JUDGMENT Shishir Kumar, J.
1. This writ petition has been filed for quashing the recovery citation dated 20.9.2000 issued by respondent No. 3, Annexure-I to the writ petition. Further prayer is for issuing a writ in the nature of mandamus commanding the respondent- Corporation to act in accordance with the terms of the agreement and either to disburse the remaining term loan to the petitioner or to dispose of the unit of the petitioners.
2. The facts arising out of the writ petition are that the petitioners No. 1 and 2 promoted a private limited company in the name of Jai Santoshi Chemical Industries Private Limited which was incorporated under the Companies Act 1956 with the Registrar of Companies, Kanpur and it was registered. The land belongs to U.P. State Industrial Development Corporation and was leased out to the company set up by the petitioners for a period of 90 years. Respondent No. 4 sanctioned a term loan of Rs. 65 lacs to the unit of the petitioners for the purpose of setting up an unit to manufacture I.P. Great Menthol Crystal, Menthol Flags and D. Menthol Oil. The petitioners in pursuance of the aforesaid agreement had brought in the entire promoters quota of Rs. 55 lacs in January 1994. The respondents disbursed an amount of Rs. 20 lacs out of the total sanction of Rs. 65 lacs. The second installment of Rs. 25 lacs was made to the petitioner on 8.8.1995. The balance amount of Rs. 20 lacs was never disbursed to the petitioner by respondent No. 4. The company to which the loan was granted specifically informed respondent No. 4 to either disburse the balance term loan or to dispose of the unit after adjusting the loan amount. But respondent No. 4 invokes the personal guarantee given by the petitioners. A copy of the same has been filed as Annexure-9 to the writ petition. The petitioners submitted a reply requesting therein for releasing of the plots in favour of the company for the purpose of purchasing 18 machines but the request of the petitioners was not acceded and on 20.9.2000 a recovery certificate was issued invoking the provisions of U.P. Public Money (Recovery of Dues) Act 1972.
3. The petitioners submit that the recovery certificate which has been issued under the aforesaid Act is not valid. The second question for consideration raised on behalf of the petitioners is that the guarantee executed by the petitioners in favour of the respondent No. 4 has the effect of overriding the statutory provisions of U.P Public Money (Recovery of Dues) Act 1972. The third submission made on behalf of the petitioners is whether the recovery certificate, which has been issued, is based on non-application of mind and as such cannot be enforced?
4. The nature of transaction in respect of which the recovery certificate has been issued shows that the loan was granted on security of the properties which stands mortgaged in favour of respondent No. 4. Sub-section (3) of Section 3 empowers the Collector to proceed to recover the amount as arrears of land revenue stated in the certificate and in the circumstances, the said certificate can be issued as have been enumerated in Clauses (a)(b)(c) and (d) of Sub-section (1) of Section 3. Section 4 contains the saving clause which inter alia provides that where the property of any person referred to in Section 3 is subjected to any mortgage, charge, pledge or other encumbrances in favour of the State Government, Corporation, a Government company or Banking Company, then the property so mortgaged, charged of the interest of the defaulter therein shall be first to be sold in the proceeding for recovery of the sum due from that person as if it was an arrear of land revenue and any further proceeding can be taken thereafter only if the Collector is satisfied or certified that there is no prospect of realization of the entire sum due through the first mentioned process within the reasonable time. For ready reference Section 4(2) is being quoted below:
4. Savings. (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, the Corporation, a Government Company or Banking Company, then-
(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 of if it were an arrear of land revenue, and any other proceedings 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.
5. It has further been submitted on behalf of the petitioners that from the aforesaid provisions it is evident that the Collector cannot be permitted to proceed against the defaulter without first realizing the mortgaged property and, therefore, the Collector has to apply his mind for undertaking the proceeding against the mortgaged property. And if the amount realized is not sufficient then he is permitted to adopt the other modes available for the purpose of recovery as arrears of land revenue. In the facts of the present case it is clear from the record that no effort has been made by the Collector to proceed against the mortgaged assets. The Collector has also not issued any certificate to this effect that the sum due to the Corporation can be realized from the personal assets of the petitioners. However, till date the State Government, who is a relevant party, has not filed any counter affidavit. In view of the aforesaid, it has been submitted that the recovery proceedings against the petitioners are contrary to the provisions contained under Section 4 of the U.P. Public Money (Recovery of Dues) Act and as such the same is liable to be quashed. Reliance has been placed upon a judgment of the Apex Court reported in 2004 Vol.6 Judgment today 305 Pawan Kumar Jain v. Pradeshiva Industrial and Investment Corporation of U.P. Ltd. and Ors. and reliance has been placed upon para 8 of the judgment which is quoted below:
8. 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.
6. Another judgment is 1992 (88) A.L.J. Page 111 Gyan Singh and Ors. v. Kanpur Development Authoirty and Ors. and reliance has been placed upon paras 4,6 and 7 of the judgment which are reproduced below.
