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CASE NO.:

Appeal (civil) 6894 of 1997

PETITIONER:

Syndicate Bank

RESPONDENT:

Channaveerappa Beleri & Ors.

DATE OF JUDGMENT: 10/04/2006

BENCH:

Arun Kumar & R V Raveendran

JUDGMENT:

J U D G M E N T

RAVEENDRAN, J.

This appeal by special leave, is by the plaintiff Bank against the

judgment dated 6.3.1997 of the High Court of Karnataka dismissing

R.F.A. No. 107 of 1993 filed by it against the judgment and decree

dated 29.10.1992 of the Civil Judge, Gadag in O.S. No. 29 of 1990,

dismissing its suit on the ground of limitation.

2. The appellant Bank filed Original Suit No. 29 of 1990 against

Respondents 1 to 7 herein for recovery of Rs.19,77,478/60 (the

liability of Respondents 2 & 3 being restricted to Rs.15,75,960 and

liability of Respondents 6 & 7 being restricted to 17,56,070.60)

together with interest @18.5% per annum compounded quarterly

from the date of suit till the date of realization. The plaint averments

in brief are as under.

2.1) The Bank had extended credit facilities by way of overdraft,

goods loan, and demand loan against supply Bills to a company

known as Gadag Forge Fits (India) Pvt. Ltd., ('company' for short).

Respondent 1 was its Managing Director and Respondents 2 to 7

were its Directors. The credit facilities were renewed and enhanced

from time to time. Respondents 1 to 7 executed the following

guarantee bonds in favour of the Bank, personally agreeing and

undertaking to pay and satisfy the Bank on demand all sums which

may be due on account of the credit facilities granted to the company

subject to the limits mentioned therein :

i) Guarantee Bond dated 17.9.1983/20.8.1983/29.8.1983

executed by Respondents 1, 2 and 3, the limit of liability

being Rs. 10.50 lakhs (a single deed executed by

Respondents 1, 2 and 3 on different dates).

ii) Guarantee bond dated 4.4.1984 executed by respondents

4 & 5, the limit of liability being Rs. 10.50 lakhs.

iii) Guarantee bond dated 10.9.1985 executed by

Respondents 1, 4, 5, 6 & 7, the limit of liability being

Rs.11.70 lakhs.

Thus the limit of total liability undertaken exclusive of interest was

Rs.22.20 lakhs in the case of Respondents 1, 4 & 5, Rs. 10.50 lakhs

in the case of Respondents 2 & 3 and Rs.11.70 lakhs in the case of

Resondents 6 & 7. Their liability was joint and several with the

company.

2.2) On account of the company allegedly incurring losses and

stopping its activities, operations in the accounts of the company with

the Bank stopped in the middle of 1986. In view of the failure on the

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part of the company (principal debtor) in paying the amounts due,

the Bank sent a letter dated 12.10.1987 to the company and its 7

Directors (Respondents 1 to 7) informing that the following amounts

were outstanding in the accounts of the company as on 30.9.1987

and calling upon the company as principal debtor and respondents 1

to 7 as guarantors to pay the said amounts aggregating to

Rs.13,48,264.79 with interest @ 18.5% per annum from 1.10.87

within 15 days :-

Account No.

Date of

Advance

Limit/Amount

Advanced

Balance as on

30.9.1987

Over Draft

27/85

1/86

14/86

10.9.85

7.1.86

29.4.86

2,50,000/-

2,50,000/-

1,50,000/-

3,32,116.04

3,39,719.54

1,99,105.35

Goods Loan

49/84

48/85

23.7.84

12.10.85

1,61,000/-

27,450/-

1,91,654.00

35,894.85

Demand Loan

against Supply

Bills

229/85

232/85

233/85

234/85

235/85

237/85

2/86

3/86

5/86

8/86

10/86

12/86

14/86

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15/86

16/86

18/86

20/86

2.12.85

6.12.85

6.12.85

11.12.85

20.12.85

26.12.85

1.1.86

1.1.86

13.1.86

3.2.86

10.2.86

13.2.86

11.3.86

20.3.86

21.3.86

25.3.86

26.4.86

5,000/-

5,000/-

2,500/-

16,900/-

1,500/-

6,100/-

2,900/-

5,100/-

32,970/-

3,700/-

31,600/-

13,700/-

8,800/-

10,230/-

36,000/-

20,300/-

6,400/-

318.60

6,936.65

3,469.40

23,356.15

2,071.85

8,366.90

3,966.95

3,425.75

44,819.30

444.05

26,274.85

18.424.20

11,685.45

13,518.25

47,534.00

26,750.10

8,412.60

TOTAL

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13,48,264.79

2.3) The company and its Directors (Respondents 1 to 7) sent a

reply dated 31.10.1987 through counsel stating that the company

was passing though a financial crisis and the Bank had failed to assist

the company by making further advances by way of working capital.

