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 against the respondents, who were guarantors of a loan advanced to Consolidated Containers (India) Limited. The company had taken term loans totaling Rs. 1,17,00,000 between November 1988 and January 1995, secured by mortgage and personal guarantees from the respondents. The company defaulted on repayment, and the petitioner sought recovery from the guarantors. The respondents argued that the petition was not maintainable as the company had been wound up and the liability of the guarantors was discharged. The court held that the petition under Section 31(1)(aa) is maintainable against guarantors even after the winding up of the principal borrower. The liability of a guarantor is independent and co-extensive with that of the principal debtor under Section 128 of the Indian Contract Act, 1872. The winding up of the company does not discharge the guarantor. The court directed the respondents to pay the outstanding amount of Rs. 1,17,00,000 with interest at 18% per annum from the date of default until payment, and also allowed the petitioner to enforce the mortgage security if the amount was not paid within three months.
Headnote
A) State Financial Corporation Act, 1951 - Section 31(1)(aa) - Recovery against Guarantors - Maintainability - Petition under Section 31(1)(aa) of the State Financial Corporation Act, 1951 is maintainable against guarantors even after the principal borrower company has been wound up - The liability of a guarantor is independent and co-extensive with that of the principal debtor under Section 128 of the Indian Contract Act, 1872 - The winding up of the principal debtor does not discharge the guarantor - Held that the petition is maintainable and the guarantors are liable to pay the outstanding amount (Paras 1-10).
Issue of Consideration
Whether the petition under Section 31(1)(aa) of the State Financial Corporation Act, 1951 is maintainable against the guarantors after the principal borrower company has been wound up and whether the guarantors can be directed to pay the outstanding loan amount.
Final Decision
The court allowed the petition and directed the respondents (guarantors) to pay the outstanding amount of Rs. 1,17,00,000 with interest at 18% per annum from the date of default until payment. The petitioner was also allowed to enforce the mortgage security if the amount was not paid within three months.
Law Points
- Liability of guarantors under Section 31(1)(aa) of State Financial Corporation Act
- 1951 is independent and can be enforced even after company is wound up
- Guarantee is a separate contract not discharged by winding up of principal debtor
- Section 128 of Indian Contract Act
- 1872 makes surety liable co-extensively with principal debtor unless contract provides otherwise
