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Smt. Nupur Agarwal & Another v. Pradeshiya Industrial & Investment Corpn. & Ors. - WRIT - C No. 53052 of 2004 [2005] RD-AH 535 (24 February 2005)


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-Section 128 of the Contract Act

-Writ is a discretionary jurisdiction

-U.P.Public Money (Recovery of Dues) Act, 1972



Smt. Nupur Agarwal & Anr.       -------------    Petitioner              


Pradeshiya Industrial and Investment Corporation

of Uttar Pradesh Limited & Ors.        -------------  Respondents


Hon'ble Dr. B.S. Chauhan, J.

Hon'ble Dilip Gupta, J.

(By Hon'ble Dr. B.S. Chauhan, J.)

This writ petition has been filed to restrain the respondents no. 1, 2 and 3 from initiating any recovery proceeding against the petitioners except in accordance with provisions of Uttar Pradesh Public Money (Recovery of Dues) Act, 1972 (hereinafter called the Act 1972), and for quashing the Citations dated 15.2.2003 and 15.6.2004 being void, illegal and without any authority of law.

The facts and circumstances giving rise to this case are that the petitioners had been the Directors of the Prayag Steels Private Limited, a Private Limited Company (Respondent No. 4), registered under the Companies Act, 1956. It had taken a loan to the tune of Rs.62.40 lacs in the year 1991 from Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Limited, a Public Limited Company (Respondent No. 1) (hereinafter called the PICUP). The petitioners being Directors of the said Company -respondent no. 4, stood guarantors, and as per the contents of paragraph nos. 5 and 6 of the writ petition, the petitioners executed various documents in favour of  the PICUP and also mortgaged the factory premises and other immoveable properties of the respondent no. 4 company, including the entire stock of finished and unfinished goods. A Deed of Guarantee was also executed by the petitioners in favour of  PICUP. As the amount was not re-paid as per the Schedule of Re-payment and petitioners applied for one time settlement, the parties concerned reached the settlement on 1.12.2000. However the said amount could not be re-paid under the one time settlement. Therefore, the respondents initiated the proceedings of recovery as arrears of land revenue. The possession of the premises of the respondent no. 4 company was also taken and it appears that PICUP tried to dispose of the property, but it could not fetch an adequate price. When they tried to make the recovery from the petitioners being guarantors, they approached this Court by filing Writ Petition No. 10805 of 2003 Smt Nupur Agrawal & Ors. Vs. PICUP & Ors.. However, the said writ petition was dismissed as withdrawn with liberty to file afresh, vide order dated 18.8.2004. The respondents have issued fresh Citation dated 15.6.2004 against the petitioners for recovery of Rs. 3,98,69,505.75 along with 10% recovery charges. Hence this petition.

Shri Kesari Nath Tripathi, learned Senior Counsel appearing for the petitioners has submitted that there is no mode other than that provided under the provisions of Act 1972. As the possession of the industrial unit has already been taken, unless it is sold to make the recovery from the principal debtor, the guarantor cannot be fastened with any liability. Debt amount cannot be recovered from the petitioners as as arrears of land revenue, and therefore, the proceedings are liable to be quashed. Very heavy reliance has been placed by Shri Tripathi upon the judgment of the Hon'ble Apex Court in Udai Pratap & Anr. Vs. U.P. State Financial Corporation, Varanasi Branch & Ors., (1978) 4 ALR 75; Gyan Singh & Ors. Vs. Kanpur Development Authority & Ors., 1991 AWC 923; and Pawan Kumar Jain Vs. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Limited & Ors., (2004) 6 SCC 758.

