Karnataka High Court
T. Raju Setty vs Bank Of Baroda on 20 December, 1990
Equivalent citations: 1991(4)KARLJ475
JUDGMENT K.A. Swamy, J.
1. This second appeal is preferred against the judgment and decree dated March 24, 1979, passed by the learned Civil Judge, Bangalore City, in R.A. No. 117 of 1977, confirming the decree dated January 20, 1977, passed in O.S. No. 257 of 1973, by the learned V Additional I Munsiff, Bangalore.
2. The appellant is the third defendant. The respondent is the plaintiff Bank of Baroda. There were two more defendants in the suit, viz., defendants Nos. 1 and 2. Defendant No. 1, H. Malegowda, was the principal debtor and defendant No. 2, T. B. Subba Rao, was one of the sureties.
3. The suit was filed on January 25, 1973, for recovery of a sum of Rs. 4,545.81 (principal sum being Rs. 3,200) advanced as a loan to the first defendant, H. Malegowda, on April 7, 1969, under a promote dated April 7, 1969 and also under a hypothecation deed executed by him on April 7, 1969, hypothecating the 3 h.p. pumpset for which the loan was advanced to defendant No. 1, H. Malegowda. Defendants Nos. 2 and 3 were the guarantors who had executed a guarantee bond on April 7, 1969. As the loan amount was not repaid, the Bank of Baroda, the plaintiff, filed the aforesaid suit seeking a decree in the following terms :
"(a) For repayment of the said sum of Rs. 4,545.81;
(b) Interest at the rate of 10% per annum from the date of suit till the date of decree;
(c) Court costs;
(d) Interest on the aggregate at the rate of 6% per annum from the date of decree till the date of realisation;
(e) That is default of the defendants to pay the said sum to cause the hypothecated pumpset with its fittings, etc., described in the Schedule hereunder to be seized and sold and out of the net sale proceeds thereof, the amount due to the plaintiff be adjusted towards the amount due and the deficiency, if any, be recovered from the defendants personally and from their other assets; and
(f) For such other and further reliefs as this Hon'ble Court deems fit to grant in the circumstances of this case."
4. In the plaint, the plaintiff has specifically averred thus :
"The amount due to the plaintiff is as detailed below :
Rs.
(a) Loan amount 3,200.00
(b) Interest from 7-4-1969 to 25-12-1972 as
per statement of accounts furnished along
with the plaint 1,345.81
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Total 4,545.81
---------
The plaintiff is entitled to recover the said sum with interest at the rate of 10% per annum with quarterly rests from the first defendant as the borrower and defendants Nos. 2 and 3 as the guarantors and all of them are jointly and severally liable for the repayment of the said sum of Rs. 4,545.81 to plaintiff. The plaintiff is also entitled to recover the said sum by sale of the hypothecated machinery described in the schedule thereto. The defendants have failed and neglected to repay the said sum in spite of repeated demands including a demand made by the plaintiff's counsel by a registered notice dated October 18, 1972. Hence the suit."
5. Defendant No. 2 did not appear and contest the suit, therefore, he was placed ex parte. Defendant No. 1 died before he could be served with the suit summons. However, defendant No. 3 appeared and filed the written statement, inter alia, contending that the suit has abated as against defendant No. 1 as he died in the month of February, 1973, and that he was not liable for the suit claim.
6. In the light of the defence set up by defendant No. 3 long after the filing of the written statement, the plaintiff filed an application to bring the legal representatives of the deceased-defendant No. 1 on record. The trial court rejected the said application by its order dated July 9, 1976, and held that the suit had abated against defendant No. 1. The plaintiff did not challenge by preferring an appeal against the order dated July 9, 1976, passed by the trial court. The said order was appealable under Order 43, rule 1(k) of the Civil Procedure Code. The plaintiff has also not preferred an appeal against the decree passed by the trial court dismissing the suit against defendant No. 1.
