1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD WRIT PETITION NO.5491 OF 2006 Narayan s/o Pandurang Channawar, Aged: 83 years, Occ: Business, R/o. Radhika Niwas, Ghamodia Yard, Nanded, District Nanded. ...PETITIONER VERSUS 1. The State of Maharashtra, through the Secretary to the Government of Maharashtra in the Department of Co-operation, Mantralaya, Fort, Mumbai. 2. Taluka Deputy Registrar, Co-operative Societies, Shivaji Nagar, Nanded. 3. The Divisional Joint Registrar, Co-operative Societies, Administrative Building, Latur. 4. Bhagyalaxmi Sahakari Bank Ltd., through its Chief Executive Officer, Bhagyalaxmi Bhavan, Mahavir Chowk, Nanded. 5. Swapnaja Estate Pvt. Ltd., through its Directors, 5A. santosh s/o Sudhakar Mukhedkar, Age: 33 years, Occ: Business, R/o. Shivaji Chowk, Kandhar, District Nanded. 2 5B. Subhash s/o Sudhakar Mukhedkar, Aged: 38 years, Occ: Business, R/o. Shivaji Chowk, Kandhar, District Nanded. 5C. Santosh K. Tandurkar, Aged: 38 years, Occ: Business, R/o. Rishala Bazaar, Hingoli. 6. Sudhakar s/o Gangadhar Mukhedkar, Deceased through his L.Rs., 6A. Nandkishor s/o Sudhakar Mukhedkar, Aged: 48 years, Occ: Business, R/o. Vasant Nagar, Nanded. 6B. Sanjay s/o Sudhakar Mukhedkar, Aged: 45 years, Occ: Business, R/o. Vasant Nagar, Nanded. 6C. Subhash s/o Sudhakar Mukhedkar, Aged: 35 years, Occ: Business, R/o. Shivaji Chowk, Nanded. 6D. Pramod s/o Sudhakar Mukhedkar, Aged: 40 years, Occ: Business, R/o. Shivaji Chowk, Kandhar, District Nanded. 6E. Suchita w/o Ashok Chalikwar, Aged: 50 years, Occ: Household., R/o. Shivaji Chowk, Kandhar, District Nanded. 6F. Pushpabai w/o Sudhakar Mukhedkar, Aged: 70 years, Occ: Household., R/o. Shivaji Chowk, Kandhar, District Nanded. 3 7. The Authorised Officer, Bhagyalaxmi Mahila Sahakari Bank Ltd., Nanded. ...RESPONDENTS ... Shri. S.S. Choudhari, Advocate for Petitioner. Shri. V.B. Ghatge, A.G.P. for Respondent No.1. Shri. B.G. Deshmukh, Advocate for respondent No.4. ... CORAM: NARESH H. PATIL AND K.K. TATED, JJ. DATE : 4TH AUGUST, 2010. PER COURT : 1. By this petition under Articles 226 and 227 of the Constitution of India, the petitioner- guarantor challenges the order dated 12/15-02-2006 passed by the Divisional Joint Registrar, Co- operative Societies, Latur in Revision Petition No. 5/2005, the notices dated 24-03-2006 and 13-07-2006 issued by the Taluka Deputy Registrar, Co-operative Societies, Nanded and notices dated 07-04-2005 and 09-11-2005 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, issued by the bank. 4 A few facts of the matter are as under : 2. Respondent No. 5 Swapnaja Estate Private Limited obtained loan of Rs.21,00,000/- on 03-09-1997 from respondent No. 4 bank, for the business purpose. The petitioner stood guarantor for the said loan. The original borrower did not repay the entire loan and therefore, the respondent bank issued notice dated 27-11-2002 to the original borrower as well as the guarantor calling upon them to make the payment of outstanding amount of Rs.21,29,912/- as on 31-10-2002 alongwith interest, future interest at agreed rate. 3. The petitioner, by his letter dated 07-12-2002 replied the said notice of bank denying his liability. Thereafter, the respondent bank on 30-06-2003 through its Special Recovery Officer issued notice to the principal borrower as well as guarantor calling upon them to make payment of 5 Rs.24,40,746/- with interest. The said notice was under Section 101 of the Maharashtra Co-operative Societies Act, 1960 ( for short "the said Act"). 4. The petitioner, by his letter dated 22-07-2003, replied the said notice and denied his liability. The petitioner, in the said reply, stated that the borrowers are earning from the vehicles purchased by them by obtaining loan from the respondent bank and enjoying the benefits of the said vehicles. He further stated in the said reply that the bank cannot take any action against him and the same is time barred. He also made some allegations against the bank Officers about collusion and harassment. 5. As the petitioner and original borrower failed and neglected to pay the principal amount alongwith interest, the respondent bank filed application under Section 101 of the said Act for recovery of sum of Rs.24,40,746/- against the petitioner as well as the principal borrower and 6 other guarantors. The said application under Section 101 of the said Act was rejected by the Deputy Registrar, Co-operative Societies, on the ground that under Section 101 of the said Act, he did not have any power to go on with the said application, as the claim is more than Rs. 10,00,000/-. 