Case Note & Summary
The dispute arose from a loan agreement between the Government of Punjab and a registered House Building Society for advancing Rs. 1,02,000 to its members for housing construction. The loan was to be disbursed in three instalments, with the society required to mortgage the properties as security. The government issued a cheque for Rs. 71,400 for the first two instalments but withheld the third due to the society's failure to provide necessary completion certificates. When the society members failed to repay the loan, the Collector issued a notice for recovery through arrest and detention. The society challenged this notice in a writ petition, arguing that the government must first pursue the mortgaged properties for recovery. The Single Judge ruled in favor of the society, stating that the government must adhere to the contractual remedies outlined in the loan agreement. The state appealed, but the Division Bench dismissed it. The Supreme Court upheld the lower court's decision, emphasizing that the government is bound by the agreement to first recover from the mortgaged property before resorting to personal recovery methods. The court distinguished this case from a precedent involving tax recovery, noting that the procedural context was different. The appeal was dismissed without costs.
Headnote
A) Contract Law - Loan Recovery Procedures - Government must first proceed against mortgaged property before personal liability - Punjab Land Revenue Act, 1967, Section 67(b) - The court held that the government is bound by the loan agreement to first recover from the mortgaged property and only pursue personal recovery if there is a shortfall. This was based on the interpretation of the agreement's clause 4, which mandates this order of recovery. (Paras 709 B-C, 706 H, 710).
Issue of Consideration
Whether the amount of loan can be recovered as arrears of land revenue by arrest and detention in view of clause 4 of the loan agreement.
Final Decision
The Supreme Court dismissed the appeal, affirming that the government must first pursue recovery from the mortgaged property before resorting to personal liability under the loan agreement.
Law Points
- Contractual remedies
- Recovery of loans
- Mortgaged property
- Punjab Land Revenue Act
- Personal liability of borrowers
