JUDGMENT Palok Basu, J.
1. The petitioner Pawan Kumar Jain admittedly a guarantor on behalf of respondent No. 4 M/s. Shri Gayatri Alloy Steels Pvt. Ltd. has challenged the citation dated 7-8-1997 for the sum of Rs. 2,02,22,741.99 paise which has been issued in accordance with the provisions contained in the Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972 (for short the Recovery Act).
2. Shri Ravi Kiran Jain assisted by Shri Pramod Kumar Jain has been heard at great length in support of this writ petition. Shri Murli Dhar, learned senior Advocate has argued the matter on behalf of the Paradeshiya Industrial Investment Corporation of U. P. Ltd. (for short, PICUP). Since the time ran out, in-fact the arguments proceeded and concluded for about half an hour more than the Court hours, the writ petition was dismissed with the order :--
"For the reasons to be furnished on Monday the 1st September, 1997, the writ petition is dismissed summarily."
Hence the reasons are supplied.
3. Shri Ravi Kiran Jain has argued principally three points which are as under:--
First argument of Shri Ravi Kiran Jain was that the present citation indicates an arbitrary action on the part of PICUP in as much as the action taken against the guarantor is unfair particularly because Section 29 proceedings under State Financial Corporation Act have been initiated against the original borrower M/s. Shri Gayatri Alloy Steels Pvt. Ltd., a company registered under the Indian Companies Act in which the petitioner was promotor director but had withdrawn himself by resignation later on. Shri Murli Dhar pointed out that while it is true that a notice has been issued under Section 29 of the State Financial Corporations Act, 1951 (for short the S.F.C. Act) but possession has not yet been taken over and the original borrower had not only failed to pay the principal amount with interest in due course of time but has also failed to honour and make payments in accordance with the one time settlement (O.T.S.).
4. Shri Ravi Kiran Jain had Veiled upon the decisions of the Hon'ble Supreme Court reported in the following cases :--
(1) Dwarika Nath, AIR 1989 SC 1642 paras 23 to 29; (2) Magan Lal Chagan Lal, AIR 1984 SC 2009; (3) Mahesh Chandra's case, AIR 1993 SC 935: (4) Andhra Pradesh Financial Corporation, AIR 1994 SC 2151: (5) Bharat Explosives Ltd., AIR 1994 All 123.
5. The aforesaid five decisions were relied upon to advance on argument that the principal debtor should have been proceeded against first and if no money could be recovered from the company's property or unit or factory then alone original borrower may have been personally proceeded with and it is only thereafter that the petitioner guarantor could have been proceeded with. This action of the PICUP has been characterised as violalive of Article 14 of the Constitution of India because it was contended that by picking up the guarantor first under the recovery act the proceedings under Section 29 of the S.F.C. Act may have been rendered in effective. The argument proceeded that after exhausting the remedy under Section 29 alone the petitioner guarantor may have been asked to make the payment.
6. The second argument was based upon the reading of the provisions contained in Section 133 to Section 136 of the Contract Act. It was said that the issuance of the citation is violative of those provisions in the Contract Act as also it goes against the spirit of the S.F.C. Act as has been provided by Section 24 thereof which says that the Board in discharging its functions under S.F.C. act, shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public. In this connection it was further argued that Section 31(1)(aa) which was brought about by the amendment in the year 1985 has conferred arbitrary powers on the PICUP.
7. The third argument advanced was that the petitioner cannot be covered by any of the provisions contained under Section 3 of the Recovery Act and therefore the recovery certificate could not have been issued by PICUP and for that reason also the citation is bad. Reliance was also placed on Sectioin 4(2)(b) of the recovery Act to argue that because the original borrower can raise an argument that the PICUP should have proceeded against the property of the original borrower first and if after doing so the entire loan amount was not recovered then only it could have proceeded against the guarantor. The argument proceeds that the petitioner being the guarantor can also argue that the PICUP should first proceed against the property of the original borrower and then only it can proceed against the petitioner guarantor.
8. Section 128 of the Contract Act creates liabilities of surety/guarantor. In the instant case the guarantee bond has been annexed as Annexure-1 to the writ petition. It is dated 25-6-1990 which was the date on which the company had taken loan from PICUP. In the preamble Clause the petitioner has argued that:--
"Whereas the Corporation has agreed to grant to M/s. Shri Gayatri Alloy Steels (P) Limited, hereinafter called the company/borrower (which expression shall include its successors and assigns/ the heirs executors and assigns of sole properties partners thereof) a term loan of Rs. 90.00 lakhs (Rupees Ninety Lakhs only) upon security of a legal mortgage/equitable mortgage and/or deed of hypothecation (hereinafter collectively called "the Mortgage). And the guarantors agreed for the repayment of the loan as above in case of default by the Borrower.
Omitting the other terms of the guarantee bond, some relevant terms may be quoted for ready reference which are as follows :--
1 to 5. ......
6. The guarantee herein contained shall be enforceable against the Guarantors notwithstanding that the securities specified in the mortgage or any of them shall at the time when proceedings are taken against the Guarantors hereinder be outstanding or unrealised.
