Case: Industrial Investment Bank Of India Ltd Vs. Bishwanath Jhunjhunwala

his remedies against the surety. In the present case the creditor is a banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. 20. In State Bank of India v. M/s. Indexport Registered (supra), this Court held that the decree holder bank can execute the decree against the guarantor without proceeding against the principal borrower. Guarantors liability is co- extensive with that of the principal debtor. In that case, this court further observed that, the execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decree- holder. The question arises, whether a decree which is framed as a composite decree as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of the decretal amount covering mortgage decree can be executed earlier. There is nothing in law which provides such a composite decree to be first executed only against the principal debtor. The court further observed that the liability of the surety is co-extensive with the principal debtor, unless it is otherwise provided by the contract. 21. The term co-extensive has been defined in the celebrated book of Polock & Mulla on Indian Contract and Specific Relief Act, Tenth Edition, at page 728 as under: Co-extensive. - Suretys liability is co-extensive with that of the principal debtor. A suretys liability to pay the debt is not removed by reason of the creditors omission to sure the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety, and a suit may be maintained against the surely though the principal has not been sued. 22. In Chitty on Contracts, 24th Edition, Volume 2 at page 1031 paragraph 4831 it is stated as under, Conditions precedent to liability of surety.- Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor. 23. In Halsburys Laws of England, Fourth Edition,Vol. 20, paragraph 159 at page 87 it has been observed that it is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for. 24. A Division Bench of the Bombay High Court in Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath and Ors. AIR 1940 Bombay 247 held that the liability of the surety is co-extensive, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors. 25. A Division Bench of the High Court of Karnataka, in The Hukumchand Insurance Co. Ltd. v. The Bank of Baroda & Others AIR 1977 Kant 204 had an occasion to consider the question of liability of the surety vis-a-vis the principal debtor. The court held as under:- The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co- extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. 26. The case of the respondent has never been that the liability of the guarantor is only contingent and if remedies against the principal debtor failed to satisfy the dues of the decree holder, then only the bank can proceed against the guarantor. 27. Mr. Gupta also asserted that the remedy under section 19 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 is not in derogation of section 40 of the IRBI Act. 28. In Transcore v. Union of India & Another (2008) 1 SCC 125, this Court in great detail examined whether withdrawal of suit pending before the Debts Recovery Tribunal under DRT Act is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This court held that it is for the bank or the financial institution to exercise its discretion. 29. In A.P. State Financial Corporation v. M/s Gar Re-Rolling Mills & Another (1994) 2 SCC 647 this Court observed that the right vested in the corporation under section 29 of the Act is besides the right already possessed at common law to institute a suit or the right available to it under section 31 of the Act. In that case, it was further observed that on a conjoint reading of sections 29 and 31 of the said Act, it appears that in case of default in repayment of loan or any installment or any advance or breach of an agreement, the Corporation has two remedies available to it against the defaulting industrial concern, one under section 29 and another under section 31. Since, the corporation must be held entitled and given full protection by the court to recover its dues it cannot be bound down to adopt only one of the two remedies provided under the Act. The Court further held that the doctrine of election is not applicable to this case. 30. The legal position as crystallized by a series of cases of this court is clear that the liability of the guarantor and principle debtors are co-extensive and not in alternative. When we examine the impugned judgment in the light of the consistent position of law, then the obvious conclusion has to be that the High Court under its power of superintendence under Article 227 of the Constitution of India was not justified to stay further proceedings in O.A. 156 of 1997.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]20. In State Bank of India v. M/s. Indexport Registered (supra), this Court held that the decree holder bank can execute the decree against the guarantor without proceeding against the principal borrower. Guarantors liability is coextensive with that of the principal debtor. In that case, this court further observed that, the execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decreeholder. The question arises, whether a decree which is framed as a composite decree as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of the decretal amount covering mortgage decree can be executed earlier. There is nothing in law which provides such a composite decree to be first executed only against the principal debtor. The court further observed that the liability of the surety ise with the principal debtor, unless it is otherwise provided by the contract23. In Halsburys Laws of England, Fourth Edition,Vol. 20, paragraph 159 at page 87 it has been observed that it is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for24. A Division Bench of the Bombay High Court in Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath and Ors. AIR 1940 Bombay 247 held that the liability of the surety is, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors25. A Division Bench of the High Court of Karnataka, in The Hukumchand Insurance Co. Ltd. v. The Bank of Baroda & Others AIR 1977 Kant 204 had an occasion to consider the question of liability of the surety26. The case of the respondent has never been that the liability of the guarantor is only contingent and if remedies against the principal debtor failed to satisfy the dues of the decree holder, then only the bank can proceed against the guarantor27. Mr. Gupta also asserted that the remedy under section 19 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 is not in derogation of section 40 of the IRBI Act28. In Transcore v. Union of India & Another (2008) 1 SCC 125,  this Court in great detail examined whether withdrawal of suit pending before the Debts Recovery Tribunal under DRT Act is not an for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This court held that it is for the bank or the financial institution to exercise its discretion29. In A.P. State Financial Corporation v. M/s Garg Mills & Another (1994) 2 SCC 647 this Court observed that the right vested in the corporation under section 29 of the Act is besides the right already possessed at common law to institute a suit or the right available to it under section 31 of the Act. In that case, it was further observed that on a conjoint reading of sections 29 and 31 of the said Act, it appears that in case of default in repayment of loan or any installment or any advance or breach of an agreement, the Corporation has two remedies available to it against the defaulting industrial concern, one under section 29 and another under section 31. Since, the corporation must be held entitled and given full protection by the court to recover its dues it cannot be bound down to adopt only one of the two remedies provided under the Act. The Court further held that the doctrine of election is not applicable to this case30. The legal position as crystallized by a series of cases of this court is clear that the liability of the guarantor and principle debtors aree and not in alternative. When we examine the impugned judgment in the light of the consistent position of law, then the obvious conclusion has to be that the High Court under its power of superintendence under Article 227 of the Constitution of India was not justified to stay further proceedings in O.A. 156 of 1997.