Research › Search › Judgment

Karnataka High Court · body

2014 DIGILAW 754 (KAR)

M. C. Ponnappa v. State Bank of Mysore

2014-08-26

ANAND BYRAREDDY

body2014
Judgment : 1. The facts of the case are as follows: The first respondent, a nationalized bank, had filed a suit for recovery of a sum of Rs.5,02,052/- with costs and interest from the petitioner and the second respondent, who were arrayed as defendants no.2 and 1, respectively. The first defendant, respondent no. 2 herein, is said to have applied to the plaintiff for the issuance of a bank guarantee for a sum of Rs.8 lakh on 27.3.2000, in favour of one M/s HPC Ltd., Bangalore. The first defendant is also said to have executed a counter guarantee in favour of the plaintiff agreeing to repay the amount of Rs.8 lakh with interest, compounded with quarterly rests. He is said to have deposited a sum of Rs.2 lakh with the plaintiff bank, as a lien on the said account. It transpires, the petitioner, who was the second defendant in the suit, had also executed a deed of guarantee in respect of the transaction, to secure the due repayment of Rs.8 lakh, by the first defendant. In furtherance of the said guarantee, he is said to have extended an equitable mortgage executed by him much earlier in favour of the plaintiff bank, to extend to the present transaction as well. The mortgage was in respect of immovable property situated at Siddapura, Kodagu. Eventually, the beneficiary is said to have invoked the bank guarantee, the plaintiff having paid the amount covered under the guarantee, is said to have called upon the defendants, jointly and severally, to repay the amount of Rs.502052. Since the defendants failed to make payment, the suit was instituted. The suit was barely contested, in that, the first defendant was set ex-parte. The second defendant, though had filed his written statement, did not choose to tender any evidence. The defence sought to be set up was that the suit was barred under Section 67-A of the Transfer of Property Act, 1882 (Hereinafter referred to as the 'TP Act', for brevity). In that regard, the trial court had merely found that there was no evidence tendered to support the contention. The suit was accordingly decreed. A Preliminary decree was ordered to be drawn up. Thereafter, as the defendants had failed to pay the decretal amount, final decree proceedings were initiated. In that regard, the trial court had merely found that there was no evidence tendered to support the contention. The suit was accordingly decreed. A Preliminary decree was ordered to be drawn up. Thereafter, as the defendants had failed to pay the decretal amount, final decree proceedings were initiated. Though the defendants had filed their objections resisting the same, the petition was allowed and the plaintiff was held entitled to recover the decretal amount by the sale of the property offered as security under an equitable mortgage, as already stated. The Decree holder then initiated execution proceedings to bring the property of the Second Judgment debtor, the petitioner herein, to sale. The petitioner filed objections to the execution petition, to contend that the Decree holder had obtained an attachment before judgment of a building belonging to the principal debtor, situated in Mysore City, and which was given on lease to M/s State Bank of India, and the rentals were attached in the suit filed in the first instance, in O.S.No.51/2004. It was hence alleged that the plaintiff and the first defendant had colluded to deprive the petitioner of valuable property, though the entire decretal amount could be conveniently recovered from the first defendant, the first judgment debtor. It was also urged that there was no account furnished of the money recovered by way of rentals during the pendency of the suit and suitable deduction was not afforded. The objections having been summarily rejected as the proceedings had attained finality, the present petition is filed. 2. It is contended on behalf of the petitioner that the executing court has glossed over the fact that there was already an order of attachment of rents in respect of a building belonging to the second respondent herein, the principal borrower. There is no reference to the rents so attached and the same is not taken into account in seeking to recover the decretal amount by bringing the petitioner's property to sale. It is urged that though in the eye of law, the decree holder has the option of proceeding against either the principal borrower or the guarantor at its option, equity and justice would require that the bank exhaust its remedies against the principal debtor, who has, in fact, suffered an order of attachment, but the same is conveniently ignored in seeking to proceed against valuable properties of the petitioner. It is also pointed out that this court had indeed taken the above circumstance into consideration and passed the following order : "After hearing the learned counsel for parties, Court has noticed that the suit filed by the bank is decreed against the Principal borrower of the writ petitioner/surety. The liability is joint and several. The plaintiff-bank has also obtained an order of attachment before judgment, attaching the rent