They further alleged that in view of the failure to advance further

funds, the company sustained heavy loss and the company was

reserving liberty to file a suit for damages for an amount which would

be more than the amount claimed by the Bank. They also alleged that

the bank ought to have given a moratorium on interest to rehabilitate

the company. They also stated that without prejudice to their rights

and contentions, they were willing to discuss the matter with the

Bank, to arrive at an amicable solution. A formal notice through

counsel was sent by the Bank on 17.12.1987 demanding payment

which elicited a reply dated 30.12.1987 denying the demand.

2.4) The Bank initiated proceedings for winding up against the

company on account of its inability to pay its dues, on 11.10.1988

and the High Court ordered winding up of the company on 17.3.1989.

Therefore, the suit was filed by the Bank on 16.3.1990 only against

the Guarantors (Respondents 1 to 7) for recovery of Rs.19,77,478.60

(that is, the amount demanded in the notice dated 12.10.1987 with

interest up to date of suit). The Bank restricted the claim to Rs.10.50

lakhs with interest at 18.5% P.A. from 17.12.87 to the date of suit

against Respondents 2 and 3 and to Rs.11.70 lakhs with interest at

18.5% P.A. from 17.12.1987 to date of suit against respondents 6

and 7. The Bank contended that the respondents were jointly and

severally liable to pay the amounts due by the company, as

aforesaid. It was alleged that the cause of action for the suit against

the guarantors (respondents 1 to 7) arose on 17.12.1987 when the

demand was made and on 30.12.1987 when they denied the liability

by notice. The statements of account showing the particulars of

amount due as on 31.12.1989 were annexed to the plaint.

3. Respondents 4 and 7 remained ex parte. Respondents 1, 5 and

6 filed a common written statement which was adopted by 2nd

respondent. Respondent No. 3 filed a separate written statement.

They resisted the suit inter alia on the following grounds :-

a) The suit was not maintainable only against the

Guarantors and was liable to be rejected for non-joinder

of the principal debtor.

b) The Bank cannot proceed against the guarantors without

first exhausting of remedies against the principal debtor.

c) The guarantee bonds were executed in the years 1983,

1984 and 1985. As the suit was not filed within three

years from the respective dates of the guarantee bonds,

in the absence of renewals or acknowledgement by them,

the suit was barred by limitation.

4. The trial court framed as many as 16 issues. We are concerned

with the issue no.4, that is, : 'Is the suit not in time?'. The Bank

examined its manager and respondents 1, 2 and 3 gave evidence on

behalf of the defence. Ex. P-1 to P-35 and Ex. D-1 to D5 were

marked. The trial court by an exhaustive judgment answered all the

issues, except the issue regarding limitation in favour of the Bank. It

held that the Bank had established the correctness of the amounts

claimed and the rate of interest. It, however, held that the suit was

barred by time and consequently, dismissed the suit. The appeal filed

by the Bank was also dismissed by the High Court. The said dismissal

is challenged in this appeal by special leave. The only question that

was argued and that arises for consideration in this appeal is whether

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the decision of the courts below that the suit was barred by limitation

is correct in law.

5. To appreciate the rival contentions, it is necessary to refer to

the relevant statutory provisions, the terms of the guarantee and the

decision of this Court relied on by both parties.

5.1) Section 126, 128, 129 and 130 of Contract Act, 1872 are

extracted below :

"Section 126. 'Contract of guarantee,' 'surety,'

'principal-debtor' and 'creditor' \026 A 'contract of

guarantee' is a contract to perform the promise, or

discharge the liability, of a third person in case of his

default. The person who gives the guarantee is called the

'surety'; the person in respect of whose default the

guarantee is given is called the 'principal-debtor,' and the

person to whom the guarantee is given is called the

'creditor.' A guarantee may be either oral or written."

"Section 128. Surety's liability \026 The liability of the

surety is co-extensive with that of the principal-debtor,

unless it is otherwise provided by the contract."

"Section 129. 'Continuing guarantee' \026 A guarantee

which extends to a series of transactions is called a

'continuing guarantee."

