Allahabad High Court
Smt. Sudha Devi vs State Of U.P. And Anr. on 14 May, 1992
Equivalent citations: [1993]76COMPCAS253(ALL)
JUDGMENT V.K. Khanna, J.
1. One Dwarika Prasad took a loan of Rs. 1,72,426, from the U. P. Financial Corporation (respondent No. 2) (hereinafter referred to as " the Corporation") for purchasing a truck on February 19, 1982. The petitioner, Smt. Sudha Devi, and her husband, Sim Krishna Murari Sharma executed a guarantee bond in favour of the Corporation. It is not disputed that the borrower, Shri Dwarika Prasad, failed to repay the aforesaid loan in terms of the agreement executed. The Corporation has initiated proceedings for recovery of the entire outstanding demand which Shri Dwarika Prasad had failed to repay against the petitioner who had admittedly executed the guarantee bond. It is these recovery proceedings which have been challenged in the present writ petition.
2. At the admission stage, the contesting respondent (Corporation) was served and it was represented by Shri V.M. Sahai. Counter and rejoinder affidavits have been exchanged between the parties and the present writ petition is being disposed of finally in accordance with the rules of the court.
3. Learned counsel for the petitioner has challenged the recovery proceedings on the ground that the borrower had pledged the truck for which he had taken the loan from the Corporation and the recovery should first be made from the borrower after getting the pledged truck sold. Reliance has been placed on a decision of the Supreme Court in Sheela Devi v. Mohan Samp [1987] 2 SCC 235. It has also been argued that the guarantee bond cannot supersede the provisions of the U. P. Public Moneys (Recovery of Dues) Act, 1972 (hereinafter referred to as " the Act"), and, in view of the provisions of Section 4(2}(a) of the Act, proceedings should first be taken for sale of the things pledged, and if the proceeds of such sale are less than the sum due, then proceedings should be taken for recovery of the balance as if it were an arrear of land revenue.
4. In the end, it has also been argued that the recovery should proceed against all the guarantors and the Corporation could not proceed against one guarantor alone.
5. Learned counsel for the Corporation, Shri V. M. Sahai, has, however, urged that the Corporation is well within its legal rights to proceed either against the principal borrower or against the guarantor as the liability of the guarantor was joint and several. Reliance has been placed on a decision of the Supreme Court in Bank of Bihar Ltd. v. Dr. Damodar Prasad [1969] 39 Comp Cas 133. In order to adjudicate on the legal questions which have been urged in this writ petition, it will be useful to first have the relevant facts which would be necessary for adjudication. The guarantee bond has been annexed to the counter-affidavit. Clauses (1), (2), (6) and (9) of the aforesaid guarantee bond executed by the petitioner provides as follows :
" (1) That this guarantee shall not be affected by your granting time or any other indulgence to the said borrower, including partial release of the property mortgaged to you.
(2) That it shall not be necessary for you to sue the said borrower before suing us for the amounts due hereunder.
(6) That till such time as this guarantee is not released by you we and our properties and all money that belongs to us shall be available to you for the repayment of all money which shall at any time be due from the said borrower subject to the limit aforesaid.
(9) That this guarantee is being given by the undersigned guarantors jointly and severally. "
6. From the aforesaid guarantee bond, it is clear that the petitioner had agreed that it was not necessary to proceed against the borrower and the Corporation could proceed against any of the guarantors in the first instance. It was also agreed that the guarantee was being given by the guarantors jointly and severally.
7. As far as the case relied upon by learned counsel for the petitioner Sheela Devi v. Mohan Samp [1987] 2 SCC 235, is concerned, the same does not apply to the present case. From the aforesaid case, it is clear that the decree had been passed against the mortgaged property and it is in this context that the Supreme Court has held that as the decree was granted against the mortgaged property, the mortgaged property had to be proceeded against first.
8. In our opinion, the case cited by learned counsel for the Corporation (Bank of Bihar Ltd. v. Dr. Damodar Prasad [1969] 39 Comp Cas 133 (SC)), clearly applies to this case in which the liability of the property of the borrower and guarantor is joint and several and the Corporation could proceed against any of the guarantors without first proceeding against the borrower.
