1977 (8) TMI 174 - HC - Indian Laws

Summary

Issues Involved:
1. Interpretation of Section 4(b) of the Tamil Nadu Relief Undertaking (Special Provisions) Act, 1969.
2. Interpretation of Section 128 of the Indian Contract Act, 1872.
3. Maintainability of suits and insolvency proceedings against guarantors of relief undertakings.

Detailed Analysis:

1. Interpretation of Section 4(b) of the Tamil Nadu Relief Undertaking (Special Provisions) Act, 1969:

The primary issue in these appeals is the interpretation of Section 4(b) of the Tamil Nadu Relief Undertaking (Special Provisions) Act, 1969. The section allows the government to suspend the operation of certain contracts involving relief undertakings. The appellants argued that this suspension should extend to sureties who guaranteed debts of the relief undertakings, meaning that no action could be taken against the guarantor during the suspension period. This interpretation was supported by referencing Supreme Court decisions which emphasized that statutory words should be given their plain meaning unless they are ambiguous.

However, the court found that the suspension of the contract of the principal debtor (relief undertaking) does not extend to the guarantor's obligations. The court cited the Supreme Court decision in Inderjit v. B. K. Bhatt, which clarified that the immunity provided to relief undertakings does not extend to individual obligations of directors or officers. The court also referenced the Bombay High Court decision in Ramachandra v. Shapurji, which distinguished between contracts of guarantee and indemnity, emphasizing that a contract of guarantee involves separate agreements between the creditor and the guarantor, and the principal debtor and the surety.

Ultimately, the court concluded that Section 4(b) does not suspend the obligations of guarantors, and actions against them can proceed independently of the suspension of the principal debtor's contracts.

2. Interpretation of Section 128 of the Indian Contract Act, 1872:

Section 128 of the Indian Contract Act states that the liability of the surety is co-extensive with that of the principal debtor, unless otherwise provided by the contract. The court interpreted "co-extensive" to relate only to the quantum of the principal debt. The court referenced a Full Bench decision in Subramania v. Narayanaswami, which established that a surety's liability is not extinguished by the principal debtor's debt becoming unenforceable due to subsequent events, such as bankruptcy or statute of limitations.

The court noted that the liability of the guarantor arises from an independent contract and remains unaffected by the suspension of the principal debtor's obligations under the Act. The court emphasized that the suspension under Section 4(b) is temporary and does not extinguish the principal debt, as indicated by Section 7 of the Act, which excludes the suspension period from the limitation period for enforcing any right or liability.

3. Maintainability of Suits and Insolvency Proceedings Against Guarantors:

The court addressed the maintainability of suits and insolvency proceedings against guarantors of relief undertakings. In O.S.A. 49 of 1975, the court held that the suit against the guarantors was maintainable, but the suit against the relief undertaking was not, due to the notification under Section 3 of the Act. The court clarified that the dismissal of the suit against the relief undertaking was based on the current state of affairs and did not preclude future action if the ban is lifted.

In O.S.A. 68 of 1976, the court upheld the decision that insolvency proceedings against the guarantor were maintainable. The court reasoned that if a suit against the guarantor is permissible, so are proceedings to adjudge the guarantor as insolvent. The court dismissed the appeal, affirming that the action to adjudge the surety as insolvent is not an action for recovery of the debt, and thus Section 4(b) does not apply.

Conclusion:

The court allowed O.S.A. 49 of 1975 to the extent that the suit against the guarantors shall proceed, while dismissing the suit against the relief undertaking. O.S.A. 68 of 1976 was dismissed, affirming the maintainability of insolvency proceedings against the guarantor. The court clarified that the dismissal of the suit against the relief undertaking was due to the current notification and does not prevent future action if the notification is lifted. The court also upheld the original judgment regarding costs.