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PETITIONER: BANK OF BIHAR LTD.

       Vs.

RESPONDENT: DAMODAR PRASAD & ANR.

DATE OF JUDGMENT: 08/08/1968

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. SIKRI, S.M. HEGDE, K.S.

CITATION:  1969 AIR  297            1969 SCR  (1) 620  CITATOR INFO :  RF         1986 SC 868  (7)  RF         1987 SC1078  (3)  D          1992 SC1740  (11)

ACT: Code  of  Civil  Procedure,  (5 of 1908)  O.  XX  r.  11(1)- Direction to creditor to enforce decree against surety after exhausting remedies against  principal-If justified.

HEADNOTE: The  appellant-creditor lent moneys to the first  respondent on  the guarantee of the second respondent.,  The  appellant filed  a  suit against the respondents for recovery  of  the amount  due.  and the suit was decreed.  While  passing  the decree,  the Trial Court directed that the  appellant  would not  be at liberty to enforce the decree against the  second respondent’ until he had exhausted his remedies against  the first respondent.  The appellant challenged this  direction. The   High  Court  dismissed  the  appeal.  In   appeal   on certificate, this Court :-- HELD:  The direction must be set aside. In  the  absence of some special equity the  surety  has  no right  to restrain execution against him until the  creditor has  exhausted  his  remedies against  the  principal.   For making an order under O.XX  r.  11 (1 )  of C.P.C. the court must  give  specific  reasons.   The  direction   postponing payment  of the amount decreed must be clear  and  specific. The injunction upon the creditor not to proceed against  the surety until the creditor has exhausted his remedies against the  principal was  of the  vaguest character.  It  was  not stated how and when the creditor would exhaust his  remedies against the principal. [622 A, F-G]     It is the duty of the surety to pay the decretal amount. On  such payment he will be subrogated to the rights of  the creditor under s. 140 of the Indian Contract Act. and he may then recover the amount from the principal.  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 banking company.  A guarantee  is   a collateral   security  usually  taken  by  a  banker.    The security  will  become  useless if his  rights  against  the

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surety  can be so easily cut down.  The  impugned  direction cannot  be justified under O.XX r.  11 (1).  Assuming   that apart   from O.XX r. 11(1) the Court had the inherent  power under s. 151 to direct postponement of the execution of  the decree,   the   ends  of  justice  did  not   require   such postponement. [623 A-C] Lachhman  ,Joharimal  V.  Bapu  Khandu  and  Surety  Tukaram Khandoji, (1869) 4 Bom. High Court Reports, 241.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1109 of 1965. Appeal from the judgment and decree dated December  3,  1962 of the Patna High Court in Appeal from  Original Decree  No. 300 of 1959. S. Mitra and R.C. Prasad, for the appellant. 621 K.K. Sinha, for respondent No. 2. The Judgment of the Court was delivered by Bachawat,  J.  The plaintiff Bank lent moneys  to  defendant No.  1  Damodar Prasad on the guarantee of defendant  No.  2 Paras  Nath Sinha.  On the date of the suit  Damodar  Prasad was  indebted  to  the plaintiff for  Rs.  11,723.56  nP  on account  of  principal  and Rs. 2,769.37 nP  on  account  of interest.  In spite of demands neither he nor the  guarantor paid  the dues.  The plaintiff filed a suit against them  in the  Court  of  the Subordinate  Judge,  1st  Court,  Patna, claiming  a  decree  for the amount due.   The  Trial  Court decreed the suit against both the defendants.  While passing the  decree,  the Trial Court 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 plaintiff  filed  an appeal  challenging  the  legality  and  propriety  of  this direction.   The  High  Court  dismissed  the  appeal.   The plaintiff  has  filed the present appeal after  obtaining  a certificate. The guarantee bond in favour of the plaintiff bank  is dated June  15,  1951.  The surety agreed to pay and  satisfy  the liabilities  of  the principal debtor upo Rs.  12,000/-  and interest  thereon two days after demand.  The bond  provided that  the  plaintiff would be at liberty to enforce  and  to recover   upon  the  guarantee  notwithstanding  any   other guarantee security or remedy which the Bank might hold or be entitled to in respect of the amount secured. The  demand  for payment of the liability of  the  principal debtor  was  the only condition for the enforcement  of  the bond.  That condition was fulfilled.  Neither the  principal debtor  nor  the surety discharged the admitted liability of the principal debtor in spite of demands.  Under sec. 128 of the  Indian Contract Act, save as provided in the  contract, the liability of the surety is coextensive with that of  the principal debtor.  The surety became thus liable to pay  the entire  amount.   His liability was immediate.  It  was  not deferred  until  the  creditor   exhausted   his    remedies against the principal debtor. Before  payment the surety has no right to dictate terms  to the creditor and ask him to pursue his remedies against  the principal  in the first instance.  As Lord  Eldon   observed in  Wright  V. Simpson(1).  "But the surety is a  guarantee; and  it is his business to see whether the  principal  pays, and  not  that  of the creditor." In  the  absence  of  some special equity the surety has no fight to restrain an action against him by the creditor on the ground that the principal