7. The guarantee herein contained shall be enforceable against the guarantors notwithstanding that no action of any kind has been taken by the Corporation agianst the Company/Borrower and an intimation in writing sent to the Company by the Corporation that a default or breach has occurred shall be treated as final and conclusive proof to the facts stated therein.
8. The Guarantors hereby agree that any amount appearing due from the Company/ Borrower in books of account of the Corporation kept in the ordinary course of business shall be conclusive evidence against the guarantors of the amount due on the said account and shall not be questioned by the Guarantors.
9. In order to give effect to the guarantee herein contained the Corporation shall be entitled to act as if the Guarantors were the principal debtors to the Corporation for all payment and covenants guaranteed by them as aforesaid to the Corporation.
10. to 13. .....
14. The guarantors hereby waive all rights which the Guarantors may become entitled to as surety/sureties to compete with the Corporation in obtaining payment of the moneys due or to become due to the Corporation in respect of the said loan in favour of the Corporation as against the said Company/Borrower.
15. The Guarantors hereby agree that it shall not be necessary for the Corporation to sue the said Company/Borrower before sueing Guarantors for the amount due hereunder.
16. The Guarantors also hereby agree that the liability to repay the amount due to the Corporation shall arise on demand being made by the Corporation by a registered notice addressed to the Guarantors on their addresses hereinafter contained.
17. The Guarantors hereby agree that any amount due from the hereunder to the Corporation shall be recoverable underthe U. P. Public Money (Recovery of Dues) Act, 1972 (as amended from time to time) as arrears of land revenue and further that it shall not be necessary for the Corporation to take recovery proceedings against the said Company/Borrower before taking recovery proceedings under the said Act against the Guarantors.
The Guarantors further agree for the applicability of relevant provisions of the State Financial Corporation Act, 1951."
9. The aforesaid provisions contained in the agreement ieave no room for doubt that the PICUP was fully authorised to execute the said bond in case the borrower defaulted and after a notice was served on the guarantor petitioner. Admittedly the petitioner was served with a notice dated 23-4-1997 by the PICUP a copy of which has been filed as Annexure-8 to the writ petition. The notice clearly states that thereby the PICUP was invoking the bond or guarantee executed by the petitioner on 25-6-1990 in respect of Rs. 90 lacs sanctioned by PICUP to M/s. Shri Gayatri Alloy Steels Pvt. Ltd. By the said notice the petitioner was called upon to pay the amount within fifteen days failing which legal measures were to be taken against the petitioner. Admittedly recovery certificate has gone from the office of the PICUP only after the petitioner did not pay in spite of the service of notice. The recovering officials therefore have issused the citiation.
10. Before proceeding to examine the contents of the agreement and the relevant provisions in the Recovery Act it may be pointed out that a combined reading of Sections 24, 29, 30, 31 and 32 of the S.F.C. Act read with Section 128 of the Indian Contract Act fully authorise the PICUP to proceed against the petitioner because of the terms of the agreement in the guarantor bond which was executed by the petitioner with eyes wide open the bond will clinch the issue.
11. The recovery certificate admittedly had been issued in pursuance of the provisions contained in Recovery Act. The premable of the Recovery Act indicates that it was "an Act to provide with retrospective effect, for the speedy recovery of certain clauses of dues payable to the State Government or to the PICUP or to any nationalised or other scheduled Bank or to a Government Company, and to validate certain acts done and proceedings taken in the past, and to provide for matters connected therewith." Subsection (1) of Section 3 in so far as it is relevant for the purposes of this case and Section 4 Subsection (2) Sub-clause (b) which is relevant for the purpose of this case are quoted hereinafter,--"Section 3. Recovery of certain dues as arrears of land revenue.--
(1) Where any person is party--
(a) To any agreement relating to a loan, advance or grant given to him or relating to credit in respect of, or relating to hire-purchase of, goods, sold to him by the Government or the Corporation, by way of financial assistance; or
(b) to any agreement relating to loan, advance or grant given to him or relating to credit in respect of, or relating to hire-purchase of goods sold to him, by a banking company or a Government company, the case may be, under a State sponsored scheme; or
(c) to any agreement relating to a guarantee given by the State Government or the Corporation in respect of a loan raised by an industrial concern, or
(d) to any agreement provided that any money payable thereunder to the State Government (or the Corporation) shall be recoverable as arrears of land revenue; and such person--
(i) Makes any default in repayment of the loan or advance or any instalment thereof, or
(ii) having become liable under the condition of the grant to refund the grant or any portion thereof, makes any default in the refund of such grant or portion or any instalment thereof, or
(iii) otherwise fails to comply with the terms of the agreement;
then, in the case of the State Government, such officer as may be authorised in that behalf by the State Government by notification in the official Gazette, and in the case of the Corporation or a Government company the Managing Director or where there is no Managing Director then the Chairman of the Corporation, by whatever name called) (or such officer of the Corporation or Government company as may be authorised in that behalf by the Managing Director or the Chairman) thereof, and in the case of a banking company, the local agent thereof, by whatever name called may send a certificate, to the Collector, mentioning the sum together with costs of the proceeding be recovered as if it were an arrear of land revenue.
