# 6~0 BANK OF BIHAR LTD v. DAMODAR PRASAD & A'.'IR. A U/?llS/ 8, 1968

- **Citation:** [1969] 1 S.C.R. 620
- **Court:** Supreme Court of India
- **Decided:** 1969
- **Case number:** CIVIL APPELLATE JURISDlCTIO!'< : Civil Appeal No. I 109 of 1965
- **Bench:** M. S!Kri, R. S. Bachawat, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/6-0-bank-of-bihar-ltd-v-damodar-prasad-a-ir-a-u-lls-8-1968-4457
- **Pages:** 4

## Headnote

Code of Civil Procedure, (5 of 1908) 0. XX r. 11(1)-Dlrection to
creditor to en/ore<' derre<· against surl•ry after exhausting rt'mcdies against
principal-If ;11sri(i..?d.
The appcllant-crcdito'.' lent moncv' In the fir-,1
ri.:~rondcnt
on
the
guarantee of the second respondent.· l'hc appellant filed a suit agaimt
the respondents for recovery of the amount due. and the suit v.•as decreed.
While passing the decree, the Trial Cou·rt directed that the appellant would
not he at liberty to enforce the decree ar,;!inst the second respondent until
he had cxh:1ustcd his remedies againc;1 the fir~t respondent. The appellant
challcngr.;d this direction. "I'hc H!gh c·ourt ,fi~mi .. scd !he ;1ppeal. Jn appeal
on certificate, this Court:-
HELD :-The direction must be set aside.
ln the absence of some special equity the surety ha~ no right to fC,i;.-
train execution against him until the creditor has exhausted his remedies
againsl the principal.
f'or making an order under O.XX
r.
11 ( 1)
of
C.P.<~. the court must give specific reasons.
The direction po5tponing
payment of the arnount decreed n1llo;t be clear and -specific.
The injunction upon the t."'rcdilor not to proceed against the surety until the creditor
has c..'\hauslcd hi.-; remedies against the principal was
of the
vagut.8t
char;1ctcr.
lt ,,,.-as not stated how and when the creditor would exhaust
his rcmcdie5 <1~ain'.'it the principal. [622 A, F-GJ
It is the duty of the surety to pay the dccrctal amount. On such payn1cn1 he will be suhrogatc<l to the rir:ht<> of the creditor under s. 140 of
the Indi;in C.-0n1r;1ct Act. and he may then 'recover the amount from the
principal.
The very object of the guarantee is defeated if the creditor
jc; askc<l to postpone his remedies against the su~ty. In the present ca~e
the creditor is hanking cornp~1ny. A guarantee is
a
collateral
security
usually taken hy a hanker.
The security \\'ill become useleit-; if his rig.ht"
again<>t the surety can be so easily cut do"·n. 'rhe impugned direction
cannot h:! justified under O.XX r.
11 ( 1). Assum in~ that
apart
fron1
O.XX r. 11 ( 1) the Court had the inherent p<l\\·er under "· 151 to direct
postponement of the execution of the decree. the ends of justice did not
require o;;uch po .. tponcment. (62~ A-CJ
l.achhnMn .lnhr.rhnal v. Rapu Khnnrfrt and Surrty Tuknran1 Khandoii.
(1869) 4 Bon1 Jligh Court Reportc;, ~41.
CIVIL APPELLATE JURISDlCTIO!'< : Civil Appeal No. I 109 of
1965.
Appeal from the judgment and decree dated December
'.l,
1962 of the Patna Hi!!h Court in ApPCal from
Original Decree
No. 300 of 1959.
-
S. Mitra and R. C. Prasad, for the appellant.
"
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BANK OF BIHAR v. DAMODAR (Bachawat, J.)
621
K. K. Sinha, for respondent No. 2.

