Retired Guarantor's Pension Was Family's Sole Income; J&K&L High Court Bars Bank From Recovering Borrower's Loan From His Account

Allowing an appeal filed by a retired police personnel, Justice Moksha Khajuria Kazmi set aside an order of the trial court refusing interim protection and restrained Jammu and Kashmir Bank from deducting any amount from the appellant's pension account towards repayment of the loan obtained by the principal borrower.

The Court observed that pension is a welfare measure intended to secure the financial interests of a retired employee and his family, protect them from dependence, vagrancy and destitution, and cannot be subjected to coercive recovery merely because the employee had stood as a guarantor during his service.

The Court, however, clarified that the bank remained free to recover its dues from the principal borrower through legally permissible means.

The appellant, Nazir Ahmad Kuchay, a retired police personnel and senior citizen, had stood as a guarantor for an individual who obtained financial assistance from the bank.

When the borrower defaulted in repayment of the instalments, the bank began deducting the outstanding amounts from the appellant's bank account. By then, the appellant had retired from government service and was dependent upon his pensionary benefits for his livelihood and that of his family.

The appellant approached the bank and informed it about his retirement and dependence on the pension amount. According to him, the bank assured him that no further deductions would be made from his pension account. However, the deductions allegedly continued despite that assurance.

He was consequently constrained to institute a civil suit seeking recovery of money and an injunction, accompanied by an application for interim relief.

The 3rd Additional District Judge, Srinagar, dismissed the application holding that the liability of a guarantor was co-extensive with that of the borrower and that the appellant was bound by the contract of guarantee.

Aggrieved, the appellant approached the High Court, seeking setting aside of the trial court's order and a restraint against the bank from recovering the loan amount from his pension account.

The appellant's counsel argued that the bank could not lawfully effect recovery from the account of a retired government employee when the pension was the sole source of sustenance for him and his family.

Reliance was placed on the Supreme Court's judgment in Radhey Sham Gupta v. Punjab National Bank, AIR 2009 SC 930, besides judgments of the High Court in Farooq Ahmad Khan v. Mehbooba Khan and J&K Bank Limited and Another v. Chander Udey Singh.

Opposing the appeal, the bank contended that the appellant, having stood as guarantor, was liable along with the borrower under the principle of joint and several liability recognised in contract law and banking practice. Reliance was also placed on the Supreme Court's judgment in Union of India v. Jyoti Chit Fund and Finance, AIR 1976 SC 1163.

After examining the rival submissions and the trial court's order, the High Court found that the reasoning adopted by the trial court was not based on sound reasoning or the true spirit of law.

The Court held that the governing principle had to be drawn from the Supreme Court's decision in Radhey Sham Gupta, which recognised protection for pension and other retiral benefits against attachment and coercive recovery measures. It also referred to its earlier decisions affirming the same legal position.

The Court observed that the appellant was admittedly a senior citizen and retired government employee, managing his and his family's sustenance on the sole income of his pension.

Emphasising the welfare character of pension, the Justice Kazmi observed,

“A pension is a regular payment made to a Government employee upon his superannuation as a financial assistance so that the said Government employee does not feel dependent on someone else and he is protected from vagrancy and destitution in his olden days.”

It further observed that pension was a welfare measure aimed at securing the interests of the retired employee and his family, and could not be subjected to coercive recovery measures because of the principal borrower's failure to repay financial assistance.

The Court particularly noted that the appellant had stood as guarantor when he was still in active government service and was maintaining a different bank account at another branch.

At the same time, the Court clarified that its decision would not prevent the bank from recovering the outstanding debt from the principal borrower through legally permissible means.

Allowing the appeal, the High Court set aside the trial court's order and restrained Jammu and Kashmir Bank from recovering any amount from the appellant's pension bank account towards repayment of the financial assistance obtained by the principal borrower.

As regards the appellant's claim for refund of the amounts already deducted, the Court left the issue open for adjudication by the trial court, observing that the relief involved evidentiary considerations. The appellant was granted liberty to pursue that claim in the pending civil suit.

The trial court was directed to decide the refund claim exclusively on its merits, without being influenced by any observation made by the High Court in its judgment.

The Court accordingly disposed of the appeal along with all connected applications and directed the Registry to convey the order to the trial court and the respondents for compliance.