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The liability of the guarantor/surety might be coextensive with that of the borrower but that does not mean the recovery proceedings can be made with gay abandon, disturbing and upsetting his property rights, held the Supreme Court, while exhorting financiers to sell only so much of the mortgage/guarantor’s property as is required to recover their dues
In Ram Kishun and others v State of UP and others , the borrower had taken a loan of Rs 8,425 from Union Bank of India for which his father stood guarantor.
When both died, the bank moved the District Collector for recovery of the principal along with interest, aggregating to Rs 14,500 as arrears of land revenue. The Government machinery swung into action but was able to recover only Rs 6,000 from the estate of the borrower. It took over a large land belonging to the legal heirs of the guarantor and auctioned it for Rs 25,000 to recover the remaining amount of Rs 8,500.
The Supreme Court brushed aside the contention of the appellants, the legal heirs of the guarantor, that the borrower had other properties as well and they should have been sold before descending on the guarantor’s estate. While doing this, the Apex Court reiterated the well-settled law that the guarantor’s liability was coextensive with that of the borrower and that it was upto to the lender to decide who he is going to proceed against, without being dictated to.
Having said this, the Apex Court found fault with the District Collector’s official machinery for selling more than what was required. Sale of a third of the land belonging to the legal heirs of the guarantor would have served the bank’s purpose. Yet it chose to sell the entire piece of land, thus robbing the appellant of his property rights. Since the person who had bought the property in auction had carried out extensive improvements on the land, the Court did not deem it proper to rock the boat and order annulling the sale of the excess land.
The author is a New Delhi-based chartered accountant
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