Industrial Finance
Corporation of India Ltd.
v.
The Cannanore Spinning &
Weaving Mills Ltd. and Ors.
(2002) 5 SCC 54
FACTS
1st respondent took loan of Rs.35,00,000 secured by a deed of
mortgage executed by 1 respondent on 2.5.1963 which also included
the deferred payment guarantee facility of Rs. 5,62,230.40.
Defendants 2 to 4 in suit and one K. Damodaran (deceased) executed
a deed of mortgage in their individual capacity guaranteeing joint and
several liabilities for the repayment of the loan advanced to the first
defendant under the deed of guarantee dated 25.3.1963.
On 08.12.1964 defendants 2 to 4 and Damodaran; and defendants 5 to
6 executed a similar deed of guarantee for the total sum of Rs.
52,00,000
Again Rs.17,00,000 was granted as a loan by the plaintiffs.
Defendants 2 to 6 and K. Damodaran also executed a deed of counter
guarantee in their individual capacity and will jointly liable for the
repayment of the installment by the 1st defendant.
Defendant 5 and 6 also executed a counter guarantee.
Took another loan of Rs. 62,00,000 and all of them executed a
personal guarantee to repay the amount.
Indian Rupee was devalued on 6.6.1966 which increased the liability of the plaintiff
under the Deferred Payment Guarantee by Rs. 2,37,580.
Total DPG increased to Rs.6,73,429.
1st defendant repaid only Rs. 3,50,000 and the total interest to be paid on DPG was
Rs.16,03,224.
Central government took over the Mahendra and Cannanore units under the Industrial
Development and Regulation Act.
Issues
Whether the mortgage deeds executed by the defendants are not
capable of being enforceable in law?
Whether defendant nos. 3 to 6 are liable under the contract of
guarantee?
Whether the liability of defendant nos. 2 to 6 stood discharged on
behalf of the plaintiff?
Trial Court answered all the issues in favour of the plaintiff.
Stated that ‘The plaintiff, being in the position of a creditor, has nothing
to do with the loss or profit in the business of the first defendant or with
the nationalization of the undertaking of the first defendant’
High Court thus relied on Sections 140 and Sections 141 of the Indian
Contract Act, 1872.
Cases discussed
Case of Baily v. De Crespigny ILP (1869) IV QB 180
Maharashtra State Electricity Board, Bombay v. The Official Liquidator,
High Court, Ernakulam and Anr. AIR 1982 SC 1487
“lax non cogit ad impossibilia” means the law does not compel a man to do
that which he cannot possibly perform.
Judgment
SC held that the decision of Maharashtra State Electricity Board v. The
official Liquidator is applicable in the present case.
Appellant can recover money from respondents 1, 2 and
3(guarantors).
Even after nationalization the liability of the principal-borrower does
not come to an end.
Here, the contract of guarantee has no relation with the
Nationalization Act.
In terms of Section 141 of the Indian Contract Act, 1872 the contract
of guarantee cannot be termed as frustrated because of non-
availability of the security.
