DEEPAK BHANDARIversusHIMACHAL PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED

                            [2014] 2 S.C.R. 138


A                          DEEPAK BHANDARI
                                      v.
               HIMACHAL PRADESH STATE INDUSTRIAL
                DEVELOPMENT CORPORATION LIMITED
                    (Civil Appeal No. 1019 of 2014)
~s
                            JANUARY, 29, 2014
             [K.S. RADHAKRISHNAN AND A.K. SIKRI, JJ.]

             State Financial Corporations Act, 1951: s.29 - Right to
    C   sue under contract of indemnity - Limitation period - Held:
        When the Corporation takes steps for recovery of the amount
        5y resorting to provisions of s.29 of the Act, the limitation
        period for recovery of the balance amount would start only
        after adjusting the proceeds from the sale of assets of the
    D   industrial concern as the Corporation would be in a position
        to know if there is a shortfall or there is excess amount
        realised, only after the sale of the mortgage! hypothecated
        assets - The instant case would fall under Article 55 of the
        Limitation Act, 1963 which corresponds to old Articles 115 and
1
    E   116 of the old Limitation Act, 1908 - The right to sue on a
        contract of indemnity/ guarantee arise when the contract is
        broken - Therefore, the period of limitation is to be counted
        from the date when the assets of the Company were sold and
        not when the recall notice was given - Limitation Act, 1963 -
    F   Article 55.

          Respondent no.2-company, an industrial concern
      defaulted in repayment of loan disbursed by respondent
      no.1-corporation constituted under State Development
      Corporation Act. The respondent no.2, thereafter, went
    G under liquidation. The appellant who was the director of
      the company was a Guarantor for the payment of loans
      taken by the company from the Corporation. The
      Corporation issued a recall notice dated 21.5.1990. The
                                     138
    H

                  \
  DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.          139
                CORP. LTD.
company failed to make the repayment and the                 A
Corporation proceeded under Section 29 of the State
Financial Corporations Act, 1951 to take over the
mortgaged/hypothecated assets of the company. The
assets of the company were taken over by the
Corporation and sold on 31.3.1994. Still certain amount      B
remained outstanding against the company so the
Corporation filed a suit for recovery of remaining amount
on 26.12.1994. The High Court dismissed the plea of the
appellant that the suit was time barred and decreed the
suit                                                         c
     The question for consideration in the instant appeal
was whether the limitation for filing the suit would start
on 21.5.1990, when the notice of recall was issued or the
starting point would be 31.3.1994, when the assets of the
Company were sold and the balance amount payable.            D

    Dismissing the appeal, the Court

     HELD: 1. When the Corporation takes steps for
recovery of the amount by resorting to the provisions of     E
Section 29 of State Financial Corporations Act, 1951, the
limitation period for recovery of the balance amount
would start only after adjusting the proceeds from the
sale of assets of the industrial concern as the
Corporation would be in a position to know as to whether     F
there is a shortfall or there is excess amount realised,
only after the sale of the mortgage/ hypothecated assets.
This is clear from the language of sub-Section (1) of
Section 29. It is thus clear that merely because the
Corporation acted under Section 29 of the State Financial
Corporation Act did not mean that the contract of            G
indemnity came to an end. Section 29 merely enabled the
Corporation to take possession and sell the assets for
recovery of the dues under the main contract. It may be
that only the Corporation taking action under Section 29
and on their taking possession they became deemed            H
    140      SUPREME COURT REPORTS           [2014] 2 S.C.R.


A owners. The mortgage may have come to an end, but the
  contract of indemnity, which was an independent
  contract, did not. The right to claim for the balance arose,
  under the contract of indemnity, only when the sale
  proceeds were found to be insufficient. The right to sue
B on the contract of indemnity arose after the assets were
  sold. The instant case would fall under Article 55 of the
  Limitation Act, 1963 which corresponds to old Articles 115
  and 116 of the old Limitation Act, 1908. The right to sue
  on a contract of indemnity/ guarantee would arise when
c the contract is broken. Therefore, the period of limitation
  is to be counted from the date when the assets of the
  Company were sold and not when the recall notice was
  given. [Paras 21-23] [153-C-D; 153-G-H; 154-A-D]