On the contrary, Shri Anurag Khanna, learned  counsel appearing for PICUP has placed reliance upon a Division Bench judgment dated 23.12.2004 in Writ Petition No. 55347 of 2004, R.K. Dhawan & Ors. Vs. State of U.P. & Ors., wherein this Court had held that in the facts of the case the ratio of Pawan Kumar Jain (Supra) was not available only on the ground that the proceedings had been initiated prior to the date of Notification issued by the Central Government dated 24.1.2004. The Court further observed that it was not permissible for the guarantors to resile from the terms and conditions of the guarantee deed executed between them, clearly taking the responsibility upon themselves of payment of the said amount. Shri Khanna further submitted that the loan was granted in the year 1991. It was recoverable after few years. Though a period of 15 years has passed, the amount could not be recovered from the petitioners. Whenever an attempt is made, they resort to legal proceedings in one way or the other, and as the proceedings had been initiated long back prior to the issuance of the Notification dated 24.1.2004 it was not possible to recover the  amount through the Debt Recovery Tribunal, and it is permissible to make the recovery as arrears of land revenue, and even otherwise, as the property mortgaged with the PICUP could not attract any investor/purchaser in spite of the best efforts and advertisements made several times, the recovery is to be made from the petitioners. They cannot take a somersault and submit that they cannot be bound by the terms of guarantee deed furnished by them and hypothication etc. made by them. He has urged that writ is a discretionary relief. It is not necessary in every case for the writ Court to interfere with as the liability has been admitted by the petitioners and they cannot resile from their Guarantee Deed furnished with the respondent no. 1 PICUP. Shri Khanna has further urged that in view of the provisions of Section 128 of the Indian Contract Act liability being co-extensive of the guarantor with the principal debtor, no interference is required. In support of his contention, he has placed reliance upon the Division Bench judgment of this Court in which one of us (B.S.Chauhan, J) was a member in Pramod Kumar & Anr. Vs. Punjab National Bank & Anr., AIR 2005 All 20. It has further been urged that the judgment in Pawan Kumar Jain (Supra) is per in curium as the attention of the Hon'ble Supreme Court was not drawn to the provisions of Section 128 of the Contract Act. Thus, petition is liable to be dismissed.

We have considered the rival submissions made by the learned counsel for the parties and perused the record.

Writ jurisdiction is discretionary. Writ is not issued merely because it is lawful to do so. The purpose of the writ Court is not only to protect a person from being subjected for violation of law but also to advance justice and not to thwart it. The Constitution does not place any fetter on the power of the extraordinary jurisdiction but leaves it to the discretion of the Court. However, being the power discretionary, the Court has to balance competing interest, keeping in mind that interest of justice and public interest can coalesce in certain circumstances. Petition can be entertained only after being fully satisfied about the factual statements and not in a casual and cavalier manner. (Vide Champalal Binani Vs. The Commissioner of Income-tax, West Bengal & Ors., AIR  1970 SC 645; Ramniklal N. Bhutta & Anr. Vs. State of Maharastra & Ors., (1997) 1 SCC 134; Chimajirao Kanhojirao Shrike & Anr. Vs. Oriental Fire and General Insurance Co. Ltd., AIR 2000 SC 2532; Shama Prashant Raje Vs. Ganpatrao & Ors., AIR  2000 SC 3094; LIC of India Vs. Asha Goel, AIR  2001 SC 549; Roshan Deen Vs. Preeti Lal, AIR  2002 SC 33; S.D.S. Shipping Pvt. Ltd. Vs. Jay Container Services Co. Pvt. Ltd. & Ors., AIR 2003 SC 2186; and Chandra Singh Vs. State of Rajasthan & Anr., AIR 2003 SC 2889.

Shri Khanna has placed a very heavy reliance upon the judgment of the Division Bench of this Court, in which one of us (B.S. Chauhan, J) was a member, in Writ Petition No. 33035 of 2004 Ajit Kumar Vs. State of U.P. & Ors., decided on 18.8.2004. However, the facts of the said case are distinguishable as in the said case   the Court refused to interfere with on any ground whatsoever as the petitioner therein had not been willing to deposit any amount or cooperate with the creditors in any manner observing that writ may not be issued merely on technical ground, wherein the guarantor had admitted the liability and was not willing even to undertake the responsibility to pay the balance amount.

The provisions of Section 128 of the Contract Act were considered by the Hon'ble Supreme Court in The Bank of Bihar Ltd. Vs. Dr. Damodar Prasad & Anr., AIR 1969 SC 297, wherein the argument that first the recovery should be made from the principal debtor, and if not satisfied, only then guarantor should be asked to pay, was negatived. Even the Hon'ble Apex Court held as under:-

"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 Vs. Simpson, (1802) 6 Ves Jun 714 at p. 734 ....But the surety is a guarantee; and it is his business to see whether the principal prays, and not that of creditor." In the absence of some special equity the surety has no right to restrain an 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."

