P L D 1975 Karachi 504 (PLP)

2. The issues adopted in this case read as follows :‑ (1) What is the amount outstanding against the defendant No. 1 in their cash credit account ? (2) Whether the guarantee given by defendants 2 to 7 covers the amount outstanding against defendant No. 1 in the said cash credit account ? (3) Whether the guarantee stands discharged by reason of variation ? (4) Whether suit or promissory note is barred by time ?

3. Issue No. 1.‑On merits the dispute between the parties is confined to interest only. The Bank claims interest 2% , above Bank rate at monthly rest while the defendants' case is that interest should have been calculated at 6% per annum simple. The mortgage deed Exh. 4/1 dated 19th June 1963, makes no mention of the interest to be charged on the principal amount to be advanced. The promissory note dated 25th June 1963, Exh. 4/2, executed by the principal debtor in favour of the guarantors and endorsed by the latter in favour of the Bank mentions interest at 2% above Bank rate with monthly rest. Form 'A' Special executed by the defendants, which is said to be contract of guarantee, doss not mention the rate of interest except that the Cash Credit Account of the principal debtor shall be made up "with interest on the daily balance thereof and otherwise in accordance with the practice of the frank and that the interest payable under the said promissory note shall be applicable to the payment and satisfaction of the interest accruing upon so much of the moneys becoming payable to the Bank in respect of the said Cash Credit as is secured by the said promissory note." The agreement between the parties dated 25th, June 1969, (Exh. 4/8) which was said to be the Cash Credit Agreement provides for interest at 6 %. A later agreement dated 10‑5‑1966 which is described as Agreement for Cash Credit provides for interest at 21 % above Bank rate minimum 71 % per annum calculated on the daily balance payable by the borrower to the Bank and charged on the last working day of each month in accordance with the practice of the Bank. The Bank claims interest 2 Y. above bank interest with monthly rest and it would appear that this claim was at least not denied by the principal debtor in the reply dated 19th November 1969 (Exh. 4/18) to the legal notice addressed to the on behalf of the Bank Exh. 4/17. The promissory note which was given as collateral security supports the Bank's claim that the agreed interest was at 2 % above Bank rate with monthly rest which also finds confirmation in Form 'A' Special Agreement Exh. 4/4. Even on a later date on 10‑51966, the principal debtor agreed to pay interest at 2 1/2 above Bank rate minimum7 1/2. with monthly rest. My conclusion, therefore, is that the rate of interest payable was 2 % above Bank rate with monthly rest and if that be correct, the learned counsel agree that the amount due and payable to the Bank as on the date of the filing of the suit inclusive of interest will come to Rs. 3,15,926.41 (Rupees three lacs fifteen thousand nine hundred twenty‑six and forty‑one paisas).

4. Issues Nos. 2 and 4.‑Mr. Fatehali W. Vellani, the learned counsel contended that the guarantors had guaranteed the promissory note dated 25th June 1963, executed by the principal debtor, in favour of the guarantors, who bad in turn endorsed it in favour of the Bank and not the amount outstanding against the principal debtor in its cash credit account with the Bank. For this purpose the learned counsel relied on Exh. 4; 4, the guarantee executed in favour of the Bank. I must with respect to the learned counsel confess my inability in appreciating this contention, which, however, need not detain me for the plea of limitation, iii support of which the aforesaid argument was advanced, is equally available to him whether or not the guarantors had guaranteed the promissory note or tae cash credit account.