7. On the basis of the pleadings of the parties, the trial court framed the following issues :
(1) Whether the third defendant proves that the suit is liable to be dismissed as abated, since the legal representatives of the first defendant were not brought on record ?
(2) Whether the third defendant proves that the suit is barred by time ?
(3) What order and decree ?
8. It answered issues Nos. 1 and 2 in the negative and passed a decree against defendants Nos. 2 and 3 for a sum of Rs. 4,545.81 with interest at 6% per annum on Rs. 3,200 from the date of the suit till recovery.
9. Being aggrieved by the judgment and decree defendant No. 3 went up in appeal before the civil judge, Bangalore city. The learned civil judge concurred with the views expressed by the trial court and held that in spite of the fact that the plaintiff failed to bring the legal representatives of the deceased defendant No. 1 on record and the suit had abated against defendant No. 1, it could nevertheless be continued against the remaining defendant and the decree could be passed against them and in such an event there will be no conflicting decrees. Accordingly, the appellate court confirmed the decree of the trial court. Hence this second appeal by defendant No. 3.
10. This appeal is referred to a Division Bench by our learned brothers B. P. Singh J., on the ground that the appeal involves a substantial question of law required to be decided by a Division Bench. Hence this appeal is before a Division Bench. Having regard to the contentions urged on both sides, the following points arise for consideration :
"(1) Whether, in law, it is permissible to enter into a contract giving up the rights available to a surety under Chapter VIII of the Indian Contract Act ? In other words, whether it is open to contract outside the provisions of Chapter VIII of the Indian Contract Act ? If so, whether such a contract is not hit by section 23 of the Indian Contract Act ?
(2) If a suit for recovery of money filed against the principal debtor and sureties making a claim jointly and severally and seeking a decree jointly and severally, abates against the principal debtor on the failure of the plaintiff to bring the legal representatives of the principal debtor on record, whether it can be proceeded with against the sureties, i.e, the other defendants Nos. 2 and 3 ?
(3) Whether a decree could be passed against sureties ?
11. Point No. 1. - Chapter VIII of the Indian Contract Act, 1872 (hereinafter referred to as "the Act"), deals with indemnity and guarantee. Section 124 defines the expression "contract of indemnity"; section 125 defines "right of indemnity holder when sued; section 126 defines the expressions "contract of guarantee ", "surety", "principal debtor" and "debtor"; section 127 provides regarding the consideration for guarantee; section 128 deals with "surety's liability"; section 129 states the "continuing guarantee"; sections 130 and 131 deal with revocation of continuing guarantee and revocation of continuing guarantee by surety's death respectively; section 132, 133, 134, 135 and 136 deal with liability of the sureties and discharge of their liabilities; section section 137 provides that the creditor's forbearance to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary discharge the surety; section 138 provides that where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties; section 139 deals with the discharge of the surety by creditor's act or omission impairing the surety's eventual remedy; sections 140 to 141 deal with the rights of the surety on payment or performance and surety's right to benefit of creditor's securities respectively; sections 142 to 144 deal with the guarantee; section 145 deals with the implied promise to indemnify surety; section 146 deals with co-sureties liable to contribute equally and, lastly, section 147 deals with liability bound for different sums. Thus, it is relevant to notice that all these provisions contained in Chapter VIII of the Indian Contract Act are closely linked together and one is connected with another. Therefore, all these provisions pertaining to surety and guarantee and the principal debtor have to be read together and not in isolation. Section 128 of the Act specifically provides that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. In the other provisions contained in Chapter VIII relating to the rights of the sureties, we do not find the words "unless it is otherwise provided by the contract" or "subject to the contract as may be arrived at by the parties." Therefore, different views are expressed by the High Court as to whether it is open to contract outside the provisions of Chapter VIII of the Act, pertaining to rights of the sureties.
