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Industrial Investment Bank of India Ltd. Versus Biswanath Jhunjhunwala

2009 (8) TMI 1186 - SUPREME COURT

Whether the liability of the guarantor and principle debtors are co-extensive and not in alternative? Whether the High Court under its power of superintendence under Article 227 of the Constitution of India was not justified to stay further proceedings in O.A. 156 of 1997? - CIVIL APPEAL NO. 4613 OF 2000 - Dated:- 18-8-2009 - DALVEER BHANDARI & H.L. DATTU JJ. J U D G M E N T Dalveer Bhandari, J. 1. This appeal is directed against the judgment of the High C .....

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llant 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 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 .....

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that any security or securities comprised in any instrument(s) executed by the borrower in favour of the Industrial Reconstruction Bank of India Ltd. (for short, IRBI) at the time when the proceedings are taken against the guarantor on this guarantee, be outstanding or un-realized or lost. 5. Clause 11 of the deed of personal guarantee reads as under: 11. To give effect to this guarantee, the IRBI may act as though the guarantors were the principal debtor to the IRBI.

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hort 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 .....

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onstruction Bank of India Act, 1984 (for short IRBI Act ) for attachment and sale of the assets of the borrower company. The respondent was not made a party to the said application, inasmuch as there was no scope for seeking any relief against the guarantor under an application under section 40 of the IRBI Act. Hence, a prayer was made for attachment of the assets of the borrower company. The provisions of section 40 of the IRBI Act are pari materia with the provisions of sections 31 and 32 of t .....

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s mentioned in Schedules A , B , C and D to the said application and also for making an inventory of the same. The High Court issued 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 Deb .....

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antor 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 1992 SC 1740 dismissed the application filed by the respondent for stay of further proceedings in the case filed against him and held that the appellant cannot be forced to exhaust remedy elsewhere and then to proceed against the .....

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ayed further proceedings in O.A. No. 156 of 1997 filed by the appellant against the respondent in the Debts Recovery Tribunal, Calcutta. The appellant against the said judgment/order has filed this appeal. 17. Mr. J. L. Gupta, learned senior counsel appearing for the appellant submitted that the appellant bank is fully justified in initiating proceedings against the borrower company as well as its guarantor before the different courts. 18. Mr. Gupta also submitted that the .....

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d 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 gua .....

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ceeding against the principal borrower. Guarantor s liability is coextensive with that of the principal debtor. In that case, this court further observed that, the execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decreeholder. The question arises, 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 de .....

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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. 22. In .....

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rincipal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for . 24. A Division Bench of the Bombay High Court in Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath and Ors. AIR 1940 Bombay 247 held that the liability of the surety is co-extensive, but is not in the alternative. Both the principal debtor and the surety are liable at the same time to the creditors. 25. A Division Bench of the High Court of Karnataka, in The Hukumchand In .....

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former are really separate 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 .....

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