Supreme Court clarifies the determination of limitation in loan recovery suits in Mongia Realty vs. Manik Sethi (31 January 2022)

Date of the Judgment: 31 January 2022
Citation: Civil Appeal No 814 of 2022 (Arising out of SLP (C) No 26930 of 2019)
Judges: Dr Dhananjaya Y Chandrachud, J and Surya Kant, J.

When can a court decide on the issue of limitation as a preliminary matter, without a full trial? The Supreme Court of India recently addressed this question in a case concerning a loan recovery suit. The Court clarified that if the facts surrounding the issue of limitation are disputed, the matter cannot be decided as a preliminary issue and requires a full trial. This judgment, delivered by a two-judge bench comprising Justice Dr. Dhananjaya Y Chandrachud and Justice Surya Kant, sets aside the judgments of the trial court and the High Court, which had dismissed the suit on the grounds of limitation without a full trial.

Case Background

M/s Mongia Realty and Buildwell Private Limited (the appellant) filed a suit against Manik Sethi (the respondent) on 31 March 2017, seeking to recover ₹1,11,63,633 with interest. The appellant claimed to have given business loans to the respondent, which were to be repaid with 18% annual interest. The appellant stated that loans of ₹10 lakhs, ₹18 lakhs, and ₹15 lakhs were given on 13 June 2012, 11 July 2012, and 21 December 2012, respectively, along with a further amount of ₹39 lakhs. The appellant contended that the loans were to be repaid within one year from the date of the last installment, i.e., by 9 April 2014, and that a running account was maintained between the parties, with the last payment made on 24 October 2013.

The respondent denied the loan transactions, claiming that the payments were for real estate commission and renovation services. The respondent argued that the suit was barred by limitation since the last payment was made on 24 October 2013, and the suit was filed on 31 March 2017, which is beyond the three-year limitation period.

Timeline:

Course of Proceedings

The trial court framed a preliminary issue on whether the suit was barred by limitation. The trial court heard arguments and, without allowing the appellant to file written arguments, decided the issue of limitation against the appellant on 16 August 2018. The trial court held that the suit was filed three years, nine months, and ten days after the last payment, which was beyond the limitation period.

The High Court upheld the trial court’s decision on 4 September 2019, stating that there was no written agreement specifying that the loan would be repayable within one year from the date of the last installment. The High Court also noted that accepting the appellant’s case would set a wrong precedent, allowing plaintiffs to claim that loans given long ago were agreed to be paid at a later date, thus extending the limitation period.

Legal Framework

The case involves the interpretation of the Limitation Act, specifically the determination of when the limitation period begins for a loan recovery suit. The relevant provision is the general rule of limitation under the Limitation Act, which prescribes a period of three years for recovery of debts. The Court also considered Order XIV Rule 2 of the Code of Civil Procedure 1908 (CPC), which allows the court to decide on issues of law, such as limitation, as preliminary issues.

Order XIV Rule 2 of the CPC states:

“2. Court to pronounce judgment on all issues .—(1) Notwithstanding that a case may be disposed of on a preliminary issue, the Court shall, subject to the provisions of sub -rule (2), pronounce judgment on all issues. (2) Where issues both of law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if the issue relates to — (a) the jurisdiction of the Court, or (b) a bar to the suit created by any law for the time being in force, and for that purpose may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance w ith the decision on that issue.]”

Arguments

Appellant’s Submissions:

• The appellant argued that the plaint explicitly stated that the loan was repayable within one year from the date of the last installment, i.e., by 9 April 2014, thus making the suit filed on 31 March 2017 within the limitation period.
• The appellant contended that the issue of limitation could not have been decided purely on oral arguments without evidence, especially since the plaint also mentioned the existence of an open and running current account between the parties.

Respondent’s Submissions:

• The respondent argued that there was no written agreement for the loan, and the payments were for commission on real estate transactions.
• The respondent contended that the last payment was made on 24 October 2013, and the suit filed on 31 March 2017 was beyond the three-year limitation period.
• The respondent submitted that Article 1 of the Limitation Act, which deals with open, running, and mutual current accounts, did not apply since there were no mutual payments and receipts between the parties.

Innovativeness of the argument: The appellant’s argument regarding the loan being repayable within one year from the last installment, as stated in the plaint, was an innovative way to circumvent the limitation period. The respondent’s argument was straightforward, relying on the standard three-year limitation period from the last transaction.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues but addressed the core question of whether the issue of limitation could be decided as a preliminary issue under Order XIV Rule 2 of the CPC without a full trial.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court relied on the following authority:

• Nusli Neville Wadia v. Ivory Properties [(2020) 6 SCC 557] – Supreme Court of India: This case clarified that if the issue of limitation is based on an admitted fact, it can be decided as a preliminary issue under Order XIV Rule 2(2)(b) of the CPC. However, if the facts surrounding the issue of limitation are disputed, it cannot be decided as a preliminary issue.

