Rakesh Tiwari, J.
1. Heard the learned counsel for the parties and perused the records.
2. The petitioner has preferred this Writ Petition under Article 226 read with Article 227 of the Constitution of India for quashing the proceedings arising out of Case No. S.D.M./C.L./2001/13, whereby a demand has been raised for recovery of a sum of Rs. 1,90,63,344.40 as arrears of land revenue by U. P Finance Corporation. He further prays for deleting him from the array of judgment debtors in the recovery proceedings.
3. The admitted facts of the case are that M/s. Apex Leathers (P.) Ltd. (hereinafter called as the borrowing/ obligant company), applied for grant of a loan, and an agreement was executed on 25.5.1992 between the company through its Directors and the U. P. Financial Corporation, (hereinafter referred to as U.P.F.C.). Under the agreement, a loan of Rs. 82 lacs was sanctioned by the U.P.F.C. Out of this sanctioned sum, a sum of Rs. 74,45,336 was paid to the borrower company. For repayment of the loan personal guarantees were given by (I) Sri Sandeep Singhal, (2) Sri Parag Singhal, (3) Sri S.P. Singhal, (4) Sri J. S. Gupta, (5) Sri Sadek Chand and (6) Sri V. P. Gupta. All the aforesaid six persons were promoters/Directors. The loan was repayable in seventeen half yearly instalments upto June, 1999. It is submitted that against the aforesaid loan of Rs. 83 lacs, the borrower company had already paid a sum of Rs. 92,39,255 till date.
4. The case of the petitioner is that he became Director of the company in 1994. The company approached for an additional loan, which was sanctioned against furnishing of additional guarantee which was given by the presentpetitioner, who is a close relation of the Directors of the borrower company. The borrower company defaulted in payment, hence on 28.7.1998, the U. P. Financial Corporation commenced proceedings under Section 29 of the State Financial Corporation Act, 1951 and eventually took possession of the plant, machinery and other assets of the obligant company. It is alleged by the petitioner that the obligant company was formed by the real sister's sons of petitioner, who approached for becoming an additional guarantor, as the U. P. Financial Corporation had agreed to extend additional facilities to them provided they submit an additional guarantor. Relying upon his relation, the petitioner alleges that he was entrapped and gave guarantee.
5. It is further alleged by the petitioner that respondent Nos. 6 to 8 are the Directors and are primarily answerable for the affairs of the said company and he had no knowledge of the financial affairs of the company nor he had knowledge of financial bungling committed by the Directors.
6. It is submitted by the petitioner that on coming to know he made efforts to avail one time settlement scheme issued by the Reserve Bank of India and had permitted the U.P.F.C. to do so. The matter would have been sorted out in full and final settlement, when the liability on the said date was hardly Rs. 35 lacs and the assets were sufficient at that time to meet the dues. However, the U.P.F.C. issued recovery certificate subsequently for a sum of Rs. 1,90,83,344.40. The petitioner also alleges that a prospective purchaser had offered Rs. 90 lacs for the assets of the borrower company which was turned down by the Financial Corporation and the property was sold to some purchaser for Rs. 60 lacs only, that too, on deferred payment basis, which shows that the sale was mala fide and the action of the Financial Corporation was unfair, unjust and improper.
7. The petitioner denies his liabilities as guarantor on the grounds that:
(i) He had joined the company as Director two and a half years after the disbursement of the entire loan and financial facility of any nature was not given after he stood guarantor for repayment of loan.
(ii) As many as 4 other guarantors were released of their guarantee without his consent, concurrence or intimation. Thus there was variation in contract.
(iii) The unit was not permitted to be sold to a prospective purchaser offering Rs. 90 lacs. On the other hand, it was sold to the same person for Rs. 60 lacs, that too, on deferred payment basis, which is mala fide.
(iv) No opportunity of being heard or to show cause in the matter was ever offered to the petitioner before issuing recovery certificate.
