The liability of the surety and the manner of its enforcement should be decided based on first principles, and the decree against the surety could be co-extensive with the liability of the principal debtors.

( 1 ) THIS appeal by the second defendant, an Insurance Company under the name and style Fukumchand Insurance Company is directed against the judgment and decree dated 3-2-1973 in O. S. No. 9 of 1970 on the file of the Court of the II Additional Civil Judge, Belgaum, by which the court-below held the second-defendant liable to the suit claim to the extent of Rs. 1,66,231-15 on the basis of a Credit Indemnity Policy dated 28-12-1967 issued by it in favour of the plaintiff.

( 2 ) THE facts, in so far as they are material for the disposal of this appeal, are the following : plaintiff, Bank of Baroda, is a Nationalised Bank, Defendant-1 is a firm of partners of which defendants 1 (a) to 1 (f) are stated to be the partners. On 28-1-1967, first defendant executed what is styled as a "cash Credit Agreement" with the plaintiff and secured cash credit facility to the extent of Rs. 2,00,000/- for the purpose of its business. By way of security the movable assets of the firm were hypothecated in favour of the creditor-Bank. In addition, under a mortagage by deposit of title-deeds certain immovable properties situate at Wadgaon, Belgaum, mahadevpur and Angol were offered as security for the said loan. On 28-12-1967, second defendant issued what is styled "bank Loan/ cash Credit Indemnity Policy", as per Exhibit-P-6, by which in consideration of the payment of Rs. 3,000 by the first defendant, the second defendant undertook to indemnify the plaintiff against losses that may be suffered by the plaintiff in consequence of any default on the part of the first-deiendant in due repayment of ail moneys at any time payable by the first-defendant to the plaintiff, provided that the liability under that policy did not exceed the principal sum of Rs. 2,00,000/ -. The first- defendant having committed default in the matter of re-payment of the moneys borrowed from the plaintiff, plaintiff instituted tne present suit against both the defendants and sought recovery of Rs. 2,24,334-33 from them.

( 3 ) FIRST defendant while admitting the liability, disputed, in some measure, its extent and sought for the grant of instalments in re-payment.

( 4 ) SECOND defendant, however, raised a number of defences. It even denied having issued any Cash Credit indemnity Policy in favour of the plaintiff also contended that the person who executed the alleged Cash Credit indemnity Policy on behalf of the second defendant had no right or authority or power to execute or issue such documents and that therefore no liability on its part arose. It also contended that the Policy was vitiated by non-disclosure of materal facts, and, that at all events, the loan sought to be recovered had been advanced even prior to the date of the Policy and that therefore the second defendant could not be held liable.

( 5 ) ON these pleadings, the Court below framed the necessary issues, of which the following are material for the purpose of this appeal: (3) Whether defendant-2 had undertaken to indemnify the plaintiff by the Insurance Policy? (4) Whether the Insurance Policy issued is unauthorised and invalid? (5) Whether the Policy is invalid on any grounds of suppression of material facts by plaintiff and defendant-1? (6) Whether the plaintiff has violated the conditions of! the cash credit policy and is not entitled to enforce it?

( 6 ) ON an appreciation of the evidence on record, the Court below recorded findings in favour of the plaintiff on all these issues and entered a decree in favour of the plaintiff. However, as during the pendency of the proceedings the first defendant had paid the sum of Rs. 33,760-85 towards the suit claim, the liability of the second defendant was limited to Rs. 1,66,231-15 and the suit against the first defendant was decreed as prayed for.

( 7 ) WE have heard Sri D. Cheluvaraju, learned Counsel for the second defendant-appellant; Sri S. G. Sundaraswamy, learned Counsel for the plaintiff-respondent-1, and Sri N. A. Mandagi, learned Counsel fo