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2012 Supreme(J&K) 762
J&K SPECIAL TRIBUNAL AT JAMMU
Sanjay Gupta, J.
Citizen Co-operative Bank Ltd. -Appellant
Versus
Sanjay Sethi & Ors. -Resopndent
STJ-637-09
Decided On : 25-05-2012
The central legal point established in the judgment is the joint and several liability of guarantors in loan recovery, as per Section 128 of the Contract Act, and the bank's authority to proceed against all respondents for recovery.
Headnote:
Guarantee - Recovery of Loan - Court held that the liability of the guarantors is co-extensive with that of the principal debtor, and the bank has the option to proceed against all respondents jointly and severely liable to pay the award.
Fact of the Case:
The petitioner bank sought to recover a loan amount from the respondents, including the principal borrower and guarantors, due to default in repayment. The court initially ordered the bank to recover the decreed amount from the principal borrower, with the option to proceed against the guarantors in case of non-recovery.
Finding of the Court:
The court found that the direction to recover the amount from the principal borrower first, and then from the guarantors, was not in accordance with the contract of guarantee. It emphasized the joint and several liability of the respondents to pay the award and allowed the bank to proceed against all respondents simultaneously or against any one for easier recovery.
Issues: The issues involved the interpretation of the liability of guarantors in loan recovery and the authority of the bank to proceed against the respondents.
Ratio Decidendi: The court relied on Section 128 of the Contract Act, which establishes that the liability of the surety/guarantor is co-extensive with that of the principal debtor, unless otherwise provided by contract. It emphasized the joint and several liability of the respondents and the bank's option to proceed for recovery.
Final Decision: The revision petition was allowed, and the impugned order was modified to hold all respondents jointly and severely liable to pay the award, with the bank having the option to take coercive steps for recovery.
2. Petitioner has challenged the impugned order on the ground that, the court below while passing the order has overlooked class IV of letter of guarantee deed dated19.1.2002, wherein guarantors can be proceeded without proceeding against original borrower.
3. Respondent no. 1 did not appear despite registered notice, so he was placed ex-parte on 6.4.2010. The services of other respondents were not possible by ordinary mode, so notice were published in daily paper news paper state times dt.7.2.2012. Despite that they did not appear, so they were also placed exparte on
4. I have heard the counsel for petitioner and gone through the records.
5. From the perusal of records, it appears that C.C. bank Moti bazaar granted loan to petitioner No. 1 in 2002 for Rupee one lac for purchase of computer. That while granting the loan, interest at the rate of 13% per annum with quarterly rest was agreed vide sanction letter dt. 19.1.2002. That respondent no. 2 and 3 stood as guarantors and they executed deeds of guarantee in favour of bank. That thereafter principle borrowers committed default in repayment of loan and an amount of Rs. 1, 95,290/- became due up to 31.3.2007. That despite service of legal notice respondents did not pay the amount.
6. Accordingly arbitration petition u/s 70 of Cooperative Societies Act, for recovery of RS. 1, 95,290/- was filed before Addl. Registrar Cooperative Society Jammu. This petition was subsequently withdrawn by Registrar for further proceedings. Respondents despite service through notices published in daily News paper The Himalayan Times dt. 26.11.2008,did not appear and accordingly they were set exparte. Court below after that, pronounced the order on 11.4.2009. The concluding Para of order is reads as under:
"In the above back drop, this Court upholds the request of the petitioner Bank to pass a decree amounting to Rs. 195290/- against the respondent No. 1. The interest having accrued after 1.4.2007 shall be recovered by bank from the respondent on such rates as have been in vogue for calculating the interest during the period viz from 1.4.2007 to the date of actual realization of the amount. The petitioner bank is at liberty to recovered the decreed amount either in one lump or in monthly installments not exceeding the there. In the event of non- recovery/non payment, the Bank shall also proceed against the respondent no. 2 and 3 besides the collateral security. The petition is disposed off with the above orders.
From the perusal of concluding Para, it is apparent that, Court below while passing the order held that, firstly the bank shall proceed against principle borrower- respondent no.1 and in case of non recovery bank shall proceed against the respondent No. 2 and 3.- guarantors.
7. I have given my thought consideration to whole aspects of matter.
8. Contract of Guarantee means to perform the promise or discharge the liabilities of third person in case of default. Principle debtor/ borrower is a person in whose favour guarantee is given and creditor is that person to whom guarantee is given. The liability of surety/guarantor is co-extensive with that of principle debtor and thus principle debtor/borrower and guarantor are jointly and severely liable to creditor.
9. Chapter VIII of Contract Act deals with indemnity and guarantee.
Section 128 of Contract Act reads as under.
Section 128 -- Surety Liability:
The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by contract.
A plain reading of 128 of Contract Act, it is apparent that liability of surety /guarantor is co-extensive with that of principle debtor.
10. In the pr
