Editorial Note: This is the first part of a two-part article series on the execution of composite and joint decrees by Harshit Sharma, Trainee Civil Judge-cum-JMFC, Doctoral Candidate (NLU Jodhpur). The first part discusses about composite decrees, objections raised during their execution, and how to decide them. The second part focuses on joint decree and some practical problems related to its execution.
Introduction
Civil Procedure Code is a unique work as on one hand it provides procedure to obtain a decree and on the other, the way and means to execute the decree. In order to reap the fruits of the litigation successfully decided in favour of the litigant, it is necessary that due execution of decree passed in favour of the Decree Holder be made.
According to Section 2(2) of CPC[i], “Decree” means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final”. As we know a decree can be preliminary or final or partly preliminary and partly final. But few types of decree that misses our attention but are regularly confronted before court for execution are Composite Decree and Joint Decree.
Composite Decree is a decree which is passed both against the person and property of Judgement Debtor. Sometimes loosely court also uses this word when the decree has been passed against Judgment Debtor in capacity of Principal Debtor and his surety/guarantor. While Joint Decree is one which is passed against multiple judgement debtors having joint and several liability.
Issues that arise in their execution
- Suppose for Repayment of Debt, Principal Debtor (PD) secured a property in favour of Creditor along with a person undertaking guarantee on behalf of PD that in case PD is not able to repay the debt he will be the one who will pay it. Can a Decree Holder proceed against Guarantor directly in execution before satisfying claim from the property or PD?
- In cases of Joint Decrees where the liability of all the Judgement Debtors is joint and several, can the decree holder compel anyone or few of them out of all the judgment debtors to satisfy the entire decreed amount? And in case anyone or few of them is compelled then what is the remedy with them in relation to rest of the judgment debtors?
Issue No. 1
With regard to first issue the position was different in early days. Hon’ble Supreme Court of India in Union Bank of India v. Manku Narayana[ii] took the view that the decree in execution before them is a composite decree since it is personally against the defendants and also against the mortgaged property. According to the court since a portion of the decreed amount was covered by the mortgage, the decree-holder bank has to proceed against the mortgaged property first and then proceed against the guarantor.
Based on this case courts used to rule that if decree is a composite decree, personally against the principal debtor and the guarantor and also against the mortgaged property of defendant, the decree holder should proceed first against the mortgaged property and in case the property is not able to satisfy the claim then against the guarantor or surety.
In Bank of Bihar Ltd. v. Damodar Prasad and Anr.[iii], the facts were that the plaintiff Bank lent money to Damodar Prasad, defendant No. 1, on the guarantee of Paras Nath Sinha, defendant No. 2. On the date of the suit, Damodar Prasad was indebted to the Bank for Rs. 11,723 on account of principal and Rs. 2,769 on account of interest. In spite of demands neither the principal debtor nor the guarantor paid the dues. The plaintiff Bank then filed a suit claiming a decree for the amount due. The trial court decreed the suit against both the defendants but while passing the decree the trial court directed that the plaintiff Bank shall be at liberty to enforce its dues against defendant No. 2 only after having exhausted its remedies against defendant No. 1. The plaintiff went in appeal challenging the legality and propriety of this direction, The High Court dismissed the appeal, whereupon on certificate, the matter came before the Hon’ble Supreme Court. Bachawat, J. speaking for the Court held:
“The direction must be set aside. It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. The very object of the guarantee is detected if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is banking company. A guarantee is a collateral security usually taken by a banker. The security for creditor will become useless if his rights against the surety can be so easily cut down. The Court further held that such directions are neither justified under Order XX Rule 11(1) or under the inherent powers of the Court under Section 151 of the CPC to direct postponement of the execution of the decree.”
Based on Order 20 Rule 11(1)[iv] and Section 151 of the Code of Civil Procedure[v] the Court passing the decree has the power to impose the condition that the decree holder/creditor would not enforce the decree against the surety until the creditor had his remedies against his principal. But for making an order under Order 20, Rule 11(1) the Court must give sufficient reasons. The direction postponing payment of the amount decreed must be clear and specific. The injunction upon the creditor not to proceed against the surety until the creditor has exhausted his remedies against the principal shouldn’t be of vaguest character without any clear cut and specific reasons. But the solvency of the principal is not a sufficient ground for restraining execution of the decree against the surety.
