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1979 DIGILAW 82 (GUJ)

RAMANLAL AMRATLAL SHODHAN v. EMPLOYEES STATE INSURANCE CORPORATION AHMEDABAD

1979-06-20

S.H.SHETH

body1979
S. H. SHETH, J. ( 1 ) EMPLOYEES State Insurance Corporation (hereinafter referred to as `the plaintiff) has filed in the City Civil Court at Ahmedabad Civil Suit No. 2831 of 1972 against defendant No. 1 who is the Official Liquidator of Anant Mills Limited and defendant No. 2 who was the Managing Director of that company for recovering a sum of Rs. 2 80 268 p. which according to the plaintiff are recoverable as a special contribution from Anant Mills Limited under the Employees State Insurance Act. Anant Mills Ltd. is a company under liquidation. Defendant No. 2 has been joined as a party to the suit because he is the guarantor. The Official Liquidator representing the company has not filed the written statement in the suit. Defendant No. 2 has filed his written statement and inter alia raised the contention that the trial Court has no jurisdiction to entertain the suit. Issue No. 6 raised by the learned trial Judge relates to the jurisdiction of the Court to entertain and try the suit. It was tried by the learned trial Judge as a preliminary issue. Reliance was placed upon sec. 446 of the Companies Act 1956 in support of the contention that the trial Court has no jurisdiction to proceed with the suit. The learned trial Judge negatived the contention and held that he has jurisdiction to try the suit. ( 2 ) IT is that order which is challenged by defendant No. 2 in this civil revision application. ( 3 ) MR. M. M. Shah who appears on behalf of defendant No. 2 has invited my attention to sub-sec (1) of sec. 446 of the Companies Act which according to him bars the jurisdiction of the Court to try the suit. It provides as follows :-"when a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator no suit or other legal proceeding shall be commenced or if pending at the date of the winding up order shall be proceeded with against the company except by leave of the Court and subject to such terms as the Court may impose. "it is not in dispute that the winding up order has been made in respect of Anant Mills Ltd. and that Official Liquidator has been appointed. "it is not in dispute that the winding up order has been made in respect of Anant Mills Ltd. and that Official Liquidator has been appointed. It is also not in dispute that when the winding up order was made the present suit was pending in the City Civil Court against both the defendants. The contention which Mr. M. M. Shah has raised is that except by leave of the Court which made the winding up order that suit cannot proceed against the company as well as against the guarantor. Sub-sec. (1) of sec. 446 expressly provides that except by the leave of the Court and subject to such terms as the Court may impose a pending suit shall not be proceeded with against the company only. The guarantor of the company is not the company itself. they are two different and distinct legal persons. Therefore merely because the Official Liquidator representing the company has been joined as a party to the suit it cannot be said that the suit cannot proceed against the other defendant. To include a guarantor in the expression the company used in sub-sec. (1) of sec. 446 is to unduly widen its connotation and to introduce in the section what the Parliament has not intended to introduce. ( 4 ) MR. S. B. Vakil who appears on behalf of the plaintiff has argued that the liability of the guarantor is distinct from the liability of the company and that therefore independently of the liability of the company the liability of its guarantor can be adjudicated upon and enforced in a Court of Law. In order to make good that contention he has invited my attention to the decision of the Supreme Court in PUNJAB NATIONAL BANK LTD. V. SRI BIKRAM COTTON MILLS LTD. AND ANOTHER A. I. R. 1970 S C. 1973. The principles which have been laid down by the Supreme Court in that decision are as follows. A contract of guarantee requires concurrence of three persons the principal debtor the surety and the creditor the surety undertaking an obligation at the request express or implied of the principal debtor. The obligation of the surety depends substantially on the principal debtors default. A contract of guarantee requires concurrence of three persons the principal debtor the surety and the creditor the surety undertaking an obligation at the request express or implied of the principal debtor. The obligation of the surety depends substantially on the principal debtors default. Where a managing agent of a company executes in favour of a Bank a promissory note a deed of hypothecation and a letter assuring the Bank that the company shall remain solely responsible for all