12. The High Court of Punjab in Union of India v. Pearl Hosiery Mills, , has held that (at page 285) :
"Moreover, I am the opinion that the provisions of section 133 of the Indian Contract Act are not subject to a contract to the contrary between the parties to the contract. This section is in unqualified terms. It was not necessary to put in the words 'notwithstanding any contract to the contrary' in this section, because wherever the Legislature wanted that the terms of the contract between the parties should take precedence over the provisions of any section, the words 'in the absence of any contract to the contrary', or 'in the absence of any special contract' have been inserted in that particular section as has been down in sections 152 and 163 of this Act."
13. It appears that the word "not" found in the third sentence in the above extracted portion is a clerical or printing mistake as the word 'not' does not fit in with the view expressed therein. Pearl Hosiery Mills' case, was a case in which without the consent of the surety variations were made in the terms of the original contract. Therefore, in view of section 133 of the Act, it was held that surety stood discharged (see para 34 of the judgment). Therefore, it was not a case in which the point in question was considered.
14. In Citibank N. A. v. Juggilal Kamlapat Jute Mills Co. Ltd., differing from the view expressed in the aforesaid Pearl Hosiery Mills' case, , it has been held that it was not necessary for the Legislature to provide the words "in the absence of any contract" in section 133 or 135 or 141, because the sections themselves speak of consent of the surety regarding variance in the terms of the contract between the principal debtor and the creditor, composition with the principal debtor, etc. It has also been further held that in the presence of the words "without the surety's contract", the words "in the absence of any contract to the contrary" would have been surplus. Therefore, following a decision of the Privy Council in Hodges v. Delhi and London Bank Ltd. [1900] 27 IA 168 and A. R. Krishnaswami Aiyar v. Travancore National Bank Ltd., AIR 1940 Mad 437; [1940] 10 Comp Cas 162 it has been held that the rights conferred on the surety under section 133, 135 or 141 of the Act could be waived by a specific agreement in the deed of guarantee; that as a matter of fact, such an agreement would amount to consent within the meaning of the aforesaid sections of the Act. A learned single judge of this court in Smt. R. Lilavati v. Bank of Baroda has in categorical terms held thus (at page 270 of 68 Comp Cas) :
"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. That is envisaged by section 128 of the 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 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."
15. We are of the view that as the provisions contained in Chapter VIII of the Act related to indemnity and guarantee, they deal with one subject and they are to be read together. The liability of the surety as stated in general terms in section 128 of the Act is not doubt co-extensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because section 128 of the Act itself specifically provides that the liability of a surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Thus, the liability of the surety is subject to the terms of the contract as may be arrived at between the parties. The words "unless it is otherwise provided in the contract" occurring in section 128 of the Act will also govern the other provisions contained in Chapter VIII of the Act and enable the surety to give up the rights available to him under sections 133, 134, 135, 139 and 141 of the Act. It is settled legal position of law that a legal right can be given up provided such giving up of a legal right under any contract is not hit by section 23 of the Act. Section 133 of the Act makes it clear that any variance made in the contract between the principal debtor and the creditor without the consent of the surety, discharge the surety as to transactions subsequent to variance. This consent of the surety can be obtained either at the time the contract is made between the principal debtor and the creditor to which the surety gives the guarantee, for making any change or alteration in the contract to be made or not to claim any right or benefit under Chapter VIII of the Act. In other words, in the surety-bond/guarantee bond itself the surety can agree to waive his rights available to him under the various provisions contained in Chapter VIII of the Act. Such waiving of his right by the surety is permissible under section 133 read with section 128 of the Act.
