Karnataka High Court
R. Lilavati vs Bank Of Baroda And Ors. on 4 June, 1986
Equivalent citations: [1986]60COMPCAS658(KAR), AIR 1987 KARNATAKA 2, ILR 1987 KANT 964, (1987) 1 ARBI LR 251, (1987) 1 ARBI LR 20, (1987) BANKJ 111, (1986) 2 CURCC 980
JUDGMENT
1. This is a defendant No. 4's revision against the judgment and decree dated July 15, 1983 passed by the First Additional Small Causes Judge, Bangalore City, in S.C. No. 137 of 1982 decreeing the suit against all the defendants including defendant No. 4.
2. The plaintiff granted credit facility of defendants Nos. 1 to 3 in the name of their firm - defendant No. 1. The first transaction was the demand loan of Rs. 12,000 and the other cash credit hypothecation facility to the limits of Rs. 25,000. Ultimately, after giving deduction to the amounts paid, the suit was filed by the plaintiff bank for Rs. 8,644.08. Defendant No. 4 had stood surely for both the loans.
3. Defendants Nos. 1 to 3 did not contest the suit. It is only defendant No. 4 that resisted the suit. She raised a contention that as the plaintiff creditor allowed the hypothecated properties to be lost, her liability as a surety stood discharged. The second contention urged is that the acknowledgment given by defendants Nos. 1 to 3 in order to keep their debts alive does not bind her as she has not signed acknowledgment.
4. The trial court negatived all the contentions of defendant No. 4 and decreed the suit.
5. The material portion of condition No. 4 found in the surety bound reads as :
"Moreover, though as between the principal debtor and me/us, I am/we are sureties only, I/we agree that as between yourselves and me/us, I am/we are principal debtor(s) jointly with him and, accordingly, I/we shall not be entitled to any of the rights conferred on sureties by sections 133, 134, 135, 139 and 141 of the Indian Contract Act."
6. Learned counsel, Shri Raghavan, submitted that there was nothing in section 141 of the Contract Act to show that the parties could absolve themselves from the operation of section 141. Section 141 of the Contract Act reads as :
"A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety known of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security."
7. There is nothing to show that the plaintiff creditor had any part of play in the loss of the hypothecated security as such. This court in a Division Bench decision in Karnataka Bank Ltd. v. Gajanan Shankararao Kulkarni, AIR 1977 Kar 14, has held (headnote) :
"The sureties could not appeal to the provisions of section 141 which in the facts and circumstances of the case was not attracted. A mere passive inactivity or passive negligence on the part of the creditor by failing to realise the debt from the collateral security is not sufficient in itself, to discharge the surety, for the reason that the surety can himself avoid consequences of such passivity by himself paying the debt and becoming subrogated to the rights of the creditor. In the absence of a contract to the contrary, the creditor is under no obligation of active diligence for the protection of the surety, so long as the surety himself remains inactive. Thus tested, the inaction on the part of the creditor-bank would not, of itself, mitigate the surety's liability."
8. Therefore, in view of this dictum laid down and also in view of the fact that the evidence does not disclose that the creditor had anything to do with the loss of the hypothecated properties, the argument of the learned counsel, Shri Raghavan, that the liability of the surety, defendant No. 4, stood discharged on account of this, merits to be rejected.
9. Learned counsel Shri Raghavan, then submitted that there was nothing in section 141 of the Contract Act to indicate that the parties could contract out of the liability envisaged by section 141. But section 128 of the Contract Act reads as :
"The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
10. The Contract Act has created rights and liabilities. But the parties have got a right to contract out of the rights and liabilities mentioned in the Contract Act. That is envisaged by section 128 of the Indian Contract Act. Therefore, merely because we do not find words "notwithstanding anything contained to the contrary", etc., in section 141, it does not follow that the parties cannot contract out of the rights and liabilities laid down in section 141 of the Contract Act. In this case, defendant No. 4 has agreed that she will not claim the benefit given to her under section 141 of the Indian Contract Act. She herself is a party to that surety bond. Therefore, it is not open to her now to contend that the said clause is either bad at law or is not enforceable.
11. Learned Counsel Shri Raghavan, relied on Mahendrakumar Chandulal v. Central Bank of India, AIR 1984 NOC 113 (Guj). It interprets section 151 of the Contract Act. What the Gujarat High Court held was that the bailee cannot contract out of the minimum liability imposed under section 151. Section 151 is to be found in Chapter IX, while section 141 is to be found in Chapter VIII. The liabilities and the rights created under Chapter VIII are entirely different from the rights and liabilities in Chapter X of the Contract Act. There is nothing in Chapter IX to indicate that the parties could contract out of the legal right and liabilities. Therefore, the said Gujarat ruling has no application to the facts of the present case. Therefore, in view of the said undertaking given by the surety, it is not open to her to contend that the said contract between her and the plaintiff is invalid and unenforceable. Therefore, even though the property might have been lost, still she is liable in law in view of the said contract entered into between her and the plaintiff-bank. The trial court also has come to the same conclusion on this point.
12. So far as the question of limitation is concerned, learned counsel Shri Raghavan, argued that the acknowledgment given by the judgment debtors, defendants Nos. 1 to 3, would not save limitation so far as she was concerned. Normally it is so. But para 4 of the surety bond executed by her reads as :
"And for all the purposes of this claim, the principal is empowered to give consent on my/our behalf and any consent given by the principal shall be deemed to have been given by me/us and shall bind me/us in all respects as if the same had been expressly given by me/us in writing."
13. By this, she has constituted defendants Nos. 1 to 3 as her agents. Therefore, when she has specifically empowered defendants Nos. 1 to 3 to give consent, any consent given by defendants Nos. 1 to 3 would be binding on her. This is also the principal laid down in Dorothy Valentine Burnard v. William Douglas Lysnar, AIR 1929 PC 273. Therefore, though she might not have been personality a party to the acknowledgment she, on account of constituting defendants Nos. 1 to 3 as her agents, will be bound in law by the acknowledgment given by defendants Nos. 1 to 3.
14. Further, the surety bond says that it is a continuing guarantee. If it is a continuing guarantee, the question of limitation urged now by defendant No. 4 will not crop up at all. This is the view taken by the Supreme Court in Margaret Lalita Samuel v. Indo-Commercial Bank Ltd. . Therefore, the decree passed by the court below does not suffer from any illegality.
15. Thus, in the result, the revision is dismissed.
16. No costs in this revision.