    ' HP Financial Corporation v. Pawana & Ors. C.A. No.
D 1971 of 1998 dated 18.2.2003 - relied on.
        Maharashtra State Financial Corporation v. Ashok K.
    Agarwal & Ors. 2006 (9) sec 617: 2006 (3) SCR 617 -
    Distinguished.
E
        Oriental Insurance Co. Ltd. vs. Smt. Raj Kumari & Ors.
    2007 (13) SCALE 113 - referred to.
                        Case Law Reference:
          2006 (3) SCR 617      Distinguished       Para 14
F
          2007 (13)-SCALE 113 Referred to           Para 16
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    1019 of 2014.
G       From the Judgment and Order dated 0406.2010 of the
    High Court of H.P. at Shimla in OSA No. 7 of 2008.
        Dhruv Mehta, P.B. Suresh, Vipin Nair, Udayaditya
    Banerjee (for Temple Law Firm) for the Appellants.
H
   DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                      141
                 CORP. LTD.
    J.S. Attri, Priyanka Bharihoke (for Rameshar Prasad                    A
 Goyal), Manish K. Bishnoi for the Respondents.

      The Judgment of the Court was delivered by

      A.K. SIKRI, J. 1. Leave granted.
                                                                           B
       2. Present appeal raises an interesting question of law
  pertaining to the starting point of limitation for filing the suit for
  recovery by the State Financial Corporations constituted under
  the State Financial Corporation Act. We make it clear at the
  outset itself that we are not treading a virgin path. There are          c
  two judgments of this Court touching upon this very issue. At
  the same time it is also necessary to point out that it has
  become imperative to clarify the legal position contained in two
-judgments and to reconcile the ratio thereof as well because
  of the reason that they are contradictory in nature. It                  D
  necessitates wider discussion in order to avoid any confusion
  in the manner such cases are to be dealt with.

      3. With the aforesaid preliminary introduction to the subject
 matter of the present appeal, we now proceed to take note of
 the facts which have led to the question of limitation that               E
 confronts·us.

       4. Respondent No. 1 viz. Himachal Pradesh State
 Industrial Development Corporation Limited (hereinafter to be
 referred as 'the Corporation') is a financial corporation under           F
 the State Development Corporation Act (hereinafter to be
 referred as the Act). It is a statutory body constituted for the
 purpose of carrying out the objectives of the Act. It is a company
 incorporated under the Companies Act, 1956, engaged in the
 business of providing financial aid to companies for setting up           G
 and commencing operations. Respondent No. 2 (hereinafter to
 be referred as the 'Company') is the industrial concern which
 defaulted in repayment of the loan disbursed by the
 Respondent No. 1. It is now under liquidation. Respondent No.
 3 is the official liquidator, who was appointed by the High Court         H
    142        SUPREME COURT REPORTS            (2014] 2 S.C.R.


A   of Delhi for the purposes of winding up the Company.
    Respondent Nos. 4 & 5 were the Directors of the Company at
    the time of entering into the loan agreements with the
    Corporation.

         5. The appellant who was also a director of the Company,
8
    was a Guarantor for the payment of loans taken by the Company
    vide loan agreements executed between Corporation and the
    Company. The following loan agreements were executed along
    with the corresponding amounts and guarantees:

c       Loan Agreement        Amount       Deed of Guarantee
       ·Date                                Date

       5.6.1985               20.67 lacs    5.6.1985

D      7.4.1986                8.73 lacs    7.4.1986

       24.11.1986             15.38 lacs    24.11.1986

       28.7.1987               7.76 lacs
E      Total                  52.54 lacs

         6. The Company defaulted on the repayments of the loan
    amount disbursed to it by the Corporation. The Corporation
    issued a Recall Notice bearing No. PAC 84/ 90/ 6705 dated
F   21.5.1990 recalling an amount of Rs. 77,35,607/-(Rupees
    seventy seven lakhs thirty five thousand six hundred and seven
    only) plus further interest to be accrued from 10.9.1990.
       7. The Company failed to make the repayment and
  accordingly the Corporation, proceeded under Section 29 of
G the State Financial Corporations Act, 1951 to take over the
  mortgaged/ hypothecated assets of the Company. The assets
  of the Company were taken over by the Corporation on
  10. 7.1992. The mortgaged/ hypothecated assets of the
  Company were sold by the Corporation on 31.3.1994 for a sum
H of Rs. 96,00,000/- (Rupees Ninety Six Lakhs or.ly) by inviting
  DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                143
          CORP. LTD. [A.K. SIKRI, J.]
offers by means of publishing advertisements in the leading         A
newspapers.

