Hansaria, C.J.
1. The petitioners had stood as guarantors for due repayment of the loan granted to one Girija Shankar Panda by the Orissa State Financial Corporation. While doing so, they mortgaged their properties with the Corporation by depositing their title deeds. The loan was advanced to enable Girija Shankar to purchase a bus. The same was transferred to Sankarsan Panda, opposite party No. 3, on 31-3-1988. The petitioners agreed to continue to remain as guarantors for Sankarsan also. Sankarsan ran into default, and the outstanding as on 15-7-1989 was to the extent of Rs. 2,06,631/-. When Sankarsan did not repay the loan despite notice, the Corporation tried to seize the bus in question when it was found that the Regional Transport Officer, Sambalpur had seized the said bus for non-payment of taxes, which along with penalty came to Rupees 4,26,876/-. A negotiation was made with the Regional Transport Officer, Sambalpur by the officials of the Corporation to take the bus into their custody, but having failed to do so, a notice under Section 29 of the Orissa State Financial Corporation Act, 1951 was issued against the petitioners asking them to clear up the outstanding, failing which they were informed that the properties mortgaged in favour of the Corporation shall be dealt with in accordance with Section 29 of the Act. On failure of the petitioners to pay the defaulted amount, the mortgaged assets were taken over by the Corporation vide Annexure-2 dated 19/22-1-1991. These actions of the Corporations have been assailed in this petition.
2. Shri Purohit appearing for the petitioners has submitted that without exhausting the remedy against Sankarsan, the Corporation cannot proceed against the petitioner's properties. To put it differently, according to the petitioners, the Corporation should have, on its failure to seize the bus, seized other movable and immovable assets of Sankarsan and on its failure to get the outstanding liquidated by doing so, the Corporation could have taken over the mortgaged properties of the guarantors.
3. The point for examination, therefore, is as to what is the extent of the liability of the guarantors in a case of the present nature. Shri Purohit has referred to Union Bank of India v. Manku, AIR 1987 SC 1078, which dealt with a case wherein a decree had been passed personally against the guarantor who was respondent before the Supreme Court as also against the mortgaged property. The High Court held that the decree-holder had to proceed first against the mortgaged property and the principal debtor and then only against the guarantor. This order was challenged before the Supreme Court by the decree-holder, who placed reliance on the decision in Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297 : (1969 All LJ 475) the ratio of which we shall note later. The Court did not apply the ratio of Damodar Prasad's case to the one at hand and observed in paragraph 4 that the decree being a composite one personally against the defendant including the respondent and also against the mortgaged property, the decree-holder has to proceed against the mortgaged property first and then proceed against the guarantor. Having found that the Bank had proceeded against the mortgaged property and also against the principal debtor, it was held that the execution against the guarantor was maintainable.
4. The aforesaid decision cannot be taken to have laid down that without proceeding against the movable or immovable properties of the principal debtor, execution cannot be taken out against the guarantor, even though he had mortgaged his properties with the creditor as a surety for the loan. The decision in Damodar Prasad cannot be said to have been overruled by this decision inasmuch as that decision was by a Bench of three Judges whereas the present one is by a Bench of two Judges. We shall, therefore, see what was held in the case of Damodar Prasad. Before we do so, we may deal with another case cited by Shri Purohit, the same being Agencis Nacional v. Chowgule, AIR 1967 Goa, Daman and Diu 88. In that case, by referring to Section' 818 of the Portugese Civil Court, which had provided that performance of the obligations under a contract may be guaranteed by a third person who is answerable to the principal debtor in the event of its breach, the contract being known as 'Fianca' (surety), it may be stated here that a person who gives guarantee is also called a 'surety', as stated in Section 126 of the Contract Act -- It was held that the surety cannot be compelled to pay the sum assured unless the creditor first realises the debt due from the properties of the principal debtor, except in the case contemplated by Section 830 of the Code, subject to the limitation mentioned therein. From the judgment, it is not known what was provided in Section 830 of the Code and what were the limitations visualised by it. This may not, however, detain us because that Code perhaps had no provision parallel to that in Section 128 of the Indian Contract Act, which has provided that :--
'The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract'.
It is because of this section that in Damodar Prasad case it was held that the liability of a surety is not deferred until remedies against the principal debtor are exhausted. So, the Goa case cannot assist the petitioners.
5. Now let us come to Damodar Prasad's case. Therein, the Court was specifically concerned with the scope and ambit of Section 128 of the Contract Act, and after analysing its provisions and after noting the decisions in Wright v. Simpson, 31 ER 1272; and Lachhman Joharimal v. Bapu Khandu, (1869) 6 Bom HCR 241, in both of which the view expressed was that a creditor is not bound to exhaust his remedy against the principal debtor before suing the surety and that the surety has no right to restrain an action against him by the creditor when the principal is solvent, it was opined in paragraph 6 that solvency of the principal is not a sufficient ground for restraining execution of a decree against the surety as it is the duty of the surety to pay the decretal amount, The Court further observed that the very object of guarantee would be defeated if the creditor is asked to postpone his remedies against the surety and the security would become useless if his rights against the surety can be so easily cut down.
