Case Note & Summary
The petitioner, SICOM Limited, a State Financial Corporation, filed a petition under Section 31(1)(aa) of the State Financial Corporation Act, 1951, seeking to enforce a guarantee against respondents 1 to 4. The background involves respondent no.5, a private limited company, which obtained a term loan of Rs.86 Lacs and Seed Capital Assistance of Rs.8 Lacs from the petitioner on 26.7.1989. The loan was secured by an Indenture of Mortgage dated 11.12.1989, mortgaging the company's land, building, plant, and machinery. Respondents 1 to 4 executed a common deed of guarantee on the same date, guaranteeing repayment of the loan in 13 instalments with interest at 14.50% p.a. The respondent no.5 company defaulted on repayment, leading the petitioner to invoke the guarantee against the guarantors. The court considered the legal issue of whether the petition under Section 31(1)(aa) is maintainable against guarantors. The petitioner argued that the guarantors are jointly and severally liable under the guarantee deed. The respondents contended that the petition was not maintainable as the principal borrower was not impleaded or that the guarantee was not enforceable. The court analyzed the provisions of the SFC Act and the terms of the guarantee deed, holding that the guarantors are liable for the defaulted amount. The court allowed the petition, directing the guarantors to pay the outstanding amount with interest. The decision reinforces the principle that State Financial Corporations can enforce guarantees under Section 31(1)(aa) against guarantors without necessarily impleading the principal borrower.
Headnote
A) State Financial Corporation Act - Section 31(1)(aa) - Enforcement of Guarantee - The petitioner, a State Financial Corporation, sought to enforce a common deed of guarantee executed by respondents 1 to 4 for a term loan granted to respondent no.5 company. The court examined whether the guarantors were liable for the defaulted loan amount. Held that the guarantors are jointly and severally liable under the guarantee deed, and the petition under Section 31(1)(aa) is maintainable for recovery against them. (Paras 1-3)
Issue of Consideration
Whether the petitioner, a State Financial Corporation, is entitled to enforce the guarantee against the respondent guarantors under Section 31(1)(aa) of the State Financial Corporation Act, 1951, for recovery of the loan amount defaulted by the principal borrower company.
Final Decision
The court allowed the petition, directing the guarantors (respondents 1 to 4) to pay the outstanding loan amount with interest to the petitioner.
Law Points
- Section 31(1)(aa) of the State Financial Corporation Act
- 1951
- Guarantor liability
- Enforcement of guarantee
- Recovery of loan
