NEW DELHI: The Allahabad high court has ruled that a bank can recover loan dues directly from a guarantor without first recovering the money from the main borrower. The court said a guarantor’s responsibility is the same as that of the borrower unless the guarantee agreement says otherwise.The court passed the order on August 6 while dismissing petitions filed by guarantors who challenged the proposed recovery of Rs 10,000 per month from their salaries towards the loan dues.Why did the guarantors approach the high court?According to the court’s order, the petitioners had stood as guarantors for loans given by a bank to the main borrower, Vikrant Dubey. The bank later sought to recover the outstanding amount from the guarantors by deducting Rs 10,000 every month from their salaries.The guarantors challenged the proposed salary deductions before the high court. They argued that the bank should first try to recover the money from the main borrower before proceeding against them.They also argued that they had not been given a personal hearing before the recovery proposal was made.Can a bank recover money from a guarantor without first proceeding against the borrower?The bench comprising Justice Abdhesh Kumar Chaudhary and Justice Shekhar B. Saraf relied on Section 128 of the Indian Contract Act, which says that the responsibility of a guarantor is the same as that of the main borrower unless the guarantee agreement provides otherwise.“The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract,” the court noted.The court explained that this means a bank can recover the entire amount owed by the borrower from the guarantor. The bank does not have to first exhaust its options against the main borrower.“The creditor is at liberty to proceed against the surety without first exhausting remedies against the principal borrower,” the court said.It also noted that the liability of the borrower and guarantor is joint and several, meaning the bank can proceed against either or both of them for recovery.The court rejected the guarantors’ reliance on earlier judgments, saying those decisions actually supported the bank’s right to recover the money from them without first proceeding against the borrower.The court said a guarantor cannot tell a bank how it should recover its money or insist that the bank first proceed against the borrower.“The surety has no right to dictate terms to the creditor or to insist upon any particular sequence of recovery,” the court observed.The court also found that there was nothing in the guarantee agreement showing that the guarantors’ responsibility would arise only after the bank had first tried to recover the money from the main borrower.It said that since the petitioners had voluntarily stood as guarantors and there was no such condition in their guarantee agreement, their liability was immediate.The court also rejected the argument that the guarantors should have been given a personal hearing before the salary recovery proposal. It said their responsibility came directly from the guarantee agreement and the law, and they remained free to take appropriate legal steps against the main borrower after paying the dues.The court held that the bank’s proposed recovery of Rs 10,000 per month from the guarantors’ salaries was legally valid.It dismissed the writ petitions and said the guarantors could later seek recovery from the main borrower after clearing the dues, but they could not stop the bank from enforcing the guarantee.The court dismissed the petitions without imposing any costs.
