"Most Respected Lordships, I, [Your Name], appearing on behalf of the Petitioner, the Bank of Bihar Ltd.
,
shall address the first issue. Our contention is simple: Under the Indian Contract Act, 1872, a creditor’s
right to proceed against a surety is immediate and unconditional upon the default of the principal debtor."
Firstly The Mandate of Section 128 (Co-extensive Liability)
"My Lordship, I direct the Court’s attention to Section 128 of the Act. It explicitly states that the liability of
the surety is 'co-extensive' with that of the principal debtor, unless provided otherwise by the contract.
The Argument: 'Co-extensive' does not merely define the quantum of the debt; it defines the nature
of the obligation. The surety’s liability is not secondary or contingent upon the failure of legal
proceedings against the debtor. It is a concurrent liability.
The Fact: In the present case, My Lordship, the guarantee bond contains no clause requiring the
Bank to sue the debtor first. Therefore, the statutory rule of immediacy under Section 128 must
prevail."
Secondly The Commercial Efficacy of Section 126
"My Lordship, the very definition of a 'Contract of Guarantee' under Section 126 is to provide 'security' for
the performance of a promise.
If the Petitioner is forced to 'exhaust remedies'—a process that could take decades in our legal
system—the guarantee ceases to be 'security' and becomes a 'hollow promise.'
The commercial purpose of a bank guarantee is to ensure liquidity and prompt recovery. To
compel the Bank to first pursue a potentially insolvent debtor (Respondent 1) before touching the
assets of the surety (Respondent 2) renders the contract of guarantee redundant and commercially
dead."
Thirdly Pre-1968 Judicial Precedents
"This principle, My Lordship, is not new. It has been the bedrock of Indian and English law for over a
century:
1. Lachhman Joharimal v. Bapu Khandu (1869): The Bombay High Court held that a creditor is not
bound to exhaust his remedy against the principal debtor before suing the surety.
2. Wright v. Simpson (1802): A foundational English authority cited frequently in our courts, which
clarifies that the surety has no 'special equity' to compel the creditor to sue the debtor first. It is the
surety’s business to see that the debtor pays, not the creditor's.
3. Section 140 (Right of Subrogation): My Lordship, the surety is already protected by Section 140.
Once he pays the Bank, he is invested with all the rights which the creditor had against the principal
debtor. The law provides him a remedy after payment; it does not allow him to delay payment."
Lastly The Error of the Lower Court
"The trial court, My Lordship, erred in law by staying the execution of the decree against the surety. Such a
stay is a violation of the Petitioner’s right to the 'fruits of the decree.'
If the debtor is solvent, as the Respondent claims, let the surety pay the Bank and recover from the
debtor under Section 140.
Why should the Bank, the innocent creditor, be made to wait and bear the risk of the surety’s own
potential insolvency during the intervening years of litigation?"
Unless My Lordship has further questions, that concludes my submissions."
Strategic Tips for the "Hot Bench"
If the Judge asks: "But isn't it moral to go after the person who actually took the money first?"
Your Response: "My Lordship, in commercial law, 'morality' is defined by the sanctity of the
contract. Under Section 128, the surety voluntarily stepped into the debtor's shoes. By signing the
bond, he told the Bank: 'If he doesn't pay, I will.' The Bank acted on that promise. It would be
'immoral' to deny the Bank the benefit of the contract it relied upon."
1. The "Equity" Question
Judge: "Counsel, isn't it inherently unfair to ruin a surety—who didn't even use the loan money—while the
principal debtor sits on his assets? Shouldn't 'Equity' demand you go after the person who actually spent the
money first?"
Your Response: "With the utmost respect, My Lordship, Equity follows the law. Section 128 of the Indian
Contract Act defines the 'equity' of this transaction by making the liability co-extensive. The surety
voluntarily entered this contract knowing the risk. Furthermore, Section 140 provides the surety his own
equitable remedy: the Right of Subrogation. Once he pays the Bank, he steps into our shoes to sue the debtor.
