Bank of Bihar ltd. vs Damodar Prasad & Anr.
1996 AIR 297
Case Summary
[Contract of Guarantee]
Facts
The plaintiff (Bank of Bihar) lent money to defendant 1 (Damodar Prasad), with defendant 2 (Paras Nath Sinha) acting as the surety through a guarantee agreement. Defendant 1 defaulted on the loan and despite various demands, neither the debtor, nor the surety repaid the dues. The plaintiffs filed a suit for recovery and the trial court held the decree in favour of the bank.
However, it directed that the banks should first exhaust all the remedies against the debtor before proceeding against the surety. Dissatisfied with this direction, the plaintiff appealed to the High Court, which dismissed the appeal. The plaintiff then appealed to the Supreme Court.
Issues
Whether the court can direct the creditor to exhaust its remedies against the principal debtor before proceeding against the surety?
Key Legal Provisions
Indian Contract Act, 1872:
Section 128 – The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract
Judgement
The Supreme Court set aside the lower court’s direction, ruling that the creditor is not required to exhaust remedies against the principal debtor before enforcing the decree against the surety. The liability of the surety is co-extensive with that of the principal debtor, unless otherwise specified. The suety becomes immediately liable once the principal debtor defaults.
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