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Issues:
1. Liability of guarantors in case of default by the principal debtor. 2. Whether the creditor can proceed against the guarantor without exhausting remedies against the principal debtor. 3. Interpretation of Section 128 of the Indian Contract Act in relation to the liability of sureties. Analysis: The judgment revolves around the liability of guarantors when the principal debtor defaults on a loan. The petitioners had guaranteed a loan for the purchase of a bus, which was later transferred to another party who defaulted on repayment. The Corporation sought to recover the outstanding amount from the petitioners after failing to seize the bus due to tax-related issues. The main contention was whether the Corporation could proceed against the guarantors without first exhausting remedies against the principal debtor. The Court examined the extent of liability of guarantors in such cases. Reference was made to various legal precedents, including the Union Bank of India v. Manku case, which emphasized the creditor's right to proceed against the guarantor after taking action against the mortgaged property and principal debtor. The Court differentiated this case from the Bank of Bihar v. Damodar Prasad case, highlighting the importance of Section 128 of the Indian Contract Act. The judgment discussed the interpretation of Section 128, which states that the liability of a surety is co-extensive with that of the principal debtor unless specified otherwise in the contract. Legal precedents from different High Courts were cited to support the notion that a creditor can proceed against the surety without exhausting remedies against the principal debtor. The judgment emphasized that the obligation of a guarantee arises immediately upon execution, and the creditor is not bound to sue the debtor first. Additionally, the judgment examined the specific terms of the guarantee deeds executed by the petitioners. It was found that the deeds did not exempt the contracts from the operation of Section 128 of the Contract Act, reinforcing the immediate liability of the guarantors. Ultimately, the petition was dismissed based on the established legal principles and contractual terms. The judgment provided a comprehensive analysis of the legal principles governing the liability of guarantors and the creditor's rights in cases of default by the principal debtor. It underscored the immediate liability of sureties and the creditor's ability to proceed against them without exhausting remedies against the principal debtor, unless specified otherwise in the contract. The decision was based on a thorough examination of relevant legal precedents and statutory provisions, highlighting the importance of Section 128 of the Indian Contract Act in determining the extent of a surety's liability.
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