Aftab Alam, J.
1. There is a single petitioner in C.W. J.C. No. 12155 of 2002. He is one of the sureties to the Loan given by the Bihar State Credit and Investment Corporation Limited (BICICO) to a company called M/s Sunil Polyplast Limited. In C.W.J.C. No. 5u1 of 2003 there are two petitioners. Petitioner No. 2, M/s Eastern Food Industries Pvt. Limited had taken a loan from the BICICO and Petitioner No. 1 is the surety for the repayment of the loan. The petitioners in both the cases seek the same relief under similar sets of facts and circumstances and the two cases raise a common question of law. These two cases, therefore, though heard at a gap of four days are being disposed of by this common judgment.
2. The question of law that arises for consideration in these two cases is whether for the recovery of loan granted by the BICICO the surety (the guarantor) can be proceeded against under the provisions of the Public Demands Recovery Act on the basis of a clause in the loan agreement even though there is no similar clause in the deed of guarantee and the guarantors had not otherwise also agreed by a written instrument that the loan granted to the loanee would be recoverable as public demand.
3. The material facts in C.W.J.C. No. 12155 of 2002 are as follows. On 30-3-1988 M/s Sunil Polyplast Limited, a company incorporated under the Indian companies Act took a loan of Rs. 90 lacs from the BICICO. The petitioner was the Managing , Director and one Shyam Bihari Mehrotra was another Director of the company of which 51 % shares were held by another Government company, namely, Bihar State Pharmaceuticals and Chemicals Development Corporation. The petitioner executed the standard loan agreement on 30-3-1988 in his capacity as the Managing Director of the loanee company. The repayment of the loan was further secured by two deeds of guarantee, dated 30-3-1988; one of the guarantees was executed by and on behalf of the Bihar State Pharmaceuticals and Chemicals Development Corporation (Annexure-2) and the other guarantee was jointly executed by the present petitioner and the aforesaid Shyam Bihari Mehrotra in their individual capacity (Annexure-17). The borrower company defaulted in repayment of the loan and eventually on 1-6-2002 BICICO instituted a Certificate Case registered as BICICO/Certificate Case/ 157/2002 for realisation of its outstanding dues against the company amounting to Rs. 2,35,68,000. The certificate case was instituted against the company as the borrower and the present petitioner and Shyam Bihari Mehrotra as sureties for the repayment of the loan. The BICICO did not choose to make the other guarantor, Bihar State Pharmaceuticals and Chemicals Development Corporation as one of the certificate debtors, It may further be noted that Shyam Bihari Mehrotra was already dead at the time of institution of the certificate case and when this fact was brought to the notice of the Certificate Officer his name was deleted from the certificate by order dated 24-10-2002 passed in the certificate case.
4. It is also the admitted position that the borrower company M/s Sunil Polyplast Ltd. is under winding up in Company Petition No. 8/2002 pending before this Court. By an order passed in that case the assets of the company are taken over by the official liquidator; by another order passed in that case proceedings in the certificate case are stayed in so far as the company is concerned. The up shot is that Certificate Case No. 157/2002 is at present proceeding only against the petitioner in his personal capacity as surety for the repayment of loan.
5. The material facts in C.W.J.C. No. 501 of 2003 may be stated thus; Petitioner No. 2, namely M/s Eastern Food Industries Pvt. Limited was sanctioned a loan of Rs. 90 lacs by the BICICO on 10-11-1987. The standard loan agreement (Annexure-B) was executed on behalf of the company on 9-1-1989. The repayment of the loan was further secured by a guarantee jointly executed by Petitioner No. 1 and one Dr. Ajay Kumar, a non-resident Indian (Annexure-C). Out of the sanctioned amount of Rs. 90 lacs the BICICO made disbursement of Rs. 89.24 lacs to the company. The borrower, however, defaulted in the repayment and finally on 30-9-2001 a proceeding under the Public Demands Recovery Act, registered as Certificate Case No. BICICO/ 71 of 2002 was initiated for recovery of the outstanding dues amounting to Rs. 344.63 lacs. The certificate was issued against the borrower company and the two guarantors, including Petitioner No. 1.
6. It was contended on behalf of the petitioners that in so far as the sole petitioner in C.W.J.C. No. 12155 of 2002 and Petitioner No. 1 in C.W.J.C. No. 501/2003 are concerned, the outstanding dues against the respective companies do not come within the meaning of Public Demand and, hence, they cannot be subjected to the highly coercive proceedings under the Act for recovery of the loans granted to the respective companies.