"Section 130. Revocation of continuing guarantee \026

A continuing guarantee may at any time be revoked by

the surety, as to future transactions, by notice to the

creditor."

5.2) The relevant Articles in the Schedule to the Limitation Act, 1963

are extracted below :

Article

No.

Description of Suit

Period of

Limitation

Time from which

period begins to run

55

For compensation for the

breach of any contract,

express of implied not herein

specially provided for.

Three years

When the contract is

broken or (where there

are successive breaches)

when the breach in

respect of which the suit

is instituted occurs or

(where the breach is

continuing) when it

ceases.

113

Any suit for which no period

of limitation is provided

elsewhere in this Schedule.

Three years

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When the right to sue

accrues.

19

For money payable for money

lent.

Three years

When the loan is made.

21

For money lent under an

agreement that it shall be

payable on demand.

Three years

When the loan is made.

5.3) The guarantee bonds have been executed in the standard Form

of the Bank. The relevant portions from the Guarantee bond dated

10.8.1985 (the Bonds are similarly worded) are extracted below :

"In consideration of SYNDICATE BANK, here-in/after

called the "Syndicate"\005\005\005\005. making, or continuing to

make advances or otherwise giving credit or financial

accommodation or affording banking facilities for as long

as the Syndicate may think fit to M/s. Godrej Forge Fits

(I) Pvt. Ltd. Hirakoppa village, Gadag taluk here-after

called the "Borrower"\005\005\005\005.., the undersigned (1) C. M.

Beleri, (2) I. M. Beleri, (3) K. M. Chhadda, (4) Mrs.

Shailaja Beleri and (5) T. Parthasarathy (hereinafter

referred to as the "Guarantor") hereby agrees to pay and

satisfy to the Syndicate on demand all and every sum

and sums of money which are now or shall at any time be

owing to the Syndicate in any of its offices on any account

whatsoever,\005\005.\005"

"PROVIDED ALWAYS that the total liability ultimately

enforceable against the Guarantor under this guarantee

shall not exceed the sum of Rs.11,70,000/- together with

interest thereon at the rate stipulated by the bank from

date of demand by the Syndicate upon the

Guarantor for payment."

"NOTWITHSTANDING the Borrower's Account or Accounts

with the Syndicate may be brought to credit or the credit

given to the Borrower fully exhausted or exceeded or

howsoever the said financial accommodation varied or

changed from time to time; notwithstanding any

payments from time to time or any settlement of

Account, this guarantee shall be a continuing

guarantee for payment of the ultimate balance to

become due to the Syndicate by the Borrower not

exceeding Rs.11,70,000/- as aforesaid."

"NOTWITHSTANDING the discontinuance of this

Guarantee as to one or more of the Guarantors or the

death of any one of them, the Guarantee is to remain a

continuing Guarantee, as to the other or others or the

representatives and estates of the deceased and where

there is more than one Guarantor, their liability under

these presents being construed as joint and several."

"ANY ACCOUNT SETTLED or stated by or between the

Syndicate and the Borrower or admitted by him or on his

behalf may be adduced by the Syndicate and shall in that

case be accepted by the guarantors and each of them and

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their respective representatives as conclusive evidence

that the balance or amount thereby appearing is due from

to the Syndicate."

[Emphasis supplied]

5.4) MARGARET LALITA SAMUEL vs. INDO COMMERCIAL BANK LTD

(AIR 1979 SC 102) relied on both sides dealt with the question of

limitation with reference to a continuing guarantee. In that case the

guarantor sought to avoid liability by contending that every item of

an overdraft account was an independent loan and the limitation

would start from the date of each loan, and that with reference to

such dates, the suit was barred by limitation. While negativing the

said contention, this Court observed :

"In our view it is unnecessary for the purposes of the

present case, to go into the question of the nature of

an overdraft account. The present suit is in

substance and truth one to enforce the guarantee

bond executed by the defendant. In order to

ascertain the nature of the liability of the defendant,

it is necessary to refer to the precise terms of the

guarantee bond rather than embark into an enquiry

as to the nature of an overdraft account.