Similar view has been reiterated in State Bank of India Vs. M/S Indexport, AIR 1992 ASC 1740.

A Division Bench of Orissa High Court in Sukur Pradhan & Ors. Vs. Orissa State Financial Corporation & Ors., AIR 1992 Ori 281, after considering a large number of judgments, including the Union Bank of India Vs. Manku Narayana, AIR 1987 SC 1078; Swaminath Vs. S.L. Lakshmana, AIR 1935 Mad 748; Kuckreja Ltd. Vs. Said Alam, AIR 1941 Lah 16; Madho Sah Vs. Sitaram Sah, AIR 1962 Pat 405; and Hukumchand Insurance Company Vs. Bank of Baroda, AIR 1977 Kant 204, which were referred to and relied upon, held that the guarantor cannot be asked by the creditor first, to make a recovery, without exhausting all the remedies against the principal debtor.

In State Bank of India Vs. M/s. Saksaria Sugar Mills Ltd. & Ors., AIR 1986 SC 868, the Hon'ble Supreme Court while interpreting the provision of Section 128 of the Contract Act, held that the liability of a surety is immediate and is not deferred until the creditor exhausted his remedies against the principal debtor. Similar view has been reiterated in Dalichand Vs. The State of Rajasthan & Ors., AIR 1976 Raj 112.

However, in Pawan Kumar Jain Vs. PICUP & Ors. 1997 All CJ 1218 which is a case similar to the instant case, a Division Bench categorically held that the liability of the guarantors was co-extensive of the principal debtor and that amount can be recovered from the guarantors without being recovered from the principal debtor. While deciding the said case reliance had been placed upon the judgment of Hon'ble Apex Court in Bank of Bihar & Ors. Vs. Dr. Damodar Prasad (Supra). The said judgment was challenged before the Hon'ble Apex Court wherein to a certain extent it has been reversed by their Lordships after considering the provisions of the Act 1972 in Pawan Kumar Jain (Supra). Their Lordships reached the conclusion that where the possession of the premises has already been taken by the creditor the amount should not be recovered from the guarantors unless the property is disposed of, and if the property after sale does not fetch the entire amount, the balance can be recovered from the guarantors.

In Pawan Kumar Jain (Supra), the Apex Court has clearly held that such a loan is to be recovered under the Act 1972 and where the possession has been taken of the premises mortgaged, it should be sold, and in case the entire outstanding dues are not recovered, the guarantors shall be liable to pay the remaining amount. Their Lordships clearly provided for reduction of  the liability of the guarantors under such circumstances to the extent the amount could be recovered by auctioning the property mortgaged by the principal debtor.

Be that as it may, the law laid down by the Hon'ble Supreme Court in Pawan Kumar Jain (Supra) has to be followed.

Shri K.N. Tripathi, learned  Senior Counsel has also clearly conceded to the aforesaid proposition of law and has candidly admitted the liability of the petitioners as guarantors. Replying to the averments contained in the counter affidavit about the apprehensions expressed by the respondents that the property has not fetched a suitable price, Shri Tripathi has urged that the petitioners shall accept whatever price the property yields on auction, and thereafter the petitioners shall make the payment of the balance amount.

In view of the aforesaid submissions made and in view of the facts and circumstances of the case, the case need not detain us any further. We, therefore, proceed to dispose of the matter finally and issue the following directions:-

(1) Within one week  from today, the respondent no. 1 shall furnish a fresh auction notice in two news papers having wide circulation giving minimum period of two weeks time to apply for auction bid.

(2) The auction shall be held  in accordance with law immediately as per the auction notice.

(3) It will be open to the petitioners also to participate in the auction or bring in auction bidder themselves.

(4) If the property does not fetch the required amount, the respondent no. 1 shall proceed against the present petitioners in accordance with law for recovery of the balance amount.

With these observations, petition stands disposed of.




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