Debt recovery is a field where both physical and legal muscles have come into play in recent times. The burly agents employed by prominent banks have been restrained by numerous court orders. Financial institutions, therefore, have to resort to legal skill to get back their money. Several new laws have been passed to speed up the recovery but even then, the Supreme Court has to sort out the legal complexities quite often, as it did in two recent cases.
In Karnataka State Financial Corporation vs N Narasimhaiah, the court discussed the liability of directors of a company who stood surety for the loans taken by their industrial concern. Some directors of AP Rocks Ltd had executed deeds agreeing to guarantee repayment by the company to the state financial corporation of the loan in the form of non-convertible debentures. They offered their properties as collateral securities.
Three years later, their company defaulted, leading to recovery proceedings by the corporation. It invoked Section 29 of the State Financial Corporations Act and tried to take possession of the properties of the directors. They moved the high court which quashed the orders of the state corporation. The latter
