JUDGMENT S.P. Mehrotra, J.
1. This writ petition under Articles 226/227 of the Constitution of India has been filed by the petitioner, inter alia, praying for issuance of writ, order or direction in the nature of certiorari quashing the citation dated 25-3-2000 (Annexure No. 9 to the writ petition) insofar as it relates to the petitioner regarding the schedule 'SA' property mentioned in the recovery certificate (Annexure No. 8 to the writ petition), and further for issuance of writ, order or direction in the nature of mandamus directing the respondents not to recover the loan concerning to M/s. Deepak Rice Mills (P.) Limited by selling the mortgaged property mentioned in schedule 'SA' of the recovery certificate, and further for issuance of writ, order 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 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.) Limited, 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 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/- principal amount out of which Rs. 60,49,800/- towards the principal amount and interest thereon has already been paid by said company, and thus, an amount of Rs. 1,69,57,600/- has remained outstanding against the said company. It is inter alia, further alleged by the petitioner that there was no default of instalment till December, 1996, however, due to financial crisis and due to non-availability of raw materials one of the instalments had fallen due, and that the U. P. Financial Corporation by its letter dated 30-3-1997 took over physical possession over M/s. Deepak Rice Mill (P.) and M/ s. Deepak Puha Udyok, Chhata, Mathura in exercise of its power under Section 29 of the State Financial Corporation Act, 1951. It is, inter alia, further alleged by the petitioner that the U. P. Financial Corporation on 6-1-1998 published an advertisement in the newspaper for sale of the unit of M/s. Deepak Rice Mill (P.) Limited along with its sister concern i.e. Poha unit, and that another advertisement was published by the U. P. Financial Corporation in the newspaper on 8-3-1998 for sale of the unit of the said company, and thus the U. P. Financial Corporation started proceeding under Section 29 of the State Financial Corporation Act, 1951 for sale of the unit of the said company. It is, inter alia, further alleged by the petitioner that the cost of the unit including the land, building, plants and machinery was not less than Rs. Four crores at the time of commissioning, if the cost of sister con-'cern unit were included for the same.
3. It is, inter alia, further alleged by the petitioner that the petitioner submitted his resignation from directorship by letter dated 1-10-1997 (Annexure No. 5 to the writ petition) as is evident from form No. 32 (Annexure No. 5 to the writ petition) submitted under Section 303(2) of the Companies Act, and thus the petitioner continued as director only during the period 7-2-1992 to 1-10-1997.
4. It is, inter alia, further alleged by the petitioner that a notice dated 18-2-2000 was issued by the Assistant Registrar (Companies) U. P. Kanpur under Section 628 of the Companies Act, 1956. The said notice has been filed as Annexure No. 6 to the writ petition. The said notice indicates that the petitioner, K.C. Jain ceased to be a director of the said company on 19-1-1998.
5. It is. inter alia, further alleged by the petitioner that the U. P. Financial Corporation, Regional Office, Agra (Respondent No. 2) issued a letter dated 1-3-2000 (Annexure No. 7 to the writ petition) to the petitioner as well as other directors of the said company invoking personal guarantee given by the petitioner and other directors for repayment of the loan advanced to the said company.
6. It is, inter alia, further alleged by the petitioner that ultimately Managing Director, U. P. Financial Corporation, Kanpur (Respondent No. 1) sent recovery certificate to the Collector, Mathura for making recovery as arrears of land revenue from the petitioner and three others as directors/guarantors of M/s. Deepak Rice Mill (P.) Limited. The said recovery certificate is annexed as Annexure Order 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.
7. 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 Mill (P.) Limited v. U. P. Financial Corporation was filed in the year 1997, much before the action was taken by the U. P. Financial Corporation under 29 of the State Financial Corporation Act, 1951 on 8-3-1998, and that in the said suit, no interim order at all was continuing. It is, inter alia, alleged that the petitioner had not hypothecated, mortgaged or accepted any liability on his personal property mentioned in schedule 'SA' of Annexure No. 8 to the writ petition, and that the action of the U. P. Financial Corporation to proceed against the personal property of the petitioner mentioned in schedule 'SA' (Annexure No. 8 to the writ petition) was contrary to the provisions of Section 4(2)(b) of the U. P. Public Moneys (Recovery of Dues) Act, 1972, and that loan could be realized from the assets of M/s. Deepak Rice Mill (P.) Limited and the property mentioned in schedule 'BA' of Annexure No. 8 to the writ petition.
