Himachal Pradesh High Court
State Bank Of India, Bathri And Etc. Etc. vs Balak Raj Abrol And Anr. Etc. Etc. on 30 June, 1988
Equivalent citations: AIR1989HP41
ORDER V.P. Bhatnagar, J.
1. Whether a decree-holder, in case of a money decree against the principal-debtor and the guarantors, whose liability is joint and several, must exhaust his remedies against the mortgaged/hypothecated property as well as the principal-debtor-Judgment-debtor before proceeding against the guarantors-judgment-debtors, is a common question of law, having considerable importance, which requires determination in these cases. This question assumes added significance in view of conflict of opinion expressed in two Supreme Court decisions.
2. At the very outset, it would be appropriate to examine the case law having direct bearing on the above point.
3. In Bank of Bihar Ltd. v. Dr. Damodar Prasad, AIR 1969 SC 297, it has been held that the liability of a surety is not deferred until remedies against principal-debtor are exhausted. Damodar Prasad, defendant No. 1, in that case, was found to owe the plaintiff-bank a sum of Rs. 11,723.56 p. on account of Principal and Rs. 2,769.37 P on account of interest. The surety, defendant No. 2, had agreed to pay and satisfy the liabilities of the principal-debtor up to the extent of the amount found due. The trial Court, while decreeing the suit against both the defendants, directed that the "plaintiff-bank shall be at liberty to enforce its dues in question against defendant No. 2 only after having exhausted its remedies against defendant No. 1." The legality and propriety of this direction was unsuccessfully challenged before the High Court. The Supreme Court, however, allowed the appeal and the aforesaid direction was set aside.
4. The above decision was followed by the Supreme Court in State Bank of India v. Saksaria Sugar Mills Ltd., AJR 1986 SC 868. State Bank of India had allowed cash credit facility to M/s. Saksaria Sugar Mills Ltd., respondent No. 1 therein on the security of the goods produced at the sugar factory as also against equitable mortgage created by thesaid respondent by way of depositing title deeds of its immoveable properties. Respondents Nos. 2 to 5 had agreed to be the guarantors for the repayment of the amount due. The bank filed a suit for the recovery of a sum of Rs. 54,89,822.99 p. against respondents Nos. 1 to 5. Meanwhile, the Central Government took over the Sugar Undertaking belonging to respondent No. 1 under the Sugar Undertakings (Taking Over of Management) Act, 1978 and further issued a notification suspending all liabilities under contracts to which the said undertaking was a party. While considering the liability of the guarantors, the Supreme Court observed :
"any proceeding against the guarantor would remain unaffected by the issuance of such a notification. Under Section 128 of the Indian Contract Act, 1872, save as provided in the contract, the liability of the surety is coextensive with that of the principal-debtor. The sureties thus became liable Co pay the entire amount. Their liability was immediate and it was not deferred until the creditor exhausted his remedies against the principal-debtor. The Act does riot say that when a notification is issued under Section 7(1)(b) of the Act the remedies against the guarantors also : stand suspended. In any event the order of the High Court against respondents Nos. 2 to 5 is untenable. See Bank of Bihar Ltd. v. Damodar Prasad, (1969) 1 SCR 620 : AIR 1969 SC 297."
5. The ratio of Bank of Bihar v. Damodar Prasad's case (supra) has been followed in Budh Singh v. Mukund Murari Lal, AIR 1975 All 201 and Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Kant 204 but the Supreme Court has recently propounded a somewhat different view in Union Bank of India v. Mankur Narayana, (1987) 2 SCC 335 : AIR 1987 SC 1078, wherein it has been held "that since a portion of the decreed amount is covered by the mortgage, the decree-holder bank has to proceed against the mortgaged property first and then proceed against the guarantor."
6. The learned counsel for the guarantors (judgment-debtors) have based their arguments on the observations made by the Supreme Court in Union Bank of India v. Mankur Narayana's case (supra) and the Punjab and Haryana High Court in Punjab and Sind Bank v. Bharpur Singh, 1986 (89) 1, Pun LR 663. It has been forcefully urged by them that a decree-holder must not only recover the decretal amount first of all from mortgaged/hypothecated property but also exhaust his remedies against the principal-debtor before taking recourse to other remedies available to him against the guarantors. I am afraid I cannot agree with the contentions put forward by them.
7. The liability of the surety being coextensive with that of the principal-debtor u nless it is otherwise provided by the contract the decree-holder can proceed against either of them. It has also to be borne in mind that the cause of action against principal-debtor and surety is independent and separate. Furthermore, when the Legislature has specifically provided in Section 137 of the Indian Contract Act, 1872 that the creditor's forbearance to sue the'principal-debtor or to enforce any other remedy against him would not, in the absence of any provision in the guarantee to the contra, discharge the surety, meaning thereby that he could press his claim against the surety alone, it would be too much to say that a decree-holder must exhaust his remedies against the principal-debtor in the first instance and then proceed against the surety. Therefore, any observation made to the contra in Punjab and Sind Bank v. Bharpur Singb's case (supra), with all respect, does not constitute good law. As regards Mankur Narayana's case (AIR 1987 SC 1078) (supra), the decision of the Supreme Court is confined to, a case where a portion of the decreed amount is covered by mortgage. In such an eventuality, the decree-holder must initiate proceedings so as to recover the decretal amount or a portion thereof by the sale of the mortgaged -property. But, here also, if the executing Court is satisfied about the inadequacy of the mortgaged property to meet the decretal amount in full the decree-holder would be entitled to simultaneously pursue other remedies either against the principal-debtor or the surety for the recovery of the expected shortfall. In any case, there could be no objection to his having property worth that amount attached so as to safeguard his interest. If the executing Court is not in a position to make up its mind about the quantum of sale proceeds likely to accrue from the mortgaged property, it may, in a fit case, hold over, inter alia, the actual sale of the other attached property belonging to the judgment-debtor or the surety.
8. However, it cannot be said that the decreed amount in any manner is covered by the hypothecation, unless so provided in the contract. The hypothecated goods, therefore, cannot be treated at par with the mortgaged properly.
9. The proposition that a decree-holder must exhaust in the first instance his remedies against the principal-debtor also suffers from the vice of total vagueness, for the stage when such remedies would be deemed to have been exhausted will have to be necessarily spelt out. If not, such a proposition would create almost insurmountable difficulties in the way of decree-holder. The provisions of law cannot and should not be interpreted so as to deny to the decree-holder the fruits of his decree.
10. The question of law having been answered as above, the cases be now listed before the Court for further suitable orders. A copy of this order be placed in each file.