4. It is urged by the learned Counsel for the petitioners that the loan advanced to the petitioners did not fall within the purview of Section 40 of the Act in as much as it was neither fees or charges nor an amount due on account of disposal of land, building or other properties. In the alternative, it is urged that in any case Sub-section (2) of Section 4 of the U.P. Public Moneys (Recovery of Dues) Act, 1972, clearly enjoins that where a public loan is secured by mortgage or charge or other encumbrance on immovable property such property shall be proceeded against first before the Collector proceeds to recover the dues in any other manner prescribed by law.
6.That takes us to the second point. Section 4(2)(b) of the U.P. Public Moneys (Recovery of Dues) Act, 1972 provides :
In every case of a mortgage, charge or other encumbrances 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 the person as if it were an arrear of land revenue, and any other proceeding may be taken thereafter only of the Collector certifies that there is no prospect of realization of the entire sum due through the first mentioned process within a reasonable time.
The scheme of the Act is clear and unambiguous. It provides that where dues sought to be recovered are secured by a mortgage, charge or other encumbrance on immovable property the authority should first proceed to recover the dues from mortgaged property before restoring to any other mode of recovery. We re fortified on this point by a decision of this Court in the case of Udai Pratap v. U.P. State Financial Corporation, Varanasi reported in 1978 Allahabad Civil Nirnaya 6: 1978 All LJ NOC 10. Interpreting this provision the Bench ruled:
The import of this section clearly is that normally proceedings for recovery of loan advanced by the U.P. State Financial Corporation by attachment or sale of properties other than those which have been pledged or mortgaged for raising the loan, cannot be taken without first making an attempt to recover the same by attachment and sale of the mortgaged or pledged properties.
7. Respondents were, therefore, wholly unjustified in proceeding to recover the land from the petitioners straightway without having taken recourse to the remedy available to them under the Mortgaged Deed by the sale of the mortgaged property. The respondents can adopt other modes of recovery only after exhausting the remedy available to them by sale of the mortgaged property.
7. Reliance has also been placed by the petitioners upon another judgment reported in 1977A.W.C. Page 142 Uma Dutt Mishra v. Collector Rae Bareli and other and Ors. and reliance has been placed upon para 4 of the judgment which is quoted below.
4. It is thus clear that the recovering authorities are not free to take recourse to any one of the various modes of recovering money as arrears of land revenue prescribed either by the Land Revenue Act or by the Zamindari Abolition Act. Their power is curbed by this express provision. The prohibition is that they will first sell the mortgaged property. They can take recourse to any other mode of recovery only if the Collector certifies that there is no prospect of realization of the entire sum through the first mentioned process. In the present case the recovering authorities made no attempt whatsoever to proceed to sell the mortgaged property. They, on the other hand, put up for auction some other agricultural property belonging to the debtor. That properly was sold for Rs. 8,000 -. It is obvious that the process to recover the money from the other property by putting it to auction sale without the requisite certificate form Collector was without jurisdiction. It is equally clear that the action of the respondents in issuing a warrant for the arrest of the petitioner and in arresting him actually was equally without jurisdiction and void.
8. Further reliance has been placed upon a judgment of this Court report in 1978 Vol. IV A.W.C. Page Udai Pratap and Anr. v. U.P. State Financial Corporation Varanasi and Ors. and reliance has been placed upon paras 5 and 6 of the aforesaid judgment which are quoted below:
5. A perusal of Annexure 1 to the supplementary affidavit dearly shows that no property in the premises of the workshop at Shivdaspur had either been mortgaged or pledged for securing the loan taken from the U.P. State Financial Corporation. In paragraph 22 of the petition it has been clearly stated that it was not open to the respondents to proceed against the petitioner's property situated at Shivdaspur without first proceeding against the property which and already stood pledged or mortgaged for securing the land advanced by the U.P. Slate Financial Corporation. This averment has not been controverted by Sri K.M. Lal who has filed a counter affidavit on behalf of the U.P. State Financial Corporation. No counter affidavit has been filed on behalf of other respondents. In the circumstances we have to proceed on the basis that the respondents are seeking to recover the loan advanced by the U.P. State Financial Corporation by attachment and sale of the property of the petitioners without first proceeding against the property which had either been pledged or mortgaged with a view to secure the loan advanced by the Corporation. Sub-section (2) of Section 4 runs thus- (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, the Corporation, a Government Company or Hanking (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 any arrear of land revenue;
Provided that where the State Government is of opinion that it is necessary so to do for safeguarding the recovery of the sum due to it or to the Corporation, the 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 certifies that there is no prospect of realization of the entire sum due through the first mentioned process within a reasonable time.
