Case Note & Summary
The petitioner, Maharashtra State Co-op. Bank Ltd., stood as guarantor for a loan advanced to Swami Vivekanand Kaku Tel Sahakari Karkhana Limited. The State of Maharashtra executed a guarantee deed dated 5th June 1982, guaranteeing repayment of Rs.53.75 lakhs with interest at 12.75% per annum. Clause 6 of the deed stated it was a continuing guarantee until all amounts were paid. The borrower society defaulted, and a liquidator was appointed in 1997. The petitioner took possession of the society's assets as a secured creditor and auctioned them for Rs.33.22 lakhs on 1st January 1996. Despite several letters invoking the guarantee, the State failed to pay, leading to the writ petition. The State raised three contentions: the claim was barred by limitation, the petition was not maintainable as it was a money claim, and the interest charged was improper. The court rejected the limitation plea, holding that the continuing guarantee subsists until full payment. It held the writ petition maintainable as the State is a guarantor and the matter involves public interest. The court also upheld the interest rate as per the contract. The petition was allowed, directing the State to pay the amount due with interest at 12.75% per annum from the date of demand until payment.
Headnote
A) Contract Law - Continuing Guarantee - Limitation - Clause 6 of the guarantee deed provided that the guarantee is a continuing one and shall remain in force until all moneys are paid off in full with interest - The court held that until the amount secured is paid, the guarantee subsists, and the plea of limitation must be rejected (Paras 5). B) Constitutional Law - Writ Jurisdiction - Maintainability - Article 226 of the Constitution of India - The court held that a writ petition for enforcement of a guarantee against the State is maintainable even if it is a money claim, as the State is a guarantor and the petition involves public interest (Para 7). C) Contract Law - Interest - Admissibility - The court held that interest as per the contract rate is admissible and the respondent's objection is not sustainable (Para 8).
Issue of Consideration
Whether the claim under a continuing guarantee is barred by limitation; whether a writ petition under Article 226 is maintainable for enforcement of a money claim based on a guarantee; whether interest as charged is admissible.
Final Decision
Writ petition allowed. The respondent State is directed to pay the amount due under the guarantee with interest at 12.75% per annum from the date of demand until payment.
Law Points
- Continuing guarantee subsists until all amounts are paid
- Limitation not applicable to continuing guarantee
- Writ petition maintainable for enforcement of guarantee against State
- Interest rate as per contract is admissible
