9911796707
TMI Blog2002 (7) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... r or direction in the nature of mandamus directing the respondents not to proceed to recover the loan from the personal property of the petitioner until or unless a certificate is not issued by the Collector concerned stating that the loan had not been recovered fully by selling the unit, machinery and other mortgaged property mentioned in schedule SA of the recovery certificate. 2. It is, inter alia, alleged by the petitioner in the writ petition that the company in the name of M/s. Deepak Rice Mills (P.) Ltd. situated at Azizpur, Kosikalam, Mathura, was constituted under the Companies Act, 1956, and that the petitioner along with Prakash Chand Agarwal, Pratap Chand Agarwal and Surendra Kumar Verma were directors of the said company and that the company was constituted to run a rice mill. It is, inter alia, further alleged by the petitioner that the said company was disbursed loan in eight instalments from 1992 to 1997 to the tune of Rs. 2,29,97,400 as the principal amount out of which Rs. 60,49,800 towards the principal amount and interest thereon has already been paid by the said company, and thus, an amount of Rs. 1,69,57,600 has remained outstanding against the said company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and other directors for repayment of the loan advance to the said company. It is inter alia, further alleged by the petitioner that ultimately the managing director, UP Financial Corporation, Kanpur (Respondent No. 1), sent a recovery certificate to the Collector, Mathura, for making recovery as arrears of land revenue from the petitioner and three others as directors/guarantee of M/s. Deepak Rice Mills (P.) Ltd. The said recovery certificate is annexed as annexure No. 8 to the writ petition. Pursuant to the recovery certificate a citation in Z. A. Form No. 69 dated 25-3-2000, was issued to the petitioner. The said citation is annexed as annexure No. 9 to the writ petition. The petitioner also filed a supplementary affidavit sworn on 28-4-2000. It is, inter alia, alleged in the said supplementary affidavit that a suit, i.e., Original Suit No. 616 of 1997, Deepak Rice Mills (P.) Ltd. v. UP Financial Corpn. was filed in the year 1997 much less before the action was taken by the UP Financial Corporation under section 29 of the State Financial Corporation Act, 1951 on March 8, 1998 and that in the said suit, no interim order at all was continuing. It is, inter alia, alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Collector, Mathura, for realizing the huge sum of public money which the petitioner and other guarantors were legally liable to pay as arrears of land revenue under the UP Public Moneys (Recovery of Dues) Act, 1972. Photostat copies of the bond of guarantee executed by the petitioner were also filed as annexures CA-1, CA-2, CA-3, CA-4, CA-5, CA-6, CA-7 and CA-8 to the counter-affidavit. 4. The petitioner filed his rejoinder-affidavit sworn on 15-10-2000, in reply to the aforementioned counter affidavit filed on behalf of respondent Nos. 1 and 2. 5. During the pendency of the writ petition, the petitioner filed an application supported by an affidavit sworn on 24-7-2000, inter alia, praying for restraining the respondents from auctioning the property of the petitioner mentioned at serial No. 1 of schedule SA to the recovery certificate filed as annexure No. 8 to the writ petition. Subsequently, the petitioner also filed a supplementary affidavit sworn on 4-2-2001, in regard to the properties mentioned in schedule SA to the recovery certificate annexed as annexure No. 8 to the writ petition. 6. I have heard Shri M.K. Gupta, learned counsel for the petitioner, Sri H.R. Mishr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e against the judgment-debtors including the guarantor and in no way subject to the execution of the mortgage decree against judgment-debtor No. 2. If on principle a guarantor could be sued without even suing the principal debtor there is no reason, 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...." (p. 9) In view of this decision of the Supreme Court, it is evident that the petitioner as guarantor cannot insist on that the UP Financial Corporation must first proceed against the company, i.e., principal borrower. This decision also shows that if the decretal amount is covered by a mortgage decree still the decree holder cannot be compelled to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its dues...." (p. 151) The Supreme Court further observed: "...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 under section 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 or decree of the court made under section 31 of the Act, it has neither any legal nor even a moral right to object to the Corporation from taking recourse to the provisions of section 29 of the Act only on the ground that it has obtained a proper relief under section 31 of the Act which relief it does not wish to pursue any further...." (p. 155) The Supreme Court further observed: 'There is no equity in favour of 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 to 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke recourse to the proceedings under section 29 of the Act without pursuing the proceedings under section 31 of the Act any further. The Corporation cannot, indeed, execute the order under section 31 of the Act and yet simultaneously take recourse to proceedings under section 29 of the Act for the same reief. The position may also be different if the claim of the Corporation is negatived, on facts, by the court in the proceedings under section 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...." (p. 157) From this decision, it is evident that if there are several remedies available to the State Financial Corporation, 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, the petitioner as guarantor in the present case cannot compel the UP Financial Corporation to first proceed against the unit of the company taken over under section 29 of the State F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be sustained and has to be set aside." (p. 288) Applying this principle to the present case, it is held that even though the UP Financial Corporation has already taken possession of the assets of the company, still it is open to the UP Financial Corporation to proceed against the petitioner on the basis of his guarantee. 