The plaintiff-appellant is a public limited company carrying on a business of extending hire purchase facilities for commercial vehicles. The plaintiff and the first defendant had entered into an agreement dated 20.09.1983 by which plaintiff had financed an amount of L 1,47,000/-. The first defendant, the hirer was to clear off entire amount due in 36 monthly instalments. The first defendant committed default in payment of instalments with effect from 20th May,1984. The plaintiff seized the vehicle No. KLI2447 on 9th February, 1985. Thereafter,the plaintiff vide letter dated 12th February, 1985 called upon the defendants to settle the contract within 10 days from the date of the receipt of the notice. The defendants did not make any payment. The plaintiff on 30th May, 1985 sold the vehicle and after adjusting the amount received from sale of vehicle balance of L 40,138/- was further demanded. Notice dated 12th July, 1985/22.07.1985 was sent by the plaintiff. Reply to the notice was given on 30th July, 1985. The plaintiff filed Original Suit No.148 of 1988 on 25.5.1988 praying for decree of sum of L 40,138/- along with interest. The second defendant, the husband of first defendant was also impleaded as guarantor. A written statement was filed by the first defendant where execution of hire purchase agreement was admitted. The default in payment of instalments was admitted. It was further pleaded that provisions in Clause 4 of hire purchase agreement regarding termination without notice is contrary to the statutory provisions. It was further stated that the vehicle was not sold on best price. The defendant pleaded that plaintiff is not entitled for any relief. The trial court framed 8 issues. One of the issues, issue No.7 was: "whether the suit is barred by limitation". The trial court after considering the facts held that suit is barred by limitation. It was held that default is from 20th May, 1984 the suit ought to have been filed within 20.5.1987. Suit was filed on 25th May, 1988 being beyond three years was to be dismissed.

"10. ISSUE NO.7 :- According to the learned counsel for the defendants the suit is barred by limitation for the reason that the date of agreement is 20.9.83 and the last date of payment is 20.4.84 but the suit is filed only on 26.5.88. He has invited by attention to clause 4 to the effect that if any instalment is not paid within the stipulated time whether legally demanded or not; break or fail to perform or observe any conditions on their part therein contained, then and in such cases the rights of the hirer under the agreement shall forth with be determined ipso facto, without any notice to the hirer. Therefore, according to him on 20.4.84 itself to contract was also determined. But the learned counsel for the plaintiff would argue that clause 4 contains provisions for seizure of vehicle and unless the vehicle is sold to balance in any cannot be ascertained and therefore the plaintiff would get course of action only on 30.5.85, the date of sale of the vehicle. Though I went through the different provisions of Ext.A2 agreement, I could not find any provision for sale of the vehicle. Even in Ext.A3 there is no such provisions. So this argument cannot hold good. In the case on hand, the default is from 20.5.84, the suit ought to have been filed within 20.5.87. Therefore, the suit is barred by limitation.

"4.....Ext.A2 agreement dated 20.9.83 contains the terms and conditions to be followed by the parties. As per clause 4 of Ext. A2, the plaintiff is entitled to seize the vehicle even without notice in case of default of instalments or other conditions mentioned therein. Admittedly, the defendants have committed default of instalments. If the hirer commits breach of the agreement, the rights of the hirer commits breach of the agreement, the rights of the hirer under the agreement shall forthwith be determined ipso facto without any notice to the hirer and all the instalments previously paid by the hirer shall be absolutely forfeited to the owners who shall thereupon be entitled to enter any house or place where the said vehicle may then be seize, remove and retake possession of it and to sue for all the instalments due and for damages for breach of the agreement and for all the costs occasioned by the hirer's default. So, as per the defendants, the financier invoked Clause 4 of the agreement and the vehicle was seized and subsequently sold. The cause of action arose on 20.4.1984. The plaintiff ought to have filed the suit within three years from 20.4.1984. but the suit was filed only on 26.5.1988. The agreement between the parties were determined on the date of default itself."

"As per the agreement, the financier is at liberty to terminate the agreement ipso facto and also seize the vehicle without notice. There is no question of surrender of the vehicle and as stated above, the vehicle belonged to the first defendant at the time of the agreement. The suit is being one for damages for breach of contract of hire purchase, it is governed by Article 55 of the Limitation Act and therefore, the suit should have been filed within three years from the date of the breach. Here, the breach has been committed on 20.4.84. In pursuance of clause 4 of the agreement, the vehicle was seized by the plaintiff. So, he ought to have filed the sit within three years from the date of breach of the agreement. The contract was determined on 20.4.84 itself. The argument of the learned counsel for the plaintiff that the vehicle was sold only on 30.05.1985 and the amount was credited and then only the cause of action will arise cannot be accepted since it is a loan transaction between the parties and the contract has ipso factor determined on the date of breach of contract. It is clear from clause 4 of the agreement that the financier is at liberty to forfeited the previous payment made by the hirer and also seized the vehicle and sue for all the instalments due and for damages for breach of the agreement and for all the costs of retaking possession of the said vehicle and all costs occasioned by the hirer's default. Since the plaintiff invoked the said provision, the argument advanced by the learned counsel for the plaintiff that the last instalment is due only on 20.09.1986 and the suit is within time cannot be accepted. Since, there is no provision to sell the vehicle and credit the amount to the loan advanced there is no question of waiting till the sale of the vehicle."

"Learned counsel for the appellant shall place on record a copy of the hire purchase agreement dated 20th September, 1983.

List thereafter."

(underlined by us).

"3. Clause 7 of the mortgage deed is important. It reads as follows:

"Without prejudice to the above rights and powers conferred on the Corporation by these presents and by Sections 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 with interest and other monies due from them under these presents to the Corporation in the manner agreed, the Corporation shall be entitled to realise its dues by sale of the mortgaged properties, the said fixtures and fittings and other assets, and if the sale proceeds thereof are insufficient to satisfy the dues of the Corporation, to 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)"

"10. 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 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 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 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 of the balance could have been filed. Merely because the Corporation acted under Section 29 of the Financial Corporations 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 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 indemnity, only when the sale proceeds were found to be insufficient.

11. In this case, it is an admitted position that the sale took place on 28- 3-1984 and 14-3-1985. It is only after this 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."

"11. As per the defendants, the 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. 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.

12. The Corporation, on the other hand, contended that action for selling the mortgaged/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 realisation of the sale proceeds only, that the balance amount payable by the guarantors could be ascertained. Therefore, the starting 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."

"27. We thus, hold that when the Corporation takes steps for recovery of the amount by resorting to the provisions of 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 mortgaged/hypothecated assets. This is clear from the language of sub-section (1) of Section 29 which makes the position abundantly clear and is quoted below:

"29. Rights of Financial Corporation in case of default.-(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment 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 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."

"13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank "on demand". It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is "broken". Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor."