The liability of a borrower and that of the guarantor is co-extensive under the Indian Contract Act, and exceptions to general provisions should be specifically stated in the Act.

ORDER :

The question involved for our consideration in this petition which arises out of judgment and order dated 24.7.2006 passed by a Division Bench of the Allahabad High Court, inter alia, is the proper interpretation of Section 3(1) (d) vis-a vis Section 4(2)(b) of the U.P. Public Money(Recovery of Dues) Act, 1972.

2. By reason of the impugned judgment, the High Court has dismissed the writ petition filed by the petitioner herein, inter alia, on the premise that the respondent-Corporation was entitled to proceed against the petitioner, who was a guarantor, stating as under:

"The petitioner has taken loan from U.P. Financial Corporation, Agra. The same has not been paid to the Corporation, therefore, recovery has been issued against the petitioner as well as the guarantor. The submission of the counsel for the petitioner is that no recovery against the petitioner can be issued, as the petitioner is only guarantor. Without proceeding for recovery against the borrower Sri Raj Kumar Singh for the amount, no recovery can be issued against the guarantor. The submission made by the petitioner has got no force as it has been settled that the recovery can be proceeded simultaneously from the borrower as well as the guarantor".

3. Our attention has been drawn to a decision of this Court in Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and Ors., (2004) 6 SCC 758 wherein a Division Bench of this Court opined as under:

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

4. Our attention has, however, been drawn to some decisions of Allahabad High Court, to which we need not advert to, that proceeding against a guarantor would be covered by Section 3(1) (d) of the Act. Section 3(1) (d) of the Act reads as under:

"(1) (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 installment 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 installment thereof; or

(iii) otherwise fails to comply with the terms of the agreement, then, in the case of the State Government, such officer as may be authorized in that behalf by the State Government by notification in the Official Gazette, and in the case of Corporation of a government company the Managing Director thereof, and in the case of a banking company, the loan agent thereof, by whatever name called, may send a certificate to the Collector, 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 arrears of land revenue."

5. Section 4 provides for a saving clause,Clause(b) of Sub-Section (2) of Section 4 reads as under:

"(b) in every case of a mortgage, charge or other 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 recovery of the sum due from that person as if it were an arrear of land revenue, and any other proceedings may be taken thereafter only if the Collector certifies that there is no prospect of realization of the entire sum due through the first-mentioned process within a reasonable time"

(emphasis added)

6. This Court in Pawan Kumar Jain(Supra) did not consider the effect of Section 3(1) (d) of the Act. Under the general law, namely, Section 128 of the Indian Contract Act, the liability of a borrower and that of the guarantor is co-extensive. In our opinion if the State had intended