Supreme Court Upholds Limitation on Hire Purchase Breach: Sundaram Finance vs. Noorjahan Beevi (2016)

Introduction

Date of the Judgment: 29th June 2016

Citation: (2016) INSC 657

Judges: Justice Abhay Manohar Sapre and Justice Ashok Bhushan. The judgment was authored by Justice Ashok Bhushan.

When does the clock start ticking for a lawsuit in a hire-purchase agreement breach? The Supreme Court of India recently tackled this question, specifically addressing when the limitation period begins for filing a suit to recover dues after a default. This case, M/S. Sundaram Finance Limited vs. Noorjahan Beevi and Another, involved a dispute over a hire-purchase agreement for a commercial vehicle, focusing on whether the suit was filed within the legally prescribed time frame.

Case Background

M/S. Sundaram Finance Limited, the appellant, is a public limited company that provides hire-purchase financing for commercial vehicles. On September 20, 1983, they entered into a hire-purchase agreement with the first defendant, Noorjahan Beevi, to finance a sum of Rs. 1,47,000. The agreement stipulated that the amount was to be repaid in 36 monthly installments.

Noorjahan Beevi defaulted on payments starting May 20, 1984. Consequently, Sundaram Finance seized the vehicle on February 9, 1985. Following the seizure, on February 12, 1985, Sundaram Finance issued a notice to the defendants, demanding settlement of the contract within 10 days. When no payment was made, the vehicle was sold on May 30, 1985. After adjusting the sale proceeds, Sundaram Finance claimed a balance of Rs. 40,138. A notice was sent on July 12/22, 1985, which was replied to on July 30, 1985.

Sundaram Finance filed Original Suit No. 148 of 1988 on May 25, 1988, seeking a decree for Rs. 40,138 along with interest. The second defendant, the husband of Noorjahan Beevi, was impleaded as a guarantor. The first defendant admitted to the hire-purchase agreement and the default in payments but argued that the termination clause of the agreement was against statutory provisions and that the vehicle was not sold at the best price.

Timeline

Course of Proceedings

The trial court framed eight issues, including whether the suit was barred by limitation. The trial court held that the suit was indeed barred by limitation, noting that the default began on May 20, 1984, and the suit, filed on May 25, 1988, was beyond the three-year limitation period.

Sundaram Finance appealed to the High Court of Kerala, which upheld the trial court’s decision, affirming that the suit was barred by limitation. Subsequently, Sundaram Finance appealed to the Supreme Court of India.

Legal Framework

The case primarily revolves around the interpretation and application of the Limitation Act, 1963. The relevant provisions are:

• Article 55 of the Limitation Act, 1963: This article deals with suits for compensation for breach of contract, specifying a limitation period of three years. The time begins to run when the contract is broken, or where there are successive breaches, when the breach in respect of which the suit is instituted occurs, or where the breach is continuing, when it ceases.
  “For compensation for the breach of any contract, express or implied not herein specially provided for. Three years When the contract is broken or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases.”
• Article 113 of the Limitation Act, 1963: This article is a residuary provision, applicable to suits for which no specific limitation period is provided elsewhere in the schedule. It also specifies a limitation period of three years, which begins to run when the right to sue accrues.
  “Any suit for which no period of limitation is provided elsewhere in this Schedule. Three years When the right to sue accrues.”

Arguments

Appellant (Sundaram Finance)’s Arguments:

• The appellant contended that the limitation period should start from the date of the vehicle sale (May 30, 1985) or the last date of payment of installment (September 20, 1986).

• They argued that the balance liability could only be ascertained after the sale of the vehicle.

• The appellant submitted that the case was governed by Article 113 of the Limitation Act, 1963, and not Article 55.

• They relied on the judgment of the High Court of Madras in Bell Alloys Steels Private Limited vs. The National Small Industries Corporation Limited (1980 Legal Surveyor 85), stating that each default in payment of installments constitutes a continuing breach and the suit is within time from the last date of payment of installment.

Respondent (Noorjahan Beevi)’s Arguments:

• The respondents argued that the trial court was correct in dismissing the suit as barred by time.

• They contended that the cause of action arose on the date of the first default (May 20, 1984) and the suit should have been filed within three years from that date.

• They relied on the judgment of the Supreme Court in Deepak Bhandari vs. Himachal Pradesh State Industrial Development Corporation Limited, 2015 (5) SCC 518.

The core of the dispute was when the cause of action arose. Sundaram Finance argued it arose from the sale of the vehicle or the last date of payment, while the respondent contended it arose from the initial default.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the suit filed by the plaintiff was barred by limitation?