loss to the hypothecated stock and as a part of the same arrangement the managing director or the managing agent in his individual capacity executes a bond called an agreement of guarantee reciting that he that managing director guarantees to the Bank payment on demand of all monies which may at any time be due to the Bank from the Company the guarantee is a continuing guarantee for the balance which may remain due to the Bank on such cash credit account. The liability of the surety under sec. 128 Contract Act is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Therefore in each case the terms of the bond may have to be considered to find out whether the liability of the surety is not co-extensive with that of the principal debtor. In the case before the Supreme Court the liability of the guarantor was co-extensive with that of the company. It was therefore held that the suit filed against the guarantor was not premature. ( 5 ) IN JAGANNATH GANESHRAM AGARWALA V. SHIVNARAYAN BHAGIRATH 42 B. L R. 451 it has been laid down by the High Court of Bombay that the liability of a guarantor or a surety may be co-extensive or may be in the alternative. If the liability of the guarantor or the surety is co-extensive with the liability of the principal debtor then it is open to the creditor to recover the amount from any one of them. The jurisdiction of the Civil Court to try the suit against the guarantor is not at all affected irrespective of whether the liability of the guarantor is co-extensive with that of the company or is in the alternative. If it is co-extensive with that of the company the proof of the liability itself will render the guarantor liable independently of the company. If it is co-extensive with that of the company the proof of the liability itself will render the guarantor liable independently of the company. If his liability is in the alternative the guarantor can raise that defence and escape on merits the liability to make good the amount until the company has finally failed to make it good. Whatever may be the nature of the liability jurisdiction of the Civil Court to try the suit against the guarantor is not at all affected. On merits if the guarantor is not liable he may raise the defence prove it and succeed. ( 6 ) MR. Shah who appears on behalf of defendant No. 2 has next argued that the plaintiffs claim has priority over other claims in the matter of its realisation from the assets of the company. Assuming that it has such a priority it does not affect the jurisdiction of the civil court to entertain and try the suit against defendant No. 2. Priority or no priority if the liability of the guarantor is co-extensive the creditor can at his option lay his hands on any one principal debtor or guarantorat any time. If the liability of the guarantor is in the alternative that defence can be raised on merits by the guarantor. In any case it does not bar the jurisdiction of the Civil Court h entertain the suit against the guarantor. ( 7 ) MR. Vakil has further argued that even if the company is statutorily discharged from the liability to pay the amount the guarantee furnished by the guarantor is not necessarily discharged. I am not expressing any opinion on this aspect because it does not affect the jurisdiction of the Court to proceed with the suit against the guarantor. If the guarantor thinks that the company has been statutorily discharged from the liability and that therefore he too is discharged from that liability he may raise that contention in defence make it good and have the suit as against him dismissed. This aspect has nothing to do with the jurisdiction of the Civil Court to entertain and proceed with the suit. ( 8 ) MR. Vakil has brought to my notice the order made by this Court in Company Application No. 166 of 1978 granting to the plaintiff on 4th August 1978 leave to proceed with the suit as against the company. ( 8 ) MR. Vakil has brought to my notice the order made by this Court in Company Application No. 166 of 1978 granting to the plaintiff on 4th August 1978 leave to proceed with the suit as against the company. There fore not only the suit as against defendant No 2 can proceed but it can also proceed as against defendant No. 1. ( 9 ) IN the result I find that the trial Court has jurisdiction to proceed with the suit The impugned order therefore suffers from no infirmity. The Civil Revision Application therefore fails and is dismissed. Rule is discharged with costs. ( 10 ) IN this Civil Revision Application defendant No. 1 has also prayed for transfer of the suit from the City Civil Court at Ahmedabad to this Court. I cannot decide this plea in a revision application. Defendant No. 2 will be at liberty to make an appropriate application to this Court for the purpose if he thinks fit to do so. Application dismissed. .