Bank of Bihar vs Damodar Prasad & Anr.

Case Name: Bank of Bihar vs Damodar Prasad & Anr.

Jurisdiction: Supreme Court of India

Parties:

Appellant: Bank of Bihar Ltd.

Respondents: Damodar Prasad (1st respondent), Anr. (2nd respondent)

Facts of Bank of Bihar vs Damodar Prasad & Anr.

The appellant, Bank of Bihar, had extended a loan to the first respondent, Damodar Prasad, with the second respondent providing a guarantee for the loan. However, the loan amount was not repaid by the first respondent, leading the appellant to file a suit against both respondents for the recovery of the outstanding amount. 

The Trial Court decreed the suit in favour of the appellant. During the decree, the Trial Court issued a direction stating that the appellant could not enforce the decree against the second respondent until they had exhausted their remedies against the first respondent.

Issues Raised

The issues raised in Bank of Bihar vs Damodar Prasad & Anr. were:

• Whether the direction issued by the Trial Court, preventing the appellant from enforcing the decree against the second respondent until exhausting remedies against the first respondent, was justified?
• Whether such a direction is in line with Order XX Rule 11(1) of the Code of Civil Procedure (C.P.C.)?
• Whether the Court had the inherent power under Section 151 of the C.P.C. to issue such a direction?

Bank of Bihar vs Damodar Prasad & Anr. Judgement

The Supreme Court in Bank of Bihar vs Damodar Prasad & Anr. set aside the direction issued by the Trial Court. It held that unless there exists some special equity, a surety does not have the right to restrain execution against them until the creditor has exhausted their remedies against the principal debtor. 

The Court in Bank of Bihar vs Damodar Prasad & Anr. emphasised that for an order under Order XX Rule 11(1) of the Code of Civil Procedure, specific reasons must be provided. The direction of postponing the payment of the decreed amount must be clear and specific, which was not the case here. Additionally, it was noted that the very purpose of a guarantee would be defeated if the creditor were asked to postpone their remedies against the surety. 

The Court in Bank of Bihar vs Damodar Prasad & Anr. further observed that assuming the Court had inherent power under Section 151 of the C.P.C. to direct postponement of the execution of the decree, the ends of justice did not require such postponement in this case. Therefore, the direction issued by the Trial Court was not justified under Order XX Rule 11(1) and did not meet the requirements of Section 151 of the C.P.C.

Precedents:

The Court referred to the case of Lachhman v. Joharimal, which emphasised the duty of the surety to pay the decretal amount and the surety’s right to be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act.

Conclusion

The Supreme Court in Bank of Bihar vs Damodar Prasad & Anr. held that the direction issued by the Trial Court was not justified and set it aside. It reiterated the principle that the surety does not have the right to restrain execution against them until the creditor has exhausted their remedies against the principal debtor unless there exists some special equity.