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of <h1>Supreme Court: Guarantor not released by debtor's scheme under Companies Act</h1> <h3>BK. Muthukrishna Sakthivel Vanavarayar Versus Somasundaram Mills (P.) Ltd.</h3> BK. Muthukrishna Sakthivel Vanavarayar Versus Somasundaram Mills (P.) Ltd. - [1976] 46 COMP. CAS. 274 (MAD.) Issues:Interpretation of Section 391 of the Companies Act, 1956 in relation to execution of a decree against a guarantor co-debtor.Analysis:The appellant obtained a decree against the first and second judgment debtors jointly and severally. The first judgment debtor, a company, entered into a compromise arrangement sanctioned by the High Court under section 391 of the Companies Act, binding on all creditors. However, the second judgment debtor, a guarantor, was not a company entitled to invoke the benefits of section 391. The decree did not suspend execution against the second judgment debtor until the first debtor paid. The Supreme Court held that a composition under section 391 does not affect the liability of a surety unless the contract of suretyship provides otherwise. The scheme sanctioned by the court does not release other persons, not parties to the scheme, from their obligations. Therefore, the decree was executable against the second judgment debtor despite the scheme benefiting the first debtor.The Subordinate Judge had held that the decree holder was not entitled to execute the decree against the second judgment debtor due to the scheme sanctioned under the Companies Act. However, the High Court reversed this decision, emphasizing that the second judgment debtor, being a guarantor, was independently liable to pay the decretal amount. The court directed the lower court to restore the Execution Petition and proceed with execution against the second judgment debtor. The judgment debtors did not appear, and the appellant was awarded half the costs of the appeal.In conclusion, the judgment clarified the application of section 391 of the Companies Act in the context of executing a decree against a guarantor co-debtor. It established that a scheme benefiting a debtor company does not release a guarantor co-debtor from their obligation under a joint and several decree. The decision emphasized the independent liability of the guarantor and upheld the decree holder's right to execute the decree against the second judgment debtor.
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