NOTE}}
(1) PLD 1969 Pesh. 313 (2) PLD 1971 Pesh. 93 {{FOOT NOTE}} ' was void to that extent". In the other case decided by the same Bench it was again held that clause 20 of the agreement between the parties, limiting the time to institute the suit within 3 days of the expiration of the period of contract was void to that extent in view of section 23 and section 28 of the Contract Act read with section 3 and Schedule I of the Limitation Act. On the basis of these two authorities, learned counsel submitted that if the period of limitation cannot be curtailed by a contract inter parties it cannot as well be extended or enlarged by agreement.
20. The learned counsel for the plaintiff in reply to the said contention submitted that the limitation bars the remedy, not the right. He thus contended that the limitation can be extended by conduct or by statute. He also contended that one can also waive his right. In support of his contention that one can waive his right the learned counsel relied on Pestonji v. Mehrbai (1). It was a case in which the defendant undertook to pay the time-barred debts of her husband. The citation seems to be misplaced. There is, however, nothing to show in this case that by agreement the period of limitation can be curtailed or enlarged. In Pherai and another v. Pudai Ram (2), it was held that it was not open to the parties to any agreement to contract themselves out of the law of limitation by inserting in their agreement two alternative starting points for limitation. In Govardan Das v. Dau Dayal (3), it was held that no one can contract himself out of the statute of limitation. In another case Nathumal Ramdas v. P.
D. Ram Sarup & Co. And others (4), it was held that a clause in a contract providing that no claim or dispute of any sort whatsoever would be recognized if not made in writing within 60 days from due date of payment, did not take away the statutory right of a plaintiff to bring his claim within time as prescribed by law.
21. I am, therefore, not inclined to agree with the learned counsel for the plaintiff that the limitation can be extended simply by contract. Certainly, if the statute provides such an exception it can be pressed into service.
Faced with this difficulty the learned counsel sought the support from the Limitation Act itself. Basing his submission on Article 73 it was submitted by him that if a bill of exchange or a promissory note payable on demand is not accompanied by any writing restraining or postponing the right to sue, the period of limitation has been prescribed as three years. He, therefore, contended that the right to sue could be restrained or postponed by any writing of the parties accompanying the bill of exchange, or promissory note. The contention seems to be misconceived. Article 73 is applicable only to suits based on the bills of exchange or on the promissory notes. A suit against a surety for a debt due on the note and a suit against the endorser of promissory note is not a suit based on the note and is not governed by these Articles. (AIR 1918 Cal. 132). I am, therefore, of the view that the period of limitation as prescribed by the statute cannot inter vivos be curtailed or enlarged, unless it is so provided or warranted by any of the provisions of the Limitation Act itself. The letter of guarantee embodying the term of repayment as "within 2 days after demand" will be read, according to me, as a condition precedent for enforcing the right against the guarantor but not by itself enlarge the period of limitation, at the will of the parties and to leave it to the sole discretion of the creditor to sleep over his right, to let the debt become time-barred against the {{FOOT NOTE}}
(1) AIR 1928 Born. 539 (2) AIR 1925 Oudh 502
(3) AIR 1932 Alh 273 (4) AIR 1932 Lab. 161 {{FOOT NOTE}} ' debtor and to catch hold of the guarantor at any time he likes, simply by not giving a notice of demand. The condition herein this letter of guarantee is to put check on the right of creditor to use the guarantor in a Court of law except by giving him two days' notice of demand. It cannot by itself be taken to extend or enlarge the period of limitation unless Limitation Act, 1908 so provides.
22. A contract of guarantee has to be strictly construed as to the point of time when the liability of the guarantor arises. The question will naturally depend on the terms of the contract of the guarantee by which the guarantor has bound himself for the repayment of the loan advanced to the principal borrower. The most important question in this case, therefore, is whether the cause of action accrued to the plaintiff against defendant No, 2 on 6-6-1969, viz. The date of the last transaction by defendant No. 1 or on 9-24974 when a notice of demand dated 7-2-1974 was served on defendant No, 2, as stipulated in the letter of guarantee?
23. The cause of action against the principal debtor and the surety being distinct and separate it is quite possible that the cause of action having already accrued and lapsed against the borrower, if not pursued may still be available against the surety if the contract of guarantee so warrants. In my view the giving of notice in writing to defendant No, 2 was a condition precedent to giving a cause of action to the plaintiff. With the result the date of accrual of cause of action, in this case, will be two days after the notice dated 7-2-1974 having been served by the plaintiff on the defendant.
