1998 PLP 1744 (MLD)

Karachi. Subject: Resignation. Dear Sir, This refers to your Letter No. CCK: SIH 4240:88, dated 18th January, 1988. I wish to make it very clear to you that I have resigned from the directorship of the following Companies in September, 1987:-

1. Shaharyar Textile Mills Ltd.;

2. Firdous Spinning & Weaving Mills Ltd;

3. Fazal Corporation (Pvt.) Ltd.;

4. Textile Corporation of Pakistan Ltd.; Vide my Letter No.MA/PER/87/03118, dated 29th September, 1987, addressed to Mr. Muhammad Ali Khoja, General Manager, I have informed United Bank Limited about my resignation from the aforementioned companies with immediate effect. This letter was received by United Bank Limited on 29th September, 1987, and I hold a proper acknowledgement of the same. This is the official communication that I had sent to the Bank, regarding my resignation from the abovementioned companies. Your statement that the Bank had not received Official communication is incorrect. I may further state that information about my resignation was also sent to Mr. Kassim Parekh, President, Habib Bank Limited I had also informed the Pakistan Banking Council that I am not responsible for the liabilities of the aforementioned companies. All these letters have been duly acknowledged. Please note, once again, that I have resigned from the Directorship of the abovementioned companies in September, 1987, and official and proper information regarding my resignation has been sent to the Bank vide my Letter No.MA/PER/87/03118, dated 29th September, 1987, addressed to Mr. Muhammad Ali Khoja, General Manager, United Bank Limited. Best regards, Thanking you, Yours faithfully (Sd.) (MUNIR AHMED)" It is urged by the learned counsel for defendant No.3 that the cause of action for filing claim under a letter of guarantee arises when payment thereunder is demanded but the guarantor fails to respond and or when liability under a guarantee is denied. The letter dated 8-2-1988 sent by the defendant No.3, according to the learned counsel, amounted to denial of liability under the guarantee, and therefore, the cause of action, if any, had accrued to the plaintiff bank upon receipt of the said letter. According to the learned counsel a suit for enforcement of contract of guarantee being one of indemnity could be filed within three years from the denial of liability and the time for suing defendant No.3, therefore, commenced from 8-2-1988 and expired on 7-2-1991. It is further submitted that even if benefit admissible under section 6-A of the Banking Companies (Recovery of Loans) Ordinance, 1979 is afforded to the plaintiff, the suit could not be filed against defendant No. 3 after 7-2-1993. The present suit having been filed on 13-1-1994 is evidently barred h, limitation. In reply, Miss Sofia Saeed has urged that the gurantee executed by the defendant No.3 was expressly stated to be continuing guarantee and under section 130 of the Contract Act could be revoked as to future transaction alone by notice to the plaintiff. The intimation about resignation from Directorship, according to the learned counsel for the plaintiff, cannot be construed as notice under section 130 of Contract Act and the defendant No.3 therefore continued to remain liable under the terms of the guarantee executed by him. It is further pointed out that the above legal position was specifically asserted in the reply dated 18-1-1988 sent by the plaintiff-bank but the defendant No.3 chose not to revoke the guarantee executed by him and insisted on claiming discharge from liabilities on account of his having resigned as Director of the defendant No.4 company. The Directorship of a company, obviously, has no nexus with the guarantee which is executed in personal capacity. The learned counsel for the plaintiff-bank has aptly referred to the order passed in UBL v, Shahyar Textile Mills Ltd. (1996 CLC 106) by a learned Single Judge of this Court wherein similar contention based on the identical set of correspondence was considered. As already noticed, the defendant No.3 through his letter dated 29-9-1987 had informed the plaintiff-bank that he had resigned from the Directorship of defendant No.4 company and some other companies which included Shahyar Textile Mills Limited. The above-referred reported order, passed by a learned Single Judge of this Court, was based on the identical letters addressed by the defendant No.3 in relation to Shaharyar Textile Mills upon consideration whereof the following observation was made: "Section 130 of the Contract Act provides that a continuing guarantee may at any time be revoked by the surety as to future transaction by notice to the credi:ors. Ms. Sofia Saeed, submits that the words resignation' and revocation' mean totally different things and that intimation