The liability of a surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. The creditor can proceed against the surety without exhausting his remedies against the principal debtor.

HANSARIA, C. J, J.

( 1 ) THE petitioners had stood as guarantors for due repayment of the loan granted to one Girija Shankar Panda by the Orissa State Financial Corporation. While doing so, they mortgaged their properties with the Corporation by depositing their title deeds. The loan was advanced to enable Girija Shankar to purchase a bus. The same was transferred to Sankarsan Panda, opposite party No. 3, on 31-3-1988. The petitioners agreed to continue to remain as guarantors for Sankarsan also. Sankarsan ran into default, and the outstanding as on 15-7-1989 was to the extent of Rs. 2,06,631/ -. When Sankarsan did not repay the loan despite notice, the Corporation tried to seize the bus in question when it was found that the Regional Transport Officer, Sambalpur had seized the said bus for non-payment of taxes, which along with penalty came to Rupees 4,26,876 / -. A negotiation was made with the Regional Transport Officer, Sambalpur by the officials of the Corporation to take the bus into their custody, but having failed to do so, a notice under S. 29 of the Orissa State Financial Corporation Act, 1951 was issued against the petitioners asking them to clear up the outstanding, failing which they were informed that the properties mortgaged in favour of the Corporation shall be dealt with in accordance with S. 29 of the Act. On failure of the petitioners to pay the defaulted amount, the mortgaged assets were taken over by the Corporation vide Annexure-2 dated 19 / 22-1-1991. These actions of the Corporations have been assailed in this petition.

( 2 ) SHRI Purohit appearing for the petitioners has submitted that without exhausting the remedy against Sankarsan, the Corporation cannot proceed against the petitioner's properties. To put it differently, according to the petitioners, the Corporation should have, on its failure to seize the bus, seized other movable and immovable assets of Sankarsan and on its failure to get the outstanding liquidated by doing so, the Corporation could have taken over the mortgaged properties of the guarantors.

( 3 ) THE point for examination, therefore, is as to what is the extent of the liability of the guarantors in a case of the present nature. Shri Purohit has referred to Union Bank of India v. Manku, AIR 1987 SC 1078, which dealt with a case wherein a decree had been passed personally against the guarantor who was respondent before the Supreme Court as also against the mortgaged property. The High Court held that the decree-holder had to proceed first against the mortgaged property and the principal debtor and then only against the guarantor. This order was challenged before the Supreme Court by the decree-holder, who placed reliance on the decision in Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297 : (1969 All LJ 475) the ratio of which we shall note later. The Court did not apply the ratio of Damodar Prasad's case to the one at hand and observed in paragraph 4 that the decree being a composite one personally against the defendant including the respondent and also against the mortgaged property, the decree-holder has to proceed against the mortgaged property first and then proceed against the guarantor. Having found that the Bank had proceeded against the mortgaged property and also against the principal debtor, it was held that the execution against the guarantor was maintainable.

( 4 ) THE aforesaid decision cannot be taken to have laid down that without proceeding against the movable or immovable properties of the principal debtor, execution cannot be taken out against the guarantor, even though he had mortgaged his properties with the creditor as a surety for the loan. The decision in Damodar Prasad cannot be said to have been overruled by this decision inasmuch as that decision was by a Bench of three Judges whereas the present one is by a Bench of two Judges. We shall, therefore, see what was held in the case of Damodar Prasad. Before we do so, we may deal with another case cited by S