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Issues: (i) Whether a suit by a factor for recovery of receivables and enforcement of guarantee was maintainable under Order XXXVII of the Code of Civil Procedure, 1908; (ii) whether the defendant-guarantor could claim the benefit of moratorium applicable to the principal borrower; (iii) whether the claim was barred by limitation or otherwise entitled the defendant to leave to defend.
Issue (i): Whether a suit by a factor for recovery of receivables and enforcement of guarantee was maintainable under Order XXXVII of the Code of Civil Procedure, 1908.
Analysis: The factoring legislation and the amendment to Order XXXVII were read as intended to extend summary remedy to recovery of receivables by an assignee. The statutory text did not confine the remedy only to proceedings against the approved debtor; the assignor and guarantor were not excluded. The guarantee in question was expressly independent, and the liability undertaken under it was for a quantified sum with agreed interest and charges, making the claim an ascertainable liquidated demand.
Conclusion: The suit was maintainable under Order XXXVII of the Code of Civil Procedure, 1908, and no leave to defend was warranted on this ground.
Issue (ii): Whether the defendant-guarantor could claim the benefit of moratorium applicable to the principal borrower.
Analysis: The moratorium under insolvency law was held not to extend to a surety or guarantor. The guarantee itself stated that it was independent of the principal contract and that the guarantor's liability would remain unaffected by the insolvency or winding up of the obligant. The liability was several and could be enforced separately.
Conclusion: The defendant-guarantor could not take shelter under the moratorium applicable to the principal borrower.
Issue (iii): Whether the claim was barred by limitation or otherwise entitled the defendant to leave to defend.
Analysis: The period during which the sick industrial company proceedings were pending was excluded for limitation purposes, and the suit was therefore within time. The filing of a criminal complaint under the negotiable instruments law did not bar the civil recovery claim. The defence raised did not disclose substantial triable issues in respect of the guaranteed amount, and the admitted contractual documents supported the quantified liability.
Conclusion: The claim was within limitation and the defendant was not entitled to leave to defend for the guaranteed sum.
Final Conclusion: The application for leave to defend failed and the suit was decreed against the guarantor for the guaranteed amount with interest, while ancillary claims beyond the guaranteed sum were left to be pursued in insolvency proceedings against the principal borrower.
Ratio Decidendi: A factoring assignee may invoke summary procedure to recover receivables from the assignor and guarantor where the liability is quantified, and insolvency moratorium applicable to the principal borrower does not extend to a guarantor under an independent contract of guarantee.
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