1992 (4) TMI 243 - SC - Indian Laws

Summary

Issues Involved:
1. Whether the decree-holder must first proceed against the mortgaged property before executing the decree against the guarantor.
2. The correctness of the decision in Union Bank of India v. Manku Narayana, AIR 1987 SC 1078.
3. The extent and manner of the liability of the guarantor.

Summary:

Issue 1: Execution Against Mortgaged Property First
The primary issue was whether the decree-holder must first proceed against the mortgaged property before executing the decree against the guarantor. The Additional District Judge, Delhi, and the High Court, following the decision in Manku Narayana's case, held that the decree-holder should proceed first against the mortgaged shop. The Supreme Court, however, observed that the decree was a composite decree, both a personal decree against all defendants and a mortgage decree against the mortgaged property. The Court held that there is no legal requirement for the decree-holder to first exhaust the remedy against the mortgaged property before proceeding against the guarantor.

Issue 2: Correctness of Manku Narayana's Case
The Supreme Court found that the observations in Manku Narayana's case were not based on any established principle of law and were contrary to law. The Court emphasized that the decree-holder has the right to proceed with the execution in a manner they deem fit, and there is no requirement to first execute the mortgage decree. The Court concluded that Manku Narayana's case was not correctly decided.

Issue 3: Liability of the Guarantor
The Court reiterated that the liability of the surety is co-extensive with that of the principal debtor as per Section 128 of the Indian Contract Act. The surety can be proceeded against without first suing the principal debtor. The Court cited several precedents, including Bank of Bihar Ltd. v. Damodar Prasad, which held that the creditor is not bound to exhaust remedies against the principal debtor before suing the surety. The Court also noted that the guarantor did not take any plea during the trial that his liability was contingent upon the failure of remedies against the principal debtor.

Conclusion:
The Supreme Court allowed the appeal, setting aside the orders of the High Court and the Additional District Judge. The decree-holder was entitled to proceed against the guarantor for the execution of the decree. The decree-holder could also proceed against the bank guarantee furnished by the guarantor and execute the decree for any balance amount in accordance with the law. The appeal was allowed.