IMPORTANT POINT
Action against the guarantor cannot be taken under the Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972, until the property of the principal debtor is first sold off.

JUDGMENT

S.N. Variava, J.-These Appeals are against the Order of the Allahabad High Court dated 01.09.1997 by which Appellant s Writ Petition has been dismissed and the Order dated 06.11.1997 by which the Review Petition has been dismissed.

2. Briefly stated the facts are as follows :

The 1st Respondent had advanced monies to the 4th Respondent. The Appellant stood guarantor in respect of the said loan as at that time he was a Director of the 4th Respondent-Company. By the Writ Petition, the Appellant challenged the Recovery Notice issued against him under the Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972. The High Court has dismissed the Writ Petition and the Review Petition.

3. Mr. Mohta submitted that the Central Government has issued a Notification specifying 1st Respondent-Corporation as a Financial Institution within the meaning of the term as defined in Section 2(h) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "Debt Recovery Act"). He submitted that such an Institution can only proceed in the manner laid down in the Debt Recovery Act. He submitted that it is not open to give a go-by to the provision of the Debt Recovery Act and use the machinery under the U.P. Public Moneys (Recovery of Dues) Act, 1972 (hereinafter called the "U.P. Act"). For this reason the Notice is bad and requires to be quashed. In support of his submission, he relied upon the case in Unique Butyle Tube Industries (P) Ltd. Vs. U.P. Financial Corporation & Ors. [(2003) 2 SCC 455]. In this case, it has been held that a Financial Institution within the meaning of that term in the Debt Recovery Act cannot proceed under the U.P. Act.

4. This authority would have been binding upon us. However, in reply Mr. Bhalla pointed out that in respect of the 1st Respondent-Institution the Notification by the Central Government has only been issued on 24.1.2004, whereas the Recovery Certificate is of a much earlier date. He submitted that, therefore, in this case the proceedings under the U.P. Act are not barred. He pointed out that under Section 31 of the Debt Recovery Act, it is only suit or proceeding pending before any Court, which stand transferred to the Tribunal established under that Act. In our view, Mr. Bhalla is right. As the action was initiated prior to the Notification being issued by the Central Government, the action would not be barred and would not stand transferred to the Tribunal.

5. Mr. Mohta then relied upon Sections 3 and 4 of the U.P. Act, which read as follows:-

"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 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 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 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 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 authorized in that beh