Madhya Pradesh High Court
District Cooperative Central Bank ... vs Arun Kumar Sawla on 6 September, 2019
Author: Vivek Agarwal
Bench: Vivek Agarwal
1
THE HIGH COURT OF MADHYA PRADESH
W.P. No. 14388/2018
(DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.)
Gwalior, 06/09/2019
Per Vivek Agarwal, J.
Shri Vivek Jain, learned counsel for the petitioner. Shri Raghvendra Dixit and Shri Ravindra Dixit, learned counsel for the respondent No1.
Shri Pratip Visoriya, learned Government Advocate for the respondent No.2.
This writ petition has been filed by the District Cooperative Central Bank Maryadit being aggrieved by judgment dated 21.05.2018 passed by the Debts Recovery Appellate Tribunal, Allahabad, in Appeal No. 67/2017, whereby learned DRAT has dismissed the appeal filed by the Bank under Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the 'SARFAESI Act').
Brief facts leading to present writ petition are that, respondent Arun Kumar Sawla had taken a loan for purchase of drip equipment and cash credit limit to the tune of Rs. 30 Lacs. While taking such loan/cash credit limit in the year 1994, he had mortgaged half of the portion of the plot measuring measuring 14000 square feet situated at Pichore Tri Junction, Dabra, District Gwalior.
When recovery proceedings were initiated against the respondent Arun Kumar Sawla and his guarantor Ramswaroop Sawla 2 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) then such guarantor approached Debts Recovery Tribunal, wherein vide judgment 1.10.2012 passed in S.A. No. 101/2010, (Shri Ramswaroop Sawla Vs. Authorized Officer & Another), learned DRT allowed the S.A. observing that respondent/bank had released the title deeds of the property of the guarantor consequent to the order of Hon'ble High Court, and therefore, no security interest existed in favour of the bank and quashed the recovery proceedings initiated by the Bank.
When notice for recovery was issued again, then respondent borrower, Arun Kumar Sawla approached the Debts Recovery, Tribunal, by filing secutarization application No.87/2016. Debts Recovery Tribunal vide order dated 03.02.2017 allowed the secutarization application and quashed the demand notice dated 24.08.2015 and all further proceedings pursuant to demand notice on the ground that when the demand notice itself was not served upon the guarantor, as has been fairly conceded by the counsel for the respondent/Bank, the whole process adopted by the bank is nothing but an abuse of process of law.
Learned counsel for the petitioner submits that when this order was put to challenge before the DRAT, then DRAT over-looked the submission that there was no need for service of demand notice under Section 13 (2) of the SARFAESI, Act on the guarantor, Ramswaroop 3 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) Sawla and Bank was entitled to recover its dues from the original borrower.
Learned DRAT while dismissing the appeal observed as under
under :
"13. The definition of the borrower is provided under section 2
(f) of the SARFAESI Act in which the word "borrlower" includes a person, who has given any guarantee or created any mortgage or pledge as security for the loan granted by teh Bank, so even if the person who has given any guarantee simpliceter without any mortgage of the property, is covered under the definition of the borrower. Section 13 (2) of the SARFAESI Act specifies that the borrowe, who is under the liability to the secured creditor under a security agreement, is to be served a sixty days notice by the secured creditor to dischage the liability, failing which the secured creditor may proceed under sub-section (4) of Section 13 of the SARFAIESI Act. Thus, any person, borrower or guarantor, who is under teh liability on the basis of the security agreement, is required to be served a notice which is irrespecitve of the fact whether any property was mortgaged or not. Further, Rule 3 (4) of the Security Intrest (Enforcement) Rules, 2002 (hereinafter referred to as "the Rules, 2002") provides that the demand notice shall be served on each borrower.
14. Thus, a conjoint reading of the aforesaid provisions with regard to issuance of demand notice leads to a conclusion that the borrower and the guarantor, who have executed the security agreement or are liable to repay the loan, are required to be served the demand notice. The liability of the borrowers and the guarantors is co-extensive, so unless the guarantor is discharged from his liability, he or she is equally liable to repay the loan. The purpose of service of 60 days notice is to provide an opportunity to the borrower, guarantor and the mortgagor to arrange the funds and 4 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) liquidate the outstanding dues so to save the properties belonging to any of the borrowers/mortgagors.
15. There appears to be no substance in the argument that in absence of title deed of the property, the details as required under section 13 (3) would remain incomplete. Though, the section 13 (3) provides to detail out hte amount payable by the boorower and the secured assets intended to be enforced, but it cannot be inferrred that if any guranator has not mortgaged the property, then notice cannot be served because whatever secured assets belonging to the borrower/guarantor are there with the secured creditor, require to be mentioned in the notice.