6. Being aggrieved by the order dated 08-03-2004 passed by the Deputy Registrar, Co- operative Societies, the respondent bank preferred Revision Application No.5-8/2005 before the Hon'ble Divisional Joint Registrar, Co-operative Societies, Latur under Section 154 of the said Act. 7. The petitioner herein filed his reply in the month of December 2005. In the said reply, the petitioner stated that the principal borrower is respondent No.5 Company of which respondent Nos. 5A, 5B and 5C are the Directors. He stated in the said reply that the bank is entitled to 7 attach the mortgaged property of respondent No.5 and deceased guarantor Sudhakar. He stated that respondent No. 5 obtained loan on 03-09-1997 for the period of five years i.e. for 60 months and it was to be paid by equal monthly instalments within five years. The officers of respondent No. 4 bank obtained signature of the petitioner on blank loan documents. The petitioner raised several disputes in his reply and stated that the Revision be dismissed with costs. 8. The Divisional Joint Registrar, Co- operative Societies, Latur, by his order dated 15-02-2006 partly allowed Revision and remanded the matter to the Deputy Registrar, Co-operative Societies, for deciding on own merits. He further allowed the respondent bank to dispose off the mortgaged property of the original borrower and recover the remaining amount from the guarantor. Being aggrieved by the said order, the petitioner preferred present Writ Petition. 8 9. Shri. S.S. Choudhari, learned Counsel appearing on behalf of the petitioner submits that the petitioner being guarantor, is not liable to make the payment of the said amount, unless and until the impugned order is executed first against the original borrower. He stated that instead of initiating proceeding against the petitioner, respondent No.4 bank ought to have taken steps to attach the hypothecated property consisting of four luxury buses and agricultural land belonging to the deceased Sudhakar Mukhedkar, respondent No. 5, mortgaged with respondent No. 4 bank, and put to auction and recover the loan amount from the auction proceedings. 10. The learned Counsel appearing on behalf of the petitioner further submits that the proceeding as initiated by respondent bank under Section 101 of the said Act is not maintainable in law. He states that the amount due and payable by the principal borrower is more than Rs.10,00,000/- and therefore, the respondent bank have to proceed 9 before the Debt Recovery Tribunal as held by the Deputy Registrar, Co-operative Societies, by his order dated 08-03-2004. He states that as the respondent bank failed to take appropriate proceeding under Section 91 of the said Act, they cannot proceed against the petitioner to execute the order passed under Section 101 bid. 11. The learned Counsel appearing on behalf of the petitioner further submits that the respondent bank issued notice dated 07-04-2005 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "Securitization Act, 2002"), calling upon the petitioner and original borrower to pay sum of Rs. 34,11,996/- with future interest and incidental expenses, costs, in terms of the said notice. Therefore, for the recovery of the same amount, two different proceedings under two different Enactments namely the Maharashtra Co-operative Societies Act, 1960 and the Securitization and 10 Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, cannot be initiated. For the same cause of action, simultaneously altogether two different proceedings under two different Acts, cannot be initiated. 12. The learned Counsel appearing on behalf of the petitioner further submits that the petitioner was not the member of respondent No.4 bank on the date on which the loan was said to have been obtained by respondent No.5 and therefore, no proceedings could be started against the petitioner under the Maharashtra Co-operative Societies Act, 1960. 13. On the basis of these submissions, the learned Counsel appearing on behalf of the petitioner submits that the impugned order dated 15-02-2006 passed by the Divisional Joint Registrar, Co-operative Societies, Latur in Revision, is liable to be set aside. 11 14. On the other hand, Shri. B.G. Deshmukh, learned Counsel appearing on behalf of respondent No.4 bank submits that the present Writ Petition itself is not maintainable because after passing the remand order dated 15-02-2006 by the Divisional Joint Registrar, Co-operative Societies, the competent authority decided their application under Section 101 of the said Act, holding the petitioner as well as original borrower and guarantors liable. The competent authority directed the petitioner, original borrower and guarantors to make payment of Rs. 32,27,839/- with interest @13% p.a. and costs. 