15. In Bank of Bihar Ltd. v. Dr. Damodar Prasad [1969] 39 Comp. Cas. 133 (SC), it was laid down as follows: "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. Under section 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 instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady taken recourse to section 29 of the State Financial Corporation Act and has taken possession of the unit of the company (principal borrower), still it is open to the UP Financial Corporation to proceed against the petitioner and other guarantors on the basis of their guarantees. This conclusion also finds support from two Division Bench decisions relied upon by learned counsel for the UP Financial Corporation, namely, Khem Chand's case (supra) and Smt. Nirmala Arora's case (supra). In view of the aforesaid discussion, it is held that even though the UP Financial Corporation had taken possession of the unit of the company (principal borrower) by invoking section 29 of the State Financial Corporation Act, still it was open to the UP Financial Corporation to invoke personal guarantee given by the petitioner. Such action of the UP Financial Corporation was not barred on the basis of doctrine of election. The first contention raised on the behalf of the petitioner thus fails and is rejected accordingly. 16. The second contention raised by learned counsel for the petitioner was that the UP Financial Corporation having invoked section 29 of the State Financial Corporation Act and hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already taken possession of the assets of the company under section 29 of the State Financial Corporations Act it will be necessary to examine the facts and circumstances of each case. 19. There can be no doubt that in view of the provisions of section 128 of the Indian Contract Act, the liability of the guarantor is co-extensive with that of the principal borrower. In view of the various decisions discussed above, it is evident that even though the UP Financial Corporation has already taken possession of the unit of the company under section 29 of the State Financial Corporation Act still it is legally permissible for the UP Financial Corporation to proceed against the guarantors on the basis of their guarantees. It is the choice of the UP Financial Corporation as to which of the remedies it would pursue and against which of the parties it would proceed. 20. Therefore, the question which would come up for consideration in each case would be as to whether the UP Financial Corporation has acted in a fair and just manner in deciding to proceed against the guarantors while keeping the assets of the company in its possession. Keeping in view this position, let us examine the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as guarantor nor has any payment been made despite persuasion through personal contacts and also by writing of letters. The registered notice dated 1-3-2000, sent to the petitioner and other guarantors in this regard also did not yield any result and the Corporation was left with no other option except to issue recovery certificate against the directors of the company so that huge sum of public money lying up could be realized and may be advanced to other needy persons." It is, thus, specifically alleged in these paragraphs of the counter-affidavit that no efforts were made by the petitioner and other directors/guarantors of the company to ensure repayment of the loan taken by the company. In the circumstances, recovery proceedings were taken against the petitioner and other directors/guarantors on the basis of their guarantee. 24. In the rejoinder affidavit sworn on 15-10-2000, filed on behalf of the petitioner. The petitioner has not pointed out any effort made by the petitioner or other directors/guarantors of the company to ensure repayment of the loan given to the company. In the above circumstances, it is evident that the UP Financial Corproation was jsutified in proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the agreement so long as repayment of the loan as per the terms of the agreement is not made to the UP Financial Corporation. The interest would not cease to run merely because the UP Financial Corporation has taken possession of the unit of the company or has failed to sell the unit of the company. The third contention raised on behalf of the petitioner thus, has no force and is accordingly rejected. The fourth contention raised on behalf of the petitioner was that a perusal of the recovery certificate (annexure No.8 to the writ petition) shows that the personal property of the petitioner mentioned in schedule BA to the said recovery certificate had been mortgaged, as such, the recovery ought to have been first made against the said mortgaged property of the petitioner, and then only such personal properties of the petitioner which had not been mortgaged, could be proceeded against, However, as is evident from the perusal of schedule SA to the recovery certificate, recovery is being sought to be made against such personal properties of the petitioner which had not been mortgaged. This mode of recovery sought is against the provisions of section 4(2)(b ) of the UP Public Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arrear of land revenue, and any other proceeding may be taken thereafter only if the Collector certifies that there is no prospect of realization of the entire sum due through the first mentioned process within a reasonable time." A reading of section 4(2)(b ) of the UP Public Moneys (Recovery of Dues) Act, 1972 shows that if the immovable property of a person referred to in section 3 of the said Act is subject to any mortgage, charge or other encumbrance in favour of the UP 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 or other 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 realization of the entire sum due through the first mentioned process within a reasonable time. 31. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantor had been mortgaged, the recovery will first be made against such mortgaged property. Thereafter, recovery will be made against other personal property of the petitioner which had not been mortgaged provided the Collector issues a certificate as contemplated under section 4(2)( b) of the UP Public Moneys (Recovery of Dues) Act, 1972. On the other hand, if the tehsildar comes to the conclusion that no personal property of the petitioner had been mortgaged then there will be no bar in proceeding to make recovery against the personal properties of the petitioner which had not been mortgaged. 34. In the circumstances, the writ petition is allowed to the extent that the tehsildar (respondent No. 4) is directed to decide the question as to whether any personal property of the petitioner as mentioned in Schedule BA to the recovery certificate had been mortgaged with the UP Financial Corporation and thereafter to proceed to make the recovery in accordance with the decision on the said question in the light of the observations made above in this judgment. The Tehsildar will decide the said question within a period of one month from the date of production of a certified copy of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
