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 enforcement of a guarantee executed by the respondent, Jagjivandas Shandilya, in respect of a loan advanced to Sewa Medicals Limited. The loan agreement and guarantee deed were executed on 22nd July 1996. The company defaulted on repayment, and the petitioner invoked the guarantee. The respondent contended that the petition was not maintainable as the petitioner had not proceeded against the principal debtor, and that the claim was barred by limitation. The court held that Section 31(1)(aa) specifically provides for enforcement of the guarantee against the guarantor, and the liability of the guarantor is co-extensive with that of the principal debtor under Section 128 of the Contract Act. The court also held that the limitation period for enforcement of the guarantee runs from the date of default by the principal debtor, and the petition was within limitation. The court allowed the petition and directed the respondent to pay the outstanding amount.
Headnote
A) State Financial Corporation Act, 1951 - Section 31(1)(aa) - Enforcement of Guarantee - Maintainability - The petition under Section 31(1)(aa) is maintainable against a guarantor even without proceeding against the principal debtor, as the provision specifically allows enforcement of the guarantee against the guarantor. The liability of the guarantor is co-extensive with that of the principal debtor, and the SFC can choose to proceed against the guarantor directly. (Paras 1-10) B) Limitation Act, 1963 - Article 55 - Guarantee - Limitation for enforcement of guarantee runs from the date of default by the principal debtor, not from the date of the guarantee deed. The petition filed within three years from the date of default is within limitation. (Paras 11-15) C) Contract Act, 1872 - Section 128 - Guarantor's Liability - The liability of a guarantor is co-extensive with that of the principal debtor, unless otherwise provided in the contract. The SFC can enforce the guarantee without first exhausting remedies against the principal debtor. (Paras 16-20)
Issue of Consideration
Whether a petition under Section 31(1)(aa) of the State Financial Corporation Act, 1951 is maintainable against a guarantor without first proceeding against the principal debtor, and whether the claim is barred by limitation.
Final Decision
The court allowed the petition and directed the respondent to pay the outstanding amount due under the guarantee.
Law Points
- Guarantor's liability is co-extensive with principal debtor
- Section 31(1)(aa) SFC Act provides for enforcement of guarantee against guarantor
- SFC can proceed against guarantor without first exhausting remedies against principal debtor
- Guarantee deed is a separate contract
- Limitation for enforcement of guarantee runs from date of default by principal debtor
