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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 ..... es 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 Rs. 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 Rs. 3 crores was executed on behalf of the borrower company in favour of the appellant. The same was executed on behalf of the borrower company by the respondent as the Director of the borrower company. A deed of undertaking to create mortgage in respect of its various immovable properties was also executed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 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 company recalling the entire loans and calling upon the borrower company to pay the total sum of Rs. 5.40 crores together with further interest at the rate of 17% per annum and liquidated damages at the rate of 2.1% from 1.1.1997 till repayment. 9. The appellant on 18.03.1997 filed an application in the High Court of Calcutta under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Debts Recovery Tribunal, Calcutta. The appellant in the said application has prayed for a certificate against the said respondent for a sum of Rs. 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 the same Tribunal, inter alia, on the ground that the rights of the appellant against the respondent as guarantor did not crystallize till the rights of the appellant against the borrower company are established. 14. The Presiding Officer of the Debts Recovery Tribunal, Calcutta on 18.05.1999 relying on State Bank of India v. Indexport Registered & Others, AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 bound to exhaust his remedy against the principal debtor before suing the surety and that when a decree is obtained against a surety, it may be enforced in the same manner as a decree for any other debt." This Court, while approving the said judgment, observed that, "the very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal 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." 22. In Chitty on Contracts, 24th Edition, Volume 2 at page 1031 paragraph 4831 it is stated as under, "Conditions precedent to liability of surety.- Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor." 23. In Halsbury's Laws of England, Fourth Edition,Vol. 20, paragraph 159 at page 87 it has been observed that "it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 (2008) 1 SCC 125, this Court in great detail examined whether withdrawal of suit pending before the Debts Recovery Tribunal under DRT Act is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This court held that it is for the bank or the financial institution to exercise its discretion. 29. In A.P. State Financial Corporation v. M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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