Law Maker

Punjab National Bank v. Surendra Prasad Sinha

Supreme Court of India, 20 April 1992, 2 judges, 1992 AIR 1815; 1992 SCR (2) 528; 1993 SCC Supl. (1) 499

Section 3 of the Limitation Act bars only the remedy, not the debt; a bank holding a guarantor's fixed deposit as security could appropriate it towards a time-barred loan, and the guarantor's criminal complaint was quashed.

Facts

The bank's Katni branch lent Rs. 15,000 to a borrower in 1984. The respondent, an advocate and standing counsel for the bank, and his wife stood as guarantors, executed a security bond and handed over a fixed deposit receipt. The borrower defaulted. When the deposit matured in 1988, the Branch Manager adjusted Rs. 27,037.60 due on the loan and credited the balance to the respondent's savings account. The respondent filed a private complaint under Sections 409 and 109/114 IPC against the bank, its Chairman, Managing Director and officers, alleging that the debt had become time-barred in 1987, that his own liability had ended with it, and that the bank had embezzled the amount. The Magistrate issued process, and the Madhya Pradesh High Court declined to quash the complaint.

Questions before the Court

  1. Does a debt cease to exist once its recovery by suit is barred by limitation?
  2. Was the bank's appropriation of the guarantor's fixed deposit towards a time-barred debt criminal breach of trust?
  3. Was the Magistrate right in issuing process against all the bank officials on the complaint?

What the Court held

  • Section 3 of the Limitation Act bars only the remedy, not the right. A time-barred debt is not extinguished; the right can be exercised otherwise than by suit, and filing a suit is not obligatory. The right itself is destroyed only where the Act specially so provides, as in Section 27.
  • A creditor holding adequate security may adjust the debt from that security. Since the guarantors had entrusted the fixed deposit as security, the bank was entitled under the contract to appropriate the debt and credit the balance to the respondent, though recovery from the principal debtor was time-barred.
  • Action taken in terms of the contract is a negation of criminal breach of trust under Section 405, punishable under Section 409 IPC; it is neither dishonest nor misappropriation. The complaint did not make out even a prima facie case.
  • The Magistrate issued process mechanically, and the High Court erred in refusing to quash. Judicial process must not become an instrument of oppression; before issuing process the Magistrate must see whether each accused is legally responsible for the offence. The appeal was allowed and the complaint quashed.

Why it matters

The judgment states that the law of limitation bars the remedy and not the right, so a time-barred debt survives and may be recovered by means other than a suit, including appropriation of security held by the creditor. It also holds that acting under the terms of a contract is not criminal breach of trust, and cautions Magistrates against issuing process mechanically on complaints made to harass.

In the Court's words

Copied from the official judgment; each passage links to its page.

“The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act 36 of 1963, for short "the Act" only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation.”
K. Ramaswamy, J.Page 4 of the judgment
“The time barred debt does not cease to exist by reasons of s.3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed. What s.3 refers is only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt.”
K. Ramaswamy, J.Page 4 of the judgment
“Therefore, though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists. In terms of the contract the bank is entitled to appropriate the debt due and credit the balance amount to the saving bank account of the respondent. Thereby the appellant did not act in violation of any law, nor converted the amount entrusted to them dishonestly for any purpose.”
K. Ramaswamy, J.Page 4 of the judgment

Provisions interpreted

Case and bench

Parties
Punjab National Bank and Ors. v. Surendra Prasad Sinha
Case
Criminal Appeal No. 254 of 1992
Decided
20 April 1992
Bench
K. Ramaswamy, B.P. Jeevan Reddy
Opinions
Unanimous. The Judgment of the Court was delivered by K. Ramaswamy, J.

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