16. In the instant case, the demand notice dated 24.08.2015 was issued only to the borrower Arun Kumar Sawla and no notice was issued to the guarantor Shri Ram Swaroop Sawla. Therefore, the compliance of section 13 (2) has not been made by the Bank and the Tribunal below has rightly set aside the proceedings of the Bank, so no interference is called for in the impugned order passed by the Tribunal below."
Thus, the moot question for consideration is, whether the Bank was required to serve the demand notice to the guarantor even after release of the mortgaged property ?
In case of Industrial Investment Bank of India Limited Vs. Biswanath Jhunjhunwala, as reported in, (2009) 9 SCC 478, it has been held that liability of guarantor and principal debtors is coextensive but not in the alternative. Both principal debtor and surety are liable at the same time to the creditors; therefore High Court was not justifieed in inteferring with proceedings before DRT. Refrence to the following paragraphs of the judgment will be help in understanding 5 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) the concept :
18. The term "co-extensive" has been defined in the celebrated book of Polock & Mulla on Indian Contract and Specific Relief Act, 10th Edn., at p.728 as under:
"Co-extensive. - Surety's liability is coextensive with that of the principal debtor.
A surety's liability to pay the debt is not removed by reason of the creditor's omission to sue the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety, and a suit may be maintained against the surety though the principal has not been sued."
19. In Chitty on Contracts, 24th Edn., Vol. 2 at pp. 1031-32, para 4831 it is stated as under, "4831. Conditions precedent to liability of surety.- Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor."
20. In Halsbury's Laws of England, 4th Edn.,Vol. 20, para 159 at p. 87 it has been observed that "159. ...It is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for".
21. A Division Bench of the Bombay High Court in Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath and Ors. AIR 1940 Bom 247 held that the liability of the surety is co-extensive, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors. A Division Bench of the High Court of Karnataka, in Hukumchand Insurance Co. Ltd. v. Bank of Baroda & Others AIR 1977 Kant 204 had an occasion to consider the question of liability of the surety vis-a-vis the principal debtor. The court held as under: (AIR p.208, para12) 6 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) "12. .... The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is coextensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously."
22. The case of the respondent has never been that the liability of the guarantor is only contingent and if remedies against the principal debtor failed to satisfy the dues of the decree holder, then only the bank can proceed against the guarantor.
23. Mr. Gupta also asserted that the remedy under Section 19 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 is not in derogation of section 40 of the IRBI Act.
24. In Transcore v. Union of India & Another (2008) 1 SCC 125, this Court in great detail examined whether withdrawal of suit pending before the Debts Recovery Tribunal under the DRT Act is not a precondition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This court held that it is for the bank or the financial institution to exercise its discretion. In case of United Bank of India Vs. Satyawati Tondon and Others, (2010) 8 SCC 110, it has been discussed in Para 36, 37, 40, 41 and 56 in the following terms :
36. We have heard learned counsel for the appellant and perused the record. Normally, this Court does not interfere with the discretion exercised by the High Court to pass an interim order in a pending 7 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) matter but, having carefully examined the matter, we have felt persuaded to make an exception in this case because the order under challenge has the effect of defeating the very object of the legislation enacted by the Parliament for ensuring that there are no unwarranted impediments in the recovery of the debts, etc. due to banks, other financial institutions and secured creditors.
37. The question whether the appellant could have issued notices to Respondent 1 under Section 13(2) and (4) and filed an application under Section 14 of the SARFAESI Act without first initiating action against the borrower i.e., respondent No.2 for recovery of the outstanding dues is no longer res integra. In Bank of Bihar Ltd. v.
Damodar Prasad, (1969) 1 SCR 620, this Court considered and answered in affirmative the question whether the bank is entitled to recover its dues from the surety and observed:
"6 ...It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Contract Act, and he may then recover the amount from the principal. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down."
40. In view of the law laid down in the aforementioned cases, it must be held that the High Court completely misdirected itself in assuming that the appellant could not have initiated action against Respondent No.1 without making efforts for recovery of its dues from the borrower - respondent No.2.