7. Public demand is defined in Section 3(6) as follows:
3(6) 'public demand' means any arrear or money mentioned or referred to in Schedule 1, and includes any interest which may by law, be chargeable thereon upto the date on which a certificate is signed under Part II.' The entry in Schedule-I relevant for the present is at Serial No. 15 which was inserted in the Act by an amendment made in the the year 1974. Entry 15 in Schedule-I to the Act in so far as relevant for this case is as follows:
' 15. Any money payable to--
(i) xx xx xx xx
(ii) xx xx xx xx
(iii) a company or a corporation or a statutory body, including a registered society carrying on financial transactions, owned by or in which, Government has a majority of shares or which is managed by an authority appointed under any laws for the time being in force; or
(iv) xx xx xx xx
in respect of which the person liable to pay the same has agreed, by a written instrument that it shall be recoverable as public demand.
Mr. K.D. Chatterjee, learned Counsel appearing for the petitioner in C.W.J.C. No. 12155 of 2002 submitted that in the deed of guarantee there was nothing to indicate that the petitioner in his capacity as surety for the repayment of the loan had agreed that the loan amount would be recoverable as public demand; that apart from the deed of guarantee there was no other written instrument in which the petitioner, in his capacity as surety, might have expressed 'such agreement or consent and hence, he was not liable to be proceeded under the provisions of the Act notwithstanding Clause 10.5 of the Standard loan agreement which reads as follows:
'10-5 B & O PUBLIC DEMAND RECOVERY ACT
The company agrees and convenants that BICICO if so like may recover its due or dues from the Company either by way of filing the certificate case under the Bihar & Orissa Public Demand Recovery Act or by way of filing suit or suits in competent Court of law having jurisdiction over the matter as the case may arise.'
8. Mr. Chatterjee further submitted that the loan agreement was executed by and on behalf of the company and the stipulation made therein would, therefore, only bind the company. Clause 10.5 of the Standard Loan Agreement can be taken, therefore, only as an agreement expressed by the borrower company that the loan amount would be recoverable as public demand and hence, the borrower company may itself be liable to be proceeded against under the provisions of the Act for the recovery of the loan. But that would not make the petitioner, the surety for the repayment of loan, liable to be proceeded under the provisions of the Act in the absence of any separate and independent agreement or consent given by him in that regard.
9. Mr, Arvind Kumar Jha, Counsel appearing for the petitioners in C.W.J.C. No. 501 of 2003 mainly adopted the submissions made by Mr. Chatterjee but also made some incidental submission of his own which would be considered, if need be, in due course.
10. Mr. Ramesh Kumar Datta appearing on behalf of the BICICO tried to meet the petitioners' contention by a clever argument. He submitted that it was the borrower company that was the 'person liable to pay' within the meaning of Entry 15 of Schedule-I of the Act and since the borrower had agreed by a written instrument that the amount would be recoverable as public demand, the loan assumed the character of public demand. Once the loan assumed the nature and character of public demand it would be open to the BICICO to institute proceedings under the Act against all or anyone who shared the liability for the repayment of the loan. Mr. Dutta submitted that Clause 10 of the loan agreement left no room for doubt that the borrower companies had agreed that the loan along with the interest would be recoverable as public demand. The loans given to the two companies thus assumed the nature and character of public demand and any further consent or agreement by the respective guarantors was wholly immaterial. Mr. Dutta tried to buttress his argument by referring to some of the terms and conditions of the deed of guarantee executed by the sureties. He invited my attention, in particular, to the following clauses in the deed of guarantee:
'(1) That we:.... .... ... ...
'The guarantors hereby jointly and severally guarantee repayment of the said term loan of Rs. 90 lacs which may be lent to the Borrower with interest thereon ... .... ...
'(2) that the guarantors agree that their liabilities under this guarantee are equal and co-extensive with that of the borrower and it shall not be liable to revoke until and unless the BICICO has intimated to them in writing that the Borrower has paid the dues of BICICO in full.'
'(3) ...................
'(4) That Guarantors agree that the guarantee they have given under this Agreement is independent and distinct from the security that the BICICO has take or may take by way of hypothecation of machinaries of the Borrower or in any other manner... ..... ..... .....
'(5) That the BICICO shall have fully liberty, without notice to the Guarantors and without in any way of discharging the Guarantee from any liability hereunder, to exercise at any time and in any manner any power or powers conferred upon the BICICO by the terms loan agreement to enforce/forbear to enforce payment of the term loan or any part thereof/or interest or other moneys due to the BICICO from the Borrower.... ...... ...... .......'
11. Mr. Dutta put considerable emphasis on the clause in the deed of guarantee that stipulates that the liabilities of the guarantor(s) would be equal and co-extensive with that of borrower.