6. The import of this section clearly is that normally proceedings for recovery of loan advanced by the U.P. State Financial Corporation, by attachment or sale of properties other than those which have been pledged or mortgaged for raising the loan, cannot be taken without first making an attempt to recover the same by attachment and sale of the mortgaged or pledged properties. However, if in the case of pledge of goods the State Government is of opinion that it is necessary so to do for safeguarding the recovery of the sum due it may direct that the same may be recovered as arrears of land revenue either before or at the same time as the proceedings are taken for sale of the thing pledged. Similarly in a case where the loan has been secured by mortgage, charge or other encumbrance on immovable property, proceedings to recover the same from other property can be taken only of the Collector certifies that there is no prospect of realizing the entire loan by sale of the property secured. In this case, we neither find a certificate from the Collector to the effect that the sum due to the Corporation cannot be realized by the sale of mortgaged or pledged properties nor there any order of the State Government opining that in order to safeguard the recovery of loan it is necessary to proceed to recover the loan as arrears of land revenue without first taking steps to sell the pledged goods if there were any. In the circumstances, it is quite obvious that the respondents in attempting to realize the land advanced by the U.P. State Financial Corporation, by attaching and selling the properties situated at Shivdaspur (which properties had neither been hypothecated nor pledged for securing the loan) without first proceeding to realize the same by proceeding against the properties which had been mortgaged or pledged for securing the loan in question, are acting without jurisdiction.
9. It has further been submitted by the petitioners that the respondents have placed reliance upon para 17 of the Guarantee bond, which has been filed as Annexure-CA-1 to the counter affidavit. The argument of the respondents is not tenable due to the fact as there is no admission on the part of the petitioners that the procedure under the Public Money (Recovery of Dues) Act 1972 is to be foregone. It is clear that the petitioners have fully agreed that the aforesaid Act is applicable; as such it was not necessary to take recovery proceeding against the company. The petitioners have never agreed that when the proceedings in the aforesaid Act will be undertaken, then the mortgaged assets will not be realized in the first instance. It was only agreed on behalf of the petitioners that the corporation may not proceed against the Company. The Corporation has not proceeded against the company but the jurisdiction is of the Collector to proceed against the assets mortgaged with the Corporation. No proceeding has been taken against the company but the proceedings are to be taken against the mortgaged assets, which are lying with the Corporation. Therefore, the contention that the aforesaid clause does not bar the proceeding and the procedure prescribed under the Act is to be followed.
10. A further argument has been raised on behalf of the petitioners that no agreement inter parties can defeat the provisions of law. Moreover, it has been submitted that the said agreement is between the petitioners and the Corporation i.e. respondent No. 4. The Collector is not a party to the agreement. The petitioners in the present writ petition have challenged the action of the Collector in making the recovery as per the recovery certificate. The Collector is bound to follow the provisions of law notwithstanding the agreement between the petitioners and the Corporation. As the Collector has not followed the provisions of the Act, the recovery certificate is liable to be quashed. Reliance has been placed upon a judgment LIC of India and Ors. v. Consumer Education and Research Centre and Ors. and reliance has been placed upon paras 19,20,23,26,27,28,31 and 48 of the aforesaid judgment which are reproduced below:
19. The question, therefore, is whether the appellant is free to incorporate as a part of its business principles, any term of its choice. It is true that the appellant is entitled to accept insurance policy from a person possessed of health with first class life and before acceptance of the policy the insured is required to undergo medical examination as per policy at his expense to satisfy his condition o health. The question is whether the term policy needs to be restricted only to the employees of Govt., quasi-government or reputed commercial firms and whether such condition is just, fair and reasonable or based on reasonable classification consistent with Articles 14 and 21 of the Constitution. The contention of the appellants is that life insurance policy being a contract of insurance becomes a binding contract on appellants acceptance. Until a contract is entered into, the proposed insured does not acquire any right in insurance policy. The terms of the contract under Table 58 cannot he declared ultra vires before a concluded contract emerged. Contract of insurance operates in the arena of contractual relations. Refusal to enter into contract does not infringe any fundamental right or a legal right nor the respondents are entitled to compel the appellants to enter into favourable relations when they did not fulfill the essential terms of the proposal. Therefore, writ petition is not maintainable to enforce such rights in embryo nor they be entitled to declaration in their favour.
20. It is true that life insurance business as defined under Section 2(1) of the Insurance Act, 1938, is business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which subject to payment of premiums for a term dependent on human life including those enumerated in Clauses (a) to (c) thereof. Thereby, the contract of insurance is hedged with bilateral agreement on human life upon payment of premia subject to the covenants contained thereunder. But as stated earlier, is the insurer entitled to impose unconstitutional conditions including that which denied the right of entering into the contract, limiting only to a class of persons under a particular policy? We make it clear that at this juncture that the insurer is free to evolve a policy based on business principles and conditions before floating the policy to the general public offering on insurance of the life of the insured but as seen earlier, the insurance being a social security measure, it should be consistent with the constitutional animation and conscience of socio-economic justice adumbrated in the Constitution as elucidated hereinbefore.
23. Every action of the public authority or the person acting in public interest or its acts give rise to public element, should be guided by public interest. It is the exercise of the public power or action hedged with public element becomes open to challenge. If it is shown that the exercise of the power is arbitrary unjust and unfair, it should be no answer for the State its instrumentality, public authority or person whose acts have in insignia of public element to say that their actions are in the filed of private law and they are free to prescribed any conditions or limitations in their actions as private citizens, simpliciter, do in the filed of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged by reasons. The Administrative Law by Wade, 5th Ed. At p.513 in chapter 16, part IV dealing with remedies and liabilities, staled thus:
Until a short time ago anomalies used to be caused by the fact that the remedies employed in Administrative Law belong to two different families. There is the family of ordinary private law remedies such as damages, injunction and declaration and there is a special family of public law remedies particularly Certiorari, Prohibition and Mandamus, collectively known as prerogative remedies. Within each family, the various remedies can be sought separately or together or in the alternative. But each family had its own distinct procedure.
