NEUTRAL CITATION
C/FA/4112/2021 ORDER DATED: 29/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 4112 of 2021
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2019
In R/FIRST APPEAL NO. 4112 of 2021
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RAJESH J TANDEL
Versus
GUJARAT INDUSTRIAL INVESTMENT CORPORATION LTD
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Appearance:
MR ADIL R MIRZA(2488) for the Appellant(s) No. 1,2,3
for the Defendant(s) No. 2,3
MS MEGHA JANI(1028) for the Defendant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 29/08/2023
ORAL ORDER
With the consent of learned Advocate for the respective parties, the matter is taken up for final hearing.
2. The present appeal seeks to challenge the judgment and order dated 26/09/2019 passed by the learned Additional Sessions Judge, Valsad in CMA No.7 of 2010 whereby the learned Court below allowed the enforcement of the claim by the respondent - Gujarat Industrial Investment Corporation Ltd., under Section 31 of the State Financial Corporations Act, 1951 (for short the Act) and ordered that the appellant therein is permitted to sell the property as mentioned in the schedule for the recovery of the loan amount after following the necessary procedure as per the Act and rules thereof if any.
3. Learned Advocate for the appellant refers to ground-(b) of Page 1 of 5 Downloaded on : Sun Sep 17 02:52:58 IST 2023 NEUTRAL CITATION C/FA/4112/2021 ORDER DATED: 29/08/2023 undefined appeal memo to point out that since in the proceeding before the Court below, the principal borrower - company as well as the Directors were not joined and the proceedings were directly initiated against the guarantors of the company, there is bar on the part of the learned Court below to proceed and fasten the liability directly on the guarantor; without deciding the liability of the principal borrower. Upon such submission, he would submit that the learned Court below has committed error much less error of understanding of provisions of law and therefore the present appeal deserves considerations.
4. Opposing the appeal learned Advocate Mr.Mit Thakkar for Ms.Jani for the respondent while relying upon Bank of Bihar Ltd., vs. Dr. Damodar Prasad & Anr., AIR 1969 SC 297 would submit that issue is no more res integra in view of Section 128 of the Contract Act. The guarantor has coextensive liability and is footed on the same pedestal of principal borrower who have obtained the loan. He would further submit that in such circumstances it is not necessary to arraign the company and the Director being principal borrower in the proceeding whereby the respondent is asked the relief for enforcement of the claim under Section 31 of the Act to adjudicate enforceable liability separately. Upon such submissions, he would submit to dismiss the appeal.
5. Heard learned Advocate for the respective parties.
6. At the outset, let refer to paragraph 3 to 5 of the Bank of Bihar Ltd., (supra) whereby the law has been laid down by the Hon'ble Apex Court that the enforcement is permissible strictly Page 2 of 5 Downloaded on : Sun Sep 17 02:52:58 IST 2023 NEUTRAL CITATION C/FA/4112/2021 ORDER DATED: 29/08/2023 undefined against the guarantor without joining the principal debtor.
"3. The demand for payment of the liability of the principal debtor was the only condition for the enforcement of the bond. That condition was fulfilled. Neither the principal debtor nor the surety discharged the admitted liability of the principal debtor in spite of demands. Under sec. 128 of the Indian Contract Act, save as provided in the contract, the liability of the surety is coextensive with that of the principal debtor. The surety became thus liable to pay the entire amount. His liability was immediate. It was not deferred until the creditor exhausted his remedies against the principal debtor.
4. Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright V. Simpson(1). "But the surety is a guarantee; and it is his business to see whether the principal pays, and not that of the creditor." In the absence of some special equity the surety has no fight to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings.
5. Likewise where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal. In Lachhman Joharirmal V. Bapu Khandu and Surety Tukaram Khandoji(1) the judge of the Court of Small Causes, Ahmedabad, solicited the opinion of the 13Bombay High Court on the subject of the liability of sureties. The creditors having obtained decrees in two suits in the Court of Small Causes against the principals and sureties presented applications for the, imprisonment of the sureties before levying execution against the principals. The judge stated that the practice of his court had been to restrain a Page 3 of 5 Downloaded on : Sun Sep 17 02:52:58 IST 2023 NEUTRAL CITATION C/FA/4112/2021 ORDER DATED: 29/08/2023 undefined judgment creditor from recovering from a surety until he had exhausted his remedy against the principal but in his view the surety should be liable to imprisonment while the principal was at large. Couch, C.J. and Melvell, J. agreed with this opinion and observed :-
"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."
7. With profit, let refer to the case of Ram Kishan vs State Of U.P. [AIR 2012 SC 2288]. Relevant observations reads thus:
"Liability of guarantor / Surety is co-extensive with that of the debtor. Creditor has a right to obtain a decree against the surety and the principal debtor. Surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety / guarantor to see whether the principal debtor has paid or not."
Thus, what emerges that a liability of the surety is coextensive with the principal debtor. Consequently, the creditor can proceed against the principal debtor or against the surety or against both unless it is otherwise provided in the contract.
8. In the present case, the reading of section 128 of the Contract Act with section 31(AA) of the Act speaks that a liability or the surety is coextensive and is equally following with the principal debtor unless it is otherwise provided by the contract. Section 31(AA) of the Act provides that the liability against the principal debtor can be enforced directly against the surety. In present case, learned advocate appearing for the appellant has failed to point out any contract within the expression "unless it Page 4 of 5 Downloaded on : Sun Sep 17 02:52:58 IST 2023 NEUTRAL CITATION C/FA/4112/2021 ORDER DATED: 29/08/2023 undefined is otherwise provided by their contract, inverted, over".
9. In view of such legal position, the limited ground upon which this appeal filed is bereft of merits. There is no contention that without joining the principal debtor, the liability cannot be enforced directly against the surety or guarantor.
10. For the following reasons, the appeal fails and is accordingly dismissed at admission stage. The connected proceedings, if any, stand disposed of.
(J. C. DOSHI,J) sompura Page 5 of 5 Downloaded on : Sun Sep 17 02:52:58 IST 2023