Ram Bahadur Singh and Another vs Tehsildar and Others

S.P. Mehrotra, J.—The petitioners have filed this writ petition, inter alia, praying for issuance of writ in the nature of certiorari quashing the certificate of recovery dated 16.6.2001 (Annexure No. 4 to the writ petition), and further for issuance of writ in the nature of mandamus directing the respondent Nos. 1 to 3 to start the proceeding for recovery against the respondent No. 4 or its office bearers, and further for issuance of writ in the nature of mandamus directing the respondent No. I to release the tractor forthwith, which is not mortgaged property with respondent No. 3 by the guarantors, and further for issuance of writ in the nature of mandamus directing the respondent Nos. 1 to 3 not to take any coercive method for recovery of loan against the petitioners till recovery proceedings against respondent No. 4 debtor were exhausted.

It js alleged by the petitioners in the writ petition that a society was formed under the Societies Registration Act, namely, Gayatri Gramodyog Seva Sansthan, Nizampur, Risauli, Budaun (respondent No. 4} in the year 1997 which took loan from U.P. Khadi and Village Industries Board. Budaun in the year 1997.

It is further alleged by the petitioners in the writ petition that the petitioner No. 1 - Ram Bahadur Singh had taken guarantee for rupees five lacs, putting his agricultural plots in village Risauli Pargana Kot. Tehsil Bilsi. District Budaun as security and that the petitioner No, 2 had taken guarantee for rupees seven lacs and mortgaged his agricultural plot in joint holdings of his share in village Risauli, Pargana Kot. Tehsil Bilsi, District Budaun along with his pucca house at district Budaun; and that tractor HMT Jeeter No. U.P. 24. A-6378 was not mortgaged by guarantor for the re-payment of the loan.

It is further alleged by the petitioners that the respondent No. 4, Gayatri Gramodyog Sewa Sansthan possessed the property of Rice Mills situated over more than one bigha land with construction of buildings used for Rice Mill; and that the costs of the open piece of land with building came to about more than rupees seventeen lacs and that there was a machine situated in Rice Mill valued rupees five lacs, and that the Secretary Jagdish Swaroop Gupta of the respondent No. 4 was a man of means and having a large number of movable and immovable properties in District Budaun and in village and city respectively.

It is further alleged by the petitioners in the writ petition that the petitioners being guarantors had no knowledge about the repayment of loan by respondent No. 4 as since 1997, no notice was given to the petitioners, the guarantors for non-payment of the instalments of the loan.

It is further alleged by the petitioners that all of a sudden, in the last week of March, the Tehsildar Bilsi. Budaun respondent No. 1 attached the tractor in loan recovery from the respondent No. 4 without any prior notice to Narendra Pal Singh (Petitioner No. 2); and that Bhanwar Pal Singh, the other co-owner of the tractor, moved an application to respondent No. 2 the Collector, Sudaun for release of the tractor; and that the Collector directed the Additional District Magistrate to make an inquiry into this matter.

It is, inter alia, further alleged that the State Bank of India, Branch of Ujnani, Budaun, which had sanctioned the loan for purchase of the tractor, also made a representation to the Tehsildar on 15.4.2002 that it had got first charge on tractor.

It is, inter alia, further alleged by the petitioners that the Tehsildar came in the village and arrested Ram Bahadur Singh (Petitioner No. 1) for alleged recovery of the loan without issuing any citation to him and detained in civil prison for 14 days in the month of March, 2002.

It is, inter alia, further alleged that the petitioners got a certificate of recovery from the office of the respondent No. 3, U.P. Khadi and Village Industries Board, Budaun which showed that the recovery had been issued against the guarantors, which had been issued on 16.6.2001 showing total amount of dues as Rs. 23,38,630/-.

In the aforesaid circumstances, the petitioners have filed this writ petition.

We have heard learned Counsels for the parties.

Learned Counsel for the petitioners made following submissions:

No recovery proceedings had been started against the principal-debtor, namely, respondentNo. 4 (Gayatri Gramodyog Sewa Sansthan. Nizampur), as such, there was no occasion to initiate recovery proceedings against the guarantors, namely, the petitioners. It is submitted by the learned Counsel that the recovery proceedings should have been taken against the respondent No. 4 (principal-debtor) and if the loan was not fully satisfied by such proceedings against the respondent No. 4, then only recovery proceedings could be taken against the petitioners as guarantors. The action of the respondents in taking proceeding for recovery against the petitioners as guarantors without taking proceedings for recovery against the respondent No. 4 (principal-debtor) was illegal.