At page 514 it was elaborated that "this difficulty was removed in 1977 by the provision of a comprehensive, "application for judicial review", under which remedies in both facilities became interchangeable." At page 573 with the heading' Application for Judicial Review' in Chapter 17, it is stated thus:
All the remedies mentioned are then made interchangeable by being made available' as an alternative or in addition' to any of them. In addition the court may award damages, if they are claimed at the outset and if they could have been awarded in an ordinary action.
The distinction between private law and public law remedy is now settled by this Court in LIC v. Escorts Ltd. 1985 Supp. (3) SCR 909, by a Constitution Bench thus:
If the action of the State is related to contractual obligation or obligations arising out of the court (contract sic) the Court may not ordinarily examine unless the action has some public law character attached to it. The Court will continue actions of state if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. This is impossible to draw the line with precession and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the activity in which the State or the instrumentality of the State is engaged when performing the action, the public law of private law character of the action and a host of other relevant circumstances.
26. This Court has rejected the contention of an instrumentality or the State that its action is in the private law field and would be immuned from satisfying (he tests laid under Article 14. 'The dichotomy between public law and private law rights and remedies, though may not be obliterated by any straight jacket formula, it would depend upon the factual matrix. The adjudication of the dispute arising out of a contract would, therefore, depend upon facts and circumstances in a given case. The distinction between public law remedy and private law field cannot be demarcated with precision. Each case will be examined on its facts and circumstances to find out the nature of the activity, scope and nature of the controversy. The distinction between public law and private law remedy has now become too thin and practicably obliterated.''
27. In the sphere of contractual relations the state, its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e. fair, just and equitable, after taking objectively all the relevant options into consideration and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or arbitrary in its decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of the public authority or those under public duty or obligation must be informed by reason and guided by the public interest.
28. In Kumari Shrilekha Vidyarthi v. State of U.P. , this Court in paragraph 22 pointed out that the private parties are concerned only with their personal interest but the public authority are expected to act for public good and in public interest. The impact of every action is also on public interest. It imposes public law obligation and impress with that character, the contracts made by the State or its instrumentality. "It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual may be more limited and in doubtful cases the parties may he relegated to the adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions. " In Food Corporation of India v. Kamdhenu Cattle Feed industries at page 76 in para 8, this Court held that "the mere reasonable or legitimate expectation of a citizen may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law. Every legitimate expectation is a relevant factor requiring due consideration in a fair decision-making process ". In sterling Computers Ltd. v. M. and N. Publications Ltd. at page 464 para 28, it was held that even in commercial contracts where there is a public element, it is necessary that relevant considerations are taken into account and the irrelevant consideration discarded. In Union of India v. Graphi Industries Co. , this Court held that even in contractual matters public authorities have to act fairly; and if they fail to do so approach under Article 226 would always be permissible because that would amount to violation of Article 14 of the Constitution. The ratio in General Assurance Society Ltd. v. Chadumull Jain 1966 (3) SCR 500, relied on by the appellants that tests laid therein to construe the terms of insurance contracts bears no relevance to determine the constitutional conscience of the appellant in fixing the terms and conditions in Table 58 and of their justness and fairness on the touch stone of public element. The arms of the High Court is not shackled with technical rules or of Procedure. The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amendable to judicial review and the validity of such an action would be tasted on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law filed cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The actions of the appellants bears public character with an imprint of public interest element in their' offers with terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. Therefore, we have no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 term policy and the party need not be relegated to a civil action.
