Suing directors for loan recovery

The Supreme Court last week ruled that though a mortgage of assets of a company which failed to return a loan may have come to an end with their sale, the contract of indemnity with regard to the loan would continue. They are independent contracts. The directors who stood guarantee will still be liable to return the full loan.

Therefore, the financial institution which proceeded against the borrower firm can sue it and the guarantors for recovery of the balance of the loan if the sale proceeds are not sufficient to satisfy the claims of the secured creditors. The court reconciled two of its earlier judgments which were apparently contradictory in the new judgment, Deepak Bhandari vs Himachal Pradesh Industrial Development Corporation. In this case, the corporation issued recall notice to the firm in 1990 and sold the assets in 1994. But the amount recovered was not sufficient to meet the claims of the corporation and another secured creditor.

Therefore, the directors of the firm were sued in the high court in 1994 for the balance of the dues. They opposed it arguing that the suit was beyond the time limit as the recall notice was in 1990 and the suit was filed four years later. It should have been within three years according to the law of limitation. The high court rejected the contention. One director appealed, but the Supreme Court upheld the high court view and asserted that the period of limitation starts from the date when the assets were sold (1994) and not when the recall notice was given (1990).

Cane growers not paid for years

The Supreme Court has dismissed the appeal of Anand Agro Chem Ltd seeking to restrain the arrest of its directors and its occupiers for not paying sugarcane farmers their dues of 2007-2008, leading to prolonged litigation. Though the directors have made promises to the Cane Commissioner of Uttar Pradesh that they would pay the growers Rs 16 crore, they were not kept "on one pretext or the other."

Dismissing their pleas, the court said: "We regret to say that the amounts due to the farmers towards price of the sugarcane and incidentals remain to be paid for several years thereby accumulating huge liability against the company. That is not a happy situation nor can repeated invocation of the process of law be a remedy for it."

Charitable society can claim damages

A charitable society whose members have renounced the world and have no family can claim compensation if a member dies in a road accident under the Motor Vehicles Act. The society will be deemed to be the legal representative of the deceased member, the Supreme Court held last week in the appeal, Montfort Brothers vs United India Insurance Co.

According to the rules of the registered society, whatever a member, called 'brother', receives by way of salary, subsidies, gifts, pension or from insurance or other such benefits belongs to the community as by right and goes into the common purse. In this case, one of the brothers died in an accident in Aizawal when his jeep hit a Maruti Gypsy. The society demanded compensation, and the tribunal allowed it. However, the insurance company moved the Gauhati High Court which upset the order stating that the society had no locus standi. On appeal, the Supreme Court restored the tribunal's order.