8. The Financial Corporation filed counter-affidavit in which the allegations made by the petitioner have been denied. A civil suit is also pending in the court of Civil Judge (Senior Division) Muzaffarnagar between the borrower company and Financial Corporation. The petitioner is not a party in that suit. In the counter-affidavit it has been stated that the Corporation resorted to recovery proceedings only after all efforts to recover the loan amount failed. It is stated that the corporation facilitated the company by sanctioning the additional loan of Rs. 9 lacs under a special scheme for rehabilitation and allowed the reschedulement of loan and interest over due, but the same was not honoured and even the cheque of Rs. 9 lacs given by the company was dishonoured. Hence the reschedulement was cancelled. So far as one time settlement is concerned, the corporation vide letter dated 21.2.1998 advised the borrower to deposit the earnest money but the borrower company did not pay the same, hence one time settlement could not materialise. It is further stated that the Corporation before disposing of the assets of theborrower company invited tenders from the public by issuing advertisements in various papers. Notices to the Directors and guarantors were also issued on 10.3.2000, but there was no response from the borrower company, its guarantors and the Directors and no offer was received. In these circumstances, the assets were sold to Hafca Taincree Pvt. Ltd. for Rs. 60 lacs on deferred payment basis. It is also alleged that the petitioner had full knowledge of the suit proceedings going on for realization of the money by the Corporation.
9. The petitioner in para 5 of the writ petition admitted the execution of the guarantee in favour of U.P.F.C. and also admitted that he stood guarantor for the financial credit facilities already extended or to be extended in future. He only questions the enforceability of the guarantee in this petition against him. Thus, there is no dispute that the petitioner gave an unequivocal guarantee for loans taken by the borrowing company and no fraud or representation is alleged against the Financial Corporation.
10. The legal position is settled that Section 29 of State Financial Corporation Act does not exclude the application of principles of natural justice, and the Corporation acts as a trustee of the property of the borrower. It has to exercise its powers in a reasonable manner and not arbitrarily, but as a prudent person like the owner of the property which has to be disposed of for a fair and reasonable price. It is also settled that the property should be sold as far as possible by public auction and can be permitted to be sold by private negotiation in a case where investment is of huge nature for which buyers may not be available generally,
11. Joining of the petitioner as director after two and a half years of disbursement of the loan has no impact. So far as his liability under the guarantee is concerned, the guarantee given by him was not confined to the loans to be advanced after the date of the guarantee, but it covered the loans already advanced as well as the loan which was to be advanced in future. Hence, the stageat which the petitioner gave guarantee of the loan, is wholly irrelevant and he cannot be absolved of his liability regarding the loan which had been advanced till date. The guarantee does contain such stipulation that it will not apply to past loans. Hence the first point is of no help to the petitioner.
12. So far as release of the other guarantors, who guaranteed the loans, is concerned, it is not denied that the personal guarantors have been released by the corporation, but they were co-sureties. Release of a surety does not discharge the remaining sureties or guarantors from their liabilities. Section 138 of the Indian Contract Act provides that release of a co-surety does not result in discharge of other co-sureties. The surety so discharged does not release his responsibility. The petitioner is, therefore, not discharged of his liabilities. The sureties so released also continue to be responsible to other sureties, if the sureties are not joint sureties. In this case the other guarantors were co-sureties and release of a co-surety does not discharge the petitioner from his liability. It is also not a case of variance of the terms of the contract between the principal debtor (the borrowing company in this case) and the creditor, i.e., Financial Corporation. The original agreement has not been varied. Only release of personal guarantees given separately does not amount to variance of the contract under Section 133 of the Indian Contract Act.
13. So far as the sale of the unit to a prospective purchaser offering higher price is concerned, it has been denied by the Corporation on the ground that it was not a genuine offer and was a set up one. Allegations about this offer have been made in para 26 of the writ petition. A wholly evasive and unsatisfactory reply has been given in para 9 of the counter-affidavit by the Financial Corporation. The allegations have not been replied. This aspect of the matter requires close investigation of the facts. The petitioner has not produced any material about the fair and reasonable price before this Court. The proposed borrower Shaberi Elahi is also not aparty to this petition. Hence, we cannot go into the issue in these proceedings under Article 226 of the Constitution of India as to whether his offer was genuine or not and the price was fair or not, as this requires to be proved by evidence. The action is questionable and requires investigation of the facts. A civil suit is already pending. The borrower can raise this point in a civil court, but from this allegation mala fide cannot be inferred.