31. An unfair and untenable or irrational clause in a contract is also unjust amenable to judicial review. In common law a party was relieved from such contract. In Gillespie Brother s and co. Ltd. v. Roy Bowles Transport Ltd. 1973 (1) Q.B. 400, Lord Denning for the first time construing the indemnity clause in a contract stated that the court to permit party to enforce his unreasonable clause, even when it is so unreasonable, or applied so unreasonably, would be unconscionable, it was stated:
When it gets to this pint, I would say, as I said many years ago. There is the vigilance of the common law which while allowing freedom of contract, watches to see that it not abused. It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so." In Lloyds Bank Ltd. v. Bundy 1973 (3) All E.R. 757, inequality of the bargaining power was enunciated by Lord Denning M.R. and held that one who enters into a contract n terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity...the one who stipulates for an unfair advantage may be moved solely by his own self-interest, unconscious of the distress he is bringing to the other.... One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the strains in which he finds himself. It would not be meant to suggest that every transaction is saved by independent advice. Bui the absence of it may be fatal. In A. Schroeder Music Publishing Co. Ltd. v. Macaulay (Formerly Instone) 1974 10 W.L.R. 1308, House of Lords considered and held that a party to a contract would be relieved from the terms of the contract. In the course of his speech learned Lord Deplock outlined the theory of unreasonableness or unfairness of the bargain to relieve a party from the contract when the relative bargaining power of the parties was not equal. In that case the song writer had contracted with the publisher the terms more onerous to him and favourable to the publisher. The song writer was relieved from the bargain of the contract on the theory of restraint trade opposed to public policy. The distinction was made even in respect of standard forms of contract emphasizing that when the partiers in a commercial transaction having equal bargaining power have adopted the standard form of contract, it was intended to be binding on the parties. The court would nor relieve the party from such a contract but the contracts are between the parties to it, or approved by any organization representing the interests of the weaker party, they have been directed by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say. "If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it." In Levison and Anr. v. Steam Carpet Co. Ltd. 1978 10 Q.B. 69, Lord Denning M.R. reiterated the unreasonable clause in the contract would be applied to the standard from the contract where there was inequality, of bargaining power. In Photo Production Ltd. v. Securicor Transport Ltd. 1980 A.C. 827, considering the Unfair Contract Terms Act, 1977, Lord Wilberforce during the course of his speech emphasized the unequal bargaining power as an invalidating factor upheld the contract in that case since it was commercial bargain between two competent party to enter into a contract on equal bargaining power. Lord Deplock also reiterated his earlier view. Lord Scarman ageing with Lord Wilberforce described that a commercial dispute between the parties well able to look after themselves, in such a situation what the parties have agreed expressly or impliedly is what matters; and the duty of the courts is to construe their contract according to their tenor. It was held that in that case that parties have equal bargaining power and intervention of the court to relieve the party from the contract was not called for. The Civil code of Germany in Section 138(2) thereof release a person from the contract when the party has no equal bargaining power.
48. It is therefore, the settled law that if a contract or a clause in a contract is found unreasonable or unfair or irrational one must look to the relative bargaining power of the contracting parties. In dotted line contracts there would be no occasion for a weaker party to bargain or to assume to have equal bargaining power. He has either to accept or leave the services or goods to accept or leave the services or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forego the service forever. With a view to have the services of the goods, the party enters into a contract with unreasonable or unfair terms contained therein and he would be left with no option but to sign the contract.
11. Further reliance has been placed on the case reported in AIR 2002 Alld. (FB) Page 1 in Sharda Devi v. State of U.P. and Ors. and reliance has been placed on paras 20,23,30 and 31 of the aforesaid judgment which are quoted below:
20. In a matter relating to repayment of loan by instalments there can be a serious and bonafide dispute regarding the exact amount which has accrued as interest and also about the total amount outstanding against a borrower. Under the scheme of the Act, power has been conferred upon the bank to send a certificate to the Collector mentioning the amount due from a borrower and thereafter the amount is recovered as arrears of land revenue. The bank is empowered to take a unilateral decision regarding the quantum of the amount which is due from the borrower as neither a notice nor an opportunity of hearing to the borrower at the time of taking of such a decision is provided under the Act. Under Sub-section (5) of Section 3 the certificate sent to the Collector is final and cannot be questioned in any suit or in any reference to arbitration proceedings. No civil Court or any other authority can grant an injection in respect of any action taken or intended to be taken in pursuance of any power conferred by or under the Act. The only remedy available to the person from whom recovery is sought to be made is to pay the amount under protest, whereupon the recovery proceeding shall be stayed and thereafter make a reference under or otherwise enforce an arbitration agreement in respect of amount so paid or file a suit against the State Government in the Civil Court for the amount so paid where he will have a right to give evidence of the amount, if any, which he alleges to be due from him in accordance Section 287-A, U.P. Zamindari and Land Reforms Act. Filing of a suit for recovery of the amount after the money has already been paid is rather a harsh remedy for a borrower who disputes the correctness of the amount mentioned in the recovery certificate. This shows that the provisions of the Act are very stringent. The Act may be constitutionally valid as under the State Sponsored Schemes credit is conveniently available to weaker section of society without furnishing collateral security and at a rate of interest which is lower than the market rate, and the repayment has to be made in easy instalments over a long period. The moneys advanced by the State Government have got to be recovered expeditiously so that fresh advances may be made to others who have not yet received financial assistance was pointed out in Director of Industries v. Deep Chand . But the Act may in a given case cause untold hardship on the borrower as the bank is empowered to take a unilateral decision by itself regarding the quantum of the amount which is due from a borrower. In view of these salient features of the Act, it is necessary to give it a strict meaning and should be held applicable only to those cases which clearly and squarely fall within its ambit.
23. Therefore, in order to sustain the constitutional validity of the Act, Clause 9b) must be confined to only such loans, advances or credits which have been given by a banking company under a State Sponsored Scheme. Any construction or interpretation of Clause (b) which permits a banking company to recover a loan, advance or credit which has not been given under a State Sponsored Scheme by taking recourse to the provisions of the Act must be rejected otherwise the Act itself would become unconstitutional for want of legislative competence of Slate Legislature.