12. In support of his argument Mr. Dutta also relied upon a Supreme Court decision in Vemula Siviah Naidu v. State of Andhra Pradesh and Anr., AIR 1997 SC 2342. In that case a loan taken by one Sankaraiah was secured by 5.86 acres of land given in hypothecation to the Government. At the time of taking the loan the hypothecated land was part of undivided family property. Later on, there was family partition in which bulk of the properties, including the hypothecated land were allotted to the other brother K. Radhakrishnaiah on his undertaking 'to discharge all the liabilities of the erstwhile joint family, including the loan obtained from the Government'. There was default in repayment of the loan and resultantly the hypothecated land was auction sold in favour of Vemula Siviah Naidu. K. Radhakrishnaiah filed a suit for setting aside the sale on the plea that since he was not a defaulter within the meaning of Section 5 of the A.P. Revenue Recovery Act, 1894 the property belonging to him could not be brought to sale. The Supreme Court negatived the contention and held that by virtue of the undertaking given by him at the time of partition he must be held to be a defaulter for the purpose of Section 5 of the Act which is as follows:
'Whenever revenue may be in arrear it shall be lawful for the Collector or other officer empowered by the Collector in that behalf, to proceed to recover the arrear, together with interest and costs of process by the sale of defaulter's movable and immovable property, or by execution against the person of the defaulter in manner hereinafter provided.'
13. It is thus evident that the decision in V.S. Naidu has no direct bearing on the issue under consideration in this case and it does not support Mr. Dutta's submission that the expression 'person liable to pay' occuring in Entry 15 of the Schedule I of the Act means the borrower alone and the sureties to the loan could equally be proceeded against under the provisions of the Act on the basis of the agreement by the borrower that the loan would be recoverable as public demand.
14. In my view the submission of Mr. Dutta is founded on certain premises which are plainly incorrect. I think it is pointless to say that though in reality the surety is liable to pay, he is not the person liable to pay within the meaning of entry 51 of Schedule I to the Act. The simple truth is that by virtue of the deed of guarantee the surety has an equal liability to repay the loan and he is, therefore, equally 'the person liable to pay' within the meaning of Entry 15 of Schedule I to the Act. And if the BICICO omitted to put a clause in the deed of guarantee making him agree that the money payable to it would be recoverable as public demand, then he can legitimately take advantage of the omission and contend that the provisions of the Act were not attracted for recovery of the dues from him:
15. The fallacious duality on which Mr. Dutta's submission is based results from overlooking the distinction between a liability and the mode and mechanism by which the person concerned may be made to discharge the liability.
16. The liability in the sense of a pecuniary obligation (See; A Dictionary of Modern Legal Usage, Second Edition by Bryan A. Garner) is one thing and the means and mechanism to recover the money from the person owing the liability is something quite different. The law recognises several modes and mechanisms for recovery of money from a person liable to make the payment. For instance there is the conventional and the most common process of the suit before a Civil Court a simple money suit or a mortgage suit in case the loan is secured by taking out a mortgage on the borrowers' property. Another mode of recovery, more coercive than the suit, is provided by the Public Demands Recovery Act. A third mode of recovery is provided by the Recovery of Debts Due To Banks And Financial Institutions Act, 1993 and yet another mechanism of recovery, far more stringent then any other, is provided by the Securitisation And Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002. It is, however, elementary that the mere existence of the liability shall not attract all or any of the aforesaid means of recovery and certain conditions specified under each of the aforesaid Acts must be satisfied for the application of the mode of recovery provided under the respective Acts. For application of the mode of recovery under the Public Demands Recovery Act the dues must qualify as public demand. The provisions of the Recovery of Debts Due To Banks and Financial Institutions Act, 1993 are available only to banks and financial institutions in case the amount of the recoverable debt is Rs. 10 lacs or above. Similarly, the highly coercive process under the Securitisation And Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 is available only to banks, within the meaning of the Act.
17. The distinction between the right and the process of its enforcement is well illustrated by the law of limitation. It is well known that the statute of limitation does not extinguish the right or the corresponding liability. It merely bars the remedy for the enforcement of the right and correspondingly to make the person carrying the liability to discharge it.
18. In Halsbury's Laws of England, Fourth Edition Vol. 28, paragraph 646 one finds the following observations:
'Except in the cases previously mentioned (i.e. those falling within the Limitation Act, 1939, Sections 3(2), (16) the Limitation Act, 1939 only takes away the remedies by action or by set off; it leaves the right otherwise untouched, and if a creditor whose debt is statute-barred has any means of enforcing his claim other than by action or set-off the Act does not prevent him from recovering by those means.'
