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CASE NO.: Appeal (civil)  3727 of 1999

PETITIONER: Maharashtra State Financial Corporation                          

RESPONDENT: Ashok K. Agarwal & Ors.                                       

DATE OF JUDGMENT: 30/03/2006

BENCH: Arun Kumar & R.V. Raveendran

JUDGMENT: JUDGMENT

ARUN KUMAR, J.

       The appellant Maharashtra State Financial Corporation (hereinafter  referred to as ’the Corporation’) had sanctioned a loan of Rupees Five lakhs  in favour of M/s. Crystal Marketing Private Limited on 14th November,  1978.  The respondents in the present appeal were Directors of the said  borrower and stood sureties for the loan.  The amounts under the said loan  were disbursed to M/s. Crystal Marketing Private Limited from time to time  in the year 1979.  The company however failed to repay the loan amounts.  The Corporation issued various letters calling upon the borrower to clear its  dues.  Ultimately, the Corporation got a legal notice dated 8.3.1983 issued  calling upon the borrower to repay the entire amounts due.  On 25th October,  1983, the Corporation moved an application under Sections 31 and 32 of the  State financial Corporation Act, 1951in the Court of the District Judge,  North Goa, Panaji.  The appellant Corporation prayed for an order of sale of  the hypothecated property of the borrower company so that the sale proceeds  could be appropriated towards meeting the outstanding liability of the  borrower towards the appellant.  On 11th June, 1990 the attached properties  of the borrower company were put to sale.   Because there was a shortfall in  the amount realized on sale of the hypothecated property, the appellant- Corporation sent notices on 27th December, 1991 to the sureties, that is, the  respondents in this appeal.  An amount of Rs.16,79,033/- was claimed as due  from the  sureties together with interest at the rate of 14.5% per annum.  On  2nd January, 1992, the appellant-Corporation filed an application under  Section 31 (1) (aa) of the State Financial Corporation Act against the  respondents for steps for recovery of the amount due.  The respondents took  various objections against the application and the reliefs prayed therein  including that the application was barred by limitation.  The learned  Additional District Judge vide his order dated 16th April, 1994 upheld the  objection regarding the application being barred by limitation.  The  application was accordingly dismissed.

       According to the respondents Article 137 of the Limitation Act was  applicable and as per that provision such an application could be made  within a period of three years.  Article 137 applies in cases where no period  of limitation is specifically prescribed.  It was submitted that as no period of  limitation is prescribed for an application under Sections 31 and 32 of the  Act, Article 137 would apply.  The Addl. District Judge upheld the  contention of the respondents and the application of the Corporation was  dismissed as barred by limitation.  The appellant Corporation filed an appeal  against the said order in the High Court of Judicature at Bombay, Bench at  Panaji.  The appeal was dismissed by the High Court by the impugned order  dated 22nd July, 1998.  The High court upheld the reasoning of the  Additional District Judge.

       The learned counsel for the appellant placing reliance on Article 136  of the Limitation Act argued that the said Article prescribes a limitation

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period of twelve years in cases of execution of decrees and orders passed by  civil courts and therefore, the courts below erred in rejecting the application  as barred by limitation.   Article 136 is reproduced  below:   "Description of application             Period of limitation    Time from which period                                                                          begins to run

136.    For the execution of any decree Twelve years            When the decree or order         (other than a decree granting a                                 becomes enforceable  or          mandatory injunction) or order                          where the decree or any         of any civil court.                                             subsequent order dir ects                                                                          any payment of money  or                                                                         the delivery of any  property                                                                         to be made at a cert ain date                                                                         or at recurring peri ods,                                                                          when default in maki ng the                                                                          payment or delivery  in                                                                          respect of which exe cution                                                                         is sought, takes pla ce:

                                                                       Provided that an app lication                                                                          for the enforcement  or                                                                         execution of a decre e granting                                                                         a perpetual injuncti on shall not                                                                         be subject to any pe riod of                                                                         limitation."

