1992 (5) TMI 200 - HC - Indian Laws

Summary

Issues:
1. Liability of guarantors in a loan recovery suit when the debtor defaults on payments.
2. Interpretation of Section 128 of the Indian Contract Act regarding the liability of sureties.
3. Effect of debtor's solvency on the liability of guarantors.
4. Court's discretion in granting payment by instalments and its impact on the liability of guarantors.

Detailed Analysis:
1. The plaintiff, a bank, filed a suit to recover a loan amount from the debtor and the guarantors. The trial court did not hold the guarantors jointly and severally liable with the debtor, leading to the appeal by the plaintiff.

2. The plaintiff bank granted a cash credit loan to the debtor, who had guarantors. The guarantors did not dispute the plaintiff's assertions but requested payment by instalments due to the industry's sickness. The trial court decreed the suit against the debtor for monthly instalments, absolving the guarantors based on the debtor's promise to pay in instalments.

3. The appellant argued that the guarantors cannot be absolved of liability based on the debtor's solvency, citing legal precedents. Section 128 of the Indian Contract Act was discussed, emphasizing that the liability of a surety is co-extensive with that of the principal debtor, and the surety's liability is immediate, not deferred.

4. The court referred to previous decisions to assert that the liability of a surety is co-extensive, and a decree against the surety cannot be executed until the principal debtor pays the dues. The court held that the trial court should have decreed the suit against all defendants, making them jointly and severally liable for the amount decreed.

In conclusion, the appeal was allowed, and the court decreed the suit against all defendants, holding them jointly and severally liable for the amount decreed. The court emphasized that the decree directing payment by instalments suspends action against the sureties, and failure by the principal debtor to comply allows execution of the decree against all judgment-debtors.