1968 (8) TMI 195 - SC - Indian Laws

Summary

Issues:
1. Interpretation of guarantee bond terms and conditions.
2. Liability of the surety in case of non-payment by the principal debtor.
3. Validity of the Trial Court's direction regarding enforcement of dues against the surety.

Interpretation of guarantee bond terms and conditions:
The plaintiff bank lent money to the principal debtor on the guarantee of the surety. The guarantee bond specified that the surety agreed to pay the principal debtor's liabilities upon demand. The bond allowed the plaintiff to enforce the guarantee without exhausting other remedies. The Court held that the surety's liability was immediate upon non-payment by the principal debtor, as per sec. 128 of the Indian Contract Act. The surety could not delay payment by requesting the creditor to pursue remedies against the principal debtor first.

Liability of the surety in case of non-payment by the principal debtor:
The Court referenced legal precedents to establish that the surety's liability is coextensive with that of the principal debtor. The surety cannot restrain the creditor from enforcing the guarantee based on the principal debtor's solvency or potential relief from the principal. The surety's obligation to pay arises upon the principal debtor's default, and the surety cannot dictate terms to delay payment.

Validity of the Trial Court's direction regarding enforcement of dues against the surety:
The Trial Court directed that the plaintiff bank could only enforce its dues against the surety after exhausting remedies against the principal debtor. The High Court upheld this direction, leading to the plaintiff's appeal to the Supreme Court. The Supreme Court found the direction vague and unjustified, as it lacked clarity on how the creditor should exhaust remedies against the principal debtor. The Court emphasized that the solvency of the principal debtor does not justify delaying enforcement against the surety. The Court allowed the appeal, setting aside the Trial Court's direction and ordering the surety to pay costs to the appellant.

In conclusion, the Supreme Court clarified the immediate liability of the surety, emphasizing that the creditor can enforce the guarantee without first exhausting remedies against the principal debtor. The judgment highlighted the surety's obligation to pay upon default by the principal debtor and rejected the Trial Court's direction to delay enforcement against the surety.