SOBRAN SINGHversusSTATE OF U.P. & ORS.

                  [2014] 10 S.C.R. 657


                    SOBRAN SINGH                           A
                            v.
                  STATE OF U.P. & ORS.
           (Civil Appeal No. 9100 of 2014 etc.)
                 SEPTEMBER 23, 2014
                                                           B
          rr.s. THAKUR c. NAGAPPAN AND
             ADARSH KUMAR GOEL, JJ.)

    Uttar Pradesh Public Moneys (Recovery of Dues) Act,
1972:                                                      c
    s.4(2) rlw s. 3 - Guarantor claiming that recovery
proceedings cannot be initiated against him unless properties
mortgaged by principal borrower remain to be sold for
payment of outstanding dues - The protection referred to in 0
s.4(2) has no application to guarantor, and the same is
confined only to the principal debtor who has charged his
properties in the manner indicated - Pawan Kumar Jain and
Ashok Mahajan, overruled.

    Dismissing the appeals, the Court                       E

     HELD: 1.1. Sections 3 and 4 of the Uttar Pradesh
Public Moneys (Recovery of Dues) Act, 1972 make it clear
that recovery of outstanding loan amount can be made
as arrears of land revenue only if there exists an          F
agreement to that effect. In the instant case, the
agreement executed between the guarantor-appellant
and respondent No.4-Corporation does provide for
recovery of money due thereunder as arrears of land
revenue. [para 5 & 6) [664-B-D]
                                                           G
    1.2. In cases where there is a charge, mortgage or
encumbrance referred to in s.4(2), the sale of such
property is made a condition precedent for, recovery of
                           657                              H
    658       SUPREME COURT REPORTS             [2014] 10 S.C.R.


A   the balance amount, if any, by initiating proceedings
    against the defaulter in terms of clause (b) of s.4(2). It has
    no application to cases in which the person referred to
    in s.3 has not mortgaged, charged, pledged or
    encumbered in favour of the State Government or the
B   Corporation or a Government Company or a banking
    company, any property owned by any such person. I n
    the instant case, the guarantors have not created any
    mortgage, charge or encumbrance in regard to their
    immovable property in favour of the respondent-
C   Corporation. The bar against initiation of recovery
    proceedings till such time such mortgaged, charged or
    encumbered properties are sold can, therefore, have no
    application to them. The protection is confined only to the
    principal debtor who has charged his properties in the
    manner indicated. [para 7-8) [665-B-E]
0
       1.3. The legislature has made a conscious departure
  in the case of guarantors while providing protection to
  the borrowers whose properties stand mortgaged in
  connection with the loan transactions. The general
E principle of law that the liability of the guarantor is co~
  extensive with that of the principal borrower continues
  to hold good even when recovery proceedings are taken
  under a special enactment. There is nothing in s. 4(2) to
  suggest that the legal edifice on which the liability of the
F borrower and the guarantor are made co-extensive
  stands altered. All that the statute provides is that while
  the liability of the guarantor remains enforceable
  coextensively with the principal borrower, the latter shall
  not be proceeded against so long as properties
G mortgaged, charged or encumbered by him have not
  been sold. [para 9) [666-B-E]

        1.4. Pawan Kumar Jain's case laying down that the
    guarantors cannot be proceeded against unless the
    property mortgaged or charged by the principal debtors
H



          I
          SOBRAN SINGH v. STATE OF U.P.                     659


is first sold, is overruled, and so also Ashok Mahajan's            A
case. This Court holds that the guarantors do not enjoy
any protection against recovery of proceedings uls 4(2)
of the U.P. Pub:ic Moneys (Recovery of Dues) Act, 1972.
[para 10] [666-H; 667-A]
                                                                    B
     Pawan Kumar Jain v. Pradeshiya Industrial and
Investment Corporation of U.P. Ltd. and Ors. 2004 (3)
Suppl. SCR 447 = (2004) 6 SCC 758, Ashok Mahajan v.
                                          =
State of U.P. 2006 (6) Suppl. SCR 657 (2006) 10 sec 332
- overruled.
                                                                    c
                      Case Law Reference:
    2004 (3) Suppl. SCR 447         overruled         para 2
    2006 (6) Suppl. SCR 657         overruled         para 2
                                                                    D
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
9100 of 2014.

