The right of a Financial Corporation to recover dues from guarantors survives post-liquidation of the principal debtor, and such guarantees remain enforceable.

ORDER :

The petitioner herein, the Tamilnadu Industrial Investment Corporation Limited (hereinafter be referred as: 'TIIC' in short), is a Public Financial Institution incorporated under the Companies Act and governed by the provisions of the State Financial Corporations Act, 1951.

2. The First Respondent, M/s.Pulsar Electronics Limited (hereinafter be referred as: 'Company' in short) applied for a term loan of Rs.60 lakhs on 07/05/1987 for the purchase of land, machinery and construction of building to set up a factory for manufacturing Electronic bush Button for Telephones. The Company availed the loan from TIIC and hypothecated the machinery by way of deed of hypothecation on 04/12/1987 for a sum of Rs.60 lakhs. The respondents 2 to 8 are the guarantors. They executed deed of continuing and binding guarantee on 04/12/1987 and 17/06/1988. The title deeds of the factory site was deposited with the TIIC.

3. As per the terms and conditions, the first respondent is supposed to repay the loan with 16% interest per annum in 12 equal half-yearly instalments. Due to default in repayment, on 10/03/1994, TIIC took possession of the mortgaged land and building at Kakkalur Industrial Estate, along with the machineries been hypothecated.

4. Meanwhile, a winding up petition was filed before the High Court of Madras in Company Petition No.5 of 1994 as against the 1st respondent/Company. In the said petition, the Official Liquidator was appointed who took charge of the Company assets and liquidated the same. The petitioner/TIIC participated in the proceedings and received a sum of Rs.55 lakhs. The petitioner, claiming a sum of Rs.12,18,39,232.60/- as balance amount on 18.09.2011 after giving credit to the remittance made by the 1st respondent/Company, including the receipt of Rs.55,00,000/- from the Official Liquidator, has preferred the present petition under Section 31(a), 31(aa) and 32 of the State Financial Corporations Act 1951.

5. Out of eight respondents, the third respondent namely, V.P.Raman died and the petition against him got abated. Except for the 6th respondent/S.Padmanabhan and 7th respondent/Padmaja Financial Services, represented by S.Padmanabhan, the other respondents have not filed any counter.

6. As far as counter filed by the 6th and 7th respondents is concerned, they have denied obligation to pay any money to the petitioner. To assist the 1st respondent financially, the 7th respondent invested a sum of Rs.26,10,000/- by acquiring Rs.2,61,000/- shares from the 1st respondent Company. The 1st respondent/Company availed term loan facility from the petitioner/TIIC. At the request of the petitioner/TIIC, the 6th respondent gave personal guarantee and the 7th respondent gave Corporate Guarantee for the Term Loan facility. The guarantee was given in the year 1988 but thereafter it was not renewed. On 24.11.1991, the 2nd respondent/N.S.Ravindran, the promoter of the 1st respondent/Company agreed to purchase the shares of the 7th respondent. In terms of the agreement executed between the 7th respondent and 2nd respondent, on 24.11.1991, the 2nd respondent acquired entire shares of the 7th respondent in the 1st respondent/Company. The said transfer of shares was approved by the 1st respondent Company. As a consequence, upon the sale of entire shares, the 6th respondent resigned from the Board of the 1st respondent Company which effect from 29.05.1992 and same was accepted in the Board meeting of the 1st respondent Company held on 29.05.1992 in which the nominee of the petitioner/TIIC was present. Thus, the transfer of shares and relinquishment of the personal guarantee were known to the petitioner/TIIC as early as 29.05.1992. A request on behalf of the 6th and 7th respondents to release their personal guarantee and Corporate Guarantee, respectively was sent to the petitioner/TIIC vide letter dated 04.06.1992. Thereafter, the 6th and 7th respondents not aware of the functioning of the 1st respondent Company.

7. The petitioner/TIIC, in e