8. A counter-affidavit sworn on 31-7-2002 along with stay vacation application was filed on behalf of Respondents Nos. 1 and 2. It is, inter alia, alleged in the said counter-affidavit that the company namely M/s. Deepak Rice Mill (P.) Limited was sanctioned an advanced Fixed Assets Terms Loan of Rs. 20.00 lacs. Rs. 5.00 lacs, Rs. 12.00 lacs, and Rs. 30,00 lacs in May. 1992, October, 1993, April, 1994 and December 1993, and Working Capital Term Loan of Rs. 50.00 lacs, Rs. 30.00 lacs, Rs. 40.00 lacs and Rs. 46.15 lacs in Feb., 1995, October, 1995, December. 1995 and January. 1997 for Rice Mill and Puha Udyog at Kosi Kalam, District, Mathura, and that in view of the continued defaults, action under Section 29 of the State Financial Corporation Act, 1951 was initiated and notice was issued on 30-3-1997 against the borrowing company and possession of the unit was taken over on 6-1-1998 since the company failed to make payment in terms of loan's notice. It is, inter alia, further alleged in the said counter-affidavit that after issue of the notice, the unit was advertised for sale from time to time in daily newspaper namely Amar Ujala on 10-1-1998, 8-3-1998, 3-4-1998, 30-4-1998 and 2-2-2000 but despite all efforts unit could not be sold and the Corporation has not been able to realize any amount so far. It is. inter alia, further alleged that as the dues against the company amounted to Rs. 3,57,08,794.20 as on 20-12-1999 including interest and the promoters of the company who had guaranteed re-payment of loan in their individual and personal capacity did not make any effort so as to ensure re-payment of the loan for which they had stood as guarantor, the recovery certificate was issued against all the guarantor of the company including the petitioner on 21-3-2000 to the Collector, Mathura for realizing the huge sum of public money which the petitionerand other guarantors were legally liable to pay as arrears of land revenue under the Public Moneys (Recovery of Dues) Act. 1972. Photo stat 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.
9. 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.
10. 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.
11. 1 have heard Sri M.K. Gupta, learned counsel for the petitioner, Sri R.R. Mishra, learned counsel for respondent Nos. 1 and 2 and learned standing counsel appearing for Respondent Nos. 3 and 4.
12. The first contention raised on behalf of the petitioner is that the U. P. Financial Corporation having invoked Section 29 of the State Financial Corporation Act, 1951 and having taken over the possession of the unit of the company on 6-1-1998, was precluded from resorting to personal guaran-
tee against the petitioner and other guarantors in view of the doctrine of election. Reliance in this regard has been placed on the decision of Supreme Court in Andhra Pradesh State Financial Corporation v. M/s. Gar Re-Rolling Mills. AIR 1994 SC 2151.
13. Learned counsel for the U. P. Financial Corporation, on the other hand, submitted that even if U. P. Financial Corporation had invoked Section 29 of the State Financial Corporation Act. 1951 and taken over possession of the unit of the company, still it was open to the U. P. Financial Corporation to proceed against the petitioner and other guarantors on the basis of their guarantee. Learned counsel placed reliance on a Division Bench decision in Civil Misc. Writ Petition No. 33176 of 1995, Khem Chand v. District Magistrate. Saharanpur decided on 27th September 1999. and another Division Bench decision Civil Misc.Writ Petition No. 32244 of 1999 Smt. Firmal Arora v. State of U. P. decided on 8th November, 2000.
14. Having considered the rival contentions of the parties, we are of the view that first contention raised on behalf of the petitioner lacks merits and is liable to be rejected.
15. In State Bank of India v. M/s. Indexport Registered. AIR 1992 SC 1740. the Supreme Court held as follows (paragraph No. 13 of the said AIR):--
"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."