    From the Judgment & Order dated 24.7.2006 of the High
Court of Judicature at Allahabad in Civil Misc. Writ Petition No.
37172 of 2006.                                                      E

                             WITH

C.A. No. 422 of 2008 & 9101 of 2014.

    Aditya Dewan, Lakshmi Raman Singh, Subramonium                  F
Prasad, Ashim Vachher, Rajiv Dalal, Sunil Kumar Jain, Pawan
Shree Agrawal, Sachin Sharma for the Appellant.

    P.V. Shetty, Aarohi Bhalla, Ardhendumauli Kumar Prasad,
Mike P. Desai, Ajay Sharma, Rajeev Sharma, Neelam                   G
Sharma, Ashok Kumar Singh, Gunnam Venkateswara Rao,
Adarsh Upadhyay, Anuvrat Sharma for the Respondents.

     The Judgment of the Court was delivered by

     T.S. THAKUR, J. 1. Leave granted.                              H
    660     SUPREME COURT REPORTS                 [2014] 10 S.C.R.


A      2. In Pawan Kumar Jain v. Pradeshiya Industrial and
  Investment Corporation of UP. Ltd. and Ors. (2004) 6 SCC
  758, a two-Judge Bench of this Court declared that no
  proceedings for recovery of the outstanding loan amount can
  be taken against a guarantor so long as the property of the
B borrower which is mortgaged, charged or otherwise
  encumbered is not first sold. Section 4 (2)(b) of the Uttar
  Pradesh Public Moneys (Recovery of Dues) Act, 1972 was in
  the process interpreted to be giving protection against recovery ·
  proceedings not only to the borrower of the loan but to his
c guarantor as well. The conclusion drawn by this Court is
  summed up in the following passage:

         "B. In our view, the above-set-out provisions of the UP.
       . Act are very clear. Action against the guarantor cannot
         be taken until the property of the principal debtor is first
D        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."

E      3. Proceedings for the recovery of outstanding loan amount
  having been initiated against the appellant Sobran Singh who
  stood guarantor for the repayment of the loan amount, Writ
  Petition No.37172 of 2006 filed by him before the High Court
  of Judicature at Allahabad challenged the same primarily on
F the ground that so long as the properties of the principal
  borrower remained to be sold, the guarantor could not be
  proceeded against. That contention did not find favour with the
  High Court who summarily dismissed the writ petition holding
  that the liability of the guarantor was co-extensive with that of
G the borrower and that recovery proceeding could be initiated
  against both of them simultaneously. The present appeal by
  special leave assails the correctness of the view taken by the
  High Court.

     4. When the matter came up for hearing on 12th
H November, 2007 before a bench comprising S.B. Sinha and
            SOBRAN SINGH v. STATE OF U.P.                  661
                  [T.S. THAKUR, J.]
H.S. Bedi, J.J., the appellant placed reliance upon the decision   A
of this Court in Pawan Kumar Jain's case (supra) to argue that
the guarantor was as much protected against proceedings for
recovery of the outstanding amount as the borrower in view of
the provisions of Section 3(1 )(d) read with Section 4(2)(b) of
the Act afore-mentioned. The Court, however, entertained           B
doubts about the correctness of the view taken in Pawan Kumar
Jain's case (supra) and accordingly referred the matter to a
larger bench. That is precisely how this appeal and the
accompanying two matters have come up before us for
hearing.                                                           c
     5. Sections 3 and 4 of the Uttar Pradesh Public Moneys
(Recovery of Dues) Act, 1972 may, at the outset, be extracted
in extenso:

    "3. Recovery of certain dues as arrears of land                D
    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
                                                                   E
             him by the State Government or the Corporation,
             by way of financial assistance; 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 to     F
             him, 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       G
             by the State Government or the Corporation in
             respect of a loan raised by an industrial concern;
             or

      (d)    to any agreement providing that any money
                                                                   H
    662            SUPREME COURT REPORTS           [2014] 10 S.C.R.


