VIJAYAWADA: In a significant ruling, the Andhra Pradesh High Court has held that chit fund companies are entitled to initiate recovery proceedings directly against a surety without first proceeding against the principal borrower, making it clear that both the borrower and guarantor share equal liability in repayment of dues under the Chit Funds Act.
Justice Cheemalapati Ravi delivered the verdict while dismissing a petition filed by K Venkata Rama Rao, who challenged the orders issued by a Guntur court attaching his salary over unpaid chit fund dues payable to Kapil Chits (Kosta) Private Limited.
The court observed that since the surety undertakes responsibility for repayment in the event of default, the guarantor cannot later avoid liability.
It further clarified that there is no provision in the Chit Funds Act requiring lenders or chit fund firms to first exhaust recovery proceedings against the principal borrower before initiating action against the surety.
According to the court, the liability of a surety is co-extensive with that of the borrower and both are equally responsible for clearing outstanding dues. Hence, recovery proceedings can be initiated directly against the guarantor if the amount remains unpaid, the court ruled.
Rejecting the petitioner’s contention that only the Registrar has authority to issue recovery certificates, the court held that Deputy Registrars are also empowered to do so under the law.
The court stated that the definition of “Registrar” under the Act includes Additional Registrar, Joint Registrar, Deputy Registrar and Assistant Registrar. It further referred to a government order issued in 2008 authorising Deputy Registrars to discharge the functions of a Registrar.
Hence, the recovery certificate issued by a Deputy Registrar is legally valid and carries the same force as a civil court decree, the court clarified.
Order on salary attachment of surety upheld
The case pertains to a petition filed by Kapil Chits before the Deputy Registrar of Chits, Guntur, seeking recovery of around `6 lakh chit dues from surety K Venkata Rama Rao.After examining the matter, the Deputy Registrar issued orders in favour of the chit fund company on March 21, 2025.
As the dues were not cleared despite the order, the company later filed an execution petition in the First Additional Civil Judge Court, Guntur.
Acting on the petition, the court ordered attachment of the surety’s salary on October 29, 2025.
Challenging the salary attachment warrant, Venkata Rama Rao approached the High Court arguing that the principal borrower was financially sound and available for recovery proceedings and that direct action against the surety was not legally sustainable. However, after hearing arguments from both sides, the High Court agreed with the submissions made by the chit fund company and upheld the salary attachment order issued by the Guntur court.