of resignation from directorship cannot possibly be construed as notice of revocation of the guarantee. Be that as it may, under section 130 a guarantee can be revoked only as to future transaction; and it is nobody's case that there were any future transactions after the defendant wrote the letters mentioned above to the plaintiff The argument, therefore, clear fails. " This brings me to the question if the above-referred letters written by the defendant No.3 amounted to denial by him of his liability under the Contract of guarantee and if such can be treated as the starting point of limitation. In my view the time for enforcement of liability under a guarantee would start from the date of revocation of guarantee under section 130 of the Contract Act or upon failure by the guarantor to make payment in pursuance of notice of demand. I would go on to say that mere denial of liability by a guarantor would not afford cause of action to the guaranteed party; the guarantor has to go a step further and assert revocation. Denial of liability or failure to make payment would give rise to cause of action only when preceded by a notice of demand. In the absence of demand notice there can neither be failure of payment nor denial of liability. The defendant No.3 in the present case did not, in any event, deny his liabilities as a guarantor but had merely intimated the plaintiff-bank that he had resigned from Directorship of defendant No.4 company and had disowned his liabilities apparently in such capacity alone. The liabilities of a Director are distinct from those of a guarantor and, therefore, I am inclined to hold that the defendant No.3 did not repudiate his liabilities as a guarantor so as to attract commencement of limitation. As to the effect of resignation from Directorship the view stated in the case of Shaharyar Textile Mills Ltd. (supra) also finds support from judgment in Habib Bank Limited. v. Cargo Despatch Company Limited and 4 others (1987 CLC 1002) and I am in agreement with the view expressed in both the above cited cases. In the circumstances, the limitations for the purpose of filing present suit, based on the personal guarantee dated 6-6-1983 did not commence on 29-8-1987 or 8-2-1988 when the defendant No.3 had intimated resignation from Directorship of defendant No.4 company. Obviously, this leads to the result that time for the present claim would start from the date of demand and in the present case filing of suit is to be deemed as such notice. Reliance for such purpose has rightly been placed by the learned counsel for the plaintiff on judgment in the case of UBL v. President Bazm-e Salat and another (PLD 1986 Kar 464). Coming to the second contention of the learned counsel for defendant No.3, it has been urged that the guarantee dated 6-6-1983 was a one time guarantee to the extent of Rs.37.5 million. It is contended that the statements of account, filed as Annexures P-12 and P-13 with the plaint, show nil entries on a couple of dates before the above-referred resignation from Directorship by the defendant No.3. According to Mr. Muhammad Ali Sayeed, the nil balance shown, as above, evidently amounts to an admission on the part of the plaintiff bank that the facility granted to the defendant No.4 was fully discharged with the result that the defendant No-.3 also stood relieved of his liability in terms of section 134 of the Contract Act. The learned counsel for the plaintiff, while repudiating the said contention has referred to the letter of guarantee and submits that it was a continuing guarantee and the defendant No.3 could not claim discharge even in the event of any variance, renewal, compounding etc. The first three clauses contained in the letter of guarantee, being relevant, are reproduced hereunder: "In consideration of your agreeing to grant advances, credit, facilities or accommodation at my/our request to Fazal Corporation Ltd. (hereinafter referred to as the customer(s). I/We (jointly and severally) hereby agree to pay and satisfy to you on demand up to Rs.37.5 million but not exceeding the sum of Rupees thirty seven and half million only all money and liabilities already advanced, paid or incurred or which you may at any time advance, pay or incur to or for the use and accommodation of or on the credit of the customer(s). (Whether on current cash credit, overdraft or loan account or by way of opening of any Letter of Credit or otherwise or by the discount of or otherwise, in respect of bills of exchange, promissory notes or other negotiable securities drawn, accepted or endorsed by the customer(s) or otherwise however) together with all interest, discount, commission and other banking charges law and other costs charges and expenses which may become payable iii connection therewith.