15. The learned Counsel appearing on behalf of the respondent bank further submits that notice issued by them under Section 13(2) of the Securitization Act, 2002, was withdrawn by them with immediate effect, as same could not be served on all the guarantors. Therefore, there is no question of taking proceedings under two Acts 12 against the petitioner for the same cause of action. He further pointed out that respondent Nos. 5A, 5B, 6B and 6D preferred Writ Petition No. 161 of 2007, challenging the order dated 27-11-2006 passed by the Deputy Registrar under Section 101 of the Maharashtra Co-operative Societies Act, 1960 in which the petitioner is shown as respondent No. 4. In the said Writ Petition, this Court passed order on 07-01-2009 and granted interim relief in terms of prayer clause-C, which reads as under : (C) Pending hearing and final disposal of this writ petition, the impugned recovery certificate dated 27-11-2006 issued by the respondent no.5 in Dispute No. 312/2003 to the extent of present petitioners be stayed and its effect, operation and execution be stayed." . Interim relief in terms of prayer clause- (C) granted subject to some clarification which is 13 as under : Interim relief in terms of prayer clause-C subject to clarification that the ancestral property received by the petitioners from their father is liable to be attached and sold in execution of the recovery proceedings initiated by respondent no.1 bank, and further that they shall not create any obstruction or hinderance in attachment and sale of such ancestral estate." 16. He further pointed out that respondent Nos. 5A and 5B preferred Writ Petition No. 3278 of 2006 challenging the order dated 15-02-2006 passed by the Divisional Joint Registrar, Co-operative Societies, Latur in Revision Application No. 5/2005. The Writ Petition is admitted by this Court but refused interim relief. 14 17. We have heard both the Counsel at length. 18. The legal question involved in this case is whether the decree holder should first execute the decree against the borrower who mortgaged the property with the creditor as security for recovery of the loan by sale of mortgaged property and only for the remaining amount, if any, against the guarantor. It is to be noted that in the absence of some by special equity, the surety has no right to restrain the action against him on the ground that a principal debtor is solvent or that the creditor may have relief against the principal debtor in some other proceedings. Likewise, when the creditor has obtained a decree against the surety and the principal borrower, the surety has no right to restrain the execution against him until creditor exhausts his remedies against the principal borrower. Contract of guarantee has to be strictly construed as to the point of time when the liability of the surety arises. When the loan 15 is taken from the bank on the mortgage of property backed by independent guarantee by a guarantor, the Court cannot direct that the bank must proceed first against the mortgage property and then against the guarantor, even if the decree is composite one against the principal debtor, the mortgaged property and the guarantor. 19. The liability of the surety being co- extensive with that of the principal debtor must be held to be joint and several with the latter and therefore, it is at the option of the creditor in the absence of clear intention to the contrary to decide whether he shall proceed against the surety or the principal debtor. In the case of Union Bank of India vs. Manku Narayana reported in (1987) 2 Supreme Court Cases 335 the principal debtor borrowed Rs.5100/- from the Union Bank of India against the mortgage of his property and the independent guarantee of respondent Manku Narayana. The bank - appellant instituted the suit for recovery of the unpaid amount and the 16 composite decree was passed which included making the respondent guarantor personally liable. The guarantor resisted execution against him on the ground that the bank must exhaust remedies against the principal debtor and the mortgaged property first. The Executing Court and the High Court upheld the plea. The Hon'ble Supreme Court rejected the appeal preferred by the bank holding that since the portion of the decreed amount is covered by the mortgage, the decree holder bank has to proceed against the mortgaged property first and then proceed against the guarantor. The above decision of the Supreme Court was considered by the Larger Bench of the Supreme Court in the case of State Bank of India vs. M/s. Indexport Registered and others reported in (1992) Supreme Court Cases 159. Their Lordships of the Supreme Court laid down the law at Para-22 of the reported judgment, which reads thus : "22. The decree for money is a simple decree against the 17 judgment-debtors including the guarantor and in no way subject to the execution of the mortgage decree against judgment-debtor. 