The Court also considered the following legal provision:

• Order XIV Rule 2 of the Code of Civil Procedure 1908: This provision allows the court to decide on issues of law, such as limitation, as preliminary issues, but only if the issue is based on admitted facts.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed Nusli Neville Wadia v. Ivory Properties [(2020) 6 SCC 557]* and held that the issue of limitation cannot be decided as a preliminary issue if the facts are disputed.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that disputed facts cannot be decided without a full trial. The Court emphasized that the nature of the transactions between the parties was disputed, and the issue of limitation was intertwined with these factual disputes. The Court was also concerned that the trial court and the High Court had decided the issue of limitation based on oral arguments alone, without considering the evidence. This concern was evident in the court’s observation that the appellant had set up a plea that the loans were to be repaid within one year from the date of the last installment, and this plea required evidence.

Logical Reasoning:

The Court rejected the interpretation of the lower courts that the issue of limitation could be decided solely on the basis of the averments in the plaint. The Court emphasized that the appellant’s claim that the loan was repayable within one year from the last installment was a factual issue that needed to be proven through evidence. The Court also rejected the argument that the absence of a written agreement was sufficient to dismiss the suit since the appellant’s claim was based on an understanding between the parties that required evidence. The Court also held that the issue of whether a running account existed between the parties also required evidence.

The Court’s decision was based on the principle that when facts are disputed, they must be proven through evidence, and the issue of limitation, which is intertwined with these facts, cannot be decided as a preliminary issue. The Court found that both the trial court and the High Court had erred in deciding the issue of limitation without a full trial.

The Supreme Court stated, “The issue as to whether the claim of the appellant is barred by limitation cannot be isolated from the nature of the transactions between the parties.”

The Court also noted, “In any event, whether the plea of the appellant as set up in paragraph 5 of the plaint is proved would depend upon evidence adduced at the trial.”

The Court further observed, “The course of action which was followed by the learned trial Judge of directing the parties to address arguments on the issue of limitation was irregular. The issue of limitation in the present case would require evidence to be adduced.”

There were no dissenting opinions. The decision was unanimous.

The potential implication of this judgment is that lower courts must be cautious in deciding the issue of limitation as a preliminary issue, especially when the facts are disputed. The judgment emphasizes the importance of a full trial and the need to consider all evidence before deciding on the issue of limitation. This judgment also clarifies that the nature of the transactions between the parties is crucial in determining the starting point of the limitation period.

There were no new doctrines or legal principles introduced. The Court reiterated the existing legal principle that disputed facts cannot be decided without a full trial.

Key Takeaways

• ✓ The issue of limitation cannot be decided as a preliminary issue under Order XIV Rule 2 of the CPC if the facts surrounding the issue are disputed.
• ✓ When facts related to limitation are disputed, evidence must be presented, and a full trial is necessary.
• ✓ The nature of the transactions between the parties is crucial in determining the starting point of the limitation period.
• ✓ Courts should not decide the issue of limitation based on oral arguments alone if the facts are disputed.

Directions

The Supreme Court set aside the judgments of the trial court and the High Court. The Court directed that the issue of limitation, along with other issues, be decided at trial.

Development of Law

The ratio decidendi of the case is that if the issue of limitation is based on disputed facts, it cannot be decided as a preliminary issue under Order XIV Rule 2 of the CPC and requires a full trial. This judgment reaffirms the existing position of law that disputed facts cannot be decided without a full trial.

Conclusion

The Supreme Court’s judgment in Mongia Realty vs. Manik Sethi clarifies that the issue of limitation cannot be decided as a preliminary issue if the facts surrounding it are disputed. The Court emphasized that the nature of the transactions between the parties and the date of the last payment were disputed facts that required evidence and a full trial. This judgment ensures that lower courts do not dismiss cases on the grounds of limitation without a full consideration of the evidence, especially when there are factual disputes.

Category

• Code of Civil Procedure, 1908
  • Order XIV Rule 2, Code of Civil Procedure, 1908
• Limitation Act
  • Limitation Act
• Loan Recovery
  • Loan Recovery Suits

FAQ

Q: What did the Supreme Court decide in Mongia Realty vs. Manik Sethi?

A: The Supreme Court decided that the issue of limitation cannot be decided as a preliminary issue under Order XIV Rule 2 of the Code of Civil Procedure if the facts related to limitation are disputed. It requires a full trial with evidence.

Q: What is a preliminary issue in a court case?

A: A preliminary issue is a legal question that a court can decide before the main trial. It’s usually about the jurisdiction of the court or whether the case is barred by law, such as by limitation.

Q: What does the term ‘limitation’ mean in a legal context?

A: ‘Limitation’ refers to the time limit within which a legal case must be filed. If the case is filed after the limitation period, it may be dismissed by the court.

Q: How does this judgment affect loan recovery cases?

A: This judgment means that if there’s a dispute about when the loan was due or when the last payment was made, the court cannot dismiss the case on the grounds of limitation without a full trial. Evidence must be presented to prove or disprove the claims.

Q: What should I do if I have a loan dispute?

A: If you have a loan dispute, make sure you have all the necessary documents and evidence. Consult a lawyer to understand your rights and obligations. Be prepared to present your case in court with all the necessary evidence.