Section 4. Savings.-- (1) Nothing in Section 3, shall,--
(a) to (b).....
(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 a 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 pledged;
(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 certificate that there is no prospect of realisation of the entire sum due through the first mentioned process within a reasonable time."
12. A close scrutiny of the various clauses of Sub-section (1) of Section 3 indicates that Clause (a) is attracted only as against a person who is a party to an agreement relating to loan etc. from the State Government or the PICUP by way of financial assistance. Clause (b) applies to persons agreeing to take such loan etc. from a banking company or a Government company under a State sponsored scheme. Clause (c) embraces those persons who are parties to an agreement extending guarantee given by the State Government or the PICUP in respect of a loan raised by an industrial concern. Therefore Clauses (a) (b) and (c) obviously refer to the borrowers who may have taken the loan in any of the three contingencies enumerated under Clauses (a), (b) and (c).
13. Coming now to Clause (d) of Sub-section (1) of Section 3 it may be noted that it will apply to any person who is a party to any agreement providing that any money payable thereunder to the State Government or the PICUP shall be recoverable as arrears of land revenue; and such person--
(i) has made a default in repayment of loan etc.
(ii) committed a default in refund of such grant etc.
(iii) otherwise fails to comply with the terms of the agreement.
14. Therefore, where there is agreement under which it is provided that any money payable under the terms of that agreement is recoverable as arrears of land revenue and further that he has failed to comply with the terms of the agreement, it will be permissible for the PICUP to, "send a certificate, to the Collector, mentioning the sum due from such person and requesting that such sum together with costs of the proceedings be recovered as if it were an arrears of land revenue."
15. In view of the specific provisions contained in the agreement, Clause (d) as referred to above becomes immediately operative and is attracted in as much as the PICUP wanted to recover the amount from the petitioner in accordance with the terms of the agreement which the guarantors did not honour and therefore recovery certificate could have been legitimately issued in view of the provisions contained in Section 3 of the Recovery Act.
16. Having examined the terms of the agreement and the provisions of law applicable the arguments advanced by Shri Jain have no force.
17. In view of the aforesaid discussion the five authorities cited by Shri Jain have no application whatsoever to the facts of the present case. It may be mentioned that Shri Jain wanted to argue that the provisions of the Recovery Act are ultra vires Article 14 Constitution of India but on pointing out by the Court that the vires of the said act has already been upheld by the Hon'ble Supreme Court, the said argument was not pursued any further.
18. It may be usefully recalled that more or less similar arguments were advanced before the Hon'ble Supreme Court concerning reasonableness behind actions under Section 3 of the Recovery Act in the case of Director of Industries U. P. v. Deep Chand, AIR 1980 SC 801 wherein not only the vires of the provisions of the Recovery Act has been upheld, it was observed that the State or the Financial Corporations may be needing the money to be recovered soon and, therefore, recourse can be taken to the provisions of the Recovery Act. Therefore, on the facts of the instant case, the PICUP has rightly exercised the choice to proceed against the guarantor. There is no factual or legal error. As already noticed, the actions of the PICUP under the S.F.C. Act has to be "on business principles, due regard being had to the interests of industry, commerce and the general public" (see Section 24). The petitioner had himself floated the company, had himself become a Director in that Company, had himself sought loan from PICUP and had offered himself as a guarantor and had himself executed the Guarantee Bond. The entire action of the petitioner was voluntary. He cannot be permitted to say now that his guarantee bond be not proceeded with even though no payment has been made and the due amount has crossed two crores. PICUP's fund is public money, it must be restored.
19. Before concluding with this aspect it may be pointed out that in a given case one may be heard if one can justifiably plead unconscionable contract and try to condemn a standard-from-contract as "contract of adhesion" if it contains an unfair or irrational or unjust Clause as has been observed by the Apex Court in LIC v. CER Centre, AIR 1995 SC 1811. But, as noted above, the petitioner's action in executing the guarantor's bond was as much voluntary and legal as is that of PICUP in enforcing the same.
20. It may be stated here that similar questions were raised in the writ petition of Pawan Kumar Agarwal in Writ Petition No. 18196 of 1997 who also was a guarantor for the loan taken from the U.P.F.C. and this Court has taken the view that a guarantor can be proceeded with independently. Sri Ravi Kiran Jain was told about this decision who has raised certain additional points which have been considered above. For the reasons stated in the aforesaid case a few of which have been incorporated in this judgment, the arguments advanced by Sri Jain are not acceptable and the petitioner can be lawfully proceeded with for recovery of the amount for which he has stood guarantee.
21. It may be mentioned here that in the case reported in Bank of Bihar Ltd. v. Dr. Damodar Prasad, 1969 All LJ 475 : (AIR 1969 SC 297) the principles behind Section 128 of the Indian Contract Act have been explained by the Apex Court in detail. It has been held in para 3 that 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." It may be mentioned here that Section 128 of the Contract Act is the only provision under which the petitioners could offer themselves as guarantors on behalf of the principal debtor i.e. the borrower of the company.
22. No other point was argued. The petition has already been dismissed summarily on 29-8-1997 and these reasons shall form part of the said order.