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TMI Blog2009 (8) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10.9.1999 in C.O. No. 1581 of 1999. 2. Briefly stated the facts are as follows: The appellant Industrial Investment Bank of India Ltd. (hereinafter referred to as the appellant ) on 27.9.1994 sanctioned the first short term working capital loan of ₹ 3 crores in favour of Modern Malleables Limited (hereinafter referred to as the borrower company ). 3. The loan agreement was entered into between the appellant and the borrower company on 03.10.1994 in respect of the first short term working capital loan of ₹ 3 crores. The said loan agreement was signed on behalf of the borrower company by the respondent as a Director of the borrower company. On the same day, demand promissory note for ₹ 3 crores was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking to create mortgage in respect of its immovable properties was also executed on behalf of the borrower company in respect of the said second short term working capital loan. 7. The borrower company committed defaults in the payment/repayment of the principal amount of the loan as well as interest, liquidated damages and other moneys. Some of the cheques issued on behalf of the borrower company by the respondent were dishonored for want of funds. Consequently, the proceedings started against the respondent under section 138 of the Negotiable Instruments Act, 1881 are pending before the court. 8. In view of the defaults committed by the borrower company, the appellant on 18.01.1997 issued a demand notice to the borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued an order of injunction restraining the borrower company from parting with the possession, disposing of or alienating or otherwise encumbering any of the said assets in any manner. 12. The appellant on 17.7.1997 filed an application against the respondent under section 19 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 in the Debts Recovery Tribunal, Calcutta. The appellant in the said application has prayed for a certificate against the said respondent for a sum of ₹ 5.40 crores along with further interest and liquidated damages. 13. The respondent on 20.3.1998 also filed an application in the Debts Recovery Tribunal, Calcutta for stay of further proceedings in the case filed by the appellant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor before the different courts. 18. Mr. Gupta also submitted that the liability of the guarantor and the principal debtor are co-extensive and not in alternative. He also submitted that sections 29, 31 and 32 of the State Financial Corporations Act are pari materia with sections 39, 40 and 41 of the IRBI Act. 19. Mr. Gupta, in support of his submission, placed reliance on a judgment of this Court in Bank of Bihar Ltd. v. Damodar Prasad Another (1969) 1 SCR 620. In that case, the court referred to a judgment in Lachhman Joharimal v. Bapu Khandu and Tukaram Khandoji (1869) 6 Bombay High Court Reports 241, in which the Division Bench of the Bombay High Court held as under: The court is of opinion that a creditor is not bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The court further observed that the liability of the surety is co-extensive with the principal debtor, unless it is otherwise provided by the contract . 21. The term co-extensive has been defined in the celebrated book of Polock Mulla on Indian Contract and Specific Relief Act, Tenth Edition, at page 728 as under: Co-extensive. - Surety's liability is co-extensive with that of the principal debtor. A surety's liability to pay the debt is not removed by reason of the creditor's omission to sure the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety, and a suit may be maintained against the surely though the principal has not been sued. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. 26. The case of the respondent has never been that the liability of the guarantor is only contingent and if remedies against the principal debtor failed to satisfy the dues of the decree holder, then only the bank can proceed against the guarantor. 27. Mr. Gupta also asserted that the remedy under section 19 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 is not in derogation of section 40 of the IRBI Act. 28. In Transcore v. Union of India Another (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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