CAN A BANK OR CREDITOR INITIATE LEGAL ACTION AGAINST GUARANTOR INSTEAD OF INITIATING PRINCIPAL DEBTOR?

The liability of the guarantor and principle debtors are co-extensive and not in alternative. 

The Supreme Court in United Bank of India Vs Satyawati Tondon and others {(2010) 8 SCC 110; Decided on 26.07.2010} observed and held that the legal position that the liability of the surety/guarantor is co-extensive with the principal debtor, unless it is otherwise provided by the contract and that a creditor is not bound to, exhaust his remedy against the principal debtor before suing the surety/guarantor.

In Bank of Bihar Ltd. v. Damodar Prasad (1969) 1 SCR 620, SUPREME COURT CONSIDERED AND ANSWERED IN AFFIRMATIVE the question whether the bank is entitled to recover its dues from the surety and observed:

"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. 

In State Bank of India v. M/s. Indexport Registered and others (1992) 3 SCC 159, SUPREME COURT HELD THAT THE DECREE-HOLDER BANK CAN EXECUTE THE DECREE AGAINST THE GUARANTOR WITHOUT PROCEEDING AGAINST THE PRINCIPAL BORROWER.

In Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala (2009) 9 SCC 478, this Court again held that the liability of the guarantor and principal debtor is co-extensive and not in alternative.

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