receivable by the principal borrower. The said amount is still with the bank. Therefore, there is o difficulty for the bank to request the Executing Court to issue garnishee order to transmit the account in the hands of garnishee and adjust the same towards the decreetal amount. Without doing so, the property of the surety is sought to be sold which was given as a mortgage. This Court could have appreciated the contention of the bank if the principal borrower is unable to pay when the decree is joint and several, in all fairness, the bank has to proceed against the principal borrower at the first instance. So far as this case is concerned, it is most easy for the bank to recover money from the principal borrower since the rents payable to the principal borrower is attached and available with the garnishee and the said procedure is more easier than bringing the property of the surety for sale. Therefore, this Court is of the opinion that the matter has to be adjourned by twelve weeks giving an option to the bank to move the Executing Court to direct the garnishee to transfer the amount in the hands of the garnishee and pay the same to the bank. If the said amount is found insufficient, then the bank is at liberty to move this Court. Accordingly, this matter is adjourned by four months." 3. However, the learned counsel for the respondent no.1 would draw attention to an affidavit filed by a senior officer of the said respondent, to declare that the attachment of rents pertaining to the building belonging to the principal debtor was not capable of being enforced at all. And that no amounts could be recovered by the first respondent pursuant to the said order for attachment before judgment. It is further stated that the principal debtor had been arrested pursuant to the execution proceedings and had tendered 7 cheques in purported repayment of the decretal amount. And that no amounts could be recovered by the first respondent pursuant to the said order for attachment before judgment. It is further stated that the principal debtor had been arrested pursuant to the execution proceedings and had tendered 7 cheques in purported repayment of the decretal amount. The bank was able to encash two cheques for a total sum of Rs.3.50 lakh. Five other cheques however, were said to have been dishonoured . The principal debtor was said to have been arrested for the second time and a further sum of Rs.1.90 lakh had been extracted from him. The balance outstanding as of June 2014 was said to be in a sum of Rs.7.50 lakh. 4. The learned counsel for the first respondent -bank would contend that the decree having attained finality and having regard to the settled legal position, the argument now canvassed on behalf of the petitioner is not tenable and that the petition be rejected. The learned counsel places reliance on the following authority: (1) Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala, (2009)9 SCC 478 . 5. In the above facts and circumstances, though the case of the petitioner does evoke the sympathy of this court, the position of law is well settled and the relief as prayed for by the petitioner- if granted, would go against the grain and would not be sustainable in law. The legal principle governing the scope and meaning of the 'co-extensive' liability of the Guarantor to a contract is succinctly restated in the aforesaid decision. The same may be summarized thus: (i) A creditor is not bound to exhaust his remedy against the principal debtor before suing the surety and that when a decree is obtained against a surety, it may be enforced in the same manner as a decree for any other debt. (See: Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297 ) (ii) The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. A guarantee is a collateral security, which would become useless if his rights against the surety are curtailed. (Bank of Bihar Ltd. v. Damodar Prasad, supra) (iii) The decree holder can execute the decree against the guarantor without proceeding against the principal borrower. The guarantor's liability is co-extensive with that of the principal borrower, unless it is otherwise provided. A guarantee is a collateral security, which would become useless if his rights against the surety are curtailed. (Bank of Bihar Ltd. v. Damodar Prasad, supra) (iii) The decree holder can execute the decree against the guarantor without proceeding against the principal borrower. The guarantor's liability is co-extensive with that of the principal borrower, unless it is otherwise provided. (SBI v. Indexport Registered, AIR 1992 SC 1740 ) (iv) The liability of a principal debtor and the liability of a surety which is coextensive with that of the former are really separate liabilities, although arising out of the same transaction. (Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Kant 204.) In the light of the above well settled principles, the petitioner is not in a position to avoid the liability as there is no illegality apparent in the proceedings. The petition is accordingly dismissed. The petitioner is at the mercy of the decree holder, but that should not deter the petitioner from appealing to the decree-holder bank to arrive at a reasonable and amicable settlement.