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is solvent or that the creditor may have relief against  the principal in some other proceedings. (1) 6 Ves. Jun. 714. 734: 31 E.R. 1272, 1282. 622 Likewise  where the creditor has obtained a  decree  against the  surety  and the principal, the surety has no  right  to restrain  execution  against  him  until  the  creditor  has exhausted  his  remedies against the principal.  In Lachhman Joharirmal  V. Bapu Khandu  and Surety  Tukaram  Khandoji(1) the judge of the Court of Small Causes, Ahmedabad, solicited the opinion of the 13Bombay High Court on the subject of the liability  of  sureties.   The  creditors  having   obtained decrees  in two suits in the Court of Small  Causes  against the principals and sureties presented applications for  the, imprisonment  of  the  sureties  before  levying   execution against the principals.  The judge stated that the  practice of  his court had been to restrain a judgment creditor  from recovering  from a surety until he had exhausted his  remedy against  the principal but in his view the surety should  be liable  to  imprisonment while the principal was  at  large. Couch,  C.J.  and Melvell, J. agreed with this  opinion  and observed :-               "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." It  is now suggested that under Order  XX r.  11 (1  )   and sec.  151 of the Code of Civil Procedure the  Court  passing the  decree had the power to impose the condition  that  the judgment-creditor   would not be at liberty to  enforce  the decree against ’the surety. until the creditor has exhausted his  remedies  against the principal. Order XX r. 11 (  1  ) provides  that "where and in so far as a decree is  for  the payment of money, the Court may for  any  sufficient  reason at the time of passing the decree order that payment of  the amount  decreed  shall  be postponed or  shall  be  made  by instalments,  with  or  without  ’interest,  notwithstanding anything contained in the contract under which the money  is payable."   For making an order under O. XX r. 11 (1  )  the Court   must  give   sufficient  reasons.    The   direction postponing  payment of the amount decreed must be clear  and specific.   The injunction upon the creditor not to  proceed against  the  surety until the creditor  has  exhausted  his remedies against the principal is of the vaguest  character. It is not stated how and when the creditor would exhaust his remedies  against  the principal.  Is the creditor   to  ask for imprisonment of the principal ?  Is he bound to discover at  his peril all the properties of the principal  and  sell them; and if he cannot, does he lose his remedy against  the surety ? Has he  to file an insolvency petition against  the principal  ?   The  Trial Court gave  no  reasons  for  this extraordinary  direction.  The Court rejected the prayer  of the  principal debtor  for payment  of  the decretal  amount in instalments as there was no evidence to show  (1) (1869) 4 Bom. High Court Reports. 241. 623 that  he could not pay the decretal amount in one lump  sum. It  is therefore said that the principal was  solvent.   But the solvency of the principal is not a sufficient ground for restraining execution of the decree against the surety.   It is  the duty of the surety to pay the decretal  amount.   On such  payment  he will be subrogated to the  rights  of  the creditor  under sec. 140 of the Indian Contract Act. and  he

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may  then recover the amount from the principal.   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.  The  impugned  direction  cannot  be justified  under O. XX r. 11 (1).  Assuming that apart  from O. XX r. 11 ( 1 ) the Court had the inherent power under  s. 151  to direct postponement of execution of the decree,  the ends of justice did not require such postponement. In  the result, the appeal is allowed, the direction of  the court below 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" is set aside.  The respondent Dr. Paras Nath Sinha shall pay to the appellant costs in this Court and in the High Court. Y.P.                                         Appeal allowed. 624