- (1.) THE fourth respondent M/s. Prasad Bakers Private Limited was granted a term loan of Rs. 13,85,000/- by the U. P. Financial Corporation. It appears that in consequence of default on the part of the fourth respondent (hereafter "the borrower"), the Corporation proceeded to recover dues from the borrowers by taking recourse to Section 29 of the State Financial Corporation Act. Accordingly on 18-9-1987 it took possession of the borrowers' assets which were mortgaged with the Corporation in a bid to sell the assets for the satisfaction of the dues of the Corporation. It further appears that while the Corporation was still looking for suitable buyers for the purchase of the property, they decided to proceed against the petitioners as well who had stood as guarantors for the repayment of the loan granted to the borrowers.
(2.) THE contention of the learned counsel for the petitioner is that the Financial Corporation having taken possession of the property of the borrower for the satisfaction of its loan it should not have proceeded against the petitioners until it found upon sale of the property that the consideration fetched by the sale fell short of the amount due against the fourth respondent, that is, the Corporation could recover only the balance, if any, remaining due after the sale of the property of which possession was taken by the Corporation under Section 29 of the aforesaid Act. The learned counsel is clearly right. We think that the Corporation could not legally and, at any rate ought not in all fairness to proceed against the petitioners while keeping the property mortgaged with them under its control. The Corporation having decided to proceed against the borrowers and having taken possession of their assets, could not turn around and proceed against the petitioners without attempting to sell the assets seized from the borrowers. It should not be forgotten that the Corporation is an instrumentality of the State. It must, therefore, at all times act reasonably and fairly. There is nothing to indicate that value of the property seized by the Corporation is less than the amount remaining due from the borrowers. The impugned action against the petitioners is hence plainly unjust and unfair. The upshot of the foregoing discussion is that so long as the property in possession of the Corporation is not sold or released by the Corporation, it would be unfair and unjust for the Financial Corporation to proceed against the petitioner. The Corporation may, therefore, either sell the properties and recover the balance from the petitioners or it may release the property and proceed against the petitioners.
(3.) IN the result the petition succeeds and is allowed. The impugned recovery certificate dated 16-1-1988 issued against the petitioners is quashed. The respondents nos. 1 to 3 are directed not to proceed against the petitioners so long as the property belonging to the fourth respondent remains under the control and possession of the former. The Corporation will, however, be free to recover the balance remaining due after the sale of the property or in the event of Corporation deciding to release the property from their control in favour of the fourth respondent, upon such release. IN either case, it will be open to the Corporation to recover whatever may be due under the loan agreement either from the petitioner or from the fourth respondent as their liabilities are co-extensive. No order as to costs.;