Counsel for the petitioner: Mr. S.K. Kalia, Sr. Adv., Mr. D.K. Upadhyaya & Sameer Kalia Counsel for the respondents: Mr. V.R. Singh, Mr. Gaurav Mehrotra &Mr. Prashant Chandra Hon'ble Ferdino Inacio Rebello,CJ Honorable Dr. Satish Chandra,J At the behest of respondent no. 1-Pradeshiya Industrial & Investment Corporation of U.P. (hereinafter referred to as PICUP), the Assistant Collector of Grade-I, Defence Colony, New Delhi on 3.7.2004 issued a notice to the petitioner stating that the amount outstanding in the name of the Company in lieu of the loan taken and the interest payable on a sum of Rs.6,33,57,669/- was to be recovered from the petitioner.
The petitioner was the sole guarantor for the said loan advanced by the PICUP. According to the petitioner, no certificate has been issued by the Government of Uttar Pradesh for realization of the said amount as arrears of land revenue.
M/s. Jayana Mefa India Limited was a Company, incorporated under the Companies Act, 1956 having its registered office at 865, Chandni Chowk, Delhi-6. The petitioner was the Director of the said Company. In 1995, the Company approached the PICUP for advancing a loan for furtherance of their business initiatives. A loan of Rs.500 lacs (five hundred lacs) was sanctioned and the payment module for the same was worked out. The petitioner executed a bond of guarantee on 31.1.1996.
On 5.9.2001, the Company approached the PICUP under a rehabilitation scheme as they were in dire straits and were unable to pay the interest. The rehabilitation scheme was sanctioned by PICUP on 21.12.2001. The petitioner resigned from the post of Director of the said Company on 11.11.2002, which was recorded with the Registrar of the Companies. The PICUP, then cancelled the rehabilitation package and adjusted the amount of Rs.35 lacs against the principal debtor. As the Company became sick, the PICUP took over physical possession of the Company on 28.2.2003.
The Ministry of Finance, Government of India, vide a notification declared the PICUP to be a Public Financial Institution on 23.2.2004. On 11.12.1996, the Central Government, in exercise of its powers under Section 46 of sub-section-1, in response to the request of the State Government, notified that the provisions of Sections 29, 30, 31, 32, 32-A, 32-B, 32-C, 32-D, 32-E & 32-F of the State Financial Corporation Act, 1951 shall apply to the PICUP.
The question raised by the petitioner is whether the PICUP, a Financial Institution, can invoke provisions of the U.P. Public Monies (Recovery of Dues) Act, 1972 (hereinafter referred to as 'Recovery Act') for realization of the loan amount in view of Section 34 of the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'DRT Act').
The issue involved herein is no longer res integra as with respect to the same institution it had come up for consideration before the Supreme Court in Unique Butyle Tube Industries (P) Ltd. vs. U.P. Financial Corporation & others, (2003) 2 SCC 455. While answering the issue, the Court observed in paragraph 9 of the judgment which is as under:-
"9. Section 34 of the Act consists of two parts. Sub-section (1) deals with the overriding effect of the Act notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the Act. Sub-section (1) itself makes an exception as regards matters covered by sub-section (2). The U.P. Act is not mentioned therein. The mode of recovery of debt under the U.P. Act is not saved under the said provision i.e. sub-section (2) which is of considerable importance so far as the present case is concerned. Even a bare reading therein makes it clear that it is intended to be in addition to and not in derogation of certain statutes; on of which is the Financial Act. In other words, a bank or a financial institution has the option or choice to proceed either under the Act or under the modes of recovery permissible under the Financial Act. To that extent, the High Court's conclusions quoted above were correct. Where the High Court went wrong is by holding that the proceedings under the U.P. Act were permissible. The U.P. Act deals with separate modes of recovery and such proceedings are not relatable to proceedings under the Financial Act."
This judgment came up for consideration in A.P.T. Ispat Pvt. Limited vs. U.P. Small Industries Corporation Ltd. & another, (2010) 5 SCC 761 where, relying on the judgment of Unique Butyle Tube Industries (P) Ltd. (supra), the Court observed that after the coming into force of the DRT Act, recourse to the provisions of the U.P. Public Moneys (Recovery of Dues) Act, 1972 cannot be taken for recovery of dues because the U.P. Act does not find mention in Section 34(2) of the DRT Act.
The Court, thus, clearly held that for recovery of debts under the Recoveries Act is not saved under Section 34 (2) and that the Bank or Financial Institution does not have the option of adopting recovery procedure under the U.P. Act.
