IMPORTANT POINT
Under the provisions of Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972, action against guarantor cannot be taken until the properties of the principal debtor are first sold off.

JUDGMENT

Arijit Pasayat, J.—Leave granted.

2. Appellant calls in question legality of the judgment rendered by a Division Bench of the Allahabad High Court dismissing the writ petition filed by the appellant. The said writ petition was filed under Article 226 of the Constitution of India, 1950 (in short the Constitution) for quashing the recovery certificate dated 24.4.2002 issued by the respondents 1 and 2.

3. Background facts as projected by appellant in a nutshell are as follows:

One M/s Denin Leathers Limited (hereinafter referred to as the borrower) had taken term loan of Rs. 40 lacs from Pradeshiya Industrial and Investment Corporation, Uttar Pradesh Limited (in short PICUP) and had mortgaged its immovable properties to secure the loan. Initially the borrower had commenced its business as a private limited company in 1979 but subsequently in the year 1995 it was converted to a Public Limited Company. While the borrower becomes a public limited company, appellants name was included as a Director. On 7.7.1998 a recovery certificate was issued in respect of one Sanjay Mahajan who was one of the guarantors in respect of the loan. According to the appellant due to continued losses the financial condition of the company was bad and added to the financial problems in the year 1999 because of a devastating fire, assets of the company were destroyed. On 2.2.2002 recovery certificate was issued against the guarantors, namely, Keshav Ram Mahajan, Sanjay Mahajan and Smt. Juli Mahajan. On 25.7.2002 the house and household articles of the appellant were attached by the District Authorities by an order to the effect that dues amounted to nearly Rs.1.24 crores plus interest plus 10% collection charges. Appellant made a representation to the authorities stating that he was not a guarantor though coercive steps were taken against him. The appellant was arrested on 24.11.2002. The recovery certificate was issued on 24.4.2002, as the appellant subsequently learnt in the name of the appellant as well as Keshav Mahajan, Ajay Mahajan and Sanjay Mahajan. Auction proceedings in respect of property took place on 21.4.2003 under the Uttar Pradesh Public Moneys (Recovery of Dues Act) 1972 (in short the Act). The date for fresh auction was fixed on 22.5.2003 under Section 4 of the Act as well as under several other statutes. Appellant filed the writ petition on the ground that under the Act the recovery could not have been made. The High Court with reference to terms of guarantee rejected the stand and held that the Collector was entitled to recover the amount as arrears of land revenue under Section 279(1)(b) of the Uttar Pradesh Zamindari Abolition Act, 1950 (in short the Zamindari Act).

4. Learned counsel for the appellant submitted that even if it is conceded that the appellant had any liability, the properties of the principal borrower had to be dealt with first.

5. In response, learned counsel for the respondent submitted that as borrower has no property, as is accepted in various documents, therefore, the properties of the appellant have been rightly dealt with. It is submitted that the appellant has been changing his stand. Initially he stated that he was not a guarantor and subsequently says that even if he is a guarantor properties of the borrower have to be dealt with first.

6. At this juncture it would be appropriate to take note of the following observations of this Court in Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corpn. of U.P. Limited (2004 (6) SCC 758).

"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 give