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Union Bank Of India v. Manku Narayana .
Factual and Procedural Background
The Union Bank of India granted a loan of Rs 5,100 to the principal debtor on 21 October 1970. The loan was supported by (i) a registered simple mortgage dated 16 October 1970 over joint family property securing Rs 2,300 of the advance and (ii) an independent guarantee executed by the respondent-guarantor. When the debt remained unpaid, the Bank filed Suit No. 87 of 1974 against the principal debtor and the guarantors to recover Rs 5,626.70. The civil court passed a composite decree: it declared the defendants personally liable and fixed Rs 3,093.25 as the mortgage debt recoverable from the mortgaged property.
In execution, the Bank proceeded first against the guarantor. The guarantor objected, contending that the Bank had to exhaust remedies against the mortgaged property and the principal debtor and that the mortgage portion of the decree, being preliminary under Order 34, could not yet be executed. The execution court upheld the objection. The Bank’s revision (C.R.P. No. 1743 of 1979) was dismissed by a learned Single Judge of the Andhra Pradesh High Court with a similar direction. The present appeal to the Supreme Court was brought by special leave.
Legal Issues Presented
- Whether a decree-holder Bank must first exhaust its remedies against the mortgaged property and the principal debtor before executing the decree against a guarantor when the decree is partly a mortgage decree and partly a personal decree.
- Whether the mortgage portion of the composite decree, being preliminary in nature under Order 34, bars execution against the guarantor until a final decree is obtained.
Arguments of the Parties
Appellant (Union Bank of India)
- Relied on the Supreme Court decision in Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297, to contend that a creditor need not exhaust remedies against the principal debtor before proceeding against a guarantor.
- Maintained that the guarantee is an independent contract; postponing execution against the guarantor would defeat the very purpose of the guarantee and undermine banking practice.
- Asserted (in the statement of facts attached to the special-leave petition) that it had already taken steps to sell the mortgaged property and to proceed against the principal debtor, but no purchaser had come forward.
Respondent (Guarantor)
- Objected to execution, arguing that the Bank must first proceed against the mortgaged property and the principal debtor and that only after those avenues are exhausted can the guarantor be pursued.
- Contended that the mortgage aspect of the decree is merely preliminary under Order 34 and therefore not presently executable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297; (1969) 1 SCR 620 | A creditor is ordinarily entitled to proceed directly against a guarantor without first exhausting remedies against the principal debtor unless special equity exists. | The Court noted the principle but distinguished it, holding that the composite nature of the present decree (partly secured by mortgage) created a “special equity” requiring initial recourse to the mortgaged property. |
Court's Reasoning and Analysis
1. The Supreme Court characterised the decree as “composite” – partly creating personal liability and partly enforcing a mortgage. Because a portion of the decretal amount is secured by mortgage, the Court considered it equitable and legally proper that the decree-holder first exhaust security afforded by that mortgage.
2. The Court declined to decide whether the two parts of the decree were severable; instead, it proceeded on the premise that the mortgage portion covered part of the debt. Hence, the Bank should initially proceed against the mortgaged property.
3. While acknowledging Damodar Prasad, the Court held that the presence of a mortgage security differentiates the present case and creates a “special equity” favouring the guarantor’s request to postpone execution until the security is pursued.
4. However, new information in the special-leave petition indicated that the Bank had in fact attempted to sell the mortgaged property and had taken action against the principal debtor but obtained no bidder. If substantiated, this would satisfy the prerequisite of exhausting primary remedies.
5. Because this factual assertion had not been placed before the High Court, the Supreme Court remanded the matter so that the High Court could verify the Bank’s efforts and, if proved, permit execution against the guarantor.
Holding and Implications
ORDER: Appeal dismissed; matter remanded to the Andhra Pradesh High Court for fresh consideration with liberty to the appellant to establish that it has pursued the mortgaged property and the principal debtor. No order as to costs.
Implications: The decision reaffirms that when a decree is partially secured by mortgage, the creditor should, as a rule, first realise the mortgaged asset before proceeding against a guarantor. At the same time, the Court left open the possibility of immediate execution against the guarantor once the creditor demonstrates bona fide attempts to exhaust the mortgage remedy. No new precedent was set; the practical effect is confined to directing the High Court to reassess execution in light of the Bank’s additional evidence.
V. Khalid, J.— The Union Bank of India is the appellant. This appeal is directed against the order passed by a learned Single Judge of the Andhra Pradesh High Court in Civil Revision Petition No. 1743 of 1979, directing the appellant to exhaust the remedies available in law, against the mortgaged property and the principal debtor in execution of a decree obtained by it before proceeding to execute the same against the guarantor.