These judgments had decided the liabilities of a principal debtor. The issue, however, in respect of a guarantor as like in the present case has also been considered by a Full Bench Judgement of this Court in Suresh Chandra Gupta & another vs. The Collector, Kanpur Nagar & others, AIR 2005 Alld. 320 (FB). The issue whether the principles applicable to the principal debtor would also apply to a guarantor are set out in para 19 of the judgement and we may reproduce the same which reads as under:-
"19. In the Unique Butyle case, AIR 2003 SC 2103, the recovery was against the principal borrower. While deciding point-IV, we have held that recovery against the guarantor can be initiated under the 1993 Act. Same reasoning-- as applicable to the principal borrower-- will apply to a recovery against the guarantor. In view of the Unique Butyle case, recovery proceedings can neither be initiated against the principal borrower nor against the guarantor under the 1972 Act if the debt is more than 10 lakhs; recovery proceedings can only be initiated under the 1993 Act."
It would, thus, be clear that the same principle as applicable to the principal borrower will also apply to a recovery against the guarantor.
Learned counsel for the PICUP, however, sought to contend that a Division Bench judgment of this Court in the case of Mak Plastic (P) Ltd. and another vs. U.P. State Financial Corporation and others, 2009 (1) AWC 579 has dismissed the petition filed by the petitioner therein against whom recovery was sought to be made under the Recovery Act. The learned Bench relied upon M/s. Paliwal Glass Works and others vs. State of U.P. and others (unreported judgment dated 21st September, 2005, in Civil Appeal No. 5933 of 2005). After considering the said case, we find that the said is not a judgment, as it has not finally disposed of the appeal or part of the appeal. When the matter came up for consideration, leave was granted and the Court found that it was unable to agree with the reasoning in the judgment in the case of Unique Butyle Tube Industries (P) Ltd. (supra) and, accordingly, referred the matter to a larger Bench. In our opinion, referring the matter to a larger Bench would not be a judgement as it is only an opinion expressing the reservations about the view taken in an earlier Coordinate Bench judgment. The judgement in Mak Plastic (P) Ltd. (supra) was delivered on August 22, 2008 i.e. much after the judgment in the case of Suresh Chandra Gupta and another (supra). The Full Bench had held that the judgment in Unique Butyle Tube Industries (P) Ltd. (supra) will apply, both to the principal borrower as also to the guarantor. In our opinion, that judgment was not considered by the learned Division Bench while proceeding to dismiss the petition filed by the petitioner therein.
In our opinion, the judgment in Mak Plastic (P) Ltd. (supra) having not been considered by the Full Bench, would be per incurium. Even otherwise, the judgment in Unique Butyle Tube Industries (P) Ltd., (supra) is binding on Courts under Article 141 of the Constitution of India, as mere reference to a larger Bench is not a judgment binding under Article 141 of the Constitution of India.
Learned counsel, however, points out that in Suresh Chandra Gupta and another (supra), the learned Full Bench has not taken into consideration various judgments specifically the judgment in Transcore vs. Union of India and another, (2008) 1 SCC 125. In our opinion, considering the judgment of Full Bench and the judgment of Unique Butyle Tube Industrties (P) Ltd. (supra), it is not necessary to refer to the various contentions as raised on behalf of the respondents.
Apart from that, it is stated that in Pawan Kumar Jain vs. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and others, (2004) 6 SCC 758, it was submitted before the Court that as the Company has committed defaults and recovery has not been possible by sale of property, action has been taken against the guarantor for recovery of the amount. To that, the Court answered "in our view, the above set out provisions of the U.P. Act are very clear. Action against the guarantor cannot be taken until the property of the principal debtor is first sold off. As the appellant has not sold the property of the principal debtor, the action against the appellant cannot be sustained. We, therefore, set aside the recovery notice.".
To the similar effect, a reliance was placed on a judgment in Ashok Mahajan vs. State of U.P. and other, (2006) 10 SCC 332.
From the above, it would be clear that when the notice was issued, the Company had its assets which would have been only sold off consequently, and as such on the said date, notice could not have been issued. Apart from that we have noted that the PICUP has consequently sold the assets of the Company and adjusted the amount received towards the dues of the Company.
We may only add that the case of a guarantor can be no different from that of the principal debtor. A guarantor is also a debtor. The liability of a guarantor is coextensive with the principal debtor. It is open to the State Financial Corporation to proceed against the principal debtor as also the guarantor or jointly to recover the dues in terms of what has been stated above.
For the aforesaid reasons, this petition will have to be allowed and is, accordingly, allowed and the notice of recovery of land revenue dated 3.7.2004 (Annexure No.1 to the petition) is quashed. It will be open to respondent no. 1 to take such steps in law to which he is entitled to.