16. The contention of learned counsel for the appellant is that the provisions contained in Chapter VIII of the Act defining the rights of liabilities of the sureties and the principal debtor are in the nature of public policy because it is the policy of law that the persons who enter into a contract of indemnity and guarantee should have certain rights and liabilities. As otherwise it is likely that the creditor being in a dominating position may exploit the hapless position of a person seeking credit and may compel the persons seeking credit and the person furnishing guarantee and indemnity to agree to the terms which in the very nature of things will be iniquitous unjust and unconscionable. It is submitted that it is this danger which is intended to be prevented or eliminated by section 23 of the Contract Act. Section 23 of the Act specifically provides that the consideration or object of an agreement is lawful unless it is forbidden by law, or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent or involves or implies injury to the person or property of another; or the court regards it as immoral or opposed to public policy. It also further provides that in each of the cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void. In the case of a contract of guarantee, the consideration is advancing of loan to a principal debtor. The object of the agreement is to secure the debt of the creditor. Therefore, neither the consideration is unlawful nor is the object of the agreement unlawful. Both are also not forbidden by law. However, the contention is that the surety bond which provides that the surety will not be entitled to any of the rights conferred on him by sections 133, 134, 135, 139 and 141 of the Act has the effect of defeating the provisions contained in Chapter VIII of the Act, and, therefore, it is hit by section 23 of the Act. Section 23 is mainly concerned with the consideration or object of an agreement. In the instant case, as already pointed out, the consideration and object of the agreement of guarantee or contract of surety are not unlawful. The rights available to the surety under Chapter VIII of the Act, as already pointed out, can be waived by the surety. Therefore, such waiving of right by the surety is neither intended to defeat nor does it defeat any provisions of law. Therefore, it is also not possible to hold that the consideration and the object of the agreement of guarantee have the effect of defeating any provisions of law. A recital in the surety-bond in question that the surety will not be entitled to any of the rights conferred by sections 133, 134, 135, 139 and 141 of the Act cannot be held to defeat the provisions of Chapter VIII of the Act. The rights conferred on the surety under Chapter VIII are not inalienable rights nor do those rights have anything to do with the public policy as such. Those rights relate to the contracts entered into by individuals. It is not the case of defendant No. 3 that the aforesaid recital in the surety bond has been obtained either fraudulently or it involves or implies injury to the person or property of another. It is also not possible to view such a recital as immoral or opposed to public policy. Public policy is not to defeat the debt of the creditor, it is to ensure that the money of the creditor is secured and is recoverable in accordance with law; and the debtor or the surety is not absolved from his liability to discharge the debt except in accordance with law. Therefore, we are of the view that it is not possible to agree with the view as extracted above, expressed in Pearl Hosiery Mills' case, , by the High Court of Punjab. We agree with the aforesaid view expressed in Citibank's case, by the High Court of Delhi and also approve the view expressed by Kulkarni J. in R. Lilavati's case, .
17. Learned counsel for the appellant has placed reliance on the Division Bench decisions of this court in City Municipal Council v. C. Ramu [1989] ILR 4 2138 (Kar) and Suresh Mahajan v. Myveneers [1990] ILR 2910 (Kar).
18. In C. Ramu's case, a Division Bench of this court considered condition No. 16 contained in the contract which read as follows :
and held that such a condition which did not enumerate the ground on the basis of which no claim could be made for the loss and was general in nature completely barred remedy to the defendant to make a claim for damages or any other reliefs arising out of the contract. Therefore, it amounted to denying the rights to seek relief and disabled the contractor from enforcing the right under the contract. Hence, such clause was held to be not enforceable. It is not possible to appreciate as to how the said decision is relevant to the case on hand. In this case, defendants Nos. 2 and 3 have voluntarily under the surety bond, given up the rights available to the sureties under the provisions contained in sections 133, 134, 135, 139 and 141 of the Act. Therefore, it not possible to apply the said decision to the case on hand.
