1
FIRST APPEAL NO.05 OF 1995
Date of decision 28th April, 2009.
For approval and signature.
THE HONOURABLE SHRI JUSTICE K.K. TATED.
1. Whether Reporters of Local Papers }
may be allowed to see the judgment? } Yes
2. To be referred to the Reporter or not? } Yes/No
3. Whether Their Lordships wish to see
the fair copy of the judgment? } No
4.
Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India, 1950 or
}
}
} No
any Order made thereunder? }
5. Whether it is to be circulated to the }
Civil Judges? } No
6. Whether the case involves an important }
question of law and whether a copy of } No
the judgment should be sent to Mumbai, }
Nagpur and Panaji offices? }
[ S.U.Tupe ]
Personal Assistant to
the Honourable Judge.
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD.
FIRST APPEAL NO.05 OF 1995
Bansilal s/o Nivrutti Pandit,
Age: Major, Occ: Business,
R/o. 445, Mangalwar Peth, Pune.
.... APPELLANT
VERSUS
1. Punjab National Bank, a body
corporate constituted under the
Banking Companies (Acquisition and
Transfer of Undertakings), Act, 1970,
and having its Head Office at
Dal Mandai Road, Ahmednagar.
2. M/s. Kolhapur Constructions,
Prop. P.S. Kulkarni, R/o. Court Galli,
Ahmednagar, Gunewada.
(Appeal is dismissed as against
respondent No.2 as per Registrar's
order dated 16-11-99).
.... RESPONDENTS
...
Shri.G.N.Patil, Advocate for the appellant.
None for respondent No.1.
...
CORAM: K.K. TATED, J.
DATE : 28TH APRIL, 2009.
ORAL JUDGMENT: ( PER : K.K. TATED, J.)
. Heard learned Counsel for the appellant.
Learned Counsel appearing on behalf of respondent
No.1 is absent. Appeal against respondent No.2 is
dismissed as per Registrar’s order dated
16-11-1999.
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2. Present appeal is preferred by original
defendant No. 2 against the judgment and decree
dated 26-04-1994 passed by the Civil Judge, Senior
Division, Ahmednagar in Special Civil Suit No.
96/1987. Present appellant is the original
defendant No.2 – guarantor, respondent No. 1 is
the original plaintiff and respondent No. 2 is
original defendant No. 1 – principal borrower.
The plaintiff filed Special Civil Suit No.
96/1987 on 05-03-1987 in the Court of Civil Judge,
Senior
Division, at Ahmednagar for recovery of a
sum of Rs.2,03,411-35 ps. with interest @ 18%
p.a. from the date of filing of the suit till the
date of decree. It is the case of the plaintiff
that defendant No. 1 was doing business of
building contractor in the name and style as
“Kolhapur Constructions”, approached plaintiff
bank at Dal Mandai, Ahmednagar for loan of
Rs.61,850/- for the purpose of construction work
undertaken by defendant No.1. As per request of
defendant No.1, the plaintiff’s officer accepted
request of defendant No.1 and sanctioned loan to
the tune of Rs.61,850/-. Defendant No. 1 agreed
to pay to the plaintiff bank interest @ 16% p.a.
with quarterly rests. Defendant No. 2 stood as
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guarantor for the repayment of entire loan amount.
Defendant No. 2 as guarantor accepted defendant
No.1’s liability jointly and severally. After
completing all the formalities, the plaintiff paid
sum of Rs.61,850/- to defendant No. 1 on
11-05-1978. In terms of that, defendant No. 1
executed Demand Promissory Note dated 11-05-1978
and defendant No. 2 executed letter of guarantee
dated 11-05-1978 in favour of the plaintiff bank
agreeing to pay jointly and severally amount
advanced to defendant No.1 with interest, cost and
charges.
Thereafter, defendant No. 1 failed and
neglected to repay the said amount with interest
and therefore, defendant No. 1 approached
plaintiff bank for extension of time. As per
defendant No.1’s request, plaintiff bank extended
time for repayment of the said loan amount. At
the time of extension of time, defendant No. 1
executed promissory note dated 26-02-1983 at
Exhibit-62 for sum of Rs.1,01,336- 15 ps. with
interest @ 15% p.a. with quarterly rests till
date of payment in full. At the same time,
defendant No. 2 – guarantor also executed
guarantee letter dated 18-02-1983 which is at
Exhibit-63. In spite of extension of time for
payment of loan, defendant Nos. 1 and 2 failed to
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pay the same and therefore, the plaintiff by their
legal notice dated 11-02-1987 called upon
defendant Nos. 1 and 2 to repay the loan amount
with interest. In spite of the said legal notice,
both the defendants failed to repay the loan
amount with interest and therefore, the plaintiff
bank filed Special Civil Suit No. 96/1987 in the
Court of the Civil Judge, Senior Division,
Ahmednagar on 05-03-1987 for recovery of
Rs.2,03,411-35 ps. with interest @ 18% p.a. from
the date of filing of the suit till realisation.
