Surety liability: acceptance of a dividend from a liquidator does not discharge guarantors; creditor may proceed.

Question concerns whether a creditor's presentation of an admitted claim to an official liquidator and receipt of a dividend discharges guarantors. The text applies the principle that a surety's liability is co-extensive with the principal debtor subject to contract, and that mere acceptance of a liquidator's admitted claim or forbearance to sue does not, without a contractual or statutory provision or an unauthorised variation of the principal's obligations, discharge the surety. Operative outcome: acceptance of the dividend alone does not discharge guarantors and the creditor may still proceed against them.

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Issues: (i) Whether the plaintiff bank's presentation and acceptance of its claim before the Official Liquidator, and receipt of dividend, discharged the liability of the guarantors; (ii) Whether the plaintiff bank was entitled to proceed against the guarantors notwithstanding the admitted claim against the company in liquidation.

Issue (i): Whether the guarantors' liability was discharged by the bank's preference and acceptance of the claim before the Official Liquidator and receipt of dividend.

Analysis: The Court examined the legal effect of the creditor accepting the admitted claim from the liquidator and relevant provisions of the Indian Contract Act, 1872, including the principle that the liability of a surety is co-extensive with that of the principal debtor (Section 128) subject to contractual provisions. The Court considered authorities establishing that diminution of the principal debtor's liability may affect the surety only where statutory or contractual provisions so provide or where there has been a variation of the principal debtor's liability without the surety's consent. The Court applied Section 137 which provides that mere forbearance by the creditor to sue the principal debtor does not discharge the surety in the absence of contractual provision to the contrary, and found no clause in the guarantee absolving the sureties upon acceptance of the liquidator's admitted claim.

Conclusion: The guarantors' liability was not discharged by the bank's presentation of the claim to, and acceptance of payment from, the Official Liquidator; the acceptance did not operate as a variation or discharge of the guarantee.

Issue (ii): Whether the bank was entitled to proceed against the guarantors despite the admitted claim against the company in liquidation.

Analysis: The Court reviewed authorities holding that a creditor is not required to exhaust remedies against the principal debtor before suing the surety and that a suit can be maintained against a surety even where the principal's liability has been admitted or settled with a liquidator, absent contractual provision to the contrary. The Court found that the bank had both sued the principal debtor and the guarantors and that preferring and obtaining admission of the claim before the liquidator did not amount to foregoing the right to proceed against the guarantors or effect a variation of the guarantee.

Conclusion: The plaintiff bank was entitled to proceed against the guarantors in the suit; the objection raised by the guarantors is disallowed and the bank's right to recover from the guarantors is preserved.

Final Conclusion: The decision confirms that acceptance of an admitted claim from a liquidator and receipt of a dividend, without more, does not discharge or diminish the surety's independent liability under the guarantee; the creditor may proceed against the guarantors unless there is a contractual or statutory provision effecting discharge.

Ratio Decidendi: Where there is no contractual provision to the contrary and no variation of the principal debtor's liability without the surety's consent, mere acceptance of an admitted claim from a liquidator or forbearance to sue the principal does not discharge the surety and the creditor may proceed against the surety without first exhausting remedies against the principal.

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