30. An analysis of the relevant provisions of the Act show that if any person who comes within the purview of Clause (b) of Sub-section (1) makes any default in repayment of loan or advance or any instalments; or having become liable under the conditions of the grant of refund the grant or any portion thereof, makes any default in the refund of such grant or portion or any instalment thereof, or otherwise fails to comply with the terms of the agreement, the local agent of the bank may send a certificate to the collector mentioning the sum due from such person and the Collector on receiving the amount stated therein as arrears of land revenue. The collector starts the proceedings for recovery on the basis of a certificate sent to him. The jurisdiction or authority of the local agent of the bank to send a certificate arises only on fulfillment of certain conditions and one of the important condition is that the person from whom the amount is due is of the category enumerated in Clause (b) of Sub-section 91). If the person docs not fall within the aforesaid category, the local agent of the bank will have no jurisdiction to send the certificate to the Collector. The requirements of Clause (b) of Sub-section (1) should be fulfilled and satisfied before a certificate can be sent to the Collector for recovery of the amount as arrears of land revenue. It follows as a corollary that if in a given case the requirements of Clause (b) of Sub-section (1) are not satisfied and a certificate is sent, the same would be without any authority of law and consequently without jurisdiction. The Collector cannot act upon a certificate which suffers from a fundamental error of jurisdiction and, consequently, if any proceeding for recovery of the amount as arrears of land revenue are taken on the basis of such a certificate, the same would be wholly illegal. It is well settled that an error of jurisdiction goes to the very root of the mater and this defect can be raised at any stage. In Kiran Singh v. Chaman Paswan , it was held as follows (at page 342):
It is a fundamental principle that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes as the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties.
31. The correctness of the above quoted principle of law has never been doubted and the principle is of general application. Therefore, if the borrower is not such a person who may satisfy the requiremnts of various clauses of Sub-section 91 of Section 3 no certificate can be sent to the Collector to recover the amount under the provisions of the Act. If the local agent of the bank has erroneously assumed jurisdiction and has sent a certificate even though the case is not covered by Clause (b) of Sub-section 91 of Section 3 the recovery proceedings initiated by the Collector can be challenged in proceedings under Article 226 of the Constitution. It is true that exercise of jurisdiction under Article 226 of the Constitution is discretionary in nature and the Court may refuse to exercise discretion in favour of a person if it finds that equity is against him or it will result in miscarriage of justice. While exercising its well-settled principles on which such high prerogative writs are issued. At the same time it must be kept in mind that we are governed by rule of law and all actions taken must be supported by law. It cannot, therefore, be laid down as a principle of universal application that even though the proceedings initiated for recovery of the loan as arrears of land revenue are without jurisdiction as the loan does not fall within the purview of the Act yet the Court would shut its eyes and decline to exercise jurisdiction under Article 226 of the Constitution only or the ground that the borrower owes money to the bank. In a proper case the Court would not hesitate to issue appropriate writ as the facts and circumstances of the case may justify.
12. Further reliance has also been placed on the case reported in AIR 1977 Alld. (DB) in the case of U.P. State Electricity Board v. Smt. Laxmi Devi Sehgal and Anr. and reliance has been placed upon paras 9, 10 and 12 of the aforesaid judgment, which are quoted below:
9. "Service Line" as defined by Section 2 91 of Indian Electricity Act, 1910 means any electric supply line through which energy is or is intended to he supplied-
(i) to a single consumer either from a distributing main or immediately from the supplier's premises or
(ii) from a distributing main to a group of consumers on the same premises or on adjoining premises supplied from the same point of the distributing main.
Section 2(e) of the Act says that 'distributing main' means the portion of any main with which a service line is, or is intended to be, immediately connected. From the definition assigned to "service Line " and the "Distribution Main ", it cannot be said /he transformer is a part and parcel of the "Service Line". Further, the first Proviso to Sub-clause (1) of the clause entitles the Board to discontinue supply in the events specified thereunder. It does not give power to the Board to discontinue supply if the consumer failed after the supply had commenced, to deposit the cost of the stolen transformer. Even if it were assumed that the transformer is a part and parcel of the "Service Line", which in our opinion it is not, the claim of the Board that the consumer should bear its replacement cost is, in our opinion negatived by Sub-clause (2) which provides that the "Service Line", laid for the purposes of supply in pursuance of a requisition under Sub-clause (1), shall be maintained by the licensee. The transformer is the part of the main " transmission line" as defined by Section 2(7) of the Act. The Electricity Supply Act, 1948 draws a distinction between "Main transmission line" of the "Service Line" which the prospective consumer has to bear, before the Board complied with his requisition for supply of electricity. Analysed in that manner, we should hold that the transformer is not the part of ''Service Line" and that the Board having once commenced the supply it has to maintain the "Service Line". Neither does 1910 Act nor the Electricity (Supply) Act, 1948 authorise the Board in our opinion to demand the replacement cost of the transformer. This being so, if a condition as that were added by the Board to the Conditions of Supply, comprising the agreement between it and the Board such a condition would be void as against the public policy. It is well recognized that public corporations have no implied powers to enter into contracts whereby the performance of their duties to the public is prevented or unduly restricted. It amounts to a condition "so obviously inimical to the interest of the community that it offends almost any concept of the public policy". The Act lays down the conditions to regulate the relationship between the Board and the consumer. No contract would be enforced which would be contrary to the general policy of the law. The consumer may have agreed to abide by the conditions subsequently altered or modified by the agreement, nevertheless, what is injurious to and against the public policy, must be forbidden. Contractual freedom must be fostered but no contract, that tends to circumvent the law creating the corporation, would be untenanced in law. Judged in that manner, the newly added condition No. 23 (a) which the Board seeks to invoke to its aid, is unlawful in the sense that the law will not. enforce it. This disposes of the main submission canvassed by the learned Counsel appearing on behalf of the Board.
