M/S MARGADARSI CHITS (KAR) PVT. LTD., vs SRI C N NARASIMHA REDDY
- Court
- Karnataka High Court
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HC-KAR
NC: 2026:KHC:57957-DB
WA No. 2070 of 2025
CNR: KAHC010838552025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 14 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
WRIT APPEAL NO.2070 OF 2025 (GM-CFA)
BETWEEN:
M/S. MARGADARSI CHITS (KAR) PVT. LTD.,
ND
HONNA KAMALA CREST, 2 FLOOR,
GENERAL KARIYAPPA MAIN ROAD,
TUMAKURU – 572101
REP. BY MANAGER
SRI RAVIRAJU .N
AGED ABOUT 47 YEARS
S/O NARAYANAPPA.
…APPELLANT
(BY SRI. BHADRI .R @ BHADRINATH R., ADVOCATE)
AND:
1. SRI C.N. NARASIMHA REDDY
S/O CHIKKANARAYANAPPA
S.L.E.S. GROUP OF INSTITUTION,
NEAR RAILWAY TRACK,
CHELUR ROAD,
CHINTAMANI – 563125.
2. THE JOINT REGISTRAR OF
CO-OPERATIVE SOCIETIES AND CHITS,
CHAMARAJPET,
BENGALURU – 560 004.
3. THE DEPUTY REGISTRAR OF CHITS
TUMAKURU DISTRICT,
TUMAKURU – 572101.
…RESPONDENTS
Digitally signed by
MAHALAKSHMI B M
Location: HIGH
COURT OF
KARNATAKA
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(BY SRI. V. VISWANATH SETTY, ADVOCATE FOR R-1;
SMT. NILOUFER AKBAR, ADDL. GOVT. ADVOCATE FOR R-2 & R-3)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT, 1961 PRAYING TO CALL FOR
RECORDS AND TO SET ASIDE THE IMPUGNED ORDER DATED
13.11.2025 IN W.P.NO.6148 OF 2020 PASSED BY THE LEARNED
SINGLE JUDGE OF THIS HON’BLE COURT AND ETC.,
THIS APPEAL, COMING ON FOR PRELIMINARY HEARING,
THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The appellant has filed the present appeal impugning an
order dated 13.11.2025 [ impugned order ] passed by the learned
Single Judge in Writ Petition No.6148/2020 (GM-CFA). The said
petition was filed by the appellant inter alia impugning an order
dated 07.12.2019 passed by the Joint Registrar of Co-operative
Societies and Chits, Bengaluru Region [ the Joint Registrar ] as
well as the order dated 15.07.2017 passed by the nominee of the
Deputy Registrar of Chits, Tumakuru [ the Deputy Registrar ].
2. The appellant is a chit company registered under the
Companies Act, 1956, and claims to have been engaged in the
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business for more than 55 years. Respondent No.1 [ the
Guarantor ] raised a dispute before the Deputy Registrar, claiming
an amount of ` 11,25,686, along with interest at 24% thereon.
Guarantor was a subscriber to two chits [bearing Nos. LT0011TM-
04 and LT0011TM-03] for a value of ` 20,00,000 each. The amount
was payable in tranches of ` 40,000 each for a period of 50
months, with payments commencing on 19.01.2013. On that date,
the Guarantor paid the first instalment. The Guarantor also
guaranteed the repayment obligations of Sri J.S.Shankar Raju,
`
who had availed a chit bearing No. LT002CCTM-38 for a value of
30,00,000. The Guarantor also stood as a surety for another
participant, Sri K.V.Ananda Gowda, who had a chit bearing No.
`
LT002CCTM-05 for a value of 30,00,000. The appellant states
that both J.S.Shankar Raju and K.V.Ananda Gowda had defaulted
in their repayment obligations and were declared defaulters. The
appellant raised disputes under Section 64 of the Chit Funds Act,
`
1982, against both defaulters, claiming an amount of 9,25,302
and ` 10,68,595, respectively. The Deputy Registrar passed orders
of attachment dated 06.02.2017 against the Guarantor and
restrained the appellant from making any payment to the
Guarantor. Accordingly, the appellant sought to recover the amount
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lying to the credit of the chit bearing No. LT00IITM-04 against the
dues owed by the aforementioned defaulters.
3. The Deputy Registrar passed an award dated 15.07.2017
directing the appellant to pay an amount of ` 8,18,763 with 24%
interest per annum from 27.06.2016 till realisation. The appellant
had challenged the said order in appeal before the Joint Registrar
[Appeal No.JRB/Chits/Appeal/15/2017-18] contending that it had a
lien over the amount lying to the credit of the Guarantor. However,
the Joint Registrar dismissed the said appeal. Aggrieved by the
same, the appellant preferred the writ petition, which was
dismissed by the impugned order.
4. Meanwhile, the Guarantor filed an execution petition bearing
No.302/2017 before the Senior Civil Judge, Tumakuru, to execute
the order dated 15.07.2017 passed by the Deputy Registrar.
5. There is no dispute that the Guarantor stood as surety for the
performance of the repayment obligations by J.S. Shankar Raju
and K.V. Ananda Gowda. However, it is the Guarantor’s case that
there were five other persons who stood as sureties and therefore
th
the Guarantor’s liability was limited to 1/6 of the amount
recoverable from the said defaulters.