14. As regards, the last point raised by the petitioner about prior opportunity is concerned, it is suffice to state that the petitioner was Director of the company and it is presumed that he was well aware of the financial conditions and working of the borrower company. He must have noticed all developments in the affairs of the company. Mere denial on his part that he has no notice of developments is not acceptable. There is no provision in the Act that the Financial Corporation has to give notice to individual Directors or guarantors about the affairs of the company, and hence the Financial Corporation cannot be saddled with such responsibility. Natural justice is not a straight jacket formula and depends on the facts and circumstances of each case, as held by the Supreme Court in several decisions.
15. In view of the facts of this case, it was not necessary to give individual notice and opportunity to the petitioner, who is one of the Directors of the borrower company. The company has not made such complaint. The case of Harihar Chaubey v. Managing Director of Bihar State Finance Corporation, AIR 2000 Pat 315, is, in our opinion, not applicable. It is to be remembered that in a matter between the Corporation and the debtor, a writ court cannot interfere except where there is a statutory violation on the part of Corporation or where the Corporation acts unfairly and arbitrarily. In Maharashtra State Financial Corporation v. Sanuarna Mills, the Apex Court held that before taking over possession of the property of the defaulter notice calling upon the defaulter to pay the dues would be sufficient compliance of the requirement of natural justice. The principles of natural justice vary from case to case depending on the facts and situation in each case. In the present case, it cannot be said that no notice was given to the borrowing company before taking action under Section 29 of the State Financial Corporation Act. The petitioner is challenging the proceedings only against him and not the company. In this case the petitioner does not challenge the action of taking over possession under Section 29 of the Act, but only about the proceedings of recovery against him. Undoubtedly there was default and Section 29 of the Act was attracted. There is no lack of power or jurisdiction. When power under Section 29 of the Act was exercised, an amount of Rs. 33,38,784-61 as interest and principal amount of Rs. 1,57,22,862.79 was due. This amount was not disputed by the borrower. The action of the Finance Corporation cannot be termed arbitrary or unjustified. The Finance Corporation had to take an administrative decision about the price of the property and condition of sale. In the case of Surendra Nathan v. Kerala Finance Corporation, 1989 (I) KLT 786, the Hon'ble Supreme Court laid down certain guidelines in regard to exercise of power by the State Finance Corporation under Section 29 of the Act. In short, the procedure to be followed should be Just, fair and reasonable and the Corporation should act as a prudent owner in good faith. A similar view has been taken by this Court in Durgesh Cold Store v. U.P.F.C., AIR 1989 All 96. In the case of U.P.F.C. v. Gem Cap Pvt. Ltd., the Apex Court said that the Court cannot sit over the act of the Corporation as an appellate court and seek to correct them. That is not the function of the High Court. Therefore, doctrine of fairness envisaged in administrative law is not supposed to convert the writ courts into an appellate authority or civil court. The constraints are self imposed on writ jurisdiction and they still remain.
16. Recently, a Division Bench of this Court in Kailash Chandra Jain v. U.P.F.C., 2002 (4) AWC 2742 : AIR 2002 All 302, has held that accordingto the doctrine contained in Section 128 of the Contract Act, the liability of the guarantor is co-extensive with that of the borrower. Therefore, the Corporation can proceed against the guarantor on the basis of the guarantees. The question as to whether the U. P. Finance Corporation has acted in a fair and just manner in deciding to proceed against the guarantor while keeping the assets of the company in its possession is not unjust. It held that when it was not shown that any effort was made by the guarantor to ensure repayment of the loan, the Finance Corporation was justified in proceeding against the guarantor on the basis of his guarantees, and the action taken by the Corporation cannot be termed to be unfair and unjust.
17. In our opinion, in this case inference of arbitrariness cannot be drawn in view of the facts brought on record. We do not wish to make any remarks about the merits as a civil suit is pending between the parties. The petitioner has failed to establish that there was violation of statutory provision or any principles of natural justice have been infringed. There is no legal right of the petitioner to compel the Financial Corporation to enter into one time settlement. The civil court may investigate the allegations of mala fide.
18. For the reasons stated above, the writ petition is dismissed. No order as to costs.