10. It has been next urged that the rights and obligations arising from under the contract cannot be enforced in the extraordinary proceeding under Article 226 of the Constitution. In general, one cannot quarrel with the correctness of the proposition. But here we are dealing with a statutory corporation. 'The powers and obligations of which have been well defined by the statute creating it. It being a statutory licensee, its duties towards the consumer to supply electricity rise not only by virtue of the agreement but also by the provisions of Cl. VI of the Schedule to 1910 Act. If it transgresses the limits of its powers and seeks to impose conditions of supply, not warranted by the Act, an aggrieved person can seek to enforce its corresponding obligations in pursuance of statutory provisions. This reciprocity of the obligations, apart from its basis in agreement, has in the present case acquired an operative force resting on statutory sanction and equity. This disposes of the second submission.
12. The case at hand falls in our opinion, within the category of cases where the enforcement of such a condition would amount to disobedience of law. As already discussed in the foregoing, the insertion of Condition No. 23 (a), having regard to the scheme of 1910 and 1948 Acts, would be contrary to public policy. It is well known that no contract would be enforced which is contrary to the general policy of law or is detrimental to the interest of the consumer, which the State has to protect in the interest of public good. The case of Lachoo mal v. Radehy Shyam (Supra) was one arising under the U.P. (Temporary) Control of Rent and Eviction Act, 1947 wherein the landlord had waived the exemption benefit available to him for constructions made after 1.1.1951. The agreement was neither illegal nor did it defeat the provisions of any law within the meaning of Section 23, Contract Act and, therefore, their Lordships of the Supreme Court held that the landlord could give up the benefit which otherwise could be available to him under Section 1-A of the Act. Manifestly and for reasons which we need not repeat, that principle does not govern the point in controversy here.
13. On the other hand counsel for the respondent No. 4 Sri Anurag Khanna who appears for the respondents has submitted that according to the agreement executed between the petitioners and the Corporation, it was open to the Corporation to recover the said amount as arrears of land revenue against the guarantors of the loan that was advanced against the aforesaid Company. Sri Khanna who appears for the respondents has urged that in view of the decision of this Court reported in 2005 Selected Allahabad Cases 383 R.K. Devan v. State of U.P. and Ors. the contention raised on behalf of the petitioners is not tenable in law and the decision of the Apex Court relied upon by the petitioners do not in any way support the petitioners. He has further argued that the petitioners have agreed and given an undertaking and declaration and the security given by the petitioners before the respondents clearly states that the recovery can be proceeded against the petitioners. Sri Khanna has pointed out the agreement, which has been executed between the petitioners and respondent No. 4 the relevant clauses, which bind the petitioners to pay the amount and to act as if the guarantors were the principal debaters to the Corporation or all payment and covenants guaranteed by them as aforesaid to the Corporation. The relevant Clauses 6, 7,8,9,16 and 17 are being reproduced below:
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 he rounder be outstanding or unrealized.
7. The guarantee herein contained shall be enforceable against the Guarantors notwithstanding that no action of any kind has been taken by the Corporation against 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 as 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.
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 herein after contained.
17. The Guarantors hereby agree that any amount due from them hereunder to the Corporation shall be recoverable under the 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.
14. In view of the aforesaid fact the respondents submit that there is no illegality in the citation issued against the petitioners. It has further been submitted on behalf of the respondents that in view of Section 128 of the Contract Act the liability of the surety is co-extensive with that of the principal debater unless it is otherwise provided by the contract.
15. It has further been submitted on behalf of the respondents that after inspection at one stage the Corporation came to the conclusion that the risk perception was high and a decision was taken to impose a condition of collateral security to the extent of 50% of the loan. Since the petitioners are guarantors and have executed a personal bond of guarantee in their personal capacity for repayment of PICUP's loan, as such, the PICUP has got a right to recover its Loan either by invoking the bond of guarantee or by attaching the unit. It has been held by the Apex Court that the liability of the guarantor is co-extensive with that of principal debtor and the Corporation cannot be forced to choose a particular manner for recovering its dues. Sri Khanna has brought to the notice of the Court the personal bond of guarantee as well as the affidavit annexed to the counter affidavit. The petitioners have been shown as Directors of the Company. Thus the principal borrower too is the Company though the petitioners are one of the Directors and was guarantor of loan who have mortgaged the properties as collateral security which is evident from the documents produced before us.