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6. The learned counsel for the Guarantor had also submitted
that there was no objection to deducting an amount of ` 3,06,873
th
from the amounts owed to him, which would be equivalent to 1/6
of the amount recoverable from the defaulters as against the
Guarantor’s share of his liability, but that the Guarantor was
entitled to recover the remaining amount of ` 8,18,763 (out of `
11,25,636 which was lying with the appellant).
7. The learned Single Judge referred to the decision of the
Supreme Court in Ram Kishun and Others vs State of Uttar
1
Pradesh and Others , and held that the liability of the sureties was
required to be apportioned among themselves unless the contract
provided otherwise. The learned Single Judge faulted the
appellant for initiating steps against the Guarantor while refraining
from taking similar steps against the other co-sureties. In view of
the said finding, the learned Single Judge dismissed the appellant’s
petition.
8. The learned counsel for the Guarantor referred to Section
146 of the Indian Contract Act, 1872 [ the Contract Act ]. On the
strength of the said provision, he contended that the appellant
1
(2012) 11 SCC 511
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th
could not recover any amount in excess of 1/6 of the total amount
recoverable from the defaulters. He also contended that the
appellant was required to institute proceedings against other co-
sureties to recover the balance amount. He also referred to the
decision of the Supreme Court in Ram Kishun ( supra ).
9. We have heard the learned counsel for the parties.
10. At the outset, we may notice that there is no dispute that the
Guarantor had stood surety for the repayment obligation of the
defaulters and that there was no condition in the agreements of
th
guarantee which limited his liability to the appellant to 1/6 of the
amount of default. Thus, the amount lying to the credit of the
Guarantor which stood attached, was liable to be applied towards
the entire amount recoverable by the appellant from the defaulters.
11. It is well settled that the liability of the surety is co-extensive
with the liability of the principal debtor.
12. Section 128 of the Contract Act reads as under :
“ 128. Surety's liability.— The liability of the surety
is co-extensive with that of the principal debtor, unless it is
otherwise provided by the contract.”
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13. In Bank of Bihar Limited vs Damodar Prasad and
2
Another , the Supreme Court explained the principle in the
following words:
“Under section 128 of the Indian Contract Act, save as
provided in the contract, the liability of the surety is co-
extensive with that of the principal debtor. The surety
became thus liable to pay the entire amount. His liability
was immediate. It was not deferred until the creditor
exhausted his remedies against the principal debtor.”
14. The Supreme Court also explained that it was not necessary
for the lender to first proceed against the principal debtor before
taking recourse against the surety.
15. A somewhat divergent view was taken by the Supreme Court
3
in Union Bank of India vs Manku Narayana . However, the said
decision was over-ruled by the Supreme Court in a subsequent
decision in State Bank of India vs M/s Indexport Registered and
4
Others.
16 . In State Bank of India vs M/s Indexport Registered, the
Supreme Court upheld the principle that the liability of the surety is
co-extensive with that of the principal debtor and that the creditor
2
AIR 1969 SC 297
3
(1987) 2 SCC 335
4
(1992) 3 SCC 159
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was not required to exhaust his remedies as against the principal
debtor before proceeding against the sureties to recover the loan
amount.
17. In view of the above, it is open for the lender to proceed
either against the principal debtor or against the surety (ies) or
both. There is no obligation for the lender to first proceed against
the principal debtor or to simultaneously proceed against the
sureties if there are more than one. As explained by the Supreme
Court, the surety’s liability is co-extensive with that of the principal
debtor. In the present case there are more than one surety. Since
the agreements between the appellant and the sureties do not limit
their liability, each surety's liability is co-extensive with that of the
principal debtor. Accordingly, the appellant could proceed against
all or any of the sureties to recover the amount due.
18. The reliance placed by the learned counsel for the Guarantor
on Section 146 of the Contract Act is misplaced. The said section
is set out below for ready reference :
“ 146. Co-sureties liable to contribute equally.—
Where two or more persons are co-sureties for the same
debt or duty, either jointly or severally, and whether under
the same or different contracts, and whether with or without
the knowledge of each other, the co-sureties, in the
absence of any contract to the contrary, are liable, as
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between themselves, to pay each an equal share of the
whole debt, or of that part of it which remains unpaid by the
principal debtor.”
19. It is important to note the use of the words “as between
themselves” in the said section. It is clear from the same that the
co-sureties will be liable for contribution equally amongst
themselves. However, Section 146 of the Contract Act does not
limit the liability of any surety vis-à-vis the lender. The right of the
lender to recover its debt from the principal debtor or any of the
sureties is not affected by the inter se liability of the sureties under
Section 146 of the Contract Act. Thus, in the event the lender has
recovered the entire debt from one among the sureties, the
sureties themselves have a right to enforce equal contribution.
Thus, if the Guarantor has paid an amount more than other co-
sureties, he will be entitled to recover the amount in excess of his
share from other co-sureties. As established in Re Snowdon ,
(1881) 17 Ch D 44p , a surety can only claim contribution from co-
sureties if they have paid more than their share of the debt. In
5
Amrit Lal Goverdhan Lalan v. State Bank of Travancore , it was
held that each surety is liable for the entire debt vis-à-vis the
creditor, and the right to contribution arises only after one surety
5
1968 INSC 100
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has discharged more than his proportionate share. However, the
provision of Section 146 cannot be read to limit the liability of the
Guarantor towards the appellant.
20. In view of the above, the appeal is allowed. The impugned
order is set aside.
21. The pending interlocutory application stands disposed of.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
CKL
List No.: 1 Sl No.: 6