19. In Suresh Mahajan's case [1990] ILR 2910 (Kar), it has been held that in order to attract section 23 of the Act, it is not necessary that the contract should be tainted with illegality but it should contain terms which are so unfair and unreasonable that they shock the conscience of the court. All that can be said is that the said observations are in general terms and not with reference to the specific terms of the contract. Further, we have already pointed out that there is nothing unusual or illegal for a party to give up his right in order to secure a certain thing. In the instant case, defendants Nos. 2 and 3 wanted that the plaintiff should advance the loan to defendant No. 1. In order to ensure the payment of the amount advanced by the plaintiff to defendant No. 1, they went to the extent of giving up their rights under the aforesaid provisions contained in Chapter VIII of the Act. Therefore, there is nothing unfair and unreasonable in the terms contained in the surety bond nor is it possible to hold that it shocks the conscience of the court. In commercial transactions it is a normal thing to give up certain rights to secure certain benefits. It is on such contract, that commercial transaction takes place. In the commercial world such contracts are not uncommon.
20. Learned Counsel for the appellant has also placed reliance on the decision of the Supreme Court in Mohd. Salimuddin v. Misri Lal, . That was a case in which the landlord had obtained certain advance from the tenant which he did not adjust towards the arrears of rent. The Bihar Buildings (Lease, Rent and Eviction) Control Act, 1947, did not permit the landlord on obtaining the rent in advance and keep it with him. The landlord on obtaining the rent in advance in a sum of Rs. 2,000 sued the tenant for eviction on the ground that he had committed default in payment of rent. The tenant took up a plea that as he had paid a sum of Rs. 2,000 in advance and that sum was to be adjusted towards the rent therefore, he was not in arrears. The Supreme Court held that the relevant provisions in the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1976, prohibited the payment of rent in advance and such a provision was enacted to prevent such exploitation by the landlord. The tenant because of the necessity of securing accommodation had to succumb to such exploitation. Therefore, the provision as to prohibiting the landlord from obtaining the rent in advance was a protective provision intended to protect the tenants from exploitation by the landlords and also intended to guarantee the roof of a tenant. It was also further held that to deny access to justice to a tenant who was yield to the unlawful demands of the landlord in this scenario by invoking the doctrine of pari delicto is to add insult to injury, and to negate the very purpose of the provision designed for his protection, and therefore, it was held that the doctrine of pari delicto was not designed to reward the "wrong doer", or to penalise the "wronged", by denying to the victim of exploitation access to justice. Such is not the situation here. There is no law prohibiting a person offering surety from the giving up any of his rights nor is there any law which prohibited the creditor from entering into and obtaining such a surety bond. Therefore, it is not possible to hold that any element of oppression is involved in the transaction of lending money on a surety. Hence the decision in Mohd. Salimuddin's case, , is not applicable to the case on hand.
21. Reliance is also placed on a decision of the Supreme Court in Pomal Kanji Govindji v. Vrajlal Karsandas Purohit, . In that decision, the Supreme Court has considered the clog on equity of redemption and has held that a condition imposed in the mortgage deed stipulating the time for redemption whether it amounts to a clog on the right of equity of redemption depends upon the facts and circumstances of each case. While dealing with the said question, it has also been further observed that freedom of contract is permissible provided it does not lead to taking advantage of the oppressed or depressed people. The law must transform itself to social awareness. Poverty should not be unduly permitted to curtail one's right to borrow money on the ground of justice, equity and good conscience on just terms. If it does, it is bad; whether it does or does not, must, however, depend upon the facts and circumstances of each case. It is not possible to see as to how those observations are applicable to the facts of the present case. It is a normal thing for a man to seek a loan and it is also quite normal for a creditor to insist upon guarantee for payment of the money. Therefore, in such transactions, it is open to a person who seeks a loan to accept or not to accept the terms of the loan. What is necessary to be seen in such cases is as to whether such terms are not opposed to law and are not forbidden by law. Therefore, we are of the view that the decision in Pomal Kanji Govindji's case, , is hardly of any relevance to the case on hand.