As the properties of the petitioners had been mortgaged as guarantors for the loan given to the respondent No. 4, it was not open to the respondent Nos. 1 to 3 to attach the tractor which had not been mortgaged by the petitioner No. 2 Narendra Pal Singh who along with his brother (Bhanwar Pal Singh) had purchased the said tractor by taking loan from the State Bank of India.

Taking up the first submission made by the learned Counsel for the petitioners, we are of the opinion that the said contention has no force, and the same is liable to be rejected.

It is well established that it is open to the creditor to proceed against the guarantors without first proceeding against the principal-debtor.

Section 128 of the Indian Contract Act clearly lays down that the liability of the guarantor is co-extensive with that of the principal-debtor. The said Section 128 is quoted below:

"128. The liability of the surety is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract."

In view to the said provision, it is evident that the guarantor cannot insist that the creditor should first proceed against the principal-debtor and, thereafter, proceed against the guarantor. It is open to the creditor to straightaway proceed against the guarantor without first proceeding against the principal-debtor.

The proposition is fully supported by various decisions. In State Bank of India Vs. Messrs. Indexport Registered and others, the Supreme Court held as follows:

"13. In the present case before us the decree does not postpone the execution. The decree is simultaneous and it is jointly and severally against all the defendants including the guarantor. It is the right of the decree holder to proceed with it in a way he likes. Section 128 of the Indian Contract Act itself provides that "the liability of the surety is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract."

The Supreme Court further held (paragraph 18 of the said AIR):

"18. It will be noticed that the guartantor alone could have been sued, without even suing the principal-debtor, so long as the creditor satisfies the Court that the principal-debtor is in default."

The Apex Court further observed (paragraph 22 of the said AIR):

"22. The decree for money is a simple decree against the judgment-debtors including the guarantor and in no way subject to the execution of the mortgage decree against the judgment-debtor No. 2. If on principle a guarantor could be sued without even suing the principal-debtor there is no reasons-even if the decretal amount is covered by the mortgaged decree, to force the decree-holder to proceed against the mortgaged property first and then to proceed against the guarantor.............. But if the composite decree is a decree which is both a personal decree, as well as a mortgage decree, without any limitation on its execution, the decree-holder, in principle, cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and told that only if the amount recovered is insufficient, he can be permitted to take recourse to the execution of the personal decree......."

In view of this decision of the Supreme Court, it is evident that the petitioners as guarantors cannot insist that the respondent No. 3 (U.P. Khadi and Village Industries Board) as creditor must first proceed against the respondent No. 4 i.e. principal-borrower. In other words, it was open to the respondent No. 3 as creditor to proceed for making the recovery against the petitioners as guarantors without first proceeding against the respondent No. 4, the principal borrower.

In Andhra Pradesh State Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, , the Supreme Court was dealing with the remedies available to the State Financial Corporation under Sections 29 and 31 of the State Financial Corporation Act, 1951. The Supreme Court held as follows;

" 13. On a conjoint reading of Sections 29 and 31 of the Act, it appears to us that in case of default in repayment, the Corporation has two remedies available to it against the defaulting industrial concern, one u/s 29 and another u/s 31 of the Act. The choice for availing the remedy u/s 29 or Section 31 of the Act is that of the Financial Corporation alone and the defaulting concern has no say whatsoever in the matter, as to which remedy should be taken recourse to by the Corporation against it for effecting the recovery. The expression "without prejudice to the provisions of Section 29 of this Act" as appearing in Section 31 of the Act clearly demonstrates that the Legislature did not intend to confine the Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it. It left the choice to the Corporation to act in the first instance u/s 31 of the Act and save its rights and remedies u/s 29 of the Act to be availed at later stage, with the sole object of enabling the Corporation to recover its dues. It is not, however, obligatory on the part of the Financial Corporation to invoke the special provisions of Section 31 of the Act, it can even without taking recourse to the provisions of the said section invoke the procedure prescribed u/s 29 of the Act for realisation of its dues."

