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2017 DIGILAW 1406 (HP)

Amar Nath Dhiman v. Punjab & Sind Bank

2017-12-18

TARLOK SINGH CHAUHAN

body2017
JUDGMENT : Tarlok Singh Chauhan, J. The petitioner is a guarantor, whose objections against the execution, have been ordered to be dismissed by the learned Executing Court vide its order dated 17.5.2017 and aggrieved thereby he has filed the instant revision petition. 2. It is not in dispute that the proforma respondent herein was the principal borrower of loan availed from the respondent No.1, whereas the petitioner stood guarantor of such loan. On default by the proforma respondent and the petitioner in the repayment of loan, a suit for recovery of Rs. 1,64,089/- alongwith interest came to be filed and was in fact decreed by the Civil Judge (Senior Division), Mandi by passing a joint and several decree of Rs. 1,64,089/-. 3. In order to execute the judgment and decree so passed in its favour, the respondent-bank filed an Execution Petition wherein the petitioner preferred objections solely on the ground that until and unless the bank did not satisfy the decree against principal debtor, it could not be permitted to proceed against the guarantor. As observed above, the objections came to be dismissed by the learned Executing Court constraining the petitioner to file the instant petition. 4. Even before this Court, learned counsel for the petitioner has again reiterated this stand and has placed strong reliance upon the judgment of two Hon’ble Judges of the Hon’ble Supreme Court in Union Bank of India vs. Manku Narayana, (1987) 2 SCC 335 . 5. No doubt the Hon’ble Supreme Court in the aforesaid case has held that in case of decree covered by the mortgage, the creditor/decree holder has to initially proceed against the mortgaged property and only then could it proceed against the guarantor. However, the aforesaid view was subsequently over ruled by the three Hon’ble Judges of the Hon’ble Supreme Court in State Bank of India vs. M/s Indexport Registered and others, (1992) 3 SCC 159 . It is apt to reproduce certain relevant observations, which read thus: “[12] The Court further held that such directions are neither justified under Order XX Rule 11(1) or under the inherent powers of the Court under Section 151 of the Code of Civil Procedure to direct postponement of the execution of the decree. [13] In the present case before us the decree does not postpone the execution. [13] In the present case before us the decree does not postpone the execution. The decree is simultaneous and it is jointly and severally against all the defendants including the guarantors. It is the right of the decree holder to proceed with it in a way he likes. Section 128 of the Indian Contract Act itself provides that "the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. [14] In Pollock and Mulla on Indian contract and Specific Relief Act, Tenth edition, at page 728 it is observed thus: "Co-extensive.- Surety's liability is co-extensive with that of the principal debtor. A surety's liability to pay the debt is not removed by reason of the creditor's omission to sue 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 surety though the principal has not been sued." [15] In Chitty on Contracts 24th Edition Volume 2 at page 1031 paragraph 4831 it is stated as under:- "Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor." [16] In Halsbury's Laws of England Fourth Edition 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." [17] In Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Karnataka 204, a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety viz-a-viz the principal debtor. Venkatchaliah, J. (as His Lordship then was) observed (Para 12):- "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 surety-ship. 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 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." [18] It will be noticed that the guarantor alone could have been sued, without even suing the principal debtor, so long as the creditor satisfies the Court that the principal debtor is in default. [19] In Jagannath Ganeshram Agarwala V. Shivnarayan Bhagirath, AIR 1940 Bom 247, a Division Bench of the Bombay High Court, (Kania and Wassoodew JJ.) held that the liability of the surety is coextensive, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors.” 6. Thus, what can be taken to be settled is that the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract. 7. As early as in the year 1969, similar question came before the Hon’ble Supreme Court in Bank of Bihar Ltd. v. Damodar Prasad & Another, 1969 1 SCR 620 , wherein their Lordships approved the judgment of the Bombay High Court in Lachhman Joharimal v. Bapu Khandu and Tukaram Khandoji, 1869 6 BomHCR 241 in which the Division Bench of the Bombay High Court had held as under: "The court is of opinion that 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." 8. It was further held: "The very object of the guarantee is defeated if the creditor is asked to postpone 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." 9. Similar reiteration of law can be found in the judgment of the Hon’ble Supreme Court in Industrial Investment Bank of India vs. Biswanath Jhunjhunwala, (2009) 9 SCC 478 . 10. 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." 9. Similar reiteration of law can be found in the judgment of the Hon’ble Supreme Court in Industrial Investment Bank of India vs. Biswanath Jhunjhunwala, (2009) 9 SCC 478 . 10. At this stage, it would be apposite to refer to a fairly recent judgment of the Hon’ble Supreme Court in Ram Kishun and others vs. State of Uttar Pradesh and others, (2012) 11 SCC 511 , wherein it was held as under: “10. There can be no dispute to the settled legal proposition of law that in view of the provisions of Section 128 of the Indian Contract Act, 1872 (hereinafter called the 'Contract Act'), the liability of the guarantor/surety is co-extensive with that of the debtor. Therefore, the creditor has a right to obtain a decree against the surety and the principal debtor. The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not. The surety does not have a right to dictate terms to the creditor as how he should make the recovery and pursue his remedies against the principal debtor at his instance. (Vide: The Bank of Bihar Ltd. v. Dr. Damodar Prasad and Anr., 1969 AIR(SC) 297 Maharashtra State Electricity Board, Bombay v. The Official Liquidator, High Court, Ernakulam and Anr., 1982 AIR(SC) 1497 Union Bank of India v. Manku Narayana, 1987 AIR(SC) 1078 and State Bank of India v. Messrs. Indexport Registered and Ors., 1992 AIR (SC) 1740. [11] In State Bank of India v. Saksaria Sugar Mills Ltd. and Ors., 1986 AIR(SC) 868 this Court while considering the provisions of Section 128 of the Contract Act held that liability of a surety is immediate and is not deferred until the creditor exhausts his remedies against the principal debtor. (See also: Industrial Investment Bank of India Ltd. v. Biswasnath Jhunjhunwala, 2009 9 SCC 478 ; and United Bank of India v. Satyawati Tondon and Ors., 2010 AIR(SC) 3413. [12] Section 146 of the Contract Act provides that co-sureties are liable to contribute equally. (See also: Industrial Investment Bank of India Ltd. v. Biswasnath Jhunjhunwala, 2009 9 SCC 478 ; and United Bank of India v. Satyawati Tondon and Ors., 2010 AIR(SC) 3413. [12] Section 146 of the Contract Act provides that co-sureties are liable to contribute equally. Thus, in case there are more than one surety/guarantor, they have to share the liability equally unless the agreement of contract provides otherwise.” 11. Thus, what can be taken to be settled on the basis of law expounded in the aforesaid cases is that the liability of the surety is coextensive with that of the principal debtor and the surety becomes liable to pay the entire debt and further the liability of the surety is immediate and is not deferred until the creditor exhausts his remedies against the principal debtor. 12. That apart, the surety does not have any right to dictate to the creditor his terms by asking to pursue remedy firstly against the principal debtor and to defer the proceedings against him. 13. Since the liability of the petitioner herein is coextensive with that of the principal debtor who has been arrayed as proforma respondent herein, therefore, respondent-bank is free to execute the decree against the petitioner without exhausting its remedy against the principal borrower and, therefore, no fault can be found with the order passed by the learned Executing Court whereby it dismissed the objections filed by the petitioner. 14. Having said so, I find no merit in the petition and the same is dismissed leaving the parties to bear their own costs.