Equity does not mean the Creditor must suffer delay; it means the Surety must pay and then seek his own
recovery."
2. The "Solvency" Question
Judge: "If the Bank knows the Principal Debtor is perfectly solvent and has the funds, why is the Bank
being so aggressive against the Surety? Why not just take it from the Debtor?"
Your Response: "My Lordship, the solvency of the debtor is legally irrelevant to the creditor's right of
action. As held in the pre-1968 authority of Wright v. Simpson, it is the surety’s business to see that the
debtor pays, not the creditor’s. If the debtor is solvent, the surety should have no trouble recovering the
amount from him under Section 140 after satisfying the Bank’s decree. The Bank should not be forced into a
'litigation marathon' just because the debtor is being difficult."
3. The "Order of Execution" Question
Judge: "The trial court hasn't cancelled your decree; it just asked you to try the Debtor first. What 'injury' is
the Bank suffering by simply following a sequence of recovery?"
Your Response: "The injury, My Lordship, is the risk of time. A decree is a 'fruit' of litigation, and the
Petitioner is entitled to taste that fruit immediately. By the time we 'exhaust' remedies against the debtor—
which could take years of execution proceedings—the Surety (Respondent 2) might dispose of his assets or
become insolvent himself. Under Section 128, the Bank is a 'secured' creditor; the lower court's order turns
us into an 'unsecured' creditor waiting in a long line."
4. The "Definition of Exhaustion" Question
Judge: "Counsel, what do you think the lower court meant by 'exhausting all remedies'? Isn't that a
reasonable safeguard?"
Your Response: "That is precisely the Petitioner's grievance, My Lordship. The term 'exhaustion' is
dangerously vague. Does it mean we must file for the debtor's insolvency? Must we attach his moveables,
then his immoveables, then his person? Such vagueness creates a legal vacuum that allows the surety to
escape his statutory liability under Section 128. The only 'condition' for the surety’s liability is the default of
the debtor, which has already occurred."
5. The "Contractual Intent" Question
Judge: "If the Bank wanted the right to sue the surety first, shouldn't you have put a specific 'sue-me-first'
clause in the contract?"
Your Response: "My Lordship, the law operates in the inverse. Under Section 128, the liability is co-
extensive unless it is otherwise provided by the contract. The 'default' setting of the law is immediate
liability. Since the Respondent failed to negotiate a 'restrictive clause' in the guarantee bond, he is bound by
the general mandate of the Indian Contract Act."
Final Tip for Speaker 2:
If the judges keep pushing on "Fairness," keep pivoting back to Section 140 (Subrogation). It is your
best defense because it proves the law already has a mechanism to protect the surety, so the Court
doesn't need to invent a new one.
THE CASE OF BANK OF BIHAR LTD. V. DAMODAR PRASAD & ANR. IS A LANDMARK
JUDGMENT ON THE LIABILITY OF A SURETY UNDER THE INDIAN CONTRACT ACT, 1872.
Facts:
The bank gave a loan to the principal debtor. The respondent, Damodar Prasad, stood as a surety (guarantor)
for the loan. When the debtor defaulted, the bank sued both the debtor and the surety. The surety argued that
the bank should first exhaust remedies against the principal debtor before proceeding against him.
Issue:
Whether the liability of a surety is secondary (i.e., arises only after proceeding against the principal debtor)
or immediate.
Judgment:
The Supreme Court of India held that the liability of the surety is co-extensive with that of the principal
debtor under Section 128 of the Indian Contract Act, 1872, unless otherwise provided in the contract.
Key Principle:
The creditor is not bound to first sue the principal debtor. The surety can be directly proceeded against
without exhausting remedies against the debtor.
Conclusion:
This case firmly establishes that a surety’s liability is immediate and equal, making the guarantee a strong
security for creditors.