After referring to the terms of the guarantee bond, this Court held :

"The guarantee is seen to be a continuing guarantee and

the undertaking by the defendant is to pay any amount

that may be due by the company at the foot of the

general balance of its account or any other account

whatever. In the case of such a continuing

guarantee, so long as the account is a live account

in the sense that it is not settled and there is no

refusal on the part of the guarantor to carry out the

obligation, we do not see how the period of

limitation could be said to have commenced

running. Limitation would only run from the date of

breach under Art. 115 of the schedule to the Limitation

Act, 1908. When the Bombay High Court considered the

matter in the first instance and held that the suit was not

barred by limitation. J.C. Shah, J. speaking for the Court

said :

On the plain words of the letters of guarantee it is clear

that the defendant undertook to pay any amount which

may be due by the Company at the foot of the general

balance of its account or any other account whatever \005.

We are not concerned in this case with the period of

limitation for the amount repayable by the Company to

the bank. We are concerned with the period of limitation

for enforcing the liability of the defendant under the

surety bond \005 We hold that the suit to enforce the

liability is governed by Art. 115 and the cause of action

arises when the contract of continuing guarantee is

broken, and in the present case we are of the view that

so long as the account remained live account, and there

was no refusal on the part of defendant to carry out her

obligation, the period of limitation did not commence to

run.

(Emphasis supplied)

After expressing agreement with the above view expressed by Shah,

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J., this Court also agreed with the view expressed by the Privy

Council in Wright v. New Zealand Farmers Co-operative Association

of Canterbury Ltd. (1939 AC 439), and the Court of Appeal in

Bradford Old Bank Ltd. v. Sutcliffe [1918 (2) KB 833] that limitation

against a guarantor under a continuing guarantee (which specified

that the liability of the guarantor is to pay on demand) would not run

from the date of each advance, but only run from the time when the

balance (payment of which is guaranteed) was constituted and a

demand was made for payment thereof. This Court also referred to a

passage from Paget's Law of Banking, with approval, though not

extracted. The said passage from Paget reads thus :

"In Bradford Old Bank Ltd v Sutcliffe - (1918) 2 KB 833, it

was pointed out that the contract of the surety was a

collateral, not a direct, one and that in such case demand

was necessary to complete a cause of action and set the

statute running. Moreover, bank guarantees

invariably specify that the liability of the surety is

to pay on demand, and in this connection the words are

not devoid of meaning or effect, even with reference to

this statute, as is the case with a promissory note payable

on demand, but make the demand a condition precedent

to suing the surety, so that the statute does not begin

to run till such demand has been made and not

complied with."

(Emphasis supplied)

5.5) Bradford (supra), in turn, relied on Hartland v. Jukes (1863) 1

H&C 667, wherein in the context of a continuing guarantee, it was

contended that the period of limitation would begin to run as soon as

the principal debtor becomes indebted to the Bank. The contention

was negatived by stating :

"It was contended before us that the statute began

to run from the 31st of December, 1855, by reason of

the debt of Pound 179:1:11 then due to the bank;

but no balance was then struck, and certainly no

claim was made by the bank upon the defendant's

testator (the Guarantor) in respect of that debt; and

we think the mere existence of the debt,

unaccompanied by any claim from the bank, would

not have the effect of making the statute run from

that date."

6. The trial court held that the accounts of the company with the

Bank became dormant and inoperative from 1986 and, therefore,

they ceased to be 'live accounts'. It held that a 'live account' was one

which was currently being operated at the relevant time by the

borrower/customer. The trial court further held that in view of such

cessation of operation of the accounts, it should be deemed that the

company and consequently the guarantors had refused to discharge

their obligations; that once there was such refusal by stopping

operation of the accounts, the limitation would start to run

immediately; that time which begins to run, cannot be stopped; and

that the mere fact that the demand was made by the bank much

later, that is in the year 1987, will not postpone the commencement

of running of the period of limitation. The trial court refused to accept

the contention that the limitation will start to run only when a notice

was issued by the creditor Bank, demanding payment of the amount

from the guarantors and a refusal thereof by the guarantors. The trial

court was of the view that if Bank's contention was to be accepted,

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then it would mean that the Bank, by postponing issue of a notice

making a demand, can postpone the commencement of the running

of limitation. The trial court purported to test the validity of the

Bank's contention, by reference to a hypothetical situation, where the

Bank, by not making a demand for, say 20 or 30 years, or postponing

the demand indefinitely, could postpone the commencement of

limitation indefinitely, and held that such a situation was

impermissible. It, therefore, held that the period of limitation

commenced to run from the middle of 1986 when the operation of

the accounts was stopped, and the suit filed in 1990 beyond 3 years

from the stoppage of operation of accounts was barred by time.