     8. Since the company was also indebted to HP Financial
Corporation, amount realised from the sale of the company's
assets was apportioned between these two secured creditors.         8
After adjusting the sale proceeds against the outstanding debts
of the Company, in proportion to the term loans advanced by
the Corporation and Himachal Pradesh Financial Corporation;
a sum of Rs. 68,96,564/- (Rupees Sixty Eight Lakhs Ninety Six
Thousand Five Hundred and Sixty Four only) still remained           C
outstanding against the Company.

    9. The Corporation preferred a Civil Suit No. 85 of 1995
on 26.12.1994 titled as Himachal Pradesh State Industrial
Development Corporation Limited v. M/s RKB Herbals Pvt. Ltd
and Ors., for recovery of sum of Rs. 30,60,732/- (Rupees Thirty     D
Lakhs Sixty Thousand Seven Hundred and Thirty Two only). The
sum above mentioned was calculated as follows by the
Corporation:

                Recoverable amount on 31.5.1994                     E
    Principal Amount (Rs./-)                 5, 16,582

     Interest                               63,79,982

    Total                                   68,96,564
                                                                    F
     Less Penal Interest                    38,35,832
    Net Amount for which suit was filed     30,60,732
      10. The Civil Suit No. 85 of 1995 was decreed in favour
of the Corporation vide judgment and decree dated 6.6.2008          G
passed by the Single Judge of the High Court of Himachal
Pradesh, granting a decree of Rs. 30,60,732/- (Rupees Thirty
Lakhs Sixty Thousand Seven Hundred and Thirty Two only)
along with interest at the rate of 12% from the date of filing of
suit till the realization of the said amount.                       H
    144      SUPREME COURT REPORTS               [2014] 2 S.C.R.


A      11. Before the learned Single Judge of the High Court a
  plea was taken by the defendants, including the appellant
  herein, that the suit was time barred as it was filed beyond the
  period of 3 years from the date of commencement of limitation
  period. To appreciate this plea we recapitulate some relevant
B dates:

          Date                     Event

      21.5.1990     Recall notice sent by the Corporation, recalling
                    the outstanding amount.
c
      10.7.1992     Mortgage/ hypothecated assets of the
                    Company taken over by the Corporation.

      31.3.1994     The Mortgage/ hypothecated assets of the
D                   Company sold by the Corporation.

      21.5.1994     Notice issued to all the three Directors of the
                    Company for payment of outstanding amount.

E     26.12.1994 Suit for recovery of the balance outstanding
                 filed by the Corporation.

        12. As per the defendants cause of action for filing the
  recovery suit arose on 21.5.1990 when recall notice was issued
  by the Corporation to the Company and the Guarantors.
F Therefore, the suit was to be filed within a period of 3 years
  from the said date and calculated in this manner, last date for
  filing the suit was 20.5.1993. It was, thus, pleaded that the suit
  filed on 26.12.1994 was beyond the period of 3 years from
  21.5.1990 and, therefore, the same was time barred. The
G Corporation, on the other hand, contended that action for selling
  the mortgage/ hypothecated properties of the Company was
  taken under the provisions of Section 29 of the Act and the sale
  of these assets were fructified on 21.3.1994. It is on the
  realization of sale proceeds only, the balance amount payable
H
   DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                  145
           CORP. LTD. [A.K. SIKRI, J.]
by the guarantors could be ascertained. Therefore, the starting       A
point for counting the limitation period is 31.3.1994 and the suit
filed by the Corporation on 26.12.1996 was well within the
period of limitation.

       13. The learned Single Judge deciding in favour of the         8
  Corporation, held the suit to be well within limitation. The suit
 was decreed against all the defendants including the appellant
  herein, holding them to be jointly and severely liable to pay the
  decretal amount. The appellant herein preferred an intra court
  appeal against the judgment and decree dated 6.6.2008. The          C
  Division Bench has also negatived the contention of the
  appellant affirming the finding of the single Judge and holding
. the suit to be within limitation.