41. The facts of the present case show that even after receipt of notices under Section 13(2) and (4) and order passed under Section 14 of the SARFAESI Act, Respondents 1 and 2 did not bother to pay the outstanding dues. Only a paltry amount of Rs.50,000/- was paid 8 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) by respondent No.1 on 29.10.2007. She did give an undertaking to pay the balance amount in installments but did not honour her commitment. Therefore, the action taken by the appellant for recovery of its dues by issuing notices under Section 13(2) and 13(4) and by filing an application under Section 14 cannot be faulted on any legally permissible ground and, in our view, the Division Bench of the High Court committed serious error by entertaining the writ petition of Respondent 1.
56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set-aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.
In case of Ram Kishun and Others Vs. State of Uttar Pradesh & Others, (2012) 11 SCC 511, principle of liability of the guarantor/surety being coextensive with that of principal debtor has been explained. In case of State of Bank of India Vs. M/s Indexport Registered and Others, (1992) 3 SCC 159, it has been held that decree-holder bank can execute the decree first against the guarantor without proceeding against the mortgaged property. Guarantor can be sued without even suing the principal debtor. Guarantor's liability is co-extensive with that of the principal debtor.
Thus, only question which has been raised before this Court is as to the legal interpretation of Section 2 (f) of the SARFAESI, Act as to whether a lender can proceed against a borrower without proceeding 9 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) against guarantor or not ?
Learned counsel appearing for the borrower, in his turn, submits that there is no illegality in the orders passed by the DRT and the DRAT inasmuch as a conjoint reading of provisions of Section 2 (f) of the SARFAESI, Act, so also provisions contained in Rule 3 (4) of the Security Interest (Enforcement) Rules, 2002, Bank was not authorized to proceed only against the borrower because borrower includes a guarantor and this aspect has been rightly interpreted by the Debts Recovery Tribunal as well as the appellate tribunal.
As has been discussed above, only legal question involved in this case is as to the interpretation of the definition of "borrower" given under Section 2 (f) of the SARFAESI, Act 2002.
Section 2 (f) reads as under :-
"2. (f) "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a [asset reconstruction company] consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance [or who has raised funds through issue of debt securities];"
Rule 3 (4) of the Security Interest (Enforcement) Rules, 2002, reads as under :
"3. (4) Where there are more than one borrower, the demand notice 10 THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) shall be served on each borrower."
A reading of Section 2 (f) of the SARFAESI Act makes it abundantly clear that the use of word "or" is normally disjunctive and "and" is normally conjunctive. In case of Nasiruddin Vs. State Transport Appellate Tribunal, as reported in, AIR 1976 SC 331, it has been held that you do not read "or" as "and" & vice versa unless you are obliged because "or" does not generally mean "and" and "and" does not generally mean "or". Principles of statutory interpretation in 13th Edition 2012 by Justice G.P. Singh, former the Chief Justice of Madhya Pradesh High Court, in Chapter 5 synopsis 7, on subsidiary Rules, while dealing with conjunctive and disjunctive words has made a reference to Lord Halsbury who has pointed out that the reading of "or" as "and" is not to be resorted to unless some other part of the same statute or the clear intention of it requires that to be done. In this regard, reference can be made to the law laid down in case of Pooran Singh and Another Vs. State of M.P., as reported in, AIR 1965 SC 1583.
In case of Union of India Vs. Ind-Swift Laboratories Ltd. 2011 (4) SCC 635, it has been held that where provision is clear and unambiguous the word "or" cannot be as read as "and" by applying the principles of reading down.
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THE HIGH COURT OF MADHYA PRADESH W.P. No. 14388/2018 (DISTRICT COOPERATIVE CENTRAL BANK MARYADIT Vs. ARUN KUMAR SAWLA & ANR.) In view of such principles of interpretation of statute, we have no hesitation to hold that both Debts Recovery Tribunal and Debts Recovery Appellate Tribunal erred in reading the definition of "borrower" treating "or" as conjunctive rather then disjunctive. They erred in treating 'or' as 'and' and committed the mistake which if they would have taken into consideration the principles of statutory interpretation, could have been avoided; therefore, since the definition of borrower is disjunctive and leaves an option on the financial institution or bank to proceed either against the borrower or against the guarantor or against the both, the Tribunals below erred in holding that bank was not authorized to proceed only against borrower in absence of service of notice to the guarantor under Section 13 (2) of SARFAESI Act. Therefore, the impugned judgments dated 03.02.2017 and 21.05.2018 passed by DRT and DRAT are hereby set-aside. The Bank is free to proceed against the borrower as per the terms and conditions of the contract.
(Sanjay Yadav) (Vivek Agarwal)
Judge Judge
Aman
Aman Tiwari
2019.09.19 11:20:13 +05'30'