7. The High Court affirmed the said finding. It held that the words

'on demand' had a specific connotation in legal parlance; and that

when an amount is payable on demand, it means 'always payable'

and a 'demand' is not a condition precedent for the amount to be

paid. The High Court held that when the guarantee stated that the

guarantors were liable to pay on demand by the Bank, it meant that

the amount was payable from the moment of execution of the

guarantee and, consequently, no actual demand is necessary to make

the amount due under the guarantees. It was held that the money

became payable under the guarantee bond as soon as the guarantee

was executed. The High Court also held that when the accounts

became dormant in the middle of 1986 by non-operation and non-

payment, it should be deemed that there was a refusal to pay the

amount under the guarantees and, therefore, the suit filed on

16.3.1990 was barred by limitation, being beyond 3 years. The High

Court held that the decision in Samuel (supra) will not apply to the

Bank's suit, as this Court had stated that the limitation will not run

only if the account was a 'live account' and there was no refusal on

the part of the guarantor to carry out the obligations. It held that the

word 'live' meant that account should be operating and when an

account became dormant and inoperative, it was not a live account.

The High Court also distinguished the decision in Samuel on facts.

8. The appellant-Bank contended that the guarantees executed by

the respondents were continuing guarantees; that the guarantors had

agreed to pay the amount/s on demand by the Bank; that such a

demand was made by the Bank on the guarantors on 12.10.1987 and

17.12.1987; and that the guarantors' refusal to pay the amount

demanded is contained in their reply-letters dated 31.10.1987 and

30.12.1987; and that, therefore, the suit filed on 16.3.1990, within

three years from 31.10.1987 was in time. Reliance is placed on

Article 55 of the Limitation Act, 1963 and the decision of the Supreme

Court in Samuel (supra).

9. A guarantor's liability depends upon the terms of his contract.

A 'continuing guarantee' is different from an ordinary guarantee.

There is also a difference between a guarantee which stipulates that

the guarantor is liable to pay only on a demand by the creditor, and a

guarantee which does not contain such a condition. Further,

depending on the terms of guarantee, the liability of a guarantor may

be limited to a particular sum, instead of the liability being to the

same extent as that of the principal debtor. The liability to pay may

arise, on the principal debtor and guarantor, at the same time or at

different points of time. A claim may be even time-barred against the

principal debtor, but still enforceable against the guarantor. The

parties may agree that the liability of a guarantor shall arise at a later

point of time than that of the principal debtor. We have referred to

these aspects only to underline the fact that the extent of liability

under a guarantee as also the question as to when the liability of a

guarantor will arise, would depend purely on the terms of the

contract.

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10. Samuel (supra), no doubt, dealt with a continuing

guarantee. But the continuing guarantee considered by it, did not

provide that the guarantor shall make payment on demand by the

Bank. The continuing guarantee considered by it merely recited that

the surety guaranteed to the Bank, the repayment of all money which

shall at any time be due to the Bank from the borrower on the

general balance of their accounts with the Bank, and that the

guarantee shall be a continuing guarantee to an extent of Rs.10

lakhs. Interpreting the said continuing guarantee, this Court held that

so long as the account is a live account in the sense that it is not

settled and there is no refusal on the part of the guarantor to carry

out the obligation, the period of limitation could not be said to have

commenced running.

11. But in the case on hand, the guarantee deeds specifically state

that the guarantors agree to pay and satisfy the bank on demand and

interest will be payable by the guarantors only from the date of

demand. In a case where the guarantee is payable on demand, as

held in the case of Bradford (supra) and Hartland (supra), the

limitation begins to run when the demand is made and the guarantor

commits breach by not complying with the demand.

12. We will examine the meaning of the words 'on demand'. As

noticed above, the High Court was of the view that the words 'on

demand' in law have a special meaning and when an agreement

states that an amount is payable on demand, it implies that it is

always payable, that is payable forthwith and a demand is not a

condition precedent for the amount to become payable. The meaning

attached to the expression 'on demand' as 'always payable' or

'payable forthwith without demand' is not one of universal

application. The said meaning applies only in certain circumstances.

The said meaning is normally applied to promissory notes or bills of

exchange payable on demand. We may refer to Articles 21 and 22 in

this behalf. Article 21 provides that for money lent under an

agreement that it shall be payable on demand, the period of

limitation (3 years) begins to run when the loan is made. On the

other hand, the very same words 'payable on demand' have a

different meaning in Article 22 which provides that for money

deposited under an agreement that it shall be payable on demand,

the period of limitation (3 years) will begin to run when the demand

is made. Thus, the words 'payable on demand' have been given

different meaning when applied with reference to 'money lent' and

'money deposited'. In the context of Article 21, the meaning and

effect of those words is 'always payable' or payable from the moment

when the loan is made, whereas in the context of Article 22, the

meaning is 'payable when actually a demand for payment is made'.

