State Bank of India v. Indexport Registered

Facts

The State Bank of India obtained a composite money decree, jointly and severally, against the principal debtor and the guarantor, the decree also being a mortgage decree against secured property. In execution, the Bank sought to proceed directly against the guarantor's personal assets. The guarantor contended that the Bank must first proceed against the mortgaged property and the principal debtor before enforcing the decree against him.

Issues

• Whether the liability of a surety under Section 128 is co-extensive with that of the principal debtor.
• Whether a creditor holding a composite decree against the principal debtor and the surety must first exhaust remedies against the principal debtor or the mortgaged security before proceeding against the surety.

Arguments

The guarantor argued that the decree-holder was bound first to enforce the mortgage security and proceed against the principal debtor, the surety's liability being only secondary or in the alternative. The Bank argued that under Section 128 the surety's liability is co-extensive and immediate, so a decree-holder may choose against whom to execute first.

Held

The Court held that under Section 128 the surety's liability is co-extensive with, and not in the alternative to, that of the principal debtor; both are liable to the creditor at the same time. A creditor is not obliged to first exhaust remedies against the principal debtor or to first sell the mortgaged property before proceeding against the surety. Where a composite decree is joint and several, it is the decree-holder's right to choose the manner and order of execution, and the guarantor could be sued (and the decree executed against him) without first proceeding against the principal debtor, once default is shown.

Ratio decidendi

By virtue of Section 128, the surety's liability is co-extensive and immediate; absent a contrary contractual term, the creditor may enforce the guarantee against the surety without first proceeding against the principal debtor or realising the security.

Significance

A leading authority on the nature of a surety's liability under Section 128, repeatedly relied upon (e.g., in Industrial Investment Bank of India Ltd. v. Bishwanath Jhunjhunwala, (2009) 9 SCC 478) to reject the argument that a creditor must exhaust remedies against the principal debtor or security before proceeding against a guarantor.

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