The argument is that an application under section 31 is in the nature of  execution proceedings, therefore, Article 136 applies which allows a period  of twelve years for execution of decrees and orders and the application was  thus within time.  It was submitted that the courts have upheld the legal  fiction that applications under Section 31 of the State Financial Corporation  Act are treated in the nature of execution proceedings.  In support of this  submission the learned counsel referred to  Gujarat State Financial  Corporation v. M/s. Natson Manufacturing Co.(P) Ltd. & Ors. 1979 (1)  SCR 372.   It was observed by this Court in this case that "the substantive  relief in an application under Section 31 (1) is something akin to an  application for attachment of property in execution of a decree at a stage  posterior to the passing of the decree."         Sections 31 of the Act contains special provisions for  enforcement of  claims by State Financial Corporations.  It is by way of a legal fiction that  the procedure akin to execution of decrees under the Code of Civil  Procedure has been permitted to be invoked.  But one cannot lose sight of  the fact that there is no decree or order of a civil court when we are dealing  with applications under Section 31 of the Act.  The legal fiction at best refers  to a procedure to be followed.  It does not mean that a decree or order of a  civil court is being executed, which is a sine qua non for invoking Article  136.  The proposition set out in the case of Gujarat State Financial  Corporation (supra) found support in M/s. Everest Industrial Corporation  and Others v. Gujarat State Financial Corporation 1987 (3) SCC 597.  

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Again in Maganlal etc. vs. Jaiswal Industries Neemach & Ors. 1989 (3)  SCR 696 this court noticed that an order under Section 32 is not a decree  stricto sensu as defined in Section 2(2) of the Code of Civil Procedure, the  financial Corporation could not be said to be a decree holder.  This makes it  clear that while dealing with an application under Sections 31 and 32 of the  Act there is no decree or order of a civil court being executed.  It was only  on the basis of a legal fiction that the proceedings under Section 31 are  treated as akin to execution proceedings.  In fact this Court has observed that  there is no decree to be executed nor there is any decree holder or judgment  debtor and therefore in a strict sense it cannot be said to be a case of  execution of a decree.  Article 136 of the Limitation Act has no application  in the facts of the present case.   Article 136 specifically uses the words  "decree or order of any civil court".  The application under Sections 31 and  32 of the State Financial Corporation Act is not by way of execution of a  decree or order of any civil court. Article 137 of the Limitation Act applies in the facts of the present  case.  When Article 137 is applied, the application moved by the appellant- Corporation on 2nd January, 1992 for proceeding against the sureties i.e. the  respondents herein, was clearly barred by time and the courts below were  correct in holding so.  To recall the facts of the present case, the notice  demanding repayment of the amount of loan was issued against the  borrower, that is, M/s. Crystal Marketing Private Limited on 8th March, 1983  and the application under Sections 31 and 32 of the State Financial  Corporation was filed against the said borrower on 25th October, 1983.  The  liability of sureties had crystalised then.   The amendment under Section 31 of the State Financial Corporation  Act which authorises the State Financial Corporations to take action under  Section 31 of the Act for enforcing the liability against the sureties, was  brought about in the year 1985 by introduction of sub-section (aa) in Section  31 (1) of the Act.  Even after this amendment the appellant did not wake up to  take any step against the sureties in the present case.  Notice was issued to the  sureties only on 7th December, 1991 and the application for enforcement of  liability against them was filed on 2nd January, 1992.  The application,  therefore, was clearly barred by time and the decisions of the courts below  cannot be faulted.  The courts below rightly dismissed the application on the  ground that it was barred by limitation.  The appeal has no merit.  It is  dismissed with no order as to costs.  Before parting with the judgment we would like to place on record that  since the respondents were not represented in the case, we requesterd Sh.  Ashok Grover, Senior Advocate, to assist the court as amicus curiae.  We  record our appreciation of the services rendered by Shri Grover in this behalf