In State Bank of India vs Indexport Registered and Ors.[vi] the main objection was that no steps were taken against the mortgaged property i.e. shop and no action by way of execution could be taken for proceeding against the guarantor till the mortgaged shop is sold and it is only if the realisation from the sale of the shop is deficient that the balance could be recovered from the judgment debtors personally. The question that arose before the court was, whether a decree which is framed as a composite decree as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier.
Hon’ble Court based on the previously mentioned case held that there is nothing in law which provides such a composite decree to be first executed only against the property. Neither in this case trial court imposed any limitation that decree needs to be satisfied first out of the mortgaged property then personally against the judgement debtor. Since the decree is simultaneous and it is jointly and severally against all the defendants including the guarantor, it is the right of the decree holder to proceed with it in the way he likes.
Moreover Section 128 of the Indian Contract Act[vii] itself provides that “the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the Contract”. Surety’s liability is co-extensive with that of the principal debtor. A surety’s liability to pay the debt is not removed by reason of the creditor’s omission to sue the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety and a suit may be maintained against the surety though the principal has not been sued.[viii] Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor.[ix] Neither it is necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for.[x]
It needs to be kept in mind that before payment, the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings. Likewise where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal.
In The Hukumchand Insurance Co. Ltd. vs The Bank of Baroda and Ors.[xi], Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety vis-à-vis the principal debtor. Venkatachaliah, J. (as His Lordship then was) observed:
“The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. 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. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. It will be noticed that the guarantor alone could have been sued, without even suing the principal debtor, so long as the creditor satisfies the court that the principal debtor is in default.”
So the conclusion is, a guarantor could be sued without even suing the principal debtor and there is no reason, even if the decretal amount is covered by the mortgaged decree, to force the decree-holder to proceed against the mortgaged property first and then to proceed against the guarantor. It of course depends on the facts of each case how the composite decree is drawn up. But if the composite decree is a decree which is both a personal decree as well as a mortgage decree, without any limitation on its execution, the decree holder, in principle, cannot be forced to first exhaust the remedy by way of execution of the mortgage decree alone and told that only if the amount recovered is insufficient, he can be permitted to take recourse to the execution of the personal decree.
When the decree is in favour of the Bank this objective needs to be kept in mind
With a view to give impetus to the industrial development of the country, the Central and State Governments encouraged the banks and other financial institutions to formulate liberal policies for grant of loans and other financial facilities to those who wanted to set up new industrial units or expand the existing units. Many hundred thousand took advantage of easy financing by the banks and other financial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading the Civil Courts to pass orders of injunction against the steps taken by banks and financial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular Courts could not accomplish the task of expeditiously adjudicating the cases instituted by banks and other financial institutions for recovery of their dues. As a result, several hundred crores of public money gets blocked in unproductive ventures.
Second part of the blog will be dealing with Execution of Joint Decrees.
[i] https://www.indiacode.nic.in/handle/123456789/2191?sam_handle=123456789/1362
[ii] [1987] 1 SCR 562
[iii] [1969] 1 SCR 620.
[iv] https://www.indiacode.nic.in/handle/123456789/2191?sam_handle=123456789/1362
[v] https://www.indiacode.nic.in/handle/123456789/2191?sam_handle=123456789/1362
[vi] Civil Appeal No. 1888 of 1992 (arising out of S.L.P. (Civil) No. 7434 of 1990)
[vii] https://indiankanoon.org/doc/1377136/
[viii] Pollock & Mulla on Indian Contract and Specific Relief Act, Tenth Edition, at page 728.
[ix] Chitty on Contracts 24th Edition Volume 2 at page 1031 paragraph 4831.
[x] Halsbury’s Laws of England Fourth Edition paragraph 159 at page 87.
[xi] AIR 1977 Kant 204.
ABOUT THE AUTHOR
Harshit Sharma
Harshit is a trainee Civil Judge-cum-JMFC at Rajasthan Judicial Services, and a doctoral candidate (PhD) at NLU Jodhpur. He can be reached at harshitsharmanluj@gmail.com.
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