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.
The court made it clear that both the borrower and guarantor share equal, co-extensive liability in the repayment of dues under the Chit Funds Act.
Justice Cheemalapati Ravi delivered the verdict while dismissing a petition filed by K. Venkata Rama Rao. Rao had challenged orders issued by a Guntur court attaching his salary over unpaid chit fund dues payable to Kapil Chits (Kosta) Private Limited, where he had stood as a guarantor.
The High Court observed that since a surety explicitly undertakes responsibility for repayment in the event of a 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 exhaust recovery proceedings against the principal borrower before turning to the surety.