22. For the reasons stated hereinabove point No. 1 is answered as follows :
It is open to a party to a surety bond to give up his rights available under Chapter VIII of the Act provided the contract is not either illegal or forbidden by law. In the absence of any fraud pleaded and proved, such contract cannot also be termed as opposed to the provisions contained in section 23 of the Act.
23. Points Nos. 2 and 3. - We have already reproduced the relevant portions of the plaint averments. In the plaint, the plaintiff has specifically based the reliefs sought for in the suit on the joint and several liability of the principal debtor and sureties. The decree is also sought in those terms. The first defendant is a principal debtor and defendants Nos. 2 and 3 are the sureties. The first defendant died after the filing of the suit but before he could be served with the suit summons. The plaintiff made belated efforts to bring the legal representatives of the deceased-defendant No. 1 on record but it failed in its efforts. The trial court by its orders dated July 9, 1976, rejected the application I.A. II filed by the plaintiff for bringing the legal representatives of the deceased first defendant on record as barred by time and, accordingly, held that the suit had abated as against defendant No. 1. The plaintiff did not challenge that order in appeal under Order 43, rule 1(k) of the Civil Procedure Code. The plaintiff has also not preferred an appeal or cross-objection against the decree dismissing the suit as against defendant No. 1. Thus, the abatement and the dismissal of the suit as against defendant No. 1 were allowed by the plaintiff to become final.
24. In State of Punjab v. Nathu Ram, , the Supreme Court has held that the abatement of an appeal means not only that the decree between the appellant and the deceased respondent has become final, but also, as a necessary corollary, that the appellate court cannot, in any way, modify that decree directly or indirectly. The reason is plain. It is that, in the absence of the legal representatives of the deceased respondent, the appellate court cannot determine anything between the appellant and the legal representatives which may affect the rights of the legal representatives under the decree. It is immaterial that the modification which the court will do is one to which exception can or cannot be taken. What is observed in connection with the appeal is also relevant in connection with the suit inasmuch as the abatement results in dismissal of the suit. The claim made against the deceased defendant stands dismissed. That decree dismissing the suit against deceased-defendant No. 1 cannot even be modified or reversed by the appellate court in the absence of an appeal. But, as between the first defendant against whom the suit is dismissed and the other defendants, the decree dismissing the suit against the first defendant will operate and the trial court cannot make any alteration or change by considering the suit against the other defendants. In other words, the abatement in dismissal of the suit operates for all purposes of the suit. The contention is that the claim of the plaintiff holds good against defendants Nos. 2 and 3 in the absence of the first defendant inasmuch as, under the terms of the surety bond, it is open to the plaintiff to proceed against the sureties only leaving aside the principal debtor or to proceed against the principal debtor leaving the sureties or to proceed against all of them together. The fact that the plaintiff has chosen to proceed against the principal debtor and the sureties together and has sought for the decree jointly and severally should not worsen its position merely because that the legal representatives of the principal debtor are not brought on record. It is submitted that though the claim is one and common to all the three defendants, the liability of the defendants arise on different facts, inasmuch as the liability of defendant No. 1 arises out of the pronote and hypothecation deed executed by him and the loan advanced to him in consideration thereto, whereas the liability of defendants Nos. 2 and 3 arises out of the surety bond executed by them. Therefore, it is open to the plaintiff to proceed against defendants Nos. 2 and 3 alone leaving defendant No. 1 Hence it is submitted that the fact that the suit is dismissed as abated as against defendant No. 1 should not make any difference and should not lead to any conflicting decrees because in law, the claim should be considered against defendant No. 1 and defendants Nos. 2 and 3 as separate and independent.
25. On the contrary, it is contended on behalf of defendant No. 3 appellant that when the subject-matter of the suit is one and the same against all the three defendants, the fact that defendants Nos. 2 and 3 are liable under the surety bond should not make any difference inasmuch as the proceeding is one and the same and the decree is sought against all the three defendants jointly and severally. In such a suit if it abates against the principal debtor, the plaintiff would not be entitled to seek a decree against defendants Nos. 2 and 3 as the suit abates as a whole inasmuch as there cannot be conflicting decrees in one and the same proceedings. Both the sides have placed reliance on several decisions. We now proceed to consider them.