6. Earlier to this decision of the apex Court, it has been opined by many High Courts of the country that it would not be possible to read into a contract of guarantee that the creditor would be entitled to proceed against the surety only when all remedies known to law are exhausted against the principal debtor. In this connection, we may first refer to a Full Bench decision of the Calcutta High Court in Srinath v. Pyarimohan, AIR 1917 Cal 154, which dealt with the question as to which Article of the Limitation Act, 1877 shall apply to a suit filed by a creditor against a surety. The Full Bench opined that such a suit was governed by Article 115 of the Limitation Act and Limitation began to run from the date of execution of the guarantee notwithstanding a stipulation in the guarantee to the effect that the creditor may look for repayment to the surety if the principal debtor makes default in payment. The ratio of this decision is that the obligation upon a guarantee arises uno flatu with the execution of the document and does not depend upon any contingency.
7. A learned single Judge of the Madras High Court in Swaminath v. S.L. Lakshmana, AIR 1935 Mad 748, took the view after referring to Section 128 of the Contract Act that a suit against the surety without first exhausting the remedies against a principal debtor could be maintained. A Division Bench of the Lahore High Court in Kuckreja Ltd. v. Said Alam, AIR 1941 Lah 36, also took the view that in case of an ordinary contract of guarantee, the liability of the surety is co-extensive with that of the principal debtor; and being of this view it was not possible to read that the creditor would be entitled to proceed against the surety only if all remedies known to law were first exhausted against the principal debtor. It may be stated that the contract of guarantee in that case had provided:-- 'If you fail to realise the price thereof, I and my property will be responsible for that amount'. Similar is the position here.
8. A Division Bench of the Patna High Court in Madho Sah v. Sitaram San, AIR 1962 Pat 405, had occasion to refer to all the aforesaid decisions and to conclude that in the absence of any term in the guarantee negativing the co-extensive liability of the surety, a decree-holder is entitled to proceed against the surety without exhausting the remedy against the principal debtor.
9. We may new refer to a Division Bench decision of the Karnataka High Court in Hukumchand Insurance Company v. Bank of Baroda, AIR 1977 Kant 204, in which Venkatachaliah, J. (as he then was) dealt with the question of liability of the surety, its extent and the manner of its enforcement. The learned Judge observed that the liability of a principal debtor and the liability of a surety, which is co-extensive with that of the former, are really separate liabilities, although arising out of the same transaction. So, notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. In this connection, the following passage from Halsbury's Laws of England (3rd Edition) Vol. 22, paragraph 819, was quoted :--
'819. Proceedings by assured against debtor; except where the policy so provides, the creditor is not bound to sue the debtor or to enforce his security first; he is entitled, as soon as there is a default within the meaning of the policy, to claim payment from the insurers. The policy may, however, be limited to cover only the deficiency which remains after the creditor has exhausted his remedies against the debtor or his sureties'.
10. We may finally refer to a Bench decision of the Andhra Pradesh High Court also in Nagpur Nagarik Sahakari Bank Ltd. v. Union of India, AIR 1981 AP 153, in which it was held that in a contract of guarantee, it is not necessary that the creditor must first seek remedy against the principal debtor before proceeding against the surety, as stated in paragraph 26(2).
11. Before concluding the discussion of law, we may refer to the State Bank of India v. Saksaria Sugar Mills, AIR 1986 SC 868 : (1986 All LJ 621) in paragraph 7 of which, after referring to Section 128 of the Contract Act, it was observed that the liability of a surety is immediate and is not deferred until the creditor exhausts his remedies against the principal debtor.
12. In this connection, Shri Patnaik has drawn our attention to a Bench decision of this Court in O.J.C. No. 2057 of 1991 (K. T. Sulochana v. Managing Director, Orissa State Financial Corporation) disposed of on 11-2-1992 in which it was held that Section 29 of the aforesaid Act permits the Corporation to take possession of the mortgaged properties of a guarantor.
13. From the aforesaid decisions which run from 1917 to 1992, it is apparent that a surety is liable to the creditor irrespective of the remedy which the creditor may have against the principal debtor and the creditor may proceed against the surety without exhausting his remedies against the principal debtor.
14. The above is the general law; but then, as stated in Section 128 itself, the parties may provide for something different in the contract. Let us, therefore, see whether in the contract at hand anything different was provided. Shri Patnaik has made available to us xerox copies of the guarantee deeds executed by the petitioners. A perusal of the same shows that these deeds are supplemental to 'Equitable Mortgage Deed' and the indenture in question contained, inter alia, the following term :--
'1. If at any time default shall be made in the payment of the principal or interest or any other moneys for the time being due to the Corporation, upon the security of the said mortgage, the Guarantor(s) shall be liable to pay to the Corporation the whole of such principal and other moneys which shall then be due to the Corporation as aforesaid and...........'
The above shows that the guarantees at hand in no way excepted the present contracts from the operation of Section 128 of the Contract Act.
15. In View of all the above, the petition is dismissed.
K.C. Jagadeb Roy, J.
16. I agree.