Recovery of loan – Liability of guarantors – Is Co-extensive and Joint as well as Several: SFC Act 1951. Section 29 :

The respondent No. 1 Delhi Financial Corporation sanctioneda loan of Rs. 14,58,000/- to respondent No. 2 Shyam Lal for purchase of a CNG bus. A Term Loan  Agreement-cum-Hypothecation Deed was executedin favour of respondent No. 1. The petitioners had  stood as guarantors for the loan taken by respondentNo. 2 from respondent No. 1. Since respondent No.  2 defaulted in payment of the loan taken from respondentNo. 1, the bus which was purchased from the funds provided by respondent No. 1, was seized by respondent No. 1 and was sold for recovery of its dues. The respondent No. 1 filed an application u/s. 32(G) of State Financial Corporations Act “ SFC Act” for issuance of recovery certificate against the petitioners as well as the principal borrower for recovery of Rs. 17,20,507 and future interest in terms of Loan Agreement-cum-Hypothecation Deed executed by them in favour of respondent No. 1.

The respondent No. 1 had initiated proceedings for recovery of the balance amount payable to it, from the petitioners they being guarantors of the loan taken by respondent No. 2. Being aggrieved the petitioners approached the Court.
The Hon’ble Court observed that the petitioners do
not dispute that they had stood as guarantors for the
loan taken by respondent No. 2 from respondent No.
1. The grievance of the petitioners is that respondent
No. 1 is not taking steps for recovering the balance
amount from respondent No. 2.

Since the petitioners had admittedly stood as guarantors for the loan taken by respondent No. 2, the liability of the guarantors being co-extensive and the liability of the principal borrower and the guarantors being joint as well as several, it is open to respondent No. 1 to recover its dues either from the petitioners or from respondent No. 2 or from all of them.

The legal position with respect to obligation of a guarantor to pay the amount guaranteed by him to the lender was upheld by the Apex Court in Industrial Investment Bank of India Ltd. vs. Biswanath Jhunjhunwala: JT 2009 (10) SC 533 where the apex court, after considering its earlier decision on the subject, inter alia, held as under:-

“30. The legal position as crystallised by a series of cases of this court is clear that the liability of the guarantor and principal debtors are co-extensive and not in alternative. When we examine the impugned judgment in the light of the consistent position of law, then the obvious conclusion has to be that the High Court under its power of superintendence under Article 227 of the Constitution of India was not justified to stay further proceedings in O.A. 156 of 1997.”

Since the liability of the petitioners is co-extensive and not in the alternative, no infirmity was committed by respondent No. 1 in seeking to recover the balance amount due to it, from the petitioners.