The Supreme Court further observed (paragraph 17 of the said AIR) :

"17. ...... Similarly, if in a given case, the Corporation has taken recourse to the provisions of Section 29 of the Act, there is no bar for it without taking those proceedings to their logical conclusion to abandon them and approach the Court u/s 31 of the Act to seek one or more of the reliefs available to it under that section. Where, the defaulting party fails to honour the order of decree of the Court made u/s 31 of the Act, it has neither any legal nor even a moral right to object tothe Corporation from taking recourse to the provisions of Section 29 of the Act only on the ground that it has obtained a proper relief u/s 31 of the Act which relief it does not wish to pursue any further......."

The Supreme Court further observed (paragraph 18 of the said AIR);

"18. There is no equity in favour of a defaulting party which may justify interference by the Courts in exercise of its equitable extraordinary jurisdiction under Article 226 of the Constitution of India to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate rights of the Corporation, which after advancing the loan takes steps to recover its dues from the defaulting party. Thus, the intention of the Legislature in using the expression "without prejudice to the provisions of Section 29 of the Act" clearly appears to be that recourse to the provisions of Section 29 of the Act is not prohibited, where an order or decree u/s 31 of the Act obtained by the Corporation has not been complied with or honoured by the defaulting concern or is otherwise insufficient to satisfy the dues of the Corporation and the Corporation withdraws and abandons to pursue further proceedings u/s 31 of the Act. Passing a money decree for recovery of the outstanding dues, not being within the jurisdiction of the Court u/s 31 of the Act, the Corporation retains its right to recover its dues by invoking the provisions of Section 29 of the Act in the manner prescribed therein notwithstanding any order, final or interim, obtained by it u/s 31 of the Act by withdrawing from and abandoning those provisions at any stage of the proceedings. A Court of equity when exercising its equitable jurisdiction under Article 226 of the Constitution must so act as to prevent perpetration of a legal fraud and the Courts are obliged to do justice by promotion of good faith, as far as it lies within their power. Equity is always known to defend the law from clefty evasions and new subtelities invented to evade law. Since the Legislature enacted Sections 29 and 31 with a view to aid the Corporation to recover its legitimate dues, etc. from the defaulting party, the saving clause in Section 31 of the Act preserving the rights u/s 29 of the Act by giving up the pursuit u/s 31 at any stage of the proceedings is available to the Corporation. The two provisions must be so harmonised as to facilitate the Corporation to recover its dues from the defaulting party...."

The Supreme Court further held (paragraph 19 of the said AIR):

"19. The right vested in the Act is besides the right already possessed at common law to institute a suit or the right available to it u/s 31 of the Act. Since the Corporation can withdraw from the Court its proceedings u/s 31 of the Act at any stage, it would imply that it has the right to withdraw from further proceedings under Sections 31 and 32 of the Act even after obtaining an order in its favour and take recourse to the proceedings u/s 29 of the Act without pursuing the proceedings u/s 31 of the Act any further. The Corporation cannot, indeed, execute the order u/s 31 of the Act and yet simultaneously take recourse to proceedings u/s 29 of the Act for the same relief. The position may also be different if the claim of the Corporation is negatived, on facts, by the Court in the proceedings u/s 31 of the Act. In that event depending upon the facts of each case, it may be permissible to hold that fair-play and justice demand that the Corporation is not allowed to take recourse to the provisions of Section 29 of the Act."

From this decision, it is evident that if there are several remedies available to the State Financial Corporation (i.e. creditor), it is the choice of the Corporation as to which remedy it would pursue and the defaulting party cannot compel the State Financial Corporation to take recourse to any particular remedy.

In view of this decision also, it is evident that the petitioners as guarantors in the present case cannot compel the respondent No. 3 (U.P. Khadi and Village Industries Board) (i.e. creditor) to first proceed against the respondent No. 4 (principal borrower) and only thereafter, to proceed against the petitioners. It is the choice of the respondent No. 3 as to which of the remedies it would pursue and against which of the parties it would proceed.