9. As far as the arguments raised by learned counsel for the petitioner that the terms of the agreement cannot override the provisions of the Act are concerned, we are of the opinion that the same is not borne out from the provisions of the aforesaid Act. Section 3(1)(c) and (d) provide as follows :
"3. Recovery of certain dues as arrears of land revenue.--(1) Where any person is party . . .
(c) to any agreement relating to a guarantee given to the State Government or the Corporation in respect of a loan raised by an industrial concern ; or
(d) to any agreement providing that any money payable thereunder to the State Government (or the Corporation) shall be recoverable as arrears of land revenue ; and such person -
(i) makes any default in repayment of the loan or advance or any instalment thereof ; or
(ii) having become liable under the conditions of the grant to refund the grant or any portion thereof, makes any default in the refund of such grant or portion or any instalment thereof ; or
(iii) otherwise fails to comply with the terms of the agreement; then, in the case of the State Government, such officer as may be authorised in that behalf by the State Government by notification in the Official Gazette, and in the case of the Corporation or a Government company the managing director ( or where there is no managing director then the chairman of the Corporation, by whatever name called ) thereof, and in the case of a banking company, the local agent thereof, by whatever name called, may send a certificate, to the Collector, mentioning the sum due from such person and requesting that such sum together with costs of the proceedings be recovered as if it were an arrear of land revenue. "
10. From the aforesaid, it is, therefore, clear that the guarantor is independently liable to repay the amount of the loan and, in case of failure, the amount could be recovered as if it were arrears of land revenue. Section 3(1)(c), independently, applies to the agreement relating to a guarantee and thus the recovery proceedings could independently be initiated in view of the provisions of the aforesaid Section 3(1)(c) and (d) of the Act.
11. It has now to be seen whether, in view of the provisions of Section 4(2)(a), the proceedings were to be taken against the pledged goods, i.e., the truck or it could go against the guarantor independently. Section 4(2)(a) of tke Act provides as follows :
"4. (2)(a) --in every case of a pledge of goods, proceedings shall first be taken for sale of the thing pledged, and if the proceeds of such sale are less than the sum due, then proceedings shall be taken for recovery of the balance as if it were an arrear of land revenue :
Provided that where the State Government is of opinion that it is necessary to do so for safeguarding the recovery of the sum due to it or to the Corporation, Government company or banking company, as the case may be, it may for reasons to be recorded, direct proceedings to be taken for recovery of the sum due, as if it were an arrear of land revenue before or at the same time as proceedings are taken for sale of the thing pledged."
12. From reading of the aforesaid Section 4(2)(a), it is clear that the provision applies to the person who is referred in Section 3. In Section 3, the person can be the borrower in view of the provisions of Section 3(1)(a) and (b) of the Act and it could be the guarantor in view of the provisions of Section 3(1)(c) of the Act. It is not disputed that the guarantor has not pledged any goods in favour of the Corporation while executing the guarantee bond. The recovery proceedings were being initiated against the guarantor and he would be the person referred to in Section 3 and, in case his property was subject to any mortgage, charge, pledge or other encumbrance in favour of the Corporation, the recovery at first was to proceed against the pledged goods or immovable property on which a mortgage, charge, pledge or other encumbrance has been created. The borrower has pledged this truck and thus he can take advantage of this provision wherever recovery is initiated against him. The guarantor, as observed above, has not pledged his goods or created a mortgage, charge or other encumbrance on any immovable property. The question of thus proceeding against the property which has been pledged by the borrower does not arise when the recovery proceedings have been initiated against the guarantor. The argument has thus no force.
13. The argument that the recovery proceedings should proceed against all the guarantors, in our opinion, is not tenable in view of the specific provision of Clause (9) of the guarantee bond. The petitioner had agreed that the guarantee was given by her and her husband jointly and severally. She was thus liable to repay the loan taken by the borrower. The argument that the Corporation had to proceed against all the guarantors has thus no force.
14. No other point has been argued before us.
15. For the reasons stated above, we do not find any merit in this writ petition which is, accordingly, dismissed. The stay order granted by this court is discharged.