Usha Rani and Another vs Delhi Financial Corporation and Others

V.K. Jain, J.—The respondent No. 1 Delhi Financial Corporation sanctioned a loan of Rs. 14,58,000/- to respondent No. 2 Shyam Lal for purchase of a CNG bus. A Term Loan Agreement-cum-Hypothecation Deed was executed in favour of respondent No. 1. The petitioners had stood as guarantors for the loan taken by respondent No. 2 from respondent No. 1. Since respondent No. 2 defaulted in payment of the loan taken from respondent No. 1, the bus which was purchased from the funds provided by respondent No. 1, was seized by respondent No. 1 and was sold for recovery of its dues. The respondent No. 1 filed an application u/s 32(G) of State Financial Corporations Act for issuance of recovery certificate against the petitioners as well the principal borrower for recovery of Rs. 1720507/- along with pendent lite and future interest in terms of Loan Agreement-cum-Hypothecation Deed executed by them in favour of respondent No. 1 on 9.9.2002. The authority u/s 32(G) of the aforesaid Act, after issuing notice to the petitioners and considering their reply dated 2.1.2008, inter alia, passed the following order:-

I find merit in the contention of Applicant "Corporation and I am of the view that it would be just and proper to issue the recovery certificate in the light of the facts and circumstances of this case. After going through the records of this case and hearing the arguments of the Applicant Corporation, I am satisfied that a sum of Rs. 17,20,507/-(Rupees seventeen lakh twenty thousand five hundred seven only) exclusive of interest w.e.f. 01.03.07 in terms of Term Loan Agreement/Hypothecation deed executed by the Respondent in favour of Corporation on 09.09.02 is recoverable from the Respondents. Issue Recovery Certificate. The recovery certificate issued shall form a part of this order.

The petitioners approached this Court by way of WP(C) No. 10913/2009 for quashing the aforesaid order dated 10.6.2009. Vide order dated 17.8.2009, the aforesaid petition was dismissed as withdrawn, with liberty to the petitioners to approach the appropriate authority against the order dated 10.6.2009. Vide subsequent order dated 13.11.2009, the competent authority reiterated the order dated 10.6.2009 passed by him. The respondent No. 1 has initiated proceedings for recovery of the balance amount payable to it, from the petitioners they being guarantors of the loan taken by respondent No. 2. Being aggrieved the petitioners are before this Court seeking the following reliefs:-

(a) Quash and set aside the order dated 13.11.2010 passed by the Competent Authority,

(b) Direct the respondent to pay litigation cost to the petitioner.

The petitioners do not dispute that they had stood as guarantors for the loan taken by respondent No. 2 from respondent No. 1. The grievance of the petitioners, as articulated by their counsel is that respondent No. 1 is not taking steps for recovering the balance amount from respondent No. 2. He further submits that a cheque of Rs. 50,000/- was issued by respondent No. 2 to respondent No. 1 towards payment of the loan taken by him and the said cheque, when presented to the bank, got dishonoured but despite that, proceedings u/s 138 of the Negotiable Instruments Act were not initiated against him. The learned counsel for the petitioner states that another bus belonging to respondent No. 2 was also seized by respondent No. 1 and was sold towards recovery of its dues. The learned counsel for the petitioner submits that this was done only when the matter was brought to the notice of this Court. This, to my mind, would make no difference since it only shows that respondent No. 1 does not hesitate in recovering the amount due to it from respondent No. 2, he being the principal borrower. The question involved in this writ petition is as to whether the respondent No. 1 can simultaneously recover the amount due to it from the petitioners or not. Since the petitioners had admittedly stood as guarantors for the loan taken by respondent No. 2, the liability of the guarantors being co-extensive and the liability of the principal borrower and the guarantors being joint as well as several, it is open to respondent No. 1 to recover its dues either from the petitioners or from respondent No. 2 or from all of them.

The legal position with respect to obligation of a guarantor to pay the amount guaranteed by him to the lender was upheld by the Apex Court in Industrial Investment Bank of India Ltd. Vs. Biswanath Jhunjhunwala, where the Apex Court, after considering its earlier decision on the subject, inter alia, held as under:-

The legal position as crystallized by a series of cases of this court is clear that the liability of the guarantor and principle debtors are co-extensive and not in alternative. When we examine the impugned judgment in the light of the consistent position of law, then the obvious conclusion has to be that the High Court under its power of superintendence under Article 227 of the Constitution of India was not justified to stay further proceedings in O.A. 156 of 1997.

Since the liability of the petitioners is co-extensive and not in the alternative, no infirmity was committed by respondent No. 1 in seeking to recover the balance amount due to it, from the petitioners.

The writ petition is devoid of any merits and is, hereby, dismissed.