1986 (2) TMI 340 - SC - Indian Laws

Summary

Issues Involved:
1. Territorial Jurisdiction of the Trial Court
2. Maintainability of the Suit
3. Impact of the Sugar Undertakings (Taking over of Management) Act, 1978 on the Suit

Summary:

1. Territorial Jurisdiction of the Trial Court:
The trial court found that it had jurisdiction to try the suit as the properties given as security were situated within its jurisdiction. This finding was not disputed by the parties.

2. Maintainability of the Suit:
Respondents Nos. 1 to 5 contended that the suit was not maintainable and should be stayed due to the provisions of the Sugar Undertakings (Taking over of Management) Act, 1978. The trial court, however, found no impediment to proceed with the trial despite the management of the mill being taken over by the Central Government.

3. Impact of the Sugar Undertakings (Taking over of Management) Act, 1978 on the Suit:
The High Court of Allahabad held that the trial of the suit for the recovery of Rs. 54,89,822.99 against respondents Nos. 1 to 5 should be stayed by virtue of the Act. The State Bank of India sought clarification from the High Court, which was denied, leading to the present appeals.

The Supreme Court examined section 7 of the Act, which allows the Central Government to suspend the operation of contracts and liabilities through a notification. The relevant notification dated March 21, 1984, explicitly excluded "secured liabilities to banks and financial institutions" from its scope. The Supreme Court noted that the High Court erred in overlooking this exclusion and held that the suit against respondent No.1 and the guarantors (respondents Nos. 2 to 5) was not affected by the notification.

The Supreme Court emphasized that the liability of the guarantors remains unaffected by the notification and that their liability is co-extensive with that of the principal debtor u/s 128 of the Indian Contract Act, 1872. Consequently, the High Court's order to stay the suit was set aside, and the trial court was directed to proceed with the suit.

Conclusion:
The appeals were allowed, and the orders passed by the High Court were set aside. The trial court was directed to proceed with the suit, and respondents Nos. 1 to 5 were ordered to pay the costs of the appellant.