A                   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
B
           (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
c
           (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
D         Government by notification in the Official Gazette, and in
          the case of the Corporation or a government c.ompany
          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,
E         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 arrear of land
          revenue.

F               (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
G         referred to in sub-section (1).

          4. Savings.-(1) Nothing in Section 3, sha/1,-

               (a) affect any interest of the State Government, the
H         Corporation, a government company or any banking
       SOBRAN SINGH v. STATE OF U.P.                    663
             [T.S. THAKUR, J.]
company, in any property created by any mortgage,               A
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 in relation to an agreement referred to in that    8
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         C
other encumbrance in favour of the State Government,
the Corporation, a government company or banking
company, then,-

 (a)    in evety case of a pledge of goods, proceedings
                                                                0
        shall first be taken for sale of the thing pledged,
        and if the proceeds of such sale are less then the
        sum due, then proceedings shall be taken for
        recovety of the balance as if it were an arrear of
        land revenue:
                                                                E
Provided that where the State Government is of opinion
that it is necessaty so to do for safeguarding the recovety
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        F
taken for recovety 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 evety case of a mortgage, charge or other            G
        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 recovety of the sum due from that person as if
        it were an arrear of land revenue, and any other
                                                                H
    664     SUPREME COURT REPORTS               [2014] 10 S.C.R.


A              proceedings may be taken thereafter only if the
       t
               Collector certifies that there is no prospect of
               realisation of the entire sum due through the first-
               mentioned process within a reasonable time."

       6. A careful reading of the above would show that recovery
8 of outstanding loan amount can be made as arrears of land
  revenue only if there exists an agreement to that effect. It is
  common ground that agreement executed between the
  guarantor-appellant and the respondent No.4-Corporation does
  provide for recovery of money due thereunder as arrears of land
C revenue. In fairness to learned counsel for the appellants, we
  must mention that there was no challenge to the recoverability
  of the amount outstanding against the borrower and the
  guarantor, as arrears of land revenue. What was argued at
  considerable length was whether recovery proceedings could
D be initiated against the guarantor so long as the properties
  mortgaged by the principal debtor borrower remain to be sold
  for payment of the outstanding amount. It was contended that
  such recovery proceedings against the guarantor would be
  permissible only if the mortgaged, charged or encumbered
E immovable property of the borrower is first sold off. Support for
  that proposition was drawn from the provisions of Section
  4(2)(b) of the Act and the decision of this Court in Pawan
  Kumar Jain's case (supra) later followed by another two-Judge
  Bench decision of this Court in Ashok Mahajan v. State of U.P.
F r2006J 10 sec 332.

      7. Section 4(2)(b) does not, in our opinion, lend itself to
  the interpretation urged on behalf of the appellants. The
  expression "where the property of any persons referred to in
  Section 3 is subject to any mortgage, charge, pledge or other
G encumbrance" appearing in th.at provision, in our opinion,
  leaves no manner of doubt that situations where the property
  of any person referred to in Section 3 is subject to any
  mortgage, charge, pledge or any encumbrance are alone
  covered by the same. It has no application to cases in which
H
          SOBRAN SINGH v. STATE OF U.P.                   665
                [T.S. THAKUR, J.]
the person referred to in Section 3 has not mortgaged, charged, A
pledged or encumbered in favour of the State GovernmeM or
the Corporation or a Government Company or a banking
company, any property owned by any such person. In cases
where there is a charge, mortgage or encumbrance referred
to in Section 4(2), the sale of such property is made a condition B
precedent for recovery of the balance amount, if any by initiating
proceedings against the defaulter in terms of clause (b) of
Section 4(2). In other words Section 4(2) postulates initiation
of proceedings against a person whose property is mortgaged,
charged or encumbered only if such property is first sold off andc
the Collector certifies that there are no prospects of realizing
the entire sum due through such process of sale within a
reasonable time.

