2009 (6) TMI 587 - HC - Companies Law

Is it mandatory to proceed against the company and its assets first, before proceeding against the Guarantors and their assets for realisation of the dues? Held that - As no provision was brought to the notice of the Court, as to whether the provisions of the Revenue Recovery proceedings were in pari materia with the provisions of the U.P. Act and hence, interference was declined therein. No such provision is brought to the notice of this Court in the present case as well. In the above facts and circumstances, no interference is called for. The Writ Petition fails and it is dismissed accordingly.

Summary

Issues:
1. Whether it is mandatory to proceed against the company and its assets before proceeding against the Guarantors and their assets for realization of dues?

Analysis:
The petitioner challenged revenue recovery proceedings initiated by the first respondent to recover dues from a company where the petitioner was a Director. The loan was extended to the company based on collateral security and personal guarantee by the petitioner. The petitioner argued that her property could only be proceeded against after exhausting steps against the company's properties. The petitioner relied on the decision in Ashok Mahajan v. State of U.P. The first respondent argued that the decree holder is not required to exhaust the remedy of executing a mortgage decree before proceeding against the Guarantor, citing State Bank of India v. M/s. Indexport Registered, which overruled a previous decision.

The first respondent contended that the company, in which the petitioner was a Director, had been given leniency with multiple loan rescheduling attempts. The outstanding liability was over Rs. 1.76 crores, justifying the need to proceed against the company and Guarantors. The first respondent had already taken steps against the company and other Guarantors. The court focused on the legality of the issue rather than the rights and liabilities among the Guarantors.

In response to the petitioner's reliance on the Ashok Mahajan case, the first respondent argued that the decision was specific to provisions under certain Acts. The court referred to the provisions of the U.P. Act regarding the sale of property before taking action against Guarantors. The court clarified that the Ashok Mahajan case applied only to specific provisions of the U.P. Act and not universally. A Division Bench decision in a similar case was also cited, emphasizing the need for specific provisions to apply.

Considering the above, the court found no grounds for interference and dismissed the Writ Petition, upholding the first respondent's right to proceed against the company and Guarantors for recovery of dues.