Liability of the surety is co-extensive with that of the principal debtor #indianlaws

It was held that if the composite decree is a decree which is both a personal decree as well as a mortgage decree, without any limitation on its execution, the decree-holder, in principle, cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and told that only if the amount recovered is insufficient, he can be permitted to take recourse to the execution of the personal decree.

Whether a decree which is framed as a composite decree, as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier was issue of controversy decided by the Supreme Court in State Bank of India vs. Indexport Registered and Ors. ([1992] 2 S.C.R. 1031 = AIR 1992 SC 1740).

Appellant – Bank (‘B’) in the instant matter was a decree-holder. ‘X’ was a partner firm with ‘Y’ its partner along with one ‘A’ since deceased and now represented by his mother ‘M’. ‘R’ was a guarantor. B had granted to X a Packing Credit Facility and R had executed a Deed of Guarantee in favour of B. After the death of A, S was impleaded in A’s place as his legal representative. As a security, Y had also created an equitable mortgage of his shop in favour of B.
B filed a suit against the X, Y, A and R for a money decree and also sought for a preliminary decree against Y with a direction that if Y commits a default in payments, a final decree be passed against him with permission to B to apply for a personal decree against him for any deficiency after the sale of the mortgaged property.

The money decree was passed in favour of B and B was also held to be entitled to the amount by way of sale of the shop in case the decretal amount is not paid within a period of stipulated time period, decree in question would also be deemed to be a personal decree against all the defendants/ Respondents, but, however, decree would be executable against S qua the estate inherited by her from A. Later, in execution proceedings notice was issued to guarantor (R) who filed objections stating that no steps were taken against the mortgaged property i.e. shop and no action by way of execution could be taken for proceeding against the guarantor till the mortgaged shop is sold and it is only if the realisation from the sale of the shop is deficient that the balance could be recovered from the judgment debtors personally.

The Trial Court held that the decree in question was a composite decree, personally against the principal debtor and the guarantor and also against the mortgaged property of Y and therefore, since it was a composite decree and the mortgaged property was also involved, the decree-holder should have proceeded first against the mortgaged shop and since it was not done so, the execution application against the objector (guarantor) does not lie. The question that arose was whether a decree which is framed as a composite decree, as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier.

It was observed that in the present case decree does not postpone the execution. The decree was simultaneous and it was jointly and severally against all the Respondents including the guarantor. It was the right of the decree-holder to proceed with it in a way he liked. As observed, Section 128 of the Indian Contract Act itself provides that “the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract”.
The guarantor in the instant case had not filed any appeal against the passing of the decree and the decree thus had become final. The decree for money is a simple decree against the judgment debtors including the guarantor and in no way subject to the execution of the mortgage decree against the judgment debtor No. 2. If on principle a guarantor could be sued without even suing the principal debtor there is no reason, even if the decretal amount is covered by the mortgage decree, to force the decree-holder to proceed against the mortgaged property first and then to proceed against the guarantor. The Court accordingly held that the holding arrived at in the in case of Union of India vs. Manku Narayana (AIR 1987 SC 1078) was not based on any established principle of law and/or reasons, and in fact, and thus contrary to law.

Further, the guarantor in the present suit had never taken any plea to the effect that his liability is only contingent if remedies against the principle debtor fail to satisfy the dues of the decree-holder. If such a plea had been taken and the court trying the suit had considered the plea and gave any finding in favour of the guarantor, then it would have been a different position. But in the present case, on the face of the decree, which has become final, the court cannot construe it otherwise than its tenor. No executing court can go beyond the decree.

All such pleas as to the rights which the guarantor had, has to be taken during trial and not after the decree while execution is being levied.