13. 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

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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.

14. 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.

15. The respondents have tried to contend that when the

operations ceased and the accounts became dormant, the very

cessation of operation of accounts should be treated as a refusal to

pay by the principal debtor, as also by the guarantors and, therefore

the limitation would begin to run, not when there is a refusal to meet

the demand, but when the accounts became dormant. By no logical

process, we can hold that ceasing of operation of accounts by the

borrower for some reason, would amount to a demand by the Bank

on the guarantor to pay the amount due in the account or refusal by

the principal debtor and guarantor to pay the amount due in the

accounts.

16. In view of the above, we hold that the time began to run not

when the operations ceased in the accounts in mid-1986, but on the

expiry of 15 days from 12.10.1987 when the demand was made by

the Bank and there was refusal to pay by the guarantors. The suit

filed within three years therefrom is, therefore, in time.

17. In the view we have taken, it is not necessary to consider the

meaning of the words 'live account' used and referred to in Samuel

(supra). Suffice it to say that the interpretation by the courts below

placed on the words 'live account', that they refer to an account

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which is operational and not dormant, may not be sound. This Court

itself had indicated that 'live account' means an account that is not

settled. The use of the term 'settled' gives an indication that a 'live

account' refers to an account where the balance has not been struck

by an "account stated" or "account settled". We may in this behalf,

refer to the following observations in Bishun Chand v. Girdhari Lal &

Anr. (AIR 1934 PC 147) :

"The essence of an account stated is not the

character of the items on one side or the other but

the fact that there are cross items of account and

that the parties mutually agree the several amounts

of each and, by treating the items so agreed on the

one side as discharging the items on the other side

pro tanto, go on to agree that the balance only is

payable. Such a transaction is in truth bilateral, and

creates a new debt and a new cause of action."

"There can be account stated although the balance of

indebtedness is not throughout in favour of one side.

It is irrelevant whether the debt in favour of the final

creditor is created at the outset by one large

payment or consists of several sums of principal and

several sums of interest. Nor is it material whether

the only payments made on the other side were

simply payments in reduction of such indebtedness

or were payments made in respect of other dealings.

In any event items must be ascertained and agreed

on each side before the balance can be struck and

settled."

18. Some arguments were addressed about the Article of limitation

that would apply in respect of a suit against the guarantors. Samuel

(supra) held that in the case of refusal of a guarantor to pay the

amount, the matter would be governed by Article 115 of the Schedule

to the Limitation Act, 1908, which corresponds to Article 55 of the

Limitation Act, 1963. One of the submissions made before us was

that the term 'compensation for breach of contract' in Article 55

indicates to a claim for unliquidated damages and not to a claim for

payment of sum certain (as to what is the difference between a claim

for unliquidated damages and a claim for a sum certain or a sum

presently due, reference can advantageously be made to the classic

statement of Law by Chagla, CJ., in IRON AND HARDWARE (INDIA)

LTD., vs. FIRM SHAMLAL & BROS \026 AIR 1954 Bom. 423). If Article 55

does not apply, then a claim against a Guarantor in such a situation

may fall under the residuary Article 113 of the Limitation Act, 1963

corresponding to Article 120 of the old Act. The controversy about the

appropriate Article applicable, when the claim is found to be not

exactly for 'compensation' but ascertained sum due has been referred

to as long back as 1916 in Tricomdas Cooverji Bhoja v. Gopinath Jin

Thakur (AIR 1916 PC 183). Under the old Limitation Act (Act of

1908), the periods prescribed were different under Article 115 and

116. The periods prescribed were also different under Article 115 and

120. But under the 1963 Act, the period of limitation is the same

(three years) both under Article 55 and 113. Having regard to the

fact that the period of limitation is 3 years both under Article 55 and

Article 113, and having regard to the binding decision in Samuel

(supra), we do not propose to examine the controversy as to whether

the appropriate Article is 55 or 113. Suffice it to note that even if the

Article applicable is Article 113, the Bank's suit is in time.

19. In view of our finding that the suit is not barred by time, we

allow this appeal and, consequently set aside the judgment and

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decree of the High Court and that of the trial court. Consequently, the

suit is decreed, as prayed for, with costs.