The Indian Bank, Madras vs S Krishnaswamy
AIR 1990 Mad 115
Case Summary
[Liability of Surety]
Facts
The Indian Bank, Madras, sanctioned a loan to one of its customers, which was secured by a mortgage. The respondents, S. Krishnaswamy and others, were the guarantors for this loan. The principal borrower defaulted on the loan, leading the bank to initiate legal proceedings to recover the debt from the guarantors. The respondents contended that their liability was limited and that the bank had not taken adequate steps to realize the mortgage security before pursuing the guarantors.
Issues
Whether the bank could directly proceed against the surety without exhausting the remedies against the principal borrower and the mortgaged property.
Whether the liability of the surety is affected by the bank’s actions regarding the mortgage security.
Relevant Legal Provisions
Indian Contract Act, 1872
Section 128: The liability of a guarantor is co-extensive with that of the principal debtor, unless otherwise agreed.
Section 140: Rights of a surety after payment.
Judgement
The court held that the bank could proceed against the sureties without first exhausting its remedies against the mortgaged property. It reiterated that under Section 128 of the Indian Contract Act, the liability of the guarantor is co-extensive with that of the principal debtor, allowing the bank to proceed directly against the guarantors. The court further noted that there was no clause in the contract limiting the bank’s right to pursue the guarantors independently of the mortgage enforcement, and thus the guarantors were liable to pay the debt.
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