3. Defendant Nos. 1 and 2 appeared before the
trial Court and filed their written statement.
Defendant No. 1 filed his written statement at
Exhibit-39 dated 12-07-1990 and defendant No. 2
filed his written statement at Exhibit-26 dated
27-07-1989. Both the defendants denied their
liability for repayment of loan. After hearing
both the sides, the trial Court framed the
following issues.
Issues Findings
1. Whether the suit is maintainable? Yes.
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2. Whether the suit is expressly
barred by limitation? No.
3. Whether the suit is properly
presented by authorised person. Yes.
4. Does the plaintiff prove that
defts. have agreed to pay interest. Yes.
5. Do defendants prove that the suit
is barred by principle of
Dam Duppat? No.
6. Whether this Court has jurisdiction
to try this suit? Yes.
7. Is plaintiff entitle for relief
claimed? Yes.
8. What order and decree? As per order below.
Addl. Issues.
9. Does plff-prove that deft.No.
availed a loan of Rs.61850/- with
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the rate of interest at 16% p.a.? Yes.
10. Does plff. prove that deft.No.1
executed the set of documents as
pleaded in the plaint against the
said availment of the loan. Yes.
11. Does plff. prove that defts. are
jointly and severally liable for
the suit amount.? Yes.
12. Does
plff. prove that deft.No.1
executed the D.P. note on 26-2-80
in continuation of previous
D.P. Note? Yes.
13. Is deft. No.1 entitled for rate
of interest at 6& p.a. and for
suitable instalments as pleaded? No.
. After recording the evidence of parties,
trial Court passed judgment and decree dated
26-04-1994 holding that both the defendants are
jointly and severally liable to pay a sum of
Rs.2,03,411-35 ps. to the plaintiff with interest
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@ 18% p.a. from the date of suit till realisation
in full. The trial Court further restrained
defendant No. 2 from alienating, transferring by
mode of transfer by way of injunction order
pertaining to land Gat No. 375, area 74 Ares, and
Gat No. 376 area 71 Ares situated at Raleras,
Tal. Barshi, District Sholapur till realisation
in full decretal amount.
4. Being aggrieved by the judgment and decree
dated 26-04-1994 passed by the Civil Judge, Senior
Division,
Ahmednagar in Special Civil Suit No.
96/1987, original defendant No.2 – the appellant
hereinabove preferred present appeal on several
grounds. The learned Counsel appearing on behalf
of the appellant restricted his argument in the
present appeal on the ground that defendant No. 2
– present appellant being a guarantor is not
liable to pay said amount unless and until the
plaintiff bank executes the decree against
original defendant No.1 principal borrower. He
contended that if the sufficient means is
available to the plaintiff bank to recover the
decretal amount from the principal borrower, in
that case, the guarantor is not liable to pay the
loan amount. In support of his contention, the
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learned Counsel appearing on behalf of the
appellant – original defendant No.2 relied on the
Apex Court’s judgment in the matter of Ashok
Mahajan vs. State of U.P. and others, reported
in 2006 AIR SCW 4925.
4925
5. It is to be noted that the present appeal
is filed by the guarantor against the bank and
principal borrower. The present appeal is already
dismissed against the principal borrower i.e.
respondent No. 2 by Registrar’s order dated
16-11-1999.
The appellant failed and neglected to
take out appropriate proceedings for setting aside
dismissal order passed by the Registrar on
16-11-1999 till the matter reached for final
hearing. Learned Counsel appearing on behalf of
the appellant – original defendant No. 2 submits
that defendant No.1’s property is available for
recovery of decretal amount and inspite of that,
the trial Court restrained defendant No. 2 from
creating any third party right, title and interest
in respect of his two landed properties i.e. Gat
No. 375 area 74 Ares and Gat No. 376 area 71
Ares. He submitted that the trial Court failed to
appreciate that unless and until, the property of
the principal debtor is sold for recovery of the
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decretal amount, the guarantor is not responsible
to pay the amount to the bank. He submitted that
the defendant No.1’s property is available with
the bank and inspite of that, it remained on the
part of the bank to recover their dues. He
further submitted that in view of the availability
of the property of defendant No.1, defendant No.
2 is not responsible to pay the decretal amount to
the bank. In support of his submission, he relied
on the judgment in the matter of Ashok Mahajan
(supra) in which the Apex Court held that action
against the
guarantor cannot be taken until the
property of principal debtor is sold. Head Note
of the said authority reads as under :
“U.P. Public Moneys (Recovery of Dues) Act
(23 of 1972), Ss.3,4 – Recovery of dues asarrears of land revenue – Action against
guarantor – Cannot be taken until property
of principal-debtor is first sold – High
Court directed to reconsider matter keeping
in view observations of Supreme Court in2004(6) SCC 58 and factual scenario of
instant case.”