16. We have heard Sri Manish Goel, learned Counsel for the petitioners and Sri Anurag Khanna for the respondents.
17. We have perused the agreement entered between the PICUP and Company dated 5.10.1993, which has been filed as Annexure 1 to the counter affidavit. Clause 17 of the said agreement is as follows:
17. The guarantors hereby agree that any amount due from the herein under to the Corporation shall be recoverable under the 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.
18. The said agreement is not in dispute. Apart from the said agreement, a bond of guarantee has been executed by the petitioners which is bond of personal guarantee and a letter of guarantee has also been issued in favour of the respondents. The various clauses of agreement in paragraphs 6, 7, 8, 9, 16 and 17 have already been mentioned above.
19. Over and above, the aforesaid documents, the undertaking and declaration in respect of collateral security has also been executed. A perusal of the aforesaid documents indicate that the title deed of the immovable property has been deposited and the said properties have been mortgaged. Clause 7 of the said bond clearly states that guarantee herein contained shall be enforceable against the guarantors notwithstanding that no action of any kind has been taken by the Corporation against the Company/borrower. Clause 9 states that the Corporation shall be entitled to Act as if the guarantors were the principal debtors to the Corporation for all payments and covenants guaranteed by them as aforesaid to the Corporation. After perusal of the aforesaid documents leaves no room for doubt that the petitioners have stood surety for the Company of which his own son is the Director.
20. It is settled now from the pronouncement of the Apex Court judgment Kailash Nath Asarwal v. PICUP that the guarantors do not have any protection so far as proceedings of BIFR are concerned. There is nothing in the contract which can in any way be construed as contrary to the joint and several liability created under Section 128 of the Contract Act.
21. The second argument raised on behalf of the counsel for the petitioners is on the basis of Pawan Kumar Jain's case (Supra). The aforesaid case is not applicable to the facts of the present case in view of the fact of Clauses 7 and 17 of the bond.
22. After considering the aforesaid facts and circumstances of the case, it is clear that the petitioners bound himself to pay the amount. Now at this stage the petitioners cannot argue that the recovery against the petitioners under the U.P. Public Money Recovery Act is wholly illegal. In 1969 ALJ Page 475 the Apex Court in case of Bank of Bihar Ltd. v. Dr. Damodar Prasad and Ors. has held 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. (Paragraph 3 to 6). In case of State Bank of India v. Indexport Registered and Ors. the relevant paras are 13, 22, and 24 which are being reproduced below:
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.
22. The decree of 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. It appears the above quoted observations in Manku Narayana's case AIR 1987 SC 1078 (supra) are not based on any established principle of law and or reasons, and in fact, are contrary to law. It, of course, depends on the facts of each case how the composite decree is drawn up. 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 he 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 he permitted to take recourse to the execution of the personal decree. For a simple mortgage decree as prescribed in Form No. 5 of Appendix D of the Code of Civil Procedure it could be so because the decree provides like that. It is only when the sum realized on sale of the mortgaged property is insufficient then the judgment-debtor can be proceeded with personally. But the observation of the court in Manku Narayana's case AIR 1987 SC 1078 (Supra) that even if the two portions of the decree are severable and merely because of portion of the decretal amount is covered by the mortgage decree, the decree-holder, per force has to proceed against the mortgaged property first are not based on any principle of law. With all due respect to the learned Judges, in the light of the observations made by us earlier, we are constrained to observe that Manku Narayana's case AIR 1987 SC 1078 (supra) was not correctly decided.
24. The guarantor in the present suit never took any plea to the effect that his liability is only contingent if remedies against the principal debtors Jail to satisfy the dues of the decree-holder. If such a plea had been taken and the Court trying the suit had considered the plea and gave any finding in favour of the guarantor, then it would have been a different position. But in the present case, on the fact of the decree, which has become final, the Court cannot construe it otherwise than its tenor. No executing Court can go beyond the decree. All such pleas as to the rights which the guarantor had, had to be taken during trial and not after the decree while execution is being levied.
23. The similar controversy has arisen before this Court in Civil Misc.Writ Petition No. 28924 of 2005 Man Mohan Goel v. Pradeshiya Industrial and Investment Corporation of U.P. Ltd and Ors. decided on 13.4.2005 and this Court had taken a similar view to the effect that it is open for the respondents to proceed for recovery of the amount against the petitioners, as the respondents have adopted the mode of recovery. Against the judgment passed by the Division Bench of this Court a Special Leave Petition was filed before the Hon'ble Apex Court as Civil Appeal No. 11737 of 2005 and the same was dismissed by the Apex Court vide its order dated 7.8.2006.
24. In view of the aforesaid facts and circumstances and the fact that the Company has already defaulted in repaying the loan, it is open to the respondents to proceed against the petitioners under the U.P. Public Money (Recovery of Dues) Act, 1972 in view of the agreement between the parties. There is no illegality in the action taken by the respondents. The writ petition is devoid of merits and is hereby dismissed.
25. There shall be no order as to costs.