Case: Sobran Singh &amp; Others Vs. State of U.P. &amp; Others

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 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 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 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 Jains case (supra) later followed by another two -Judge Bench decision of this Court in Ashok Mahajan v. State of U.P. : (2006) 10 SCC 332. 5. 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 encumbrance" appearing in that 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 the person referred to in Section 3 has not mortgaged, charged, pledged or encumbered in favour of the State Government 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 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 and the Collector certifies that there are no prospects of realizing the entire sum due through such process of sale within a reasonable time. 6. It is not in dispute that the guarantors have not in the 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 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. It was contended on behalf of the Appellants that any 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 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 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 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 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 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 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 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 continues to be unlimited and coextensive.7. In the light of what we have said above, we are of the view that Pawan Kumar Jains case (supra) was not correctly decided when it said that the guarantors cannot be proceeded against unless the property mortgaged or charged by the principal debtors is first sold. The later decision of the Court in Ashok Mahajans case (supra) has simply followed Pawan Kumar Jains case (supra) without making any qualitative contribution to the rationale underlying judgment

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5. Section 4(2)(b) does not, in our opinion, lend itself to the interpretation urged on behalf of the Appellants.It is not in dispute that the guarantors have not in the present appeals created any mortgage, charge or encumbrance in regard to their immovable property in favour of the RespondentCorporation. 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 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 indicatedargument though attractive does not stand closer scrutiny. The legislature has, it is evident from the language employed in the provision, 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. If the intention of the legislature was to extend the benefit of such protection to the guarantors also, nothing prevented it from specifically indicating 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 coextensive 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 the liability of the borrower and the guarantor are made coextensive 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 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 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 continues to be unlimited and coextensive.7. In the light of what we have said above, we are of the view that Pawan Kumar Jains case (supra) was not correctly decided when it said that the guarantors cannot be proceeded against unless the property mortgaged or charged by the principal debtors is first sold. The later decision of the Court in Ashok Mahajans case (supra) has simply followed Pawan Kumar Jains case (supra) without making any qualitative contribution to the rationale underlyingt though attractive does not stand closer scrutiny. The legislature has, it is evident from the language employed in the provision, 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. If the intention of the legislature was to extend the benefit of such protection to the guarantors also, nothing prevented it from specifically indicating 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 coextensive 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 the liability of the borrower and the guarantor are made coextensive 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 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 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 continues to be unlimited and coextensive.