Thus it is manifest and clear that the existence of a liability, in the sense of pecuniary obligations, is one thing and the mode, means and mechanism by which the person under the liability may be compelled to make the payment is something quite different. This distinction was very clearly enunciated in a Division Bench decision of this Court in Sikhar Sikshit Berojgar Motor Pariwahan Co-operative Society Unlimited v. State of Bihar and Ors., 1994(2) PLJR 700. In this case though in the main loan agreement there was no stipulation that the loan amount would be recoverable as public demand the borrower had later executed an agreement to that effect. It was contended before the Court that since the stipulation that the loan would be recoverable as public demand was not part of the original loan agreement, the latter instrument would not satisfy the requirement of Entry 15 of the Schedule I of the Act. The Court of course negatived the contention but made the following observations in that decision:
'Grant of loan carries with it the liability of repayment. Grant of loan is one thing. Mode of enforcement of the liability is another. If the loan is to be realised by the ordinary mode of recovery through suit in the Civil Court no separate stipulation needs be made in the agreement nor any separate agreement needs be entered into. The right to recover the amount of loan through suit in the Civil Court is implicit and protected by the general law of the land. However, if the recovery is to be effected by taking recourse to a special mode or proceeding which may be advantageous to the creditors but disadvantageous to the debtors in many respects, this can be done only if the person has expressed his readiness or consent to that effect. Since mode of recovery is independent of the liability to repay the loan, which may be varied, it is obvious that the same can be agreed upon later also by another instrument'
19. In State Bank of India v. Indexport Registered, AIR 1992 SC 1740, in para 17 of the decision the Supreme Court quoted with approval a passage from a judgment of Venkatchaliah, J. (when His Lordship was a Judge of the Karnataka High Court) describing the nature of the liability of the surety: Para 17 of the judgment in Indexport case is as follows:
(17) In Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Karnataka 204, a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety viz-a-viz the principal debtor. Venkatchaliah, J. (as His Lordship then was) observed (Para 12):--
'The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously.'
20. This fully answers Mr. Dutta's submissions based on the stipulation in the deed of guarantee that the liabilities of the guarantor would be equal and co-extensive with that of the borrower. There is no doubt that by executing the guarantee the surety made himself equally liable to repay the loan but still he cannot be proceeded against under the Public Demands Recovery Act as long as he did not separately and independently agree that the money payable by him to the BICICO would be recoverable as public demand.
21. At this stage, I may also refer to another decision of this Court in the case of Murlidhar Sohanlal v. State of Bihar and Ors., 1998 (3) PLJR 526. In that case the Bihar State Food and Civil Supplies Corporation had instituted a certificate proceeding for realisation of its dues. The institution of the certificate case was sought to be justified on the basis of a clause in the agreement which was as follows:
'All sums due to the Corporation can be realised by any manner the Corporation deems fit.'
22. The stipulation though couched in such wide language was held not sufficient for the institution of a proceeding under the Public Demands Recovery Act in the absence of an agreement by the proceedee that the money would be recoverable as public demand and consequently the certificate case was quashed.
23. The decision in M/s Murlidhar Sohanlal fully answers Mr. Dutta's submission based on Clause 5 of the deed of guarantee that the BICICO would have full liberty to exercise at any time and in any manner any power or powers conferred upon the BICICO by the term loan agreement to enforce/forbear to enforce payment of the term loan or any part thereof. This clause cannot be construed as an agreement by the surety that the money payable by him would be recoverable as public demand.
24. On the basis of the discussions made above, I come to the irresistible conclusion that in the absence of an agreement by the guarantors as provided in Entry 15 to Schedule-I of the Act the money recoverable from them cannot be treated as Public demand and consequently a proceeding under the Public Demands Recovery Act would not be maintainable against them. Certificate Case No. BICICO Certificate Case No. 157 of 2002 is accordingly quashed in so far as the sole petitioner in C.W.J.C. No. 12155 of 2002 is concerned. For the same reasons Certificate Case being BICICO Certificate Case No. 71 of 2002 is quashed in respect of Petitioner No. 1 in C.W.J.C. No. 501 of 2003. The Certificate Case shall proceed unhindered in so far as Petitioner No. 2 M/s Eastern Food Industries Pvt. Limited is concerned.
25. As the two writ petitions succeed on the question of jurisdiction itself. I do not propose to discuss the other points raised by Mr. Chatterjee and Mr. Jha.
26. In the result, C.W.J.C. No. 12155 of 2002 is allowed and C.W.J.C. No. 501 of 2003 is allowed only in respect of Petitioner No. 1. There shall be no order as to costs.