State Bank of India v. Saksaria sugar mills ltd. And ors.

FACTS OF THE CASE

In this case, a petition was filed against Saksaria sugar mills ltd.  State Bank of India, had allowed cash credit facility to respondent No. 1, M/s. Saksaria Sugar Mills Ltd., on the security of goods produced at its Sugar Factory and the title deeds of its immovable properties deposited with the appellant by way of equitable mortgage to secure the amount advanced under the said cash credit facility. Respondents Nos. 2 to 5 had agreed to be the guarantors for   the repayment of any amount due from respondent No.  1 under the said cash credit account. Since there was default in the repayment of the amount due under the said cash credit account, the appellant instituted a suit against respondent Nos. 1 to 5 for recovery of a sum of Rs. 54,89,822.99.  In the meanwhile, the Central Government took over the Sugar undertaking belonging to Respondent No. 1 under the provisions of the Act and appointed a Custodian of the said undertaking.   

ISSUES

Whether liability of surety co-extensive with that of principal debtor?

ARGUMENTS

In the suit, respondent Nos. 1 to 5 pleaded that the suit was liable to be stayed in view of the provisions of the Act. the Central Government has made a declaration by   Notification  dated 21.3.84  to the  effect that  the  operation  of  all  obligations  and  liabilities accruing or  arising out  of all  contracts,  assurances  of properties, agreements, settlements, awards, standing orders or other  instruments in  force immediately  before the  28th March 1980 (other than those relating to secured liabilities to banks and financial institutions) to which the said sugar undertaking or  the person owning the said sugar undertaking is a  party shall  remain suspended up to March 12, 1985. t is very clearly stated in the said Notification that it does not apply to secured liabilities due to banks and financial institutions. The liability involved in the suit was a secured liability and the creditor is the State Bank of India. Since all secured liabilities due to a bank or a financial institution are excluded from the operation of the Notification, the suit against respondent No. 1 as well as respondent Nos.   2 to   5 remained   unaffected by the Notification. 

JUDGEMENT

The court held that the Act does not say that when a notification is issued. Under section 7(1)(b) of the Act, remedies against the guarantors also stand suspended.  The appeals are accordingly allowed. Respondents Nos. 1 to 5 shall pay the costs of the appellant. M.L.A.                      

REFERENCES

https://indiankanoon.org

https://ww.scconline.com

This Article is written by Palak Kumari of Maharaja Agrasen Institute of Management Studies, Intern at Legal Vidhya.

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