26. Nathu Ram's case, , arose out of a proceeding initiated by way of reference made under the Punjab Land Acquisition (Defence of India) Rules, 1943, for higher compensation. During the pendency of the appeal before the appellate court, one of the parties who was entitled to share the compensation, died. Therefore, it was held that in the absence a decree of the court below could not be upset as it would result in passing contradictory decrees. In the course of the judgment, the Supreme Court pointed certain tests to determine the question as to whether the court could deal with such matters in the absence of the legal representatives of the deceased brought on record. The relevant portion is as follows (at page 90) :
"The question whether a court can deal with such matters or not, will depend on the facts of each case and, therefore, no exhaustive statement an be made about the circumstances when this is possible or is not possible. It may, however, be stated that ordinarily the considerations which weigh with the court in deciding upon this question are whether the appeal between the appellants and the respondents other than the deceased can be said to be properly constituted or can be said to have all the necessary parties for the decision of the controversy before the court. The test to determine this has been described in diverse forms. Courts will not proceed with an appeal (a) when the success of the appeal may lead to the court's coming to a decision which be in conflict with the decision between the appellant and the deceased respondent, and, therefore, which would lead to the court's passing a decree which will be contradictory to the decree which had become final with respect to the same subject matter between the appellant and the deceased respondent; (b) when the appellant could not have brought the action for the necessary relief against those respondents alone who are still before the court; and (c) when the decree against the surviving respondents, if the appeal succeeds, be ineffective, that is to say, it could not be successfully executed."
27. The matter came up for consideration before the Supreme Court in Sri Chand v. Jagdish Pershad Kishan Chand, AIR 1966 SC 1427. In that case, on the sureties (Basant Lal) died after the order under appeal was passed by the High Court. His legal representatives were not brought on record. The appeal abated. The High Court had held that the sureties would be liable to satisfy the claim notwithstanding the objections raised by Basant Lal on the abatement of the appeal, the decision of the High Court had become final. In those circumstances, it was observed by the Supreme Court thus (at page 1429) :
"In the appeal filed by appellants Nos. 1 and 3 if this court holds that the High Court was in error in deciding that the surety bond was not enforecable because it was not registered, or that the first respondent has done some act which has discharged the sureties from liability under the bond, there would unquestionably be two inconsistent orders-one passed by the High Court holding that the surely bond was enforceable, and the other, the view of this court that it is not enforceable."
28. The Supreme Court also referred to its earlier decision in Nathu Ram's case, , as well as the other decisions in Rameshwar Prasad v. Shambehari Lal Jagannath, and Kishan Singh v. Nidhan Singh (C.A. No. 563 of 1962, dated December 14, 1964 (SC), and held as follows (at page 1431) :
"Liability of the sureties is under the law joint and several. If a creditor seeks to enforce the surety bond against some only of the joint sureties, the other sureties will not on that account be discharged; nor will release by the creditor of one of them discharge the other; vide sections 137 and 138 of the Contract Act. But the fact that the surety bond is enforceable against each surety severally, and that it is open to the creditor to release one or more of the joint sureties, does not alter the true character of an adjudication of the court when proceedings are commenced to enforce the covenants of the bond against all the sureties. We are not concerned in this appeal with the privilege which a creditor may exercise, but with the effect of an adjudication which the court has made in a proceeding to enforce the covenant of the bond. The mere fact that the obligation arising under a covenant may be enforced severally against all the covenantors does not make the liability of each covenantor distinct. It is true that in enforcement of the claim of the decree-holder the properties belonging to the sureties individually may be sold separately. But that is because the properties are separately owned and not because the liability arises under distinct transactions."
