Case Note & Summary
The appeal was filed by defendant Nos.3 to 6 (guarantors) against the judgment and decree dated 13.12.2010 passed by the I-Additional Senior Civil Judge, Mangalore, in O.S.No.88/2001, decreeing the suit for recovery of money. The plaintiff, M/s. Manipal Sowbhagya Nidhi Ltd., had filed the suit for recovery of Rs.68,06,495/- against the defendants, alleging that defendant Nos.1 and 2 (borrowers) had borrowed Rs.50,00,000/- on 08.10.1996 by executing an on-demand promissory note with interest at 26.5% per annum compounded monthly, and that defendant Nos.3 to 6 had guaranteed the loan. The trial court decreed the suit against all defendants. The appellants (defendant Nos.3 to 6) challenged the decree primarily on the ground of limitation, arguing that the suit against them was barred by Article 55 of the Limitation Act, 1963, as the cause of action arose on 08.10.1996 (the date of the loan agreement) and the suit was filed on 19.02.2001, beyond the three-year period. The High Court analyzed the nature of the guarantee and held that the liability of a guarantor arises from the contract of guarantee, which is independent of the promissory note. The court found that the suit against the guarantors was indeed barred by limitation, as the cause of action accrued on the date of the loan agreement. However, the suit against the borrowers (defendant Nos.1 and 2) was within limitation as the promissory note was an on-demand instrument. Accordingly, the High Court allowed the appeal in part, setting aside the decree against defendant Nos.3 to 6, but upholding the decree against defendant Nos.1 and 2.
Headnote
A) Limitation Act - Article 55 - Cause of Action for Guarantee - The suit against guarantors is governed by Article 55 of the Limitation Act, 1963, which provides a three-year period from the date when the debt becomes due. In this case, the loan agreement was executed on 08.10.1996, and the suit was filed on 19.02.2001, beyond three years. The court held that the cause of action against the guarantors arose on the date of the agreement, not on the date of the promissory note, and thus the suit was barred by limitation. (Paras 3-10) B) Limitation Act - Article 55 - Guarantee - The court distinguished between a guarantee and a promissory note, holding that the liability of a guarantor arises from the contract of guarantee, which is independent of the promissory note. The limitation period for a suit against a guarantor runs from the date of the guarantee agreement, not from the date of the promissory note. (Paras 5-8) C) Limitation Act - Article 55 - Recovery Suit - The court allowed the appeal in part, setting aside the decree against defendant Nos.3 to 6 (guarantors) as barred by limitation, but upheld the decree against defendant Nos.1 and 2 (borrowers) as the suit was within limitation against them. (Paras 9-10)
Issue of Consideration
Whether the suit against defendant Nos.3 to 6 (guarantors) was barred by limitation under Article 55 of the Limitation Act, 1963, given that the cause of action arose on the date of the loan agreement (08.10.1996) and the suit was filed on 19.02.2001.
Final Decision
Appeal allowed in part. The judgment and decree dated 13.12.2010 in O.S.No.88/2001 is set aside insofar as it relates to defendant Nos.3 to 6 (appellants). The suit against defendant Nos.1 and 2 stands decreed as per the trial court's decree. No order as to costs.
Law Points
- Limitation Act
- 1963
- Article 55
- cause of action
- guarantee
- promissory note
- recovery suit
- Order XLI Rule 1 CPC
- Section 96 CPC