      14. We have already taken note of the stand of the parties
on either side. It is apparent from the above that the main issue     D
is as to whether the limitation for filing the suit would start on
21.5.1990, when the notice of recall was issued or the starting
point would be 31.3.1994, when the assets of the Company
were sold and the balance amount payable (for which suit is
filed) was ascertained on that date. We have already pointed          E
out in the beginning that there are two judgments of this Court
which have dealt with the aforesaid issue. First judgment is
known as Maharashtra State Financial Corporation. v. Ashok
K. Agarwal & Ors. 2006 (9) SCC 617. In that case the appellant
Maharashtra State Financial Corporation had sanctioned Rs.            F
5 lakhs in favour of a Company. The Respondents were
directors of the said borrower company and stood sureties for
the loan. When the company failed to repay the loan, a notice
dated 8.3.1983 was issued calling upon the borrower to repay
its due. On 25.10.1983, an application under Ss. 31 and 32 of         G
the State Financial Corporations Act, 1951 was filed by the
Corporation. On 11.6.1990 the attached properties of the
 borrower company were put to sale. There was a shortfall in
the amount realised and hence notices dated 27 .1.1991 were
 sent to respondent sureties claiming Rs. 16,79,033 together          H
    146      SUPREME COURT REPORTS               [2014] 2 S.C.R.


A with interest at the rate of 14.5.% p.a. On 2.1.1992 the appellant
  Corporation filed an application under Section 31 (1 )(aa) of the
  Act for recovery of the said balance amount. The respondent
  took various objections including that of limitation, contending
  that Article 137 of the Limitation Act was applicable and not
B Article 136. 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
c limitation is prescribed for an application under Sections 31 and
  32 of the Act, Article 137 would apply. The additional 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
D 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 22. 7 .1998. The High Court upheld the
  reasoning of the Additional District Judge. This Court affirmed
  the order of the High Court holding that Article 137 of the
   Limitation Act would apply and the suit was to be filed within a
E period of three years. Contention of the Financial Corporation
   predicating its case on Article 136 of the Limitation Act on the
   ground that application under Section 138 was in the nature of
  execution proceedings and, therefore, period of 12 years for
   execution of the decrees is available to the Financial
F Corporation, was repelled by the Court. The Court categorically
   held that Section 31 of the Act only contains a legal fiction and
   at best refer to the procedure to be followed, but that would not
   mean that there is a decree or order of a Civil Court, stricto
   sensu, which is to be executed, in as much as there is no
G decree or order of the Civil Court being executed.

         15. From the reading of the aforesaid judgment, one thing
   is clear. The Court was concerned with the proceedings under
 . Section 31 of the Act and the issue was as to whether limitation
H period would be 3 years as per Article 137 of the Limitation
 DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                 147
         CORP. LTD. [AK. SIKRI, J.]

Act or it would be 12 years as provided under Article 136 of A
the Limitation Act. While dealing with that issue the Court, in
the process also dealt with the nature of proceedings under
Section 31 of the Act namely whether this would be in the nature
of a suit or execution of decree. The Court answered by holding
that for such proceedings Article 137 of the Limitation Act would B
apply meaning thereby, period of limitation is 3 years. From the
reading of this judgment, it becomes abundantly clear that the
issue to which would be the starting date for counting the period
of limitation, was neither raised or dealt with. Obviously,
therefore, there is no discussion or decision on this aspect in c
the said judgment. ,

     16. We would like to refer to the law laid down by this Court
in Oriental Insurance Co. Ltd. vs. Smt. Raj Kumari and Ors.;
2007 (13) SCALE 113. In the said case, well known proposition,
namely, it is ratio of a case which is applicable and not what D
logically flows therefrom is enunciated in a lucid manner. We
would like to quote the following observations therefrom:-