16. The Supreme Court further held (paragraph 18 of the said AIR).
"18. It will be noticed that the guarantor 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."
17. 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 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. ..........................."
18. In view of this decision of the Supreme Court, it is evident that the petitioner as guarantor cannot insist that the U. P. Financial Corporation must first proceed against the company i.e. principal borrower.
19. This decision also shows that if the decretal amount is covered by a mortgage decree, still decree-holder cannot be compelled to proceed against the mortgaged property first, and then to proceed against the guarantors, in other words, even if the creditor has availed of remedy against the principal borrower, still it is open to the creditor to proceed against the guarantor, it therefore, follows from this decision that even if the U. P. Financial Corporation has already invoked Section 29 of the State Financial Corporation Act, 1951, and has taken possession of the unit of the company i.e. principal borrower, still it is open to the U. P. Financial Corporation to proceed against the guarantor on the basis of his guarantee.
20. In Andhra Pradesh State Financial Corporation case (supra) relied upon by the learned counsel for the petitioner, the Supreme Court was dealing with the remedies available to the State Financial Corporation under Section 29, and Section 31 of the State Financial Corporation Act, 1951. The Supreme Court held as follows (paragraph No. 13 of the said AIR)."
"13. On a conjoint reading of Sections 29 and 31 of the Act, it appears to us that in case of default in re-payment of loan or any instalment or any advance or breach of an agreement, the Corporation has two remedies available to it against the defaulting industrial concern, one under Section 29 and another under Section 31 of the Act. The choice for availing the remedy under Section 29 or Section 31 of the Act is that of the Financial Corporation alone and the defaulting concern has no any 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 under Section 31 of the Act and save its rights and remedies under Section 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 under Section 29 of the Act for realization of its dues."
21. 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 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 or 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. .
22. 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 re-paying 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 under Section 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 under Section 31 of the Act, passing a money decree for recovery of the outstanding dues, not being within the jurisdiction of the Court under Section 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 under Section 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 parly, the saving clause in Section 31 of the Act, preserving the rights under Section 29 of the Act by giving up the pursuit under Section 31 at any stage of the proceedings is available to the Corporation. The two provisions must be so harmonized as to facilitate the Corporation to recover its dues from the defaulting party. ..........."
23. The Supreme Court further held (paragraph 19 of the said AIR).
"19. The right vested in the Corporation under Section 29 of the Act is besides the right already possessed at common law to institute a suit or the right available to it under Section 31 of the Act. Since, the Corporation can withdraw from the Court its proceedings under Section 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 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 relief. The position may also be different if the claim of the Corporation is negatived, on facts, by the Court in the proceedings under Sec. 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."
24. 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 persue and the defaulting party cannot compel the State Financial Corporation to take recourse to any particular remedy.
25. In view of this decision, the petitioner as guarantor in the present case cannot compel the U. P. Financial Corporation to first proceed against the unit of the company taken over under Section 29 of the State Financial Corporation Act, 1951, and only thereafter to proceed against the petitioner. It is the choice of the U. P. Financial Corporation as to which of the remedies it would persue and against which of the parties it would proceed.
26. The decision in Andhra Pradesh State Financial Corporation (supra) also lays down that even if the U. P. Financial Corporation has availed of one of the remedies out of the two which remedies available to it, namely, under Section 29 and Section 31 of the State Financial Corporation Act, 1951, still it is open to the U. P. Financial Corporation to avail of the other of the said two remedies available to it. In other words, selection of one of the said two remedies does not pre-
elude the State Financial Corporation to take recourse to the other of the said two remedies.
27. In view of this proposition, it is evident that even if the U. P. Financial Corporation has already taken recourse to Section 29 of the State Financial Corporation Act, 1951 and has taken possession of the unit of the company, still it is open to the U. P. Financial Corporation to proceed against the petitioner and other guarantors on the basis of their guarantee. This decision, therefore, does not help the petitioner.
28. In U. P. Financial Corporation v. M/s. Garden Polyfeb Industries, AIR 2001 All 286 : (2001 All LJ 1915) 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 Corporation (defendant-appellant) was directed to take recourse to proceedings under Section 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. ...........