## Text

6~0
BANK OF BIHAR LTD.
v.
DAMODAR PRASAD & A'.'IR.
A U/?llS/ 8, 1968
[S, M. S!KRI, R. S. BACHAWAT AND K. S. HEGDE, JJ.J
Code of Civil Procedure, (5 of 1908) 0. XX r. 11(1)-Dlrection to
creditor to en/ore<' derre<· against surl•ry after exhausting rt'mcdies against
principal-If ;11sri(i..?d.
The appcllant-crcdito'.' lent moncv' In the fir-,1
ri.:~rondcnt
on
the
guarantee of the second respondent.· l'hc appellant filed a suit agaimt
the respondents for recovery of the amount due. and the suit v.•as decreed.
While passing the decree, the Trial Cou·rt directed that the appellant would
not he at liberty to enforce the decree ar,;!inst the second respondent until
he had cxh:1ustcd his remedies againc;1 the fir~t respondent. The appellant
challcngr.;d this direction. "I'hc H!gh c·ourt ,fi~mi .. scd !he ;1ppeal. Jn appeal
on certificate, this Court:-
HELD :-The direction must be set aside.
ln the absence of some special equity the surety ha~ no right to fC,i;.-
train execution against him until the creditor has exhausted his remedies
againsl the principal.
f'or making an order under O.XX
r.
11 ( 1)
of
C.P.<~. the court must give specific reasons.
The direction po5tponing
payment of the arnount decreed n1llo;t be clear and -specific.
The injunction upon the t."'rcdilor not to proceed against the surety until the creditor
has c..'\hauslcd hi.-; remedies against the principal was
of the
vagut.8t
char;1ctcr.
lt ,,,.-as not stated how and when the creditor would exhaust
his rcmcdie5 <1~ain'.'it the principal. [622 A, F-GJ
It is the duty of the surety to pay the dccrctal amount. On such payn1cn1 he will be suhrogatc<l to the rir:ht<> of the creditor under s. 140 of
the Indi;in C.-0n1r;1ct Act. and he may then 'recover the amount from the
principal.
The very object of the guarantee is defeated if the creditor
jc; askc<l to postpone his remedies against the su~ty. In the present ca~e
the creditor is hanking cornp~1ny. A guarantee is
a
collateral
security
usually taken hy a hanker.
The security \\'ill become useleit-; if his rig.ht"
again<>t the surety can be so easily cut do"·n. 'rhe impugned direction
cannot h:! justified under O.XX r.
11 ( 1). Assum in~ that
apart
fron1
O.XX r. 11 ( 1) the Court had the inherent p<l\\·er under "· 151 to direct
postponement of the execution of the decree. the ends of justice did not
require o;;uch po .. tponcment. (62~ A-CJ
l.achhnMn .lnhr.rhnal v. Rapu Khnnrfrt and Surrty Tuknran1 Khandoii.
(1869) 4 Bon1 Jligh Court Reportc;, ~41.
CIVIL APPELLATE JURISDlCTIO!'< : Civil Appeal No. I 109 of
1965.
Appeal from the judgment and decree dated December
'.l,
1962 of the Patna Hi!!h Court in ApPCal from
Original Decree
No. 300 of 1959.
-
S. Mitra and R. C. Prasad, for the appellant.
"
B
c
D
E
G
H
A
II
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D
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E
F
G
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BANK OF BIHAR v. DAMODAR (Bachawat, J.)
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, 7 69. 3 7 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 clue.
The Trial Court
decr~d 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 ctirection. 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 agrood to pay and satisfy the liabilities of the principal debtor upo Rs. 12,000/- and interest thereon
two days af(er demand.
The bond provided that the plaintiff
would be at liberty to enforce and to recover upo,n the guarantee·
notwitb:standing 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 dem.ands.
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
~reditor an~ ask him to pnrsue his remedies against the principal
m the first mstance.
As Lord Eldon observed in Wright v.
Simpson('). "But the surety is a guarantee; and it is his business
to see whether the principal pays, and not that o[ the creditor."
Tn the absence of some special equity the surety has no-right to
restram an action against hin1 by the creditor on the ground that
the principal is solvent or that the creditor may have relief against
the principal in some other proceedings.
(l) 6 Ves. Jun. 714, 734 : 31 E.R. 1272, 1282.
:(j ?')
SUPREME COURT REPORTS
11969) I S.CR.
Likewise where the creditor has obtained a decree against the
surety and the principal, the surety has no right to restr:iin cxccu·
lion against him until the creditor has exhausted
his
remedies
against the principal.
In Lachlunan Joharima/ v. Bapu Khandu
and Surety Tukaram Khandoji(') the judge of the Court of Small
Causes, Ahmedabad, solicited the opinion of the lfoillbay High
Court on the subject of the liability of sureties.
The creditors
having obtained decrees in two suits in the Court of Small Causes
againsl the principals and sureties presented applications !or 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 whik the principal was at large.
Couch. C.J. and Melvcll, J. agreed with this
opini_on and observed :-
·
"The court is of opinion that a creditor is not bound
10 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 s;une manner
a.> a decree for any other debt."
It is no1v suggested that under Order XX r.
11 (I )
and sec.
151 of the Code of Civil Procedure the Court passing the decree
had the power to impose the condition that the judgmrnt-crcditor
would not be at liberty to enforce the decree aga·inst the sure!,.
until the creditor has exhausted his remedies against the principal.
Order XX r. I ! ( 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 maqe by instal·
ments. with or without interest, notwithstanding anything contain·
ed in the contract under which the money is payahlc."
For mak·
ing an order under 0. XX r. 11 (I) the Court must give
suflicient reasons.
ll1c direction postponing payment of the amount
decreed must he clear and specific.
The injunction upon the creditor not to proceed against the surety until the creditor has exliausted 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 0
Is he bound to discover at his
peril all the properties of the· principal and sell them: and if he
cannot, docs he lose his remedy against the surety" Has he
to
file an insolvency petition against the principal 0
TI1c 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 <lww
(1 l
(1~69) 4 H('nl- lfir:h Court Rcporrs. 241.
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BANK OF BIHAR v. DAMODAR (Bachawat, J.)
62 :>
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 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 usua!ly 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 0. XX
r. 11 ( 1).
Assuming that apart from 0. 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_