Case Note & Summary
The Maharashtra State Financial Corporation (MSFC) filed a Miscellaneous Petition under Sections 31, 31(1)(aa), and 32 of the State Financial Corporation Act, 1951, seeking recovery of a term loan of Rs.37,50,000/- sanctioned to the 7th respondent company, Magna Elastomeric Rollers Pvt Ltd, along with interest and costs. The loan was sanctioned on 5.6.1992 and disbursed in instalments, with respondents 1 to 6 acting as personal guarantors. The loan was repayable in 13 half-yearly instalments commencing from 20.10.2000. The respondents defaulted in repayment, leading to the filing of the petition on 22.1.1999. The respondents opposed the petition, contending that the company was sick and that the claim was barred by limitation. The court examined the provisions of the SFC Act and the terms of the loan agreement. It held that the personal guarantors are jointly and severally liable for the outstanding amount, and the sickness of the company does not affect their liability. The court also found that the petition was within limitation, as the cause of action arose after the default in instalments. The court directed the respondents to pay the outstanding principal amount of Rs.37,50,000/- with interest at 6% per annum from the date of the petition until realization, along with costs of Rs.5,000/-. The petition was allowed accordingly.
Headnote
A) State Financial Corporation Act, 1951 - Sections 31, 31(1)(aa), 32 - Recovery of loan - Personal guarantee - Liability of guarantors - The petitioner, a State Financial Corporation, sanctioned a term loan of Rs.37,50,000/- to the 7th respondent company, with respondents 1 to 6 as personal guarantors. The loan was disbursed but not repaid. The court held that the guarantors are jointly and severally liable for the outstanding amount, and the sickness of the company does not absolve them of their liability under the guarantee. (Paras 1-10) B) State Financial Corporation Act, 1951 - Section 31 - Limitation - The petition was filed on 22.1.1999, and the cause of action arose when the loan became due. The court found that the petition was within limitation as the loan was repayable in instalments commencing from 20.10.2000, and the default occurred thereafter. (Paras 11-12) C) State Financial Corporation Act, 1951 - Section 32G - Interest rate - The court directed that the respondents shall pay interest at the rate of 6% per annum from the date of the petition until realization, as the loan agreement provided for a higher rate but the court exercised discretion to reduce it. (Para 13) D) State Financial Corporation Act, 1951 - Section 31 - Costs - The court awarded costs of Rs.5,000/- to the petitioner, to be paid by the respondents. (Para 14)
Issue of Consideration
Whether the petition under Section 31 of the State Financial Corporation Act, 1951 is maintainable for recovery of loan amount against the borrower company and its personal guarantors, and whether the guarantors can avoid liability on the ground that the company is sick or that the claim is barred by limitation.
Final Decision
The petition is allowed. The respondents are directed to pay the outstanding principal amount of Rs.37,50,000/- with interest at 6% per annum from the date of the petition until realization, along with costs of Rs.5,000/-.
Law Points
- State Financial Corporation Act
- 1951
- Sections 31
- 31(1)(aa)
- 32
- 32G
- Recovery of loan
- Personal guarantee
- Liability of guarantors
- Sickness of company
- Limitation
- Interest rate
- Costs