This 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 under Section 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."
29. Applying this principle to the present case, it is held that even though the U. P. Financial Corporation has already taken possession of the assets of the Company, still it is open to the U. P. Financial Corporation to proceed against the petitioners or the basis of his guarantee.
30. In Bank of Bihar Limited v. Dr. Damodar Prasad. AIR 1969 SC 297, it was laid down as follows (paragraphs 3, 4 and 5 of the said AIR).-
"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. 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.
4. 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 v. 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 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.
5. 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 RCR 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 for the imprisonment of the sureties before levying execution against the principals. The Judge stated that the practice of his Court has been to restrain a judgment-creditor 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 a surety, it may be enforced in the same manner as a decree for any other debt."
31. This decision thus supports the conclusion 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.
32. This decision also shows that even if the creditor has obtained decree against principal debtor as well as sureties, still, the creditor is not bound to first execute decree against the principal debtor, and he (creditor) may straightway proceed to execute the decree against the sureties.
33. From this decision also, it follows that even if the U. P. Financial Corporation has already taken recourse to Section 29 of the State Financial Corporation Act, 1951 and has taken possession of the unit of the company (principal borrower), still it is open to the U. P. 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 the learned counsel for U. P. Financial Corporation namely Khem Chand case (supra) and Smt. Nirmala Arora case (supra). In view of the aforesaid discussion, it is held that even though the U. P. Financial Corporation had taken possession of the unit of the company (principal borrower) by invoking Section 29 of the State Financial Corporation Act. 1951, still it was open to the U. P. Financial Corporation to invoke personal guarantee given by the petitioner. Such action of the U. P. Financial Corporation was not barred on the basis of doctrine of election. The first contention raised on behalf of the petitioner thus fails and is rejected accordingly.
34. The second contention raised by the learned counsel for the petitioner was that the U. P. Financial Corporation having invoked Section 29 of the State Financial Corporation Act. 1951 and having taken possession of the unit of the company, could not invoke personal guarantee given by the petitioner in view of the decision in Govind Prasad v. U. P. Financial Corporation, Kanpur, 1990 AWC 627 : 1990 All LJ 580.
35. Learned counsel for the U. P. Financial Corporation on the other hand, contended that the company had filed a suit which was still pending. Even though the possession of the unit of the company had been taken over sale of the unit could not be made on account of various hurdles created by the directors/guarantors of the company, who are family members. In the circumstances, personal guarantees given by the petitioner and other directors of the company were rightly invoked.
36. In order to appreciate this contention, it is relevant to reproduce paragraph Nos. 3 and 4 of the Division Bench decision in Govind Prasad case (supra) which are as follows at Page 581 of All LJ:--
"3. The learned counsel is clearly right. We think that the Corporation could not legally and, at any rate ought not in all fairness to proceed against the petitioners while keeping the property mortgaged with them under its control. The Corporation having decided to proceed against the borrowers and having taken possession of their assets, could not turn around and proceed against the petitioners without attempting to sell the assets seized from the borrowers, it should not be forgotten that the Corporation is an instrumentality of the State. It must, therefore, at all times act reasonably and fairly. There is nothing to indicate that value of the property seized by the Corporation is less than the amount remaining due from the borrowers. The impugned action against the petitioners is hence plainly unjust and unfair.
4. The upshot of the foregoing discussion is that as long as the property in possession of the Corporation is not sold or released by the Corporation, it would be unfair and unjust for the Financial Corporation to proceed against the petitioners. The Corporation may, therefore, either sell the properties and recover the balance from the petitioners or it may release the property and proceed against the petitioners."
37. This decision, as is apparent from the passages quoted above proceeded on the ground that the U. P. Financial Corporation should act in a fair and just manner.
38. To decide as to whether the U. P. Financial Corporation is acting in a fair and just manner in proceeding against the guarantors while it has already taken possession of the assets of the company under Section 29 of the State Financial Corporation Act, 1951, it will be necessary to examine the facts and circumstances of each case.