In U.P. Financial Corporation Vs. Garlon Polyfeb Industries and others, a Division Bench of this Court was considering the legality of an injunction order issued by the learned Civil Judge (Senior Division), Kanpur Nagar whereby the U.P. Financial Corpoiation (defendant-appellant) was directed to take recourse to proceedings u/s 29 of the State Financial Corporation Act, 1951 and to recover the amount by enforcing the personal liability only if entire amount due is not recovered in the aforesaid manner. The Division Bench relied upon the decision of the Apex Court in Andhra Pradesh State Financial Corporation (supra) and held as follows (paragraph 10 of the said AIR):

"10. ....... The authoritative pronouncement shows clearly that it is open to the U.P. Financial Corporation to recover the amount in any manner. If the law permits several modes to recover the amount, the debtor cannot dictate which mode should be adopted by the creditor. It is therefore not permissible for a Court to issue an injunction directing U.P. Financial Corporation to first proceed u/s 29 of the Act.

Such an order is wholly against the provisions of the State Financial Corporation Act and also the Contract Act. The impugned order dated 6.1.2001 therefore cannot be sustained and has to be set aside."

This cr.se again shows that it is the choice of the creditor as to which of the remedies it would pursue and against which of the parties it would proceed.

In Bank of Bihar Ltd. Vs. Dr. Damodar Prasad and Another, it was laid down as follows:

"3. The demand for payment of the liability of the principal-debtor was the only condition for the enforcement of the bond. That condition was fulfilled. Neither the principal-debtor nor the surety discharged the admitted liability of the principal-debtor in spite of demands. u/s 128 of the Indian Contract Act, save as provided in the contract, the liability of the surety is co-extensive with that of the principal-debtor. The surety became thus liable to pay the entire amount. His liability was immediate. It was not deferred until the creditor exhausted his remedies against the principal-debtor.

Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright Simpson (1802)6 Ves Jun 714 at p. 734 : 31 ER 1272 at p. 1282: "But the surety is a guarantee; and it is his business to see whether the principal pays, and not that of creditor." In the absence of some special equity the surety has no right to restrain and action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings.

Likewise where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal. In Lachhman Joharimal v. Bapu Khandu (1869) 6 Bom HCR 241, the Judge of the Court of Small Causes, Ahmednagar, solicited the opinion of the Bombay High Court on the subject of the liability of sureties. The creditors having obtained decrees in two suits in the Court of Small Causes against the principals and sureties, presented applications against the principals. The Judge stated that the practice of his Court had been to restrain a judgment creditor from recovering from a surety until he had exhausted his remedy against the principal but in his view the surety should be liable to imprisonment while the principal was at large. Couch, C.J. and Melvill, J. agreed with this opinion and observed :

"The Court is of opinion that a creditor is not bound to exhaust his remedy against the principal-debtor before suing the surety and that when a decree is obtained against the surety, it may be enforced in the same manner as a decree for any other debt."

This decision supports the conclusion that the creditor is not bound to first proceed against the principal-debtor and it is open to the creditor to straightaway proceed against the guarantors without first proceeding against the principal-debtor.

In view of the said legal position, it is evident that the action of the respondent No. 3 in proceeding against the petitioners as guarantors without first proceeding against the respondent No. 4 (principal-debtor) was perfectly legal.

The first contention raised on behalf of the petitioners, therefore, has no force and the same is rejected.

Coming now to the second contention raised by the learned Counsel for the petitioners, the said submission depends on the interpre''tation of Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972. Section 4 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 is reported below :

"4. Savings.--(1) Nothing in Section 3, shall,--

(a) affect any interest of the State Government, the Corporation, and Government company or any banking company, in any property created by any mortgage, charge, pledge or other encumbrance, or

(b) bar a suit or affect any other right or remedy against any person other than a person referred to in that section, in respect of a contract of indemnity or guarantee entered into a relation to an agreement referred to in that section or in respect of any interest referred to in Clause (a).

(2) Where the property of any person referred to in Section 3 is subject to any mortgage, charge, pledge or other encumbrance in favour of the State Government, or Corporation, a Government company or banking company, then-

7(a) in every case of pledge of goods, proceedings shall first be taken for sale of the thing pledged, and if the proceeds of such sale are less that 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 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 (he thing pledged;

(b) in every case of a mortgage, charge or other encumbrance on immovable property, such property or, as the case may be, the interest of the defaulter therein, shall first be sold in proceedings for recovery of the sum due from that person as if it were an arrear of land revenue, and any other proceeding may be taken thereafter only if the Collector certifies that there is no prospect of realisation of the entire sum due through the first mentioned process within a reasonable time."