    10. Reliance on the decision without looking into the factual
    background of the case before it is clearly impermissible.      E
    A decision is a precedent on its own facts. Each case
    presents its own features. It is not everything said by a
    Judge while giving a judgment that constitutes a precedent.
    The only thing in a Judge's decision binding a party is the
    principle upon which the case is decided and for this           F
    reason it is important to analyse a decision and isolate
    from it the ratio decidendi. According to the well-settled
    theory of precedents, every decision contains three basic
    postulates - (i) findings of material facts, direct and
    inferential. An inferential finding of facts is the inference   G
    which the Judge draws from the direct," or perceptible
    facts; (ii) statements of the principles of law applicable to
    the legal problems disclosed by the facts; and (iii) judgment
    based on the combined effect of the above. A decision is
    an, authority for what it actually decides. What is of the      H
    148       SUPREME COURT REPORTS                [2014] 2 S.C.R.


A         essence in a decision is its ratio and not every observation
          found therein nor what logically flows from the various
          observations made in the judgment. The enunciation of the
          reason or principle on which a question before a Court has
          been decided is alone binding as a precedent.(See: State
B         of Orissa v. Sudhansu Sekhar Misra and Ors. ( 1970) ILLJ
          662 SC and Union of India and Ors. v. Dhanwanti Devi
          and Ors. (1996) 6   sec    44. A case is a precedent and
          binding for what it explicitly decides and no more. The
          words used by Judges in their judgments are not to be read
c         as if they are words in Act of Parliament. In Quinn v.
          Leathern (1901) AC 495 (H.L.), Earl of Halsbury LC
          observed that every judgment must be read as applicable
          to the particular facts proved or assumed to be proved,
          since the generality of the expressions which are found
          there are not intended to be exposition of the whole law
D
          but governed and qualified by the particular facts of the
          case in which such expressions are found and a case is
          only an authority for what it actually decides.

           11.Courts should not place reliance on decisions without
E         discussing as to how the factual situation fits in with the
          fact situation of the decision on which reliance is placed.
          Observations of Courts are neither to be read as Euclid's
          theorems nor as provisions of the statute and that too taken
          out of their context. These observations must be read in
F         the context in which they appear to have been stated.
          Judgments of Courts are not to be construed as statutes.
          To interpret words, phrases and provisions of a statute, it
          may become necessary for judges to embark into lengthy
          discussions but the discussion is meant to explain and not
G         to define. Judges interpret statutes, they do not interpret
          judgments. They interpret words of statutes; their words are
          not to be interpreted as statutes. In London Graving Dock
          Co. Ltd.v. Horton 1951 AC 737 Lord Mac Dermot
          observed:
H
  DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.               149
          CORP. LTD. [A.K. SIKRI, J.]
    The matter cannot, of course, be settled merely by treating    A
    the ipsissima vertra of Willes, J as though they were part
    of an Act of Parliament and applying the rules of
    interpretation appropriate thereto. This is not to detract
    from the great weight to be given to the language actually
    used by that most distinguished judge.                         B

The aforesaid principle was reiterated in Government of
Karnataka and Ors. vs. Smt. Gowramma and Ors. 2007 (14)
SCALE 613, wherein, the Court observed as under:-

    "10. Courts should not place reliance on decisions without     C
    discussing as to how the factual situation fits in with the
    fact situation of the decision on which reliance is placed.
    Observations of Courts are neither to be read as Euclid's
    theorems nor as provisions of the statute and that too taken
    out of their context. These observations must be read in       D
    the context in which they appear to have been stated.
    Judgments of Courts are not to be construed as statutes.
    To interpret words, phrases and provisions of a statute, it
    may become necessary for judges to embark into lengthy
    discussions but the discussion is meant to explain and not     E
    to define. Judges interpret statutes, they do not interpret
    judgments. They interpret words of statutes; their words are
    not to be interpreted as statutes. In London Graving Dock
    Co. Ltd. vs. Horton 1951 AC 737, Lord Mac Dermot
    observed:                                                      F

    The matter cannot, of course, be settled merely by treating
    the ipsissima vertra of Willes, J as though they were part
    of an Act of Parliament and applying the rules of
    interpretation appropriate thereto. This is not to detract
    from the great weight to be given to the language actually     G
    used by that most distinguished judge."

    17. Other case of this Court, which is relied upon by the
High Court as well, is the decision dated 18.12.2003 in C.A.
No. 1971 of 1998 titled as HP Financial Corporation v.             H
    150       SUPREME COURT REPORTS                 [2014) 2 S.C.R.