39. There can be no doubt that in view of the provisions of Section 138 of the Indian Contract Act, 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 U. P. Financial Corporation has already taken possession of the unit of the company under Section 29 of the State Financial Corporation Act, 1951, still it is legally permissible for the U. P. Financial Corporation to proceed against the guarantors on the basis of their guarantees. It is the choice of the U. P. Financial Corporation as to which of the remedies it would pursue and against which of the parties it would proceed.
40. Therefore, the question which would come up for consideration in each case would be as to whether the U. P. 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.
41. Keeping in view this position, let us examine facts of the present case which have already been narrated in detail in the earlier part of this judgment.
42. It is evident from record that the U. P. Financial Corporation initiated proceeding under Section 29 of the State Financial Corporation Act, 1951 and issued a notice to the said company on 30-3-1997. Thereupon, the said company filed a suit being original suit No. 616 of 1997, inter alia, praying for a decree of permanent injunction.
43. The possession of the unit of the said company was taken over by the U. P. Financial Corporation on 6-1-1998 since the company failed to make the payment in terms of the said notice.
44. The unit was advertised for sale from time to time as mentioned in paragraph No. 6 of counter-affidavit sworn on 31-7-2000 filed on behalf of the respondent Nos. 1 and 2. however, the sale of the unit of the said company could not take place. It is pertinent to quote paragraph Nos. 6, 7 and 8 of the counter-affidavit sworn on 31-7-2000 filed on behalf of respondent Nos. 1 and 2.
6. That after service of the notice, the unit was advertised for sale from to time to time in daily newspaper Amar Ujala on 10-
1-1998, 8-3-1998, 3-4-1998, 30-4-1998, 2-
2-2000 which is having wide circulation in the area but despite all efforts the unit could not be sold and the Corporation has not able to realize any amount as far."
7. That as the dues against the company mounted to Rs. 3,57,08,794.20 as on 20-12-1999 including interest and the promoters of the company who have guaranteed re-payment of loan in their individual and personal capacity did not make any efforts so as to ensure re-payment of the loan for which they stood guarantor, the Recovery Certificate has been issued against all the guarantors of the company including the petitioner on 21-3-2000, to the Collector Mathura for realizing the huge sum of public money which the petitioner and other guarantor are legally liable to pay as arrears of land revenue under U. P. Public Money (Recovery of Dues) Act, 1972, and the petitioner having guaranteed re-payment of loan in his personal capacity and individual capacity should not have any grievance if the recovery proceedings are allowed to continue against him.
8. That during the last about two and half years no efforts have been made by the promoters guarantors of the company to liquidate the huge sum of public money for which they stood as guarantor nor any payment has 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."
45. 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 re-payment 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.
46. 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,
47. In the above circumstances, it is evident that the U. P. Financial Corporation was justified in proceeding against the petitioner and other directors/guarantors on the basis of their guarantee. Therefore, the action taken by the U. P. Financial Corporation cannot be termed to be unfair or unjust. Thus, the second contention raised on behalf of the petitioner has no force and is. accordingly rejected.
48. The third contention raised on behalf of the petitioner was that the U. P. Financial Corporation had taken possession of the unit of the said company. The worth of the said unit of the company as per the report of the Amin dated 27-11-1997 (Annexure RA-1 to the rejoinder affidavit sworn on 15-10-2000) was more than one crore. Had the U. P. Financial Corporation sold the unit of the company, much of the liability of the company would have been wiped off. Since the U. P. Financial Corporation, failed to sell the unit of the company and continued to keep the same in its possession, the U. P. Financial Corporation was not entitled to charge compound interest on the loan given by it to the said company.
49. Learned counsel for the U. P. Financial Corporation on the other hand reiterated that it was on account of hurdles created by the directors/guarantors of the said company that the sale of the unit could not take place. In any case, the contention proceeds, the interest would continue to run in accordance with the loan agreement, even if the U. P. Financial Corporation has invoked Section 29 of the State Financial Corporation Act, 1951, and has taken possession of the unit of the said company.