24. In view of the above discussion I hold the suit within time. Issue No. 1 is answered accordingly.
25. Issues No, 2.-As far as Issue No, 2 is concerned the case of the plaintiff is that defendant No. 1 had an office at Bharti Ram Street, in Jodia Bazar, Karachi ever since the day the account in question was opened by the defendant No. 1 in the plaintiff's Bank, and continued to have the office at the abovementioned address till the year 1971. Not only that, Messrs Bawa Jute Mills Ltd., of which the defendant No. 1 in this suit happened to be the Managing Agent, had also an account with the plaintiff's Bank in the same Branch. It was however, not denied by the plaintiffs that defendant No. 1 had their registered office at Chittagong. The defendant No, 2 in his cross-examination admitted that Bawa Jute Mills Ltd., maintained an account with the plaintiff's Bank at their Jodia Bazar Branch which was operated by him. It was also admitted by him that Bawa Jute Mills Ltd., used to supply their products in Karachi for West Pakistan and the Jute Mills had its godown in Karachi and all the work of Bawa Jute Mills Limited was carried on by defendant No. 1 who had been their Managing Agent. He further admitted that he had signed the letter of guarantee in his personal capacity and that Haji Bawa Company (defendant No. 1) and Bawa Jute Mills Limited had an office in Karachi at Jodia Bazar. This evidence proves sufficiently that defendant No. 1 who had its registered office at Chittagong and had its sub-office at Karachi through which the defendant No. 1, used to transact its business in West Pakistan. It is, therefore, evident that the account was operated in Karachi, the loan was given by the defendant at Karachi, documents were signed at Karachi, the defendant No, 2 had lot of business in East Pakistan which was controlled through Karachi, they had also the office and godown at Karachi. I, therefore, hold that the cause of action also arose at Karachi against the defendant No. 1 as well as defendant No, 2.
26. The learned counsel for the defendant No, 2 further contended that the liability against defendant No. 1 having been extinguished or lapsed by efflux of time and by concession of East Pakistan emerging out at a separate and independent country named Bangla Desh, the contract was rendered void due to impossibility of its performance. In its support he relied on two Indian authorities, namely, Satyabrata Ghose v. Bangur & Co.
And another (1) and P. Kanthamma v. D. S. Raja Lakshmi (2), and submitted that the suit against defendant No. 1 having become barred by time by efflux of time and, further, contract having become impossible against the principal borrower the plaintiffs cannot invoke their remedy against the guarantor against defendant No, 2.
27. The learned counsel for plaintiff in reply, submitted that notwithstanding the bar of limitation against defendant No. 1 or the plaintiff's remedy to recover the loan from defendant No. 1 having become impossible due to concession of East Pakistan and its emerging out as a new and independent state, the liability of the guarantor, i,e, the defendant No, 2 does not ipso facto come to an end. Inasmuch as it is not incumbent on the creditor to first exhaust his remedy against the creditor to first exhaust his remedy against the debtor before proceeding against the guarantor. Although under the provisions of the Contract Act the liability of the surety is co-extensive with that of the principal debtor but it is with reference to the quantum of the liability. The liability can vary if it is so provided by the contract itself. He referred to clause 4 of the letter of guarantee whereby the guarantee was to continue notwithstanding the discharge of the principal debtor by operation of law or for any other reason. The learned counsel also referred to section 137 of the Contract Act whereby mere forebearance on the part of the creditor to sue the principal debtor, in the absence of any provision in the guarantee to the contrary, does not discharge the surety. He placed reliance on Gurdit Singh v. Gujjar Singh and others (3), Jagaunah Ganeshram Agarwala v. Shivnarayan Bhogirath and others (4) and Punjab National Bank Ltd. Lahore v. Dr. A. B. Arora and others (5). I, therefore, find no force in this contention of the counsel for defendant No, 2 and hold that notwithstanding the remedy against the defendant No. 1 having become barred by time and by operation of law as a result of new situation having arisen due to the events that have taken place in the case a7 referred to by the learned counsel for defendant No, 2, D the remedy against the defendant No, 2 by virtue of clause (4) of the letter of guarantee read with section 137 of the Contract Act is available to the plaintiff. Section 20 of the Civil Procedure Code also gives jurisdiction to this Court as defendant No. 1 had a sub-office at Karachi and the cause of action having arisen to the plaintiff against the defendant No, 2 on the service of notice of demand dated 7-2-1974 at Karachi and the defendant No, 2 was at the commencement of the suit actually and voluntarily residing or carrying on business at Karachi the jurisdiction of this Court is fully attracted against defendant No, 2.
28. Issue No, 3.-In the result, the suit is decreed against defendant No, 2 in the sum of Rs, 1,93,533.08 with interest at the rate of 13 per cent. Per annum from the date of filing of the suit till realization of the decretal amount with costs of the suit. {{FOOT NOTE}}
(I) AIR 1954 SC 44 (2) AIR 1963 Mad. 412
(3) AIR 1919 Lah. 355 (4) AIR 1940 Boni. 247
(5) AIR 1933 Lah. 1024 {{FOOT NOTE}}