A   Pawana & Ors. In that case recall notice was given to the
    defaulting Company on 4.1.1977; possession of mortgage/
    hypothecated assets of the Company was taken over on
    25.10.1982 in exercise of powers under Section 29 of the Act;
    these assets were sold on 29.3.1984 and 14.3.1985; notice
B   for payment of balance amount was issued to the guarantors
    on 22.5.1985 and suit for recovery of the balance amount was
    filed on 15.9.1985.

         18. A single Judge of the Himachal Pradesh High Court
C   held that the period of limitation for such a suit started after the
    sale and when balance was found due and, therefore, suit was
    within the period of limitation. However, when the suit reached
    hearing before another Judge of the High Court he disagreed
    with the earlier view and referred the matter to a larger Bench.
    The Division Bench of the High Court answered the question
D   by holding that the suit for balance amount was filed as a result
    Of the non- payment of debt by the principle debtor which was
    the date when cause of action arose. Therefore, the suit should
    have been filed within 3 years from the date of recall notice.
    The suit was, thus, dismissed as time barred. This Court
E   reversed the judgment of the High Court. While doing so, it
    referred to clause 7 of the mortgage deed which was to the
    following effect:           ·

          "Without prejudice to the above rights and powers
F         conferred on the Corporation by these presents and by
          Section 29 and 30 of the State Financial Corporations Act,
          1951, and as amended in 1956 and 1972 and the special
          remedies available to the Corporation under the said Act,
          it is hereby further agreed and declared that if the partners
          of the industrial concern fail to pay the said principal sum
G
          with interest and other moneys due from him under these
          rpesents, to the Corporation in the manner agreed, the
          Corporation shall be entitled to realise tis dues by sale of
          the mortgaged properties, the said fixtures and fittings and
          other assets, and if the sale proceeds thereof are
H
  DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                 151
          CORP. LTD. [A.K. SIKRI, J.]

    insufficient to satisfy the dues of the Corporation, to          A
    recover the balance from the partners of the industrial
    concern and the other properties owned by them though
    not included in this security." (emphasis supplied).

      19. On the basis of the aforesaid clause the Court found       B
fault with the approach of the High Court in as much as clause
7 specifically provided that the Corporation could filed recovery
proceedings against the partners of the Industrial concern if the
sale proceeds of the assets of the industrial concern were
insufficient to satisfy the dues of the Corporation.
                                                                     c
      20. Mr. Dhruv Mehta, learned Senior Counsel appearing
for the appellant tried to distinguish this judgment by vehemently
arguing that the aforesaid case was based on interpretation of
clause 7 of the mortgage deed which was executed between
the parties and in the present case such a clause is                 D
conspicuously absent. Had the judgment of this Court rested
solely on clause 7 of the mortgage deed, the aforesaid
argument of Mr. Dhruv Mehta would have been of some
credence. However, we find that the Court also specifically
discussed the issue as to when right to sue on the indemnity         E
would arise and specific answer given to this question was that
it would be only after the assets were sold of. The judgment was
also rested on another pertinent aspect viz. since the mortgage
deed was executed, the period of limitation would be 12 years
if a mortgage suit was to be filed. Following discussion in the      F
said judgment on this aspect squarely answers the contention
of the learned Senior Counsel for the appellant:

     "Whilst considering the question of limitation the Division
     Bench has given a very lengthy judgment running into
     approximately 50 pages. However they appear to have not         G
     noticed the fact that under Clause 7 an indemnity had been
     given. Therefore, the premise on which the judgment
     proceeds i.e. that the loan transaction and the mortgage
     deed, are one composite transaction which was
                                                                     H
     152       SUPREME COURT REPORTS                  [2014] 2 S.C.R.


