Case Note & Summary
The petitioner, SICOM Limited, a deemed State Financial Corporation under Section 46 of the State Financial Corporation Act, 1951, filed a petition under Section 31(1)(aa) of the Act against respondent nos. 2 and 3, who were guarantors for a term loan of Rs. 320 lacs sanctioned to respondent no.1 company. The loan was sanctioned by letter dated 10.2.1990 and availed by respondent no.1, with its assets mortgaged under a deed dated 13.8.1998. Respondent nos. 2 and 3 executed an unconditional deed of guarantee dated 14.8.1998 guaranteeing repayment in case of default. The petitioner disbursed the loan in instalments, but respondent no.1 committed defaults in repayment. Consequently, the petitioner sought recovery from the guarantors under Section 31(1)(aa). The Court, after considering the facts, allowed the petition, holding that the guarantors are liable to repay the loan amount as per the unconditional guarantee. The decision was in favor of the petitioner (the financial corporation).
Headnote
A) State Financial Corporation Act, 1951 - Section 31(1)(aa) - Recovery against guarantors - The petitioner, a deemed State Financial Corporation, sanctioned a term loan of Rs. 320 lacs to respondent no.1, which was guaranteed by respondent nos. 2 and 3 under an unconditional deed of guarantee. Upon default by the principal borrower, the Corporation filed a petition under Section 31(1)(aa) against the guarantors. The Court held that the guarantors are liable to repay the loan amount as per the terms of the guarantee, and the Corporation is entitled to recover the same under the said provision. (Paras 1-4)
Issue of Consideration
Whether the petitioner, a deemed State Financial Corporation, is entitled to recover the loan amount from the guarantors under Section 31(1)(aa) of the State Financial Corporation Act, 1951, when the principal borrower has defaulted.
Final Decision
The petition is allowed. The guarantors (respondent nos. 2 and 3) are liable to repay the loan amount as per the deed of guarantee.
Law Points
- Liability of guarantors under unconditional guarantee
- State Financial Corporation's power to proceed against guarantors under Section 31(1)(aa) of SFC Act
- 1951
