Surety liability and recovery sequence: guarantor can be pursued despite possession of unit, but mortgage status must be determined first.

A creditor may proceed against a guarantor under a personal guarantee even after invoking section 29 of the State Financial Corporations Act and taking possession of the industrial unit, because surety liability remains co-extensive and the doctrine of election does not bar use of another lawful remedy. The Corporation's recovery action against the guarantor was not found unfair on these facts, and continued interest liability under the loan arrangement was upheld. However, where recovery is sought under section 4(2)(b) of the UP Public Moneys (Recovery of Dues) Act against a person's own mortgaged immovable property, that mortgage question must be determined first; recovery was stayed pending factual determination by the Tehsildar.

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Issues: (i) Whether, after invoking section 29 of the State Financial Corporations Act, 1951 and taking possession of the industrial unit, the Corporation was barred from proceeding against the guarantor on the basis of the personal guarantee or by the doctrine of election; (ii) whether the Corporation's resort to recovery against the guarantor while retaining possession of the unit was unfair or unjust in the facts of the case; (iii) whether section 4(2)(b) of the UP Public Moneys (Recovery of Dues) Act, 1972 required recovery to proceed first against any mortgaged personal property of the petitioner before proceeding against other personal assets, and whether the dispute on mortgage had to be decided as a factual issue.

Issue (i): Whether, after invoking section 29 of the State Financial Corporations Act, 1951 and taking possession of the industrial unit, the Corporation was barred from proceeding against the guarantor on the basis of the personal guarantee or by the doctrine of election.

Analysis: The liability of a surety is co-extensive with that of the principal debtor unless the contract provides otherwise. The Corporation had more than one lawful remedy available to it, and the choice of remedy lay with the creditor, not with the debtor or guarantor. Invocation of section 29 and possession of the unit did not extinguish the right to proceed on the personal guarantee, and the doctrine of election did not prohibit the Corporation from pursuing the guarantor.

Conclusion: The issue was decided against the petitioner. The Corporation was not barred from proceeding against the guarantor.

Issue (ii): Whether the Corporation's resort to recovery against the guarantor while retaining possession of the unit was unfair or unjust in the facts of the case.

Analysis: The fairness of proceeding against guarantors while the unit remained in possession of the Corporation depended on the facts of each case. Here, the unit had been advertised for sale repeatedly, no effective steps were shown by the petitioner or other guarantors to liquidate the dues, and the record did not establish any unfairness in the Corporation's decision to invoke the guarantee. The contractual liability for interest also continued in terms of the loan arrangement until repayment was made.

Conclusion: The issue was decided against the petitioner. The Corporation's action was not held to be unfair or unjust, and the challenge to continued interest liability failed.

Issue (iii): Whether section 4(2)(b) of the UP Public Moneys (Recovery of Dues) Act, 1972 required recovery to proceed first against any mortgaged personal property of the petitioner before proceeding against other personal assets, and whether the dispute on mortgage had to be decided as a factual issue.

Analysis: Section 4(2)(b) applies where the very person against whom recovery is sought has immovable property subject to mortgage, charge or other encumbrance in favour of the Corporation. If any personal immovable property of the petitioner was in fact mortgaged, it had to be proceeded against first; if no such mortgage existed, the provision would not bar recovery from other personal property. Since the parties disputed the existence of such mortgage, the question was one of fact requiring determination by the Tehsildar.

Conclusion: The issue was decided partly in favour of the petitioner. The Tehsildar was directed to determine whether any personal property in Schedule BA was mortgaged, and recovery against the petitioner was stayed until that determination.

Final Conclusion: The petition did not succeed on the challenge to the Corporation's right to proceed against the guarantor, but the recovery was conditionally restrained and the factual question of mortgage was remitted for determination before recovery could continue.

Ratio Decidendi: A creditor with co-extensive surety liability and multiple statutory remedies may proceed against the guarantor without first exhausting the borrower's assets, but where recovery is sought against a person's own mortgaged immovable property under the UP Public Moneys (Recovery of Dues) Act, 1972, the existence of such mortgage must be ascertained and the statutory sequence of recovery followed.

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