2. This guarantee shall be a continuing guarantee and remain in full force and effect until three calendar months after. I/each of us shall have given or sent to you motive in writing of my/our intention to discontinue and determine the same, and shall have paid to you all money upto the limit of my/our liability due at the expiration of such notice and in the event of my/all or any of us dying or becoming under disability, the liability of/our estate (s) and of my/our executors, administrators of legal representatives shall continue until the expiration of three calendar months' notice in writing to determine this guarantee shall have been given to your by my excutors, administrators or legal representatives/each of us or/by the excutors, administrator or legal representative of the person so dying or coming under legal disability and you shall be at liberty on receipt of such notice at any time within three calendar months to open, a fresh account or accounts of the customer (s) and to appropriate thereto all payments subsequently made to you by the customer (s) and not expressly appropriated by the customer (s) to the previous liabilities guarantees by me/us hereunder without prejudice to my/our liabilities to the extent aforesaid.

3. You shall in any case be at liberty, and without my/our further or knowledge at any time to grant to the customer (s) or any person liable with or for him them. Whether as guarantor or otherwise, any time or indulgence and to determine, enlarge or vary his/their credit and to vary, exchange or release any other securities held to be held by you for on account of the money intended to hereby secured or any part thereof and to renew any bills, notes or other negotiable securities and to compound or make any other arrangements with him/them or any person so liable with or for him/them as your may think fit." On the basis of the said terms, it is urged that the defendant No.3 would remain liable for the renewed facilities and the advances granted to the defendant No.4 from time to time. The contention of the learned counsel for the plaintiff is evidently justified. The defendant No.3 in view of the express terms contained in the guarantee cannot claim that it was a one time guarantee. The defendant No.4 had availed credit repeatedly and to the extent of limit mentioned in the guarantee, the defendant No.3 remains liable to indemnify the plaintiff. Mr. Maqbool Baqar representing the defendant No.2 beside adopting the arguments of Mr. Muhammad Ali Sayed, Advocate has urged that the liability of a guarantor is co-extensive with that Principal Debtor and the claim against Principal Debtor in the present case bting barred by limitation, the right to sue defendant No.2 has also extinguished. It is further urged that the facilities granted to the defendant No.4 were subsequently enhanced. As a result of fresh arrangement between the parties. The defendant No. 1 had executed fresh guarantee to secure repayment of the enhanced limit. Therefore, it is urged that the earlier contract between the plaintiff and defendant No.4 was superseded through novation with the result that the defendant No.4 stands discharged from the guarantee executed by him securing repayment, of the previous facilities. Such assertion, according to the learned counsel, is based on the principle contained in section 133 of the Contract Act. It is next contended by Mr. Maqbool Baqar that on account of the inordinate delay in filing proceedings by the plaintiff-bank, the defendant No.2 has been deprived from his remedies against the defendant No.4 company which has already been ordered to be wound up. In reply Miss Sofia Saeed, Advocate has urged that the defendant No.2 continues to be liable under the Contract of Guarantee to the extent of the amount mentioned therein until and unless the guarantee was revoked. In the present case, however, the guarantee had continued to be operative and was not revoked at any point of time. The learned counsel, in reply to the arguments based on sections 133 and 145 of the Contract Act, has referred to the findings continued in the case of UBL v. Shaharyar Textile Mills (supra) where similar contentions, raised on behalf of the defendants, were repelled with the following observations: "It is next contended that the suit cannot proceed against the defendant because defendant No.l Company has been ordered to be wound up. The argument appears to be that in view of the provisions of section 318 of the Companies Ordinance, 1984. the defendant No.4 will not be able to exercise his right under section 145 of the contract Act. I must confess that I am unable to understand the argument. Section 145 of the Contract Act provides that in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee and section 138 of the Companies Ordinance provides that an order for winding up of a company operates in favour of all the creditors and contributories of the company. If, therefore, the defendant becomes liable to pay by virtue of his guarantee, surely, he would be entitled to claim payment from the liquidator of the company." "Ms. Saeeda points out that the plaintiff was, by virtue of clause (3) of the guarantee entitled to grant time or indulgence to defendant No.

1. She submits that in view of that fact the provisions of section 133 of the Contract Act would not apply. Mr. Shamsi submits that clause (3) of the, guarantee is not valid because it violates the provisions of section 23 of the Contract Act as it is intended to defend the provisions of section 133 of the Contract Act. Section 133, as has been seen, provides that variation without the consent of the surety would have the effect of discharging surety. The guarantee admittedly contains such consent as has been contemplated in section

133. The provisions of clause (3) of the guarantee, therefore, are in pursuance of section 133 of the Contract Act and not intended to defeat them." I do not feel inclined to take a view different from that expressed in the above cited order. As regards the argument that the, claim against defendant No.2 could not be filed on account of its having become barred against Principal Debtor, reference has been made to judgment in Mirza Anwaar Ahmed v. HBL and others (1989 CLC 2441) holding as follows: "The crux of a contract of a guarantee is that it binds the surety in a co-extensive manner and he cannot insist that the debt should be recovered in the first instance from the principal debtor for whom he might have stood as surety. The choice is that of the creditor and if the creditors Bank here considered it safe to proceed against the said appellant, he cannot avoid it, section 145, C.P.C. is more than clear on the point. Of course, it will be open to Mirza Anwar Ahmed to run after the person for whom he stood surety to get the recompense, but the tripartite agreement enables the creditor to pursue his remedy against the appellant alone." Even otherwise by virtue of definition of term 'Borrower' contained in section 2(c) of Act XV of 1997, a surety or an indemnifier are independently liable under the contract of guarantee. The omission to sue the Principal Debtor or the claim against Principal Debtor having become barred by limitation, therefore, cannot afford a valid defence to a gurantor. No other argument having been urged, the two applications are dismissed. The defendant No. 1 has failed to apply for leave to defend and the suit is proceeding against defendant No.4 with permission of the learned Company Judge granted under section 316 of the Companies Ordinance on 13-10-1994. The signatures on the various documents filed in support of the plaint and the correctness of the statement of account having remained un-rebutted, the plaintiff is entitled to dercee as prayed. The defendants Nos. l, 2 and 3 having been sued as guarantors shall, however, be liable to the extent of the amount undertaken to be indemnified by them and the decree against defendant No.4 shall not be executable without permission under the Company jurisdiction. The plaintiff's suit, in the circumstances, and subject to the above, is decreed jointly as well as severally in the sum of Rs.355,405,137,82 with simple interest at the rate of 20 % per annum from the date of suit till its payment and for costs of the proceedings. H.B.T./U-31/K Suit decreed.