Introduction:

Two employees stand surety to each other's loan. They default on the repayment. The employer, acting as a guarnishee, deducts the borrowers' terminal benefits and remits the amounts to the creditor. Because of some mix-up, the amount deducted from one borrower's terminal benefits goes to a wrong department of the creditor. That amount, with interest, once again gets deducted from the other borrower's, the surety's, account. The surety demands return of that amount. But the creditor refuses: it asserts that the other borrower stood surety to some other defaulted loans, and the amount was adjusted to those accounts. Can the surety demand refund of amount deducted from his account? The answer: yes.

Facts:

2. K.P. Kunjan, the petitioner, and one P.K. Thankappan worked in the Kerala State Road Transport Corporation ("the Employer"), the 4th respondent. While both were in service, they obtained loans of Rs.50,000/- each from the Kerala State Financial Enterprises Ltd. ("KSFE"), the second respondent. After standing guarantee to each other's loan, both defaulted and later retired from service. Thankappan retired on 31.10.2004; Kunjan on 30.04.2007.

3. Asked by the Senior Manager of KSFE, the Special Deputy Tahsildar, Revenue Recovery (the 4th respondent), initiated proceedings under the Revenue Recovery Act and transferred the proceedings to the Revenue Recovery Unit (the 3rd respondent) of KSFE. It proceeded further. On the Revenue Recovery Unit's demand, the employer of both Kunjan and Thankappan recovered certain amounts from their terminal benefits.

4. As seen from Ext.P4, out of Rs.2,16,436/- due to Kunjan, the employer deducted these amounts and remitted them to the Revenue Recovery Division of KSFE:

5. To a specific query, the learned counsel on both sides have submitted that these amounts were deducted on 28.04.2010.

6. On parallel lines, the employer deducted certain amounts from Thankappan's terminal benefits–Death Cum Retirement Gratuity (DCRG)–too. In Thankappan's personal loan, to which Kunjan stood guarantee, the amount due by 2008 was Rs.49,950/-. The employer did deduct this amount from his DCRG on 29.08.2008 or there about. But, instead of sending that amount to the KSFE's Revenue Recovery Unit, it sent the amount to the Loan Unit., that is, the second respondent Branch.

7. KSFE's Revenue Recovery Unit did not realize–much less did it rectify–this mistake till 2010. Therefore, by 28.04.2010, the amount with interest swelled up to Rs.87,312-. Demanded by KSFE's Revenue Recovery Unit, the employer deducted this amount from Kunjan's account. Both were oblivious that Thankappan's loan account had been adjusted from his own DCRG. The loan, thus, must have been squared up. Eventually, on 30.06.2010, KSFE realised this mistake and, as a result, its Loan Unit transferred Rs.49,950/-, the amount it had originally received from the employer, to the Revenue Recovery Unit.

8. Once he came to know of the mix-up and its later rectification, Kunjan represented to the KSFE to refund the amount wrongly deducted from his account. He pointed out that KSFE had already received the amount from Thankappan's account much earlier, through a wrong department, though. Then, the Special Deputy Tahsildar, Revenue Recovery, through Ext.P6, recommended to the KSFE's Head Office that Kunjan's request for refund is justified. He has, nevertheless, brought to the Head Office's notice that Thankappan stood surety for other defaulted loans. Since the principal borrowers and the sureties, one of them being Thankappan, retired, KSFE had no chance of recovering the amounts. Therefore, KSFE