2008 (11) TMI 401 - HC - Companies Law

Summary

Issues:
Challenge to interlocutory order under Companies Act, 1956 - Application under section 446(1) and (3) - Suit against guarantors of a company in liquidation - Liability of guarantors in absence of principal debtors.

Analysis:
The petitioners, who are directors and guarantors of a company in liquidation, challenged an interlocutory order rejecting their application under section 446(1) and (3) of the Companies Act, 1956 in a Special Civil Suit filed by the State Bank of India for recovery of a specific amount. The petitioners argued that since a liquidator had been appointed for the company, the suit should not proceed and be transferred accordingly. However, the Bank contended that the suit was against the guarantors (petitioners) and not the company, hence the provisions of section 446 were not applicable.

The court noted that the main prayers in the suit were against the guarantors (petitioners) and not the company, as they were directors and guarantors involved in the transaction with the Bank. It was highlighted that the Bank could file a suit against the guarantors for recovery, even in the absence of principal debtors. The court emphasized that the guarantors could not evade their liability to pay the debt owed to the Bank simply because the company was in liquidation. The court found that the rejection of the application was in line with the law and the nature of the suit, and the petitioners had unnecessarily delayed the proceedings.

Ultimately, the court dismissed the writ petition with costs and vacated the interim order. The judgment reaffirmed the liability of guarantors, even in the scenario of a company in liquidation, emphasizing that they cannot escape their obligation to pay the debt if a case is established against them.