50. Having considered rival contentions, we are of the view that the third contention raised on behalf of the petitioner has no force. As is apparent from the facts narrated above, the petitioner and other Directors/ guarantors did not make any effort to ensure re-payment of the loan taken by the company. The advertisements for sale of the unit were published from time to time but the sale could not take place. The petitioner has not pointed out any effort made by him or by other Directors/guarantors of the company to get the unit of the company sold so as to liquidate the liability of the company to that extent. It is, thus, evident that the U.P. Financial Corporation cannot be faulted with for the sale of the unit of the company not having taken place.
51. Even otherwise, the liability for payment of interest is dependent on the terms of the loan agreement. The interest would continue to run in terms of the agreement so long as re-payment of the loan as per the terms of the agreement is not made to the U.P. Financial Corporation. The interest would not cease to run merely because U.P. Financial Corporation has taken possession of the unit of the company, or has failed to sell the unit of the company.
52. The third contention raised on behalf of the petitioner, thus, has no force and is accordingly rejected.
53. The fourth contention raised on behalf of the petitioner was that a perusal of the recovery certificate (Annexure No. 8 of 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 U.P. Public Moneys (Recovery of Dues) Act. 1972.
54. Sri R. R. Mishra, learned Counsel appearing for the U.P. Financial Corporation on the other hand, submitted that no personal property of the petitioner as guarantor had been mortgaged as was evident from the bonds of guarantee executed by the petitioner (Annexures No. CA-1 to C.A. 8 to the counter-affidavit filed on behalf of the respondent Nos. 1 and 2). It is submitted that had any personal property of the petitioner been mortgaged, the same would have been mentioned in the bonds of guarantee executed by the petitioner. In the absence of mention of mortgage of any personal prop-
erty of the petitioner in the bonds of guarantee, it could not be accepted that any personal property of the petitioner had been mortgaged.
55. In order to appreciate this contention, it is relevant to reproduce Section 4 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 :--
"4. Savings.-- (1) Nothing in Section 3, shall.-
(a) affect any interest of the State Government, the Corporation, a 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;
(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 than 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 before or at the same time as proceedings are taken for sale of the thing pledge,
(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 realization of the entire sum due through the first mentioned process within a reasonable time."
56. 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 a person 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 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.
57. 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 a 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 a 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 a person "B" cannot insist that proceedings should first be taken against the property of "A" which is subject to mortgage, charge or other encumbrance.
58. In the present case, if the submission of the petitioner that the personal property of the petitioner as mentioned in Schedule 'BA' to the recovery certificate had been mortgaged is found to be correct, then the recovery proceedings will first have to be taken against such mortgaged property of the petitioner and any other personal property of the petitioner will be proceeded against thereafter only if the Collector certificate as mentioned in Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972.
59. On the other hand, if it is found as submitted on behalf of the U.P. Financial Corporation that no personal properties of the petitioner had been mortgaged then there will be no bar in proceeding to make recovery against the personal property of the petitioner which had not been mortgaged as the provision of Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972 will not be attracted in such a situation. Hence, the main controversy to be resolved is as to whether any personal property of the petitioner as guarantor had been mortgaged or not. As noted above, there is dispute between the parties on this question. This question evidently is a question of fact which can appropriately be resolved by the Tehsildar after giving an opportunity of hearing to both the sides. If the Tehsildar comes to the conclusion that any personal property of the petitioner as guarantor 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 U.P. 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.
60. 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 U.P. 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 period of one month from the date of production of a certified copy of this judgment before him along with the objections.
61. Till the decision on the said question by the Tehsildar the recovery proceeding as against the petitioner will remain stayed provided a certified copy of this judgment along with the objections is filed before the Tehsildar (respondent No. 4) within a period of 15 days from today. A certified copy of this judgment will be given to the learned Counsel for the parties on payment of usual charges within three days. In the circumstances, there will be no order as to costs.
S.R. Singh, J.
62. I agree subject to what I have said in my separate judgment in Civil Misc. Writ Petition No. 8386 of 2002. Suresh Chand Gupta v. Collector. Kanpur Nagar that the writ petition be allowed and the recovery proceeding against the petitioner be kept in abeyance till the decision by the Tehsildar on the objection that may be filed by the petitioner within 15 days from today along with certified copy of this order.