A          inseparable is entirely erroneous. It is settled law that a
           contract of indemnity and/ or guarantee is an independent
           and separate contract from the main contract. Thus the
           question which they required to address themselves, which
           unfortunately they did not, was when does the right to sue
B          on the indemnity arose. In our view, there can be only one
           answer to this question. The right to sue on the contract of
           indemnity arose only after the assets were sold off. It is
           only at that stage that the balance due became
           ascertained. It is at that stage only that a suit for recovery
c          of the balance could have been filed. Merely because the
           Corporation acted under Section 29 of the Financial
           Corporation Act did not mean that the contract of indemnity
           came to an end. Section 29 merely enabled the
           Corporation to take possession and sell the assets for
           recovery of the dues under the main contract. It may be that
-D
           on the Corporation taking action under Section 29 and on
           their taking possession they became deemed owners. The
           mortgage may have come to an end, but the contract of
           indemnity, which was an independent contract, did not. The
           right to claim for the balance arose, under the contract of
E          indemnity, only when the sale proceeds were found to be
           insufficient.

                  In this case, it is an admitted position that the sale
           took place on 28.1.1984 and 14.3.1985. it is only aft~r this
F          date that the question of right to sue on the indemnity
           (contained in Clause 7) arose. The suit having been filed
           on 15.9.1985 was well within limitation. Therefore, it was
           erroneous to hold that the suit was barred by the law of
           limitation.
G
                  Even otherwise, it must be mentioned that the
           Division Bench was in error in stating that the right to
           personally recover the balance terminates after the expiry
           of three years. It must be remembered that the question
           of recovery of balance will only arise after the remedy in
H
   DEEPAK BHANDARI v. H.P. STATE INDUST. DEV.                 153
           CORP. LTD. [A.K. SIKRI, J.]
      respect of the mortgage deed has first been exhaustive. If      A
      a mortgage suit was to be filed. the period of limitation
      would be 12 years. Of course, in such a suit, a prayer can
      also be made for a personal decree on the sale proceeds
      being insufficient. Even though such prayer may be made,
      the suit remains a mortgage suit. Therefore, the period of      B
      limitation in such cases will remain 12 years". [Emphasis
      Supplied]

       21. We thus, hold that when the Corporation takes steps
  for recovery of the amount by resorting to the provisions of        C
  Section 29 of the Act, the limitation period for recovery of the
  balance amount would start only after adjusting the proceeds
  from the sale of assets of the industrial concern. As the
. Corporation would be in a position to know as to whether there
  is a shortfall or there is excess amount realised, only after the
  sale of the mortgage/ hypothecated assets. This is clear from       D
  the language of sub-Section (1) of Section 29 which makes the
  position abundantly clear and is quoted below:

      "Where nay industrial concern, which is under a liability to
      the Financial Corporation under an agreement, makes any         E
      default in repayment of any loan or advance or any
      installment thereof or in meeting its obligations in relation
      to any guarantee given by the Corporation or otherwise
      fails to comply with the terms of its agreement with the
      Financial Corporation, the Financial Corporation shall have     F
      the right to take over the management or possession or
      both of the industrial concern, as well as the right to
      transfer by way of lease or sale and realise the property
      pledged, mortgaged, hypothecated or assigned to the
      Financial Corporation."
                                                                      G
       22. It is thus clear that merely because the Corporation
  acted under Section 29 of the State Financial Corporation Act
· did not mean that the contract of indemnity came to an end.
  Section 29 merely enabled the Corporation to take possession
  and sell the assets for recovery of the dues under the main         H
    154       SUPREME COURT REPORTS                [2014] 2 S.C.R.


A contract. It may be that only the Corporation taking action under
  Section 29 and on their taking possession they became
  deemed owners. The mortgage may have come to an end, but
  the contract of indemnity, which was an independent contract,
  did not. The right to claim for the balance arose, under the
B contract of indemnity, only when the sale proceeds were found
  to be insufficient. The right to sue on the contract of indemnity
  arose after the assets were sold. The present case would fall
  under Article 55 of the Limitation Act, 1963 which corresponds
  to old Articles 115 and 116 of the old Limitation Act, 1908. The
c right to sue on a contract of indemnity/ guarantee would arise
  when the contract is broken.

         23. Therefore, the period of limitation is to be counted from
    the date when the assets of the Company were sold and not
    when the recall notice was given.
D
         24. The up-shot of the aforesaid discussion is to hold that
    the present appeal is bereft of any merits. Upholding the
    judgment of the High Court, we dismiss the instant appeal, with
    costs.
E
    D.G.                                         Appeal dismissed.