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 mortgage 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 case 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 mortgage decree, without any limitation on its execution, the decree-holder, in principle, cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and told 18 that only if the amount recovered is insufficient, he can be permitted to take recourse to the execution of the personal decree. For a simple mortgage decree as prescribed in Form NO.5 of the 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 then the 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 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 case was not correctly decided." 19 . The above decision is followed by the Supreme Court in Industrial Investment Bank of India Limited vs. Biswanath Jhunjhunwala reported in (2009) 9 Supreme Court Cases 478. In that case, Their Lordships of the Apex Court held that the legal position as crystallized by the series of cases of the Apex Court, it is clear that the liability of the guarantor and the principal debtor is co-extensive and not in alternate. In this view of law well settled by the Apex Court, the contention of the petitioner that decree holder bank should proceed first against the borrower for recovery of the decreed amount by the sale of the mortgaged property before proceeding against the petitioner guarantor has to be rejected, as not tenable. 20. The next contention raised by the petitioner about simultaneous proceedings under the Act of 1960 and the Act of 2002 and about issuance of notice under Section 13(2) of the 20 Securitization Act, 2002. It is to be noted that the learned Counsel appearing on behalf of the respondent bank submitted that they had already withdrawn notice issued by them under Section 13(2) of the Securitization Act, 2002. Para-9 of the respondent bank's affidavit in reply dated 05-06-2006 reads as under : "9. In Reply to para.no.13 & 14 I say that Respondent no.4 issued notices u/s. 13(2) of the Securitization Act 2002 but same notice could not be served to all the guarantors therefore said proceedings were withdrawn by the Respondent no.4 bank immediately." . In view of the specific statement made by respondent bank in their affidavit in reply, nothing survives in the petitioner's contention on this issue. Here reference can be made in the matter of Industrial Investment Bank of India Limited vs. Biswanath Jhunjhunwala reported in (2009) 9 Supreme Court Cases 478. Head note 'A' 21 reads thus : "A. Contract Act, 1872 - S. 128 - Guarantee / surety - Guarantor's / surety's rights and liabilities - Simultaneous proceedings against borrower and guarantor before two different courts, if permissible - Whether creditor is bound to exhaust remedy against principal debtor before proceeding against guarantor - Appellant Bank proceeding against borrowing company (principal debtor) under Industrial Reconstruction Bank of India Act, 1984 (IRBI Act) before High Court for attachment of assets and also against guarantor (respondent) before Debts Recovery Tribunal (DRT) for recovery of debts - High Court, in appeal by respondent, staying proceedings before DRT - Sustainability - Held, settled law is that liability of guarantor and principal debtors is coextensive but not in the alternative - Both principal debtor and surety are liable at the same time to the creditors - Hence, High 22 Court not justified in interfering with proceedings before DRT - Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - S. 19 - Industrial Reconstruction Bank of India Act, 1984 - S. 40 - Banks - Bank Guarantee." 21. In the above mentioned facts and circumstances, we do not find any substance in the present Writ Petition and same is dismissed summarily at the stage of admission itself. [K.K. TATED, J.] [NARESH H. PATIL, J.] sut/AUG10/wp5491.06