6. I have gone through the said authority.
The said authority is not applicable in the
present case because in that case, the action
taken against the borrower for recovery of money
under U.P. Public Moneys (Recovery of Dues) Act
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(23 of 1972). Sections 3 and 4 of U.P. Public
Moneys (Recovery of Dues) Act (23 of 1972) read as
under :
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 State Government or the
Corporation, by way of financialassistance; or
(b)
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 tohim, by a banking company or a Government
company, as the case may be, under a
State-sponsored scheme; or
(c) to any agreement relating to a
guarantee given by the State Government orthe Corporation in respect of a loan raised
by an industrial concern; or
(d) to any agreement providing that any
money payable thereunder to the State
Government 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
conditions 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 State Government, such officer as may be
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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 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 due from such person and requesting
that such sum together with costs of the
proceedings be recovered as if it were in
arrear of land revenue.
(2). The Collector on receiving the
certificate shall proceed to recover the
amount stated therein as an arrear of land
revenue.
(3). No suit for the recovery of any sum
due as aforesaid shall lie in the civil
court against any person referred to
4.
sub-section (1).
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 or other
encumbrance in favour of the State
Government, the 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,
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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 so to do
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 certifies that there
is no prospect of realization of the entire
sum due through the first mentioned process
within a reasonable time.”
7. In that Act, there is a specific provision
that if the property is mortgaged, charged,
pledged or other encumbrances made in favour of
the State Government, the Corporation, a
Government company or banking company then in that
case, 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 and thereafter remaining
amount to be recovered from the guarantor. In any
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case, the said Act is not applicable in the
present case. In the present case, the appellant
– original defendant No. 2 stood as a guarantor
as per Indian Contract Act, 1872. As per Indian
Contract Act, 1872 bank can execute decree either
against principal borrower and/or against
guarantor as per their choice. It is the duty of
the surety to pay the decretal amount. On such
payment he will be subrogated to the rights of the
creditor under section 140 of the Indian Contract
Act, and he may then recover the amount from the
principal
debtor. The very object of the
guarantee is defeated if the creditor is asked to
postpone his remedies against the surety. In the
present case, the creditor is banking company. A
guarantee is a collateral security usually taken
by the banker. The security will become useless
if his rights against the surety can be so easily
cut down. Therefore, in any case, the appellant
is also liable alongwith the principal borrower as
per the judgment and decree passed by the trial
Court on 26-04-1994.
8. Apex Court in the matter of State Bank of
India vs M/s Indexport Registered and others
reported in 1992 (3) SCC 159 held as under :
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“Civil Procedure Code, 1908 – Or.21, Rr.30,
46, 46-A, 46-B, 46-F, 50, 72-A; Or.34,Rr.4,5 and S.47 – Execution of money decree
in favour of bank – Composite decree
comprising a money decree personallyagainst all the defendant-judgment debtors
viz. the firm, its partners, guarantor and
also a mortgage decree against one of the
partners in respect of his shop mortgaged
by him to secure loan from the bank – Held,decree-holder bank can execute the decree
first against the guarantor without
proceeding against the mortgaged property –
Guarantor can be sued without even suing
the principal debtor – Guarantor’s
liability is co-extensive with that of theprincipal debtor
Contract Act, 1872, S. 128.
Civil Procedure Code, 1908 – No executing
court can go beyond the decree.”
. Relevant portion of Para 10 of the said
judgment reads as under :
” The decree does not put any fetter on the
right of the decree holder to execute it
against any party, whether as a moneydecree or as a mortgage decree. The
execution of the money decree is not made
dependent on first applying for execution
of the mortgage decree. The choice is left
entirely with the decree holder. The
question arises whether a decree which is
framed as a composite decree, as a matterof law, must be executed against the
mortgage property first or can a money
decree, which covers whole or part of the
decretal amount covering mortgage decree
can be executed earlier. There is nothing
in law which provides such a composite
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15the property.”
. Para 22 of the said judgment reads as
under:
“22. The decree for money is a simple
decree against the judgment-debtorsincluding the guarantor and in no way
subject to the execution of the mortgage
decree against judgment-debtor 2. If on
principle a guarantor could be sued without
even suing the principal debtor there is no
reason, even if the decretal amount iscovered by the mortgaged decree, to force
the decree-holder to proceed against the
mortgagedproperty first and then to
proceed against the guarantor. It appears
that above-quoted observations in Manku
Narayan case are not based on anyestablished 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 asa mortgage decree, without any limitation
on its execution, the decree-holder, inprinciple, 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 takerecourse 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 realised on sale of
the mortgaged property is insufficient thenthe judgment-debtor can be proceeded with
personally. But the observations of the
Court in Manku Narayana case that even if
the two portions of the decree are
severable and merely because a portion of
the decretal amount is covered by the
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16force 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 areconstrained to observe that Manku Narayana
case was not correctly decided.”
9. It is not necessary to go in to other facts
of the present case because learned Counsel
appearing on behalf of the appellant restricted
his argument only on the point that action against
the guarantor cannot be taken until property of
the principal debtor is first sold.
10. In view of the above mentioned facts and
circumstances, I do not find any merits in the
present First Appeal. First Appeal is dismissed
with no order as to costs.
[ K.K. TATED, J.]
sut/u/APR09/fa5.95
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