2. The appellant filed a suit, No. 87 of 1974, against the principal debtor and the guarantors, one of them being the respondent, for recovery of a sum of Rs 5626.70 The principal debtor had borrowed a sum of Rs 5100 from the Bank on October 21, 1970, on the strength of the guarantee executed by the respondent and the principal debtor. By the said guarantee the respondent undertook to repay the sum independently. The principal debtor and others had executed a registered simple mortgage deed dated October 16, 1970, in favour of the Bank creating a mortgage in respect of their joint family property in order to secure due payment of a sum of Rs 2300 out of the loan amount of Rs 5100. Since the amount remained unpaid a suit was filed by the Bank for recovery of the amount. A decree was passed against the defendants including the respondent, making them personally liable for the decreed amount and also declaring that the amount due to the bank on the mortgage mentioned in the plaint shall be the sum of Rs 3093.25 The bank sought execution of the decree against the respondent-guarantor. Execution was resisted with the plea that the Bank should proceed first against the mortgaged property and the principal debtor and that it could proceed against the guarantor only after those steps were exhausted. A preliminary objection was also taken against execution stating that the decree was partially a decree on a mortgage under Order 34 which was preliminary in nature and that it could be executed only after the final decree was passed. The execution court upheld this plea. The Bank took the matter in revision before the High Court. The High Court relied upon an earlier decision rendered in a similar petition where also the appellant-bank was the decree-holder and held that the appellant had to proceed first against the mortgaged property and the principal debtor and then only against the guarantor. This appeal by special leave is directed against the said order.
3. The learned counsel for the appellant placed strong reliance upon a decision of this Court in Bank of Bihar v. Damodar Prasad AIR 1969 SC 297, (1969) 1 SCR 620 in support of his contention that it was not necessary to exhaust the remedies of a decree-holder against the principal debtor before proceeding against a guarantor or a surety. In that case this Court was considering the correctness of a direction to the creditor to enforce his decree against the surety only after exhausting the remedies against the principal debtor. It was held that in the absence of some special equity, the surety had no right to restrain execution against him until the creditor had exhausted his remedies against the principal. This Court observed that it would work injustice in some cases if action against the guarantor was postponed till remedies against the principal debtor were exhausted, for in certain cases it might take long time before the remedies are exhausted. In that case also the decree-holder was a banking company. This Court observed that the very object of the guarantee would be defeated if the creditor was asked to postpone his remedies against it and that a guarantee being a collateral security, usually taken by a banker, would become useless if the rights of the bank or the creditor who took such surety were cut down by a direction in the decree curtailing the right of the decree-holder to proceed against the decree-holder only after remedies were exhausted against the principal debtor. This Court, on a consideration of the facts of that case, set aside the direction made by the decree that the “plaintiff-Bank shall be at liberty to enforce its dues in question against Defendant 2 only after having exhausted its remedies against Defendant 1”. The appellant's counsel pleaded before us seeking support from this judgment that the Bank could proceed against the guarantor without exhausting the remedies since the guarantee was an independent one. We have difficulty in accepting this case.
4. The decree in execution is a composite decree, personally against the defendants including the respondent and also against the mortgaged property. We do not pause to consider whether the two portions of the decree are severable or not. We are of the view that since a portion of the decreed amount is covered by the mortgage, the decree-holder Bank has to proceed against the mortgaged property first and then proceed against the guarantor. Since the High Court was not told that such steps were taken, we do not think we will be justified in holding that the High Court was in error in making the direction which is under challenge before us. The appeal, under these circumstances, has therefore to be dismissed.
5. However, we are told by the appellant's counsel that the Bank had taken steps against the mortgaged property and also against the principal debtor. We find in clause (H) of the statement of facts in the SLP the following statement:
“The petitioners say that they made an application for sale of the mortgage property but there was no offer for purchase of the mortgage property. The petitioners also filed an execution application against the respondent for execution of the said decree by committing the respondent to civil prison. Respondent 1 filed a revision application being Civil Revision Application No. 1472 of 1979 against the order of the Court of District Munsif, Gajapatinagaram dated February 17, 1979 passed in Execution Application No. 45 of 1978 filed by the petitioners.”
6. From this it is evident that the decree-holder had proceeded against the mortgaged property and also against the principal debtor. If this is correct, execution against the guarantor was maintainable. In view of this disclosure, we remand the matter to the High Court giving opportunity to the appellant to plead this case before the High Court and seek execution of the decree against the respondent with liberty to the respondent to dispute the correctness of this statement. The High Court will dispose of the matter in accordance with law. No order as to costs.
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