5. On 25th June 1963, an agreement, Exh. 4/8, was arrived at between the plaintiff Bank and the principal debtor for advance of a loan of Rs. 2,()0,000 repayable within a period of 12 months. On the same day tile plaintiff Bank was delivered a promissory note. Exh. 4/2 for rupees two lacs executed by the principal debtor in favour of the guarantors duly endorsed by the latter in favour of the Bank. Again on the same day was executed an agreement between the Bank, the principal debtor and the guarantors which is the guarantee agreement Exh. 4/4. The agreed loan was credited in the account of the principal debtor on 25th Jane 1963. As aforesaid this loan was payable within one year i.e. up to 30‑6‑1961 but this period was thrice extended and the last extension expired on 30‑6‑1967. The present suit was, filed on 28-10‑1970, that is, more than three months after the expiry of the period of limitation but the Bank relied on two acknowledge ments of liability dated 19‑3‑1968 and 19‑11‑1969 by the principal debtor to bring within tine its suit against the guarantors. Mr. Z. C. Vellani, the learned counsel for the Bank conceded that suit against the guarantors would be barred unless the statute of limitation i9 prevented from running against guarantors by reason of the two acknowledgments made by the principal debtor. The question, therefore, that arises for consideration is whether by return of acknowledgments made by the principal debtors a fresh period of limitation is to be computed. as far as the guarantors are concerned when these acknowledgments were made. Mr. Fatehali Vellani, invited my attention to section 19 of the Limitation Act, 1908, which I quote only so much as has any possible application to the case before me:-- "Where, before the expiration of the prescribed period for a suit . . . . . in respect of any . . . . right, an acknowledgment of liability in respect of such . . . . . right has been made in writing signed by the party against whom such right is claimed or by any person through whom he derives . . . . . liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed." The above provisions must be read subject to the provisions of section 21(2) which lays down that nothing in section 19 will render one of the several joint contractors chargeable, by reason only of a written acknowledgment made by any other or others of them.

6. Mr. Fatehali W. Vellani contended that the two acknowledgments relied upon by the Bank were made by the principal debtor on his own behalf and that these neither were nor could be deemed to be on behalf of the guarantors. The learned counsel firstly relied on a case reported in A. J. Van Welfing v. D. H. Avandas & Co. (1 L R 28 Bom. 243) in which it was held that in the absence of a prohibition by a surety against payment of interest by the principal debtor on his account the payment of interest by the debtor within limitation does not give a fresh starting point for limitation against the surety. The argument that found favour with the learned Judges was that the liability of the principal debtor and the surety were two distinct liabilities of two different persons and therefore, the payment of interest by the principal debtor cannot create a new period of limitation for the surety's debt and even if the payment of interest could be regarded as a debt of the surety, still it was not made by a payment of interest on the person liable to pay the surety's debt. With reference to section 128 of the Contract which provided that the liability of surety is co‑extensive with that of the principal debtor the Court held that this section must be read together with the Limitation Act and not so as to nullify the provisions in that Act contained, limiting the time within which a suit must be brought after accrual of the cause of action. The next case relied upon is reported in Brojendro Ktsvore Roy Chowdhury v. Hindustan Co‑operative Insurance Society Ltd. (A I R 1918 Cal. 707). In this case payment of interest was made by the principal debtor with the knowledge and consent of the surety and even at his request but the Court came to the conclusion that it made no difference for the payment by the principal debtor of interest can be only in respect of the debt upon which the interest was paid, namely, the debt of the principal debtor unless the circumstances ace such as to render that the payment was on behalf of the surety. The Court came to the conclusion that the liabilities of the debtor and surety though arising out of the same transaction were distinct and the payment of interest by the principal debtor cannot extend the period of limitation for the institution of a suit for recovery of the debt of his surety, and that even if debt is deemed to be joint, section 21(2) shows that the payment by one of them (the debtor) does not extend the time against the other. As regards the application o section 128 of the Contract Act which makes the liability of the surety co‑extensive with that of the principal debtor, the Court came to the conclusion that it was of the assistance to the creditor as it must be reads along with the provisions of the Limitation Act and that section 128 defines the measure of liability and has no reference to the extinction of liability by operation of the statute of Limitation. The Calcutta High Court) reiterated this principle in a case reported in Chara Chandra Bandopadhava and another v. L. Faithful (A I R 1919 Cal. 686) where in relation to section 128 of the Contract Act it was observed that it only defines the measure of liability and has no reference to extinction of liability by operation of statute of Limitation. The same view was accepted in a case reported in sawalal vemichand v. Faale Hussaw Rajabali Bohra and another(A I R 1939 Nag. 31) where it eves held that an acknowledg ment by the principal debtor does not save limitation against the surety even when he has given a continuing guarantee unless it is shown that the latter alleged himself to be represented by the person who made the payment. The argument which found favour with the Court was that the liability of a surety must not be extended to his detriment and that the surety could not be called upon to pay time‑barred debt as he was entitled to expect that the creditor would recover payment within time and not that he should be called upon to make good items taken years previously. Nearer home the same principle is accepted by a Division Bench of the Lahore High Court in a case reported in Diyale Mal v. Nandu Shah Dev Raj and others (A I R 1931 Lah. 691).