A reading of Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972 shows that if the immovable property of aperson referred to in Section 3 of the said Act is subject to any mortgage, charge or other encumbrance in favour of the U.P. Financial Corporation and if proceedings for recovery of the sum due "from that person" as arrears of land revenue are taken against that person, then the immovable property of that person which is subject to mortgage, charge on orher encumbrance shall first be sold. Any other proceedings against that person may be taken thereafter only if the Collector certifies that there is no prospect of realisation of the entire sum due through the first mentioned process within a reasonable time.

It is thus evident that Section 4(2)(b) applies only to such cases where the immovable property of the person against whom the proceedings are being taken for recovery of the sum due as arrears of land revenue, is subject to mortgage, charge or other encumbrance. For example, if immovable property of one person. "A" is subject to mortgage, charge or other encumbrance and proceedings for recovery of the sum due against that person "A" as arrears of land revenue are being taken, then such immovable property of that person "A" will first be proceeded against, and only thereafter, any other proceedings against that person "A" will be taken. However, if immovable property of one person "A" is subject to mortgage, charge or encumbrance and proceedings for recovery of the sum due as arrears of land revenue are being taken against another person "B", then such person "B" cannot insist that proceedings should first be taken against the property of "A" which is subject to mortgage, charge or other encumbrance.

In view of the aforesaid legal position, it is evident that if any property of the petitioners as guarantors was mortgaged, then the respondent Nos. 1 to 3 were bound to first proceed against such mortgaged property and only thereafter, the respondent Nos. 1 to 3 could proceed against other properties of the petitioners which had not been mortgaged provided the required certificate was obtained from the Collector u/s 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972. On the other hand, if no property of the petitioners as guarantors was mortgaged, then it was open to the respondent Nos. 1 to 3 to proceed against the properties of the petitioners which had not been mortgaged, and Section 4(2)(b) could not come in the way of the respondent Nos. I to 3 in such a situation.

In the present case, petitioners in the writ petition (paragraphs 3 and 4) have alleged that their immovable property had been mortgaged in respect of the guarantee given by them for the loan given to the respondent No, 4. It is further alleged by the petitioners in the writ petition (paragraph 4) that the tractor, namely, HMT Jeeter registered as U-P-24.A-6378 which has been attached by the Tehsildar (respondent No. 1) had not been mortgaged in respect of the guarantee given by the petitioners.

These allegation made by the petitioners raise questions of fact, and the same can be suitably decided by the Tehsildar, Tehsil Bilsi, District Budaun (respondent No. 1) after giving opportunity of hearing to both the sides.

In case, the Tehsildar (respondent No. 1) comes to the conclusion that the aforesaid allegations made by the petitioners that immovable properties of the petitioners had been mortgaged in respect of the said guarantee, but the aforesaid tractor had not been mortgaged, are correct, then the Tehsildar will release the aforesaid tractor forthwith, and take proceedings against the mortgaged properties of the petitioners and only after taking such proceedings against the mortgaged properties of the petitioners, the Tehsildar (respondent No. 1) will proceed against other properties of the petitioners which had not been mortgaged including the aforesaid tractor provided the requisite certificate from the Collector u/s 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972 is obtained.

On the other hand, if the Tehsildar comes to the conclusion that the aforesaid allegations made in the writ petition are not correct, and no property of the petitioners had been mortgaged in respect of guarantee then the aforesaid tractor will not be released, and it will be open to the Tehsildar (respondent No. 1) to take proceedings against the properties of the petitioners which had not been mortgaged in respect of the said guarantee including the aforesaid tractor, and Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972 will not be applicable in such a situation.

The writ petition is accordingly disposed of with the direction that the petitioners will file objection before the Tehsildar, Tehsil Bilsi, District Budaun (respondent No. I) within 15 days from today. The Tehsildar will decide the said objection in the light of the observations made in the judgment within one month of the filing of the said objection along with a certified copy of this order before him. Till the disposal of the objection by the Tehsildar (respondent No. 1), recovery proceedings against the petitioners will remain stayed provided a certified copy of this order is filed by the petitioners before the Tehsildar along with the objection within 15 days from today as mentioned above.

A certified copy of this order will be issued to the learned Counsels for the parties on payment of usual charges within three days.