High Court dismisses petitions challenging simultaneous recovery from guarantors and principal borrower under Section 128 of the Indian Contract Act, 1872.
In a significant ruling, the Allahabad High Court's Division Bench at Lucknow, comprising Justices Shekhar B. Saraf and Abdhesh Kumar Chaudhary, has dismissed two writ petitions filed by Vineet Pandey and Anoop Kumar Mishra, challenging the recovery proceedings initiated by the U.P. Postal Primary Cooperative Bank Limited against them as guarantors for loans availed by their colleague, Vikrant Dubey.
The court addressed the petitions under its writ jurisdiction, where the petitioners sought to quash the recovery order that mandated a deduction of Rs. 10,000 per month from their salaries. The petitioners contended that the bank should first exhaust all remedies against the principal borrower, Vikrant Dubey, before proceeding against them as guarantors.
The court, referencing Section 128 of the Indian Contract Act, 1872, emphasized that the liability of a guarantor is co-extensive with that of the principal borrower. The judgment reiterated that the creditor is entitled to recover from either or both the principal borrower and the guarantor simultaneously. The court observed that the principle of co-extensive liability had been consistently upheld by the Supreme Court of India, citing cases such as "Bank of Bihar Ltd. v. Dr. Damodar Prasad" and "State Bank of India v. Indexport Registered."
The court rejected the petitioners' argument that simultaneous recovery was impermissible, highlighting that the guarantor cannot dictate recovery terms to the creditor. Furthermore, the court dismissed the contention that principles of natural justice were violated, noting that the liability emanated directly from a contractual guarantee, thus negating the necessity for a personal hearing.
The ruling underscores the judiciary's stance that guarantors bear an immediate and absolute liability coextensive with that of the principal borrower, barring any contractual stipulations to the contrary. The court also clarified that writ jurisdiction under Article 226 of the Constitution does not extend to interfering with law-abiding recovery proceedings arising from contractual obligations.
With this decision, the Allahabad High Court has reinforced the principle that creditors can enforce guarantees without exhausting remedies against the principal borrower, thereby ensuring the sanctity of contractual guarantees.
Bottom Line:
Liability of guarantor under Section 128 of the Indian Contract Act, 1872 is co-extensive with that of the principal borrower. The creditor is entitled to proceed against either or both simultaneously without exhausting remedies against the principal borrower.
Statutory provision(s):
Section 128 of the Indian Contract Act, 1872, Article 226 of the Constitution of India
Vineet Pandey v. State of U.P., (Allahabad)(DB)(Lucknow) : Law Finder Doc id # 2959312
