S.S. Jha, J.@mdashThis appeal is filed by the appellant Bank on the ground that the trial Court has erred in dismissing the suit against the guarantor on the ground of limitation. Counsel for the appellant submitted that dismissal of the suit against the guarantor as barred by limitation is bad in law. Counsel for the appellant invited attention to para 67 of the judgment of the trial Court wherein it is held that suit is within limitation against defendants 1 to 3 as they have acknowledged their liability u/s 18 of the Limitation Act. But this acknowledgement is not binding upon defendant Nos. 4 and 5 guarantors. Guarantors are not bound by the acknowledgement of debtor and suit against guarantor has been dismissed.
2. Brief facts of the case are that the defendants 1 to 3 had executed documents on 12.9.1980, 11/2/1981 and 11.1.1983 accepting their liability on 11.1.1983 and 19.1.1983. Suit was on 10th June, 1984.
3. Only question involved in this appeal is whether the guarantor is bound by the acknowledgement of the borrower.
4. Counsel for the appellant invited attention to the document Ex. P/12 Agreement of Guarantee. In para 9 of the aforesaid document, liability of the guarantor is mentioned. On perusal of para 9, it is apparent that guarantor has agreed that any balance or debts confirmed by the borrower or his authorised agent or any admission of acknowledgement of liability concerning the same by the borrower or his authorised agent it will be deemed to be acknowledgement of guarantors. He submitted that once the trial Court has recorded finding that the borrowers had acknowledged their liability and are ready to pay the same, then guarantor is bound by the said acknowledgement.
5. Counsel for the respondents submitted that document Ex. P/12 does not mention rate of interest and the column is kept blank in the form, therefore, guarantor has not agreed to pay the interest. He submitted that in the document, there are number of blank portions where rate of interest is not mentioned. In the said facts of the case, guarantor is not bound by the act of principal borrower and period of limitation will not extend against him.
6. As regards document Ex. P/12 Agreement of Guarantee is concerned, it is clearly mentioned in the agreement that the guarantor has stood surety for the loan of principal borrower. There is nothing in this document where rate of interest is mentioned. Para 1 of the document itself provides that in consideration of the Bank allowing at the request of the Guarantors an accommodation to the borrower on terms and conditions contained in the loan document, the guarantor agrees with the Bank. Therefore, guarantor has agreed to repay the debt on the terms and conditions contained in the loan document. Ex. P/11 is the document of hypothecation of goods to secure a demand cash credit. In this document, after para 9 modification of interest clause in place of Clause 10 has been included wherein rate of interest is mentioned. Ex. P/8 is the document of hypothecation of assets to/secure term loans wherein rate of interest is mentioned in para 13. It is not the case of the guarantor that he has not understood the loan agreement. Guarantor has agreed to stand surety and his act is governed by Section 128 of the Indian Contract Act. This section provides that the act of surety is co-extensive with that of principal debtor unless it is otherwise provided by the contract. Section 129 provides that the guarantee which extends to a series of transaction is called a "continuing guarantee". In the agreement itself three transactions are involved, therefore, guarantee of the guarantor was in the nature of continuing guarantee.
7. Counsel for the respondents submitted that any acknowledgement of subsequent agreement creates a new contract whereby separate mode of payment is mentioned and previous agreement is not referred in the subsequent agreement whereby rate of interest is changed, such agreement does not amount to acknowledgement by the third party, but it is between borrower and the Bank and the period of limitation cannot extend against the guarantor as held in the case of Vimla Pradhan (Smt.) v. U.C. Bank 1991 MPLJ 344. Then he referred to the judgment in the case of Motilal v. Thakur Kanak Bhavan 1962 MPLJ SN 121, wherein it is held that acknowledgement or payment by the debtor cannot extend limitation against surety. For the same principle, he referred to the judgment in the case of Nandlal v. United Commercial Bank 1989 MPJR 38. In this judgment, it is also held that acknowledgement of debt by principal debtor does not save limitation against surety,
8. However, this question has recently been considered by the Apex Court in the case of Kailash Nath Agrawal v. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. II (2003) BC 296 (SC):II (2003) SLT 81:(2002) 4 SCC 305. While Considering the scope of Section 128 of the Indian Contract Act, it is held In para 10 of the judgment that considering the clause of the guarantee executed by the guarantor in favour of the borrower it shows that the liability of the guarantors was to remain unaffected by the failure of the borrower. It further provides that borrower and guarantor are jointly and severally liable u/s 128 of the Contract Act.
9. In this case, borrower had entered into an agreement. In the present case, on going through Clause 19 of the agreement of guarantee (Ex. P/12) it is apparent that acknowledgement of debt by borrower will be binding upon the guarantor. As such, judgment and decree passed by the Trial Court holding therein that suit against the guarantor is barred by limitation is set aside and it is held that the guarantor is jointly and severally liable with the borrower to pay the debt to the appellant-Bank.
10. In the result, judgment and decree passed by the trial Court is modified and it is held that defendants are jointly and severally liable to pay the dues to the appellant Bank. Decree is modified accordingly. Appeal succeeds and is allowed with costs to be borne by the guarantors i.e. respondents 4 and 5.
