Case Note & Summary
The appeal arises from a judgment dated 19th September 2007 passed by the learned Adhoc District Judge, Pune, in Miscellaneous Civil Petition No.859 of 2006. The Respondent No.1, SICOM Limited, a deemed State Financial Corporation under Section 46 of the State Financial Corporation Act, 1951 (SFC Act), had sanctioned and disbursed a term loan of Rs.6,50,00,000 to the Respondent No.2 Company, Pedder and Pedder Titles Limited, on 7th December 1999. The loan was secured by a mortgage and hypothecation of the Company's properties. The Appellants, Gaiomurd Pedder and Smt. Priscilla Pedder, who were directors and shareholders of the Company, executed a separate Deed of Guarantee on 20th April 2000, guaranteeing the repayment of the loan. The Company defaulted in repayment, and the Respondent No.1 filed an application under Section 31(1)(aa) of the SFC Act before the District Judge, Pune, seeking recovery of the outstanding amount from the Company and the guarantors. The learned District Judge allowed the application and directed the Appellants/Guarantors to pay jointly and severally a sum of Rs.10,92,63,025 along with interest from 1st October 2006. The Appellants challenged this order in the present appeal. The main legal issues were whether the guarantors could be proceeded against under Section 31(1)(aa) without a separate suit and whether the application was barred by limitation. The Appellants argued that the application was not maintainable against guarantors and that the debt was time-barred. The Respondent No.1 contended that the guarantors are jointly and severally liable and that the application was within limitation. The Court analyzed the provisions of Section 31(1)(aa) and held that the guarantors can be proceeded against under this section without a separate suit, as the liability is joint and several. The Court also held that the limitation period for such an application is three years from the date when the right to apply accrues, as per Article 137 of the Limitation Act, 1963, and that the application was filed within time. The Court further held that there is no requirement of notice to the guarantors before filing the application. Consequently, the appeal was dismissed, and the order of the District Judge was upheld.
Headnote
A) State Financial Corporation Act, 1951 - Section 31(1)(aa) - Recovery from Guarantors - Joint and Several Liability - The Court held that the guarantors are jointly and severally liable for the debt and can be proceeded against under Section 31(1)(aa) without a separate suit. The application under Section 31(1)(aa) is a summary proceeding and does not require a notice to the guarantors before filing. (Paras 10-15) B) Limitation Act, 1963 - Article 137 - Limitation for Application under Section 31(1)(aa) - The Court held that the limitation period for an application under Section 31(1)(aa) is three years from the date when the right to apply accrues, as per Article 137 of the Limitation Act, 1963. The application was filed within limitation. (Paras 16-20) C) State Financial Corporation Act, 1951 - Section 31(1)(aa) - Notice to Guarantors - The Court held that there is no requirement of notice to the guarantors before filing an application under Section 31(1)(aa). The guarantors are entitled to be heard after the application is filed. (Paras 21-25)
Issue of Consideration
Whether the guarantors can be proceeded against under Section 31(1)(aa) of the State Financial Corporation Act, 1951 without a separate suit and whether the application was barred by limitation.
Final Decision
The appeal is dismissed. The judgment dated 19th September 2007 passed by the learned Adhoc District Judge, Pune, in Miscellaneous Civil Petition No.859 of 2006 is upheld. The Appellants/Guarantors are directed to pay jointly and severally the sum of Rs.10,92,63,025 with interest as specified in the loan agreement from 1st October 2006 till the date of payment.
Law Points
- Liability of guarantors under Section 31(1)(aa) of SFC Act is joint and several
- Guarantors cannot challenge recovery proceedings without disputing the debt
- Section 31(1)(aa) does not require separate suit against guarantors
- Guarantors are not entitled to notice before filing application under Section 31(1)(aa)
- Limitation for application under Section 31(1)(aa) is governed by Article 137 of Limitation Act
- 1963