     8. It is not in dispute that the guarantors have not in the
                                                                  0
present appeals created any mortgage, charge or
encumbrance in regard to their immovable property in favour
of the respondent-Corporation. The bar against initiation of
recovery proceedings till such time such mortgaged, charged
or encumbered properties are sold can, therefore, have no
application to them. The contention that Section 4(2)(b) protects E
even the guarantors must, therefore, fail. The protection is, in
our opinion, confined only to the principal debtor who has
charged his properties in the manner indicated above.

     9. It was contended on behalf of the appellants that any F
interpretation which deprives the guarantor of the property under
Section 2(b) and consequently exposes him to a harsher
treatment than the one given to the principal-debtor who has
borrowed the loan but failed to repay the same would be
inequitable and opposed to equity and good conscience. It was G
urged that the principal borrower cannot escape simply
because he has mortgaged or charged his immovable
property, nor was there any rationale for denying the protection
available to the borrower to the guarantors who have taken no
advantage for themselves and yet face the prospects of H
    666      SUPREME COURT REPORTS                 [2014] 10 S.C.R.


A   summary proceedings for recovery of the outstanding as
    arrears of land revenue which can at times result in their
    detention in civil prison. The argument though attractive does
    not stand closer scrutiny. The legislature has, it is evident from
    the language employed in the provision, made a conscious
B   departure in the case of guarantors while providing protection
    to the borrowers whose properties stand mortgaged in
    connection with the loan transactions. If the intention of the
    legislature was to extend the benefit of such protection to the
    guarantors also, nothing prevented it from specifically indicating
c   so. Section 4(2) would then have been differently worded. That,
    however, is not the position. The general principle of law that
    the liability of the guarantor is co-extensive with that of the
    principal borrower continues to hold good even when recovery
    proceedings are taken under a special enactment. There is
    nothing in Section 4(2) to suggest that the legal edifice on which
0
    the liability of the borrower and the guarantor are made co-
    extensive stands altered. All that the statute provides is that
    while the liability of the guarantor remains enforceable
    coextensively with the principal borrower, the latter shall not be
E   proceeded against so long as properties mortgaged, charged
    or encumbered by him have not been sold. The difference in
    the treatment which the special enactment authorises as
    between the borrower and the guarantor in our opinion springs
    from the fact that one has mortgaged, charged or encumbered
    his immovable property while the other has not. The one who
F   has charged, mortgaged or encumbered the property is placed
    at a different footing than the one who has not done so. To that
    extent alone there is a difference in the matter of enforcement
    of the recovery proceedings against the borrower and the
    guarantor for in all other respects the liability of the two
G   continues to be unlimited and co-extensive.

         10. In the light of what we have said above, we are of the
    view that Pawan Kumar Jain's case (supra) was not correctly
    decided when it said that the guarantors cannot be proceeded
H   against unless the property mortgaged or charged by the




                                                                         •
                                                                         .....
           SOBRAN SINGH v. STATE OF U.P.                      667
                 [T.S. THAKUR, J.]
principal debtors is first sold. The later decision of the Court in   A
Ashok Mahajan's case (supra) has simply followed Pawan
Kumar Jain's case (supra) without making any qualitative
contribution to the rationale underlying judgment. We have,
therefore, no hesitation in overruling both the decisions and
holding that the guarantors do not enjoy any protection against       B
recovery of proceedings under Section 4(2) of the U.P. Public
Moneys (Recovery of Dues) Act, 1972. These appeals
accordingly fail and are, hereby dismissed but in the
circumstances without any order as to costs.
Rajendra Prasad                                 Appeals dismissed.