Creditor Not Bound To Exhaust Remedies Against Principal Debtor First; Guarantor's Liability Is Co-Extensive: Allahabad High Court

"Surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not." Allahabad High Court, in a latest judgment, held that a creditor is not legally bound to exhaust remedies against the principal borrower before proceeding against a guarantor, emphasizing that the liability of a surety is immediate and co-extensive under Section 128 of the Indian Contract Act, 1872.

A division bench comprising Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary observed that a guarantor cannot dictate the sequence of recovery or insist that the principal debtor be pursued first.

The petitioners, working as Postal Assistants, had stood as guarantors for three loans availed by their colleague, who defaulted on repayments. The U.P. Postal Primary Cooperative Bank Limited initiated recovery proceedings against the principal borrower and simultaneously sought to recover dues by ordering monthly salary deductions of ₹10,000 from each of the petitioners. The petitioners approached the High Court under Article 226 of the Constitution, arguing that creditors must first exhaust all remedies against the principal debtor before targeting a guarantor.

The primary question before the court was whether a creditor is obliged to exhaust remedies against the principal borrower before proceeding against a guarantor, and whether the liability of the guarantor is co-extensive, rendering them jointly and severally liable.

Statutory Scope Of Section 128 Contract Act

Analyzing the legal framework, the bench noted that a plain reading of Section 128 of the Indian Contract Act, 1872 establishes that the liability of a surety is co-extensive with that of the principal debtor unless provided otherwise by the contract. The court observed that the expression co-extensive denotes that the quantum of the guarantor's obligation is identical to that of the principal borrower.

"Guarantor Liable For Whole Amount"

The judges explained that the guarantor is liable for the entire amount for which the principal borrower is liable, and their liability is neither more nor less in the absence of contrary contractual terms. The liability remains joint and several, allowing the creditor to proceed against either party or both simultaneously.

"The liability of the guarantor is immediate, absolute, and co-extensive with that of the principal borrower, and simultaneous recovery is fully permissible under law."

Reiteration Of Apex Court Precedents

Recalling established jurisprudence, the court cited the Supreme Court ruling in Bank of Bihar Ltd. v. Dr. Damodar Prasad, where it was held that asking a creditor to postpone remedies against a surety defeats the very object of a guarantee. The bench also referenced State Bank of India v. M/s Indexport Registered and Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala to affirm that no hierarchy of remedies exists that a creditor must mandatorily follow.

Petitioner's Reliance On Precedent Held Self-Defeated

Addressing the petitioners' reliance on the Supreme Court decision in Ram Kishun v. State of U.P., the bench held that the cited paragraphs actually reinforced the court's view and defeated the petitioners' arguments. The court noted that the judgment clearly states that a surety has no right to restrain execution or dictate terms to a creditor regarding the mode of recovery.

"The judgment relied upon by the petitioners is a self-goal on the part of the learned counsel and does not advance their case in any manner whatsoever."

Absence Of Contractual Restrictions

The court observed that no material was placed on record to show that the contract of guarantee contained any stipulation postponing the guarantor's liability. In the absence of such contractual restrictions, the statutory rule under Section 128 squarely applied, rendering departmental communications questioning the bank's recovery strategy legally ineffective against statutory rights.

No Violation Of Natural Justice

Rejecting the argument concerning the violation of principles of natural justice due to lack of personal hearing, the bench held that when liability flows directly from a statutory and contractual guarantee, writ petitions cannot be used to bypass civil obligations. The court clarified that while the petitioners cannot restrain the creditor, they remain free to pursue remedies of subrogation or contribution against the principal borrower after discharging the debt.

The High Court concluded that the writ petitions were devoid of merit and upheld the validity of the monthly salary deductions. The petitions were accordingly dismissed with no order as to costs.

Date of Decision: 06 August 2026