Treatment of the Issue by the Court

Authorities

Judgment

How each authority was viewed by the Court:

• The Madras High Court judgment in Bell Alloys Steels Private Limited vs. The National Small Industries Corporation Limited [1980 Legal Surveyor 85]* was distinguished by the Supreme Court. The court held that the facts of that case were different and not applicable to the present case.
• The Supreme Court relied upon its judgment in Deepak Bhandari vs. Himachal Pradesh State Industrial Development Corporation Limited [2015 (5) SCC 518]* to support its view that the limitation period begins from the date when the amount of dues for recovery are ascertained, which in this case was the date of default.
• The Supreme Court distinguished its judgment in Himachal Pradesh Financial Corporation vs. Pawna and others [2015 (5) SCC 617]*, noting that the case was based on a specific clause in the agreement and a statutory power under the State Financial Corporations Act, which is not present in this case.
• The Supreme Court relied upon its judgment in Syndicate Bank vs. Channaveerappa Beleri and others [2006 (11) SCC 506]* to support its view that 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.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Clause 4 of the hire-purchase agreement and the provisions of the Limitation Act, 1963. The court emphasized that the agreement stipulated that the rights of the hirer would be terminated immediately upon default, and the right to sue accrued at that point. The court also considered the fact that there was no specific clause in the agreement that allowed for the sale of the vehicle and the adjustment of the sale proceeds towards the dues.

The court noted that the agreement between the parties was determined on the date of default itself. The court also observed that the plaintiff had taken possession of the vehicle on 9.2.1985 and had immediately vide letter dated 12.2.1985 called upon the defendant to pay them due within 10 days from the receipt of the letter.

The court’s reasoning was primarily based on the terms of the agreement and the legal provisions of the Limitation Act, 1963. The factual aspects of the case, such as the date of sale of the vehicle, were given less weight.

The Court considered the appellant’s argument that the cause of action arose only after the sale of the vehicle but rejected it, stating that the right to sue accrued when the hirer defaulted in making payment. The court also rejected the argument that the case was governed by Article 113 of the Limitation Act, 1963, holding that Article 55 was the applicable provision.

The court’s decision was based on the specific terms of the agreement and the provisions of the Limitation Act, 1963. The court emphasized that the contract was broken on the date of default and the right to sue accrued at that time.

The court quoted from the judgment:

“Thus, as per Clause 4 the right to sue accrues when the hirer commits breach of the agreement. Committing default in payment of instalment is nothing but a breach of the agreement and thus courts below has rightly taken a view that period of limitation for filing a suit under Article 55 shall begin with effect from 20th May, 1984 when the default was committed by the hirer.”

“The terms of the agreement as noted by the High Court and referred to by us as above clearly indicate that on committing a breach of terms and conditions of the agreement the rights shall accrue to the plaintiff to sue for balance instalments and the damages for breach of contract.”

“Thus, in any view of the matter suit filed by the plaintiff was beyond three years and has rightly been dismissed by the trial court. The High Court has also not erred in dismissing the appeal by taking the view that the suit was barred by limitation.”

Key Takeaways

• The limitation period for filing a suit for breach of a hire-purchase agreement starts from the date of the first default in payment, not from the date of sale of the vehicle or the last date of payment.
• Hire-purchase agreements should clearly define when the right to sue accrues in case of default.
• Financial institutions need to be vigilant about the limitation period when pursuing legal action for breach of contract.
• This judgment clarifies the application of Article 55 of the Limitation Act, 1963, in hire-purchase agreement cases.

Directions

No specific directions were given by the Supreme Court in this case. The court simply dismissed the appeal.

Specific Amendments Analysis

No specific amendments were discussed in this judgment.

Development of Law

The ratio decidendi of this case is that in a hire-purchase agreement, the limitation period for filing a suit for breach of contract starts from the date of the first default in payment, as per Article 55 of the Limitation Act, 1963. This clarifies that the right to sue accrues at the point of default and not at a later date, such as the sale of the asset.

This judgment reinforces the existing position of law regarding the application of Article 55 of the Limitation Act, 1963, in cases of breach of contract. It clarifies that the limitation period begins when the contract is broken, which, in this case, was when the hirer defaulted on payments.

Conclusion

The Supreme Court dismissed the appeal filed by Sundaram Finance, upholding the decisions of the trial court and the High Court. The court ruled that the suit was barred by limitation, as the limitation period began from the date of the first default in payment by the hirer, and the suit was filed beyond the prescribed three-year period. This judgment emphasizes the importance of adhering to the limitation period and the terms of the agreement in hire-purchase transactions.