LexINDUSTRIAL FINANCE CORPORATION OF INDIA LTD. versus THE CANNANORE SPINNING AND WEAVING MILLS LTD. AND ANR.
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or·~- INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. A v. THE CANNANORE SPINNING AND WEA YING MILLS LTD. AND ORS. APRIL 12, 2002 [UMESH C. BANERJEE AND Y.K. SABHARWAL, JJ.] Contract Act, 1872: Section 56, 139, 140 and 141. B Principal Debtor obtained loan from creditor-Default in payment of C instalments-Nationalisation of sick units-Contract of Guarantee between creditor and sureties-Discharge o~Held, Guarantor/surety has strict liability towards creditor and creditor's right of action against surety is presumed unless such discharge is· through the voluntary act of creditor without the consent of the surety/guarantor-Sick Textile Undertakings (Taking over of D Management) Act, 1972--Sick Textile Undertakings Nationalisation Act, 1974- Sections 5 and 29. Doctrine of Frustration-Applicability of-Held, it cannot be invoked as principal debtor failed to pay to the creditor the entire sum due-On facts held, Guarantee stands invoked since the contract of guarantee is an E independent contract having no correlation with the Nationalisation Act. Interpretation of Statutes : Legislation-Where the words are clear the Court cannot demur the same on the ground that Legislature must have intended them otherwise. Legal Maxims : "Lex non cogit ad impossiblia"; "impotentia excus'at Legem"; "nemo tenetur ad impossibilia"-Meaning and applicability of F Respondent-Mills, the principal· Debtor, had approached the Industrial G Financial Corporation for loan to set up new units. Principal Debtor had . deposited the title deeds and also executed a deed of hypothecation in respect of movable assets and promissory note for the entire loan amount. Besides, Principal Debtor-1st Respondent also executed a mortgage deed for the entire loan amount as security for the repayment of the loan which also included H 1093 1094 SUPREME COURT REPORTS [2002] 2 S.C.R. A Deferred Payment Guarantee (DPG) facility. This was followed by an equitable mortgage by the deposit of title deeds by the Debtor as security for DPG facility in addition to promissory note for the said amount. Defendants · 2 to 6 and· one K.D. (Since deceased), executed a deed of mortgage in their individual capacity as surety for joint and several liability. They also executed B a deed of counter guarantee in their individual capacity undertaking a joint and several liability for the prompt repayment of loan instalments. According to the Creditor-plaintiff, the conditions of guarantee inter alia contained a clause that the guarantee would stand enforceable against defendants 2 to 6 and K.D. notwithstanding the security specified in the security documents or any of them. Subsequently, at the request of the principal debtor-first C defendant, plaintiff revised the schedule of repayment. In the meanwhile, there was devaluation of Indian rupee which increased the liability of the plaintiff under the DPG and contingent liability on account of default of the defendant was also increased. The 1st defendant-principal debtor repaid certain amount towards the loan .and also towards interest D under the DPG. The Central Government took over the management of the Mills of Defendant No.1 under the Industrial Development and Regulation Act. The foreign supplier' invoked the DPG against the Plaintiff as the first defendant defaulted in payment of further instalments. First defendant- principal debtor acknowledged the liability but failed to repay. However, E Defendants 2 to 6 the sureties, repudiated their liability. Further, with the enactment of the Sick Textiles Undertaking (Nationalisation) Act, two of the units of Defendant No. 1-Principal Debtor were nationalised. Therefore, properties and management of these Units stood transferred and vested in the Central Government, free from all F encumbrances and charges. But in view of Section 6 of the Act, the liabilities of the first Defendant continued and remained alive and therefore, enforceable against the first defendant. Defendants 2 to 6 and K.D. served as Agents . between the plaintiff and the first defendant-Company. Creditor-plaintiff filed a suit preferring the claim before the trial court in terms of Nationalisation Act. Trial Court decreed the suit in favour of plaintiff-creditor. Aggrieved, G defendants-principal debtor and sureties moved the High Court.)ligh Court held that the suits against sureties must fall Hence this appeal The appellant inter a/ia contended that the f
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