7. There would, therefore, seem to be preponderance of the authority in favour of the view that when either a principal debtor or a surety makes a payment towards the debt he thereby starts a fresh period of limitation only for himself and not the other and it is obvious that the same principle will apply in relation to an acknowledgment by one or the other. 8. 1 may here consider the question though not raised, whether there is anything in the terms of the guarantee which may affect the guarantor's liability by reason of acknowledgments made by the principal debtor. Mr. Z.V. Vellani, the learned counsel for the Bank did mention that the expression continuing guarantee appears in the contract of guarantee Exh. 4/4 which was sought to be interpreted as liability of the guarantors to pay the amount due and payable by the principal debtor so long as the latter continues to be liable for the debt. With respect the learned counsel has not correctly understood the word continuing guarantees which means a guarantee extending to a series of transactions and is not exhausted by nor confined to a single debt or transaction. There are, however, in the guarantee the usual provisions that the granting of any time for payment or renewing of any agreement shall not have the effect of releasing the guarantee's liability or prejudicing the Bank's rights or remedies against the guarantors under the said promissory note and that the Bank will be at liberty to forbear to enforce all or any of its remedies and that no such release or forbearance shall have the effect of releasing the guarantors from their liability. These covenants in the guarantee would not only enable the plaintiff‑Bank to extend the time for payment of the loan but also to refrain from taking any action against the principal debtor as and when repayment from him becomes due and that such action or inaction will not prejudice the Bank's remedy against the guarantors.

9. In the instant case the tithe for repayment of the loan was extended up to 30‑6‑1966 and it is not the guarantors' contention that such extension has the effect of releasing them from their liability under the guarantee. What perhaps can be paid is that the Bank has here refrained from exercising its remedy against the principal debtor and that such passive inactivity will not release the guarantors under the guarantee. But then the provisions of the Limitation Act cannot either be ignored or made redundant by use of convenient expression like forbearance in a contract of guarantee. I am of the view that if it was intended to keep alive remedy against the guarantors which had by virtue of provisions contained in the Limitation Act become barred against the guarantees, then it was necessary to provide in clear terms that payment or acknowledgment by the principal debtor shall be deemed to be on behalf of the guarantors so as to satisfy the requirement of section 19 of the Limitation Act. My conclusion, therefore, is that the plaintiff's suit against the guarantors is barred by limitation.

10. Issue No. 3.‑The variation by reason of which the guarantors stood discharged according to Mr. F. W. Vellani was the alteration in the rate of interest from 2 % above Bank rate, minimum 6 % per annum with monthly rest under promissory note dated 25‑6‑1963, to 2 % above Bank rate minimum 7 1/2 in the Agreement for Cash Credit arrived at between the Bank and the principal debtor on 10‑5‑1966. No doubt that this later document does provide for an increased rate of interest but it will not discharge the guarantors for the Bank claims for interest in accordance with the promissory note and not the said agreement for Cash Credit. The variation has, therefore, not prejudiced the guarantors and, therefore, will not result in their discharge.

11. The result is that there will be against defendant No. 1 a preliminary decree for sale of the mortgaged property, in default of payment of Rs. 3,15,926.41 (Rupees three lacs fifteen thousand nine hundred twenty‑six and forty one paisas) which amount will until payment or realisation carry interest at 2% above Bank rate of interest with monthly rest. The plaintiff will also be entitled to interest from the defendant No.

1. In so far as the guarantors are concerned the suit against them is dismissed with costs. K. B. A. Suit partly decreed.