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Pradeshiya Industrial Development Corporation Ltd. U.P. v. Hindustan Aeronautics Ltd. (Lucknow Division) & Ors.

Civil Appeal · 2018 INSC 83Decided 1 Feb 2018
Civil Appeal No. 1467 of 2018
Justice Kurian Joseph · Justice Mohan M. Shantanagoudar

Background

Pradeshiya Industrial Development Corporation Ltd., U.P. (PICUP) had issued bonds guaranteed by the State of U.P. to raise funds from entities including Hindustan Aeronautics Ltd. When PICUP failed to honour the bond terms, the bondholders moved the Allahabad High Court seeking to enforce the State's guarantee. The High Court held the State liable as guarantor and directed it to pay the outstanding amounts at the contractual interest rate, though it noted the principal amounts had since been paid. Both the State and PICUP, aggrieved by this ruling, filed a batch of eight connected appeals (including the present one) before the Supreme Court.

Decision Breakdown

The Supreme Court heard all eight connected appeals together and, with a view to finally ending the prolonged litigation, disposed of them with a composite set of directions rather than deciding each argument on maintainability separately. It held that the respondent bondholders were entitled to the contractual rate of interest up to the date the principal was repaid, and thereafter to interest at 11% per annum. The Court directed that payment be made within three months, failing which the rate would increase to 18% per annum and the responsible officer(s) would be made personally liable for the delay: a coercive measure to ensure compliance.

Lesson Learnt

When a government-backed guarantee is not honoured, the guarantor and principal can be held jointly liable for contractual interest, and courts can build in escalating consequences (higher interest, personal liability of responsible officials) to deter further delay in satisfying the judgment.

Official source (sci.gov.in)View Judgment (PDF)

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