29. Again, in Ramagya Prasad Gupta v. Murli Prasad, , the aforesaid decisions were considered. Ramagya Prasad Gupta's case, was a case in which dissolution of partnership and account was sought. The trial court held that the business was owned by a partnership. Accordingly, it passed a preliminary decree in which the respective shares of the various partners and their heirs were declared and an account was ordered. The plaintiff, Parasnath, was declared to be the owner of a 6 pies share and defendants Nos. 12 to 14 were held to be entitled to the remaining 6 pies share out of the 1 anna. There was an appeal preferred before the High Court and one of the respondents, who was entitled to a share, died during the pendency of the appeal, his legal representatives were not brought on record. In this context, the Supreme Court held as follows (at page 1185) :
"Under rule 4(3) read with rule 11 of Order 22, Civil Procedure Code, the appeal abates as against the deceased respondent where within the time limited by law no application is made to bring his heirs or legal representative on record. As pointed out by this court in State of Punjab v. Nathu Ram. , it is not correct to say that the appeal abates against the other respondents. Under certain circumstances the appeal may not be proceeded with and is liable to be dismissed. But that is so not because of the procedural defect but because, as mulla has pointed out, it is part of the substantive law. (See Mulla's Civil Procedure Code, volume 1, 13th edition, page 620, under note nonjoinder of parties). No exhaustive statement can be made as to the circumstances under which an appeal in such cases cannot proceed. But the courts as pointed out in the above decision, have applied one or the other of three tests. The courts will not proceed with an appeal (a) when the success of the appeal may lead to the court's coming to a decision which may be in conflict with the decision between the appellant and the deceased respondent and, therefore, it would lead to the court's passing a decree which will be contradictory to the decree which had become final with respect to the same subject-matter between the appellant and the deceased respondent; (b) when the appellant could not have brought the action for the necessary relief against those respondents alone who are still before the court; and (c) when the decree against the surviving respondents, if the appeal succeeds, be ineffective, that is to say, it could not be successfully executed. These three tests, as pointed out by this court in Sri Chand v. Jagdish Pershad Kishan Chand , are not cumulative tests. Even if one of them is satisfied, the court may dismiss the appeal."
30. It also reiterated the rule laid down in Nathu Ram's case, . Thus, it is clear from the aforesaid decision that the principles enunciated in Nathu Ram's case, , and as well as that of Sri Chand's case, AIR 1966 SC 1427, are affirmed. The case on hand falls within the ratio laid down in para 9 of Sri Chand's case, AIR 1966 SC 1427. It is no doubt true that it was open to the plaintiff to file a suit against defendants Nos. 2 and 3 leaving defendant No. 1 and obtain a decree. It was also open to the plaintiff to file a suit against defendant No. 1 alone and in the event it failed to secure a decree against defendant No. 1, then to file a suit against defendants Nos. 2 and 3 also. The fact remains that out of the several options open to the plaintiff, it had availed of one of them only by filing a suit against all the three defendants together. According to learned counsel for the plaintiff, it should not make any difference merely because, defendant No. 1 died during the pendency of the suit and his legal representatives were not brought on record. It has been already pointed out above that in Sri Chand's case, AIR 1966 SC 1427, the Supreme Court Court has in categorical terms held that the fact that the surety bond is enforceable against each surety, severally, and that it open to the creditor to release one or more of the joint sureties, does not alter the true character of an adjudication of the court when proceedings are commencement to enforce the covenants of the bond against all the sureties. In the instance case, no doubt, the suit is not only against the sureties but it is also against the principle debtor. The subject-matter of the suit being one and the same even though all the three are liable under different grounds inasmuch as, as already point out, defendant No. 1 was liable under the pronote and the hypothecation deed and whereas defendants Nos. 2 and 3 are liable under the surety bonds but all of them are liable for only one claim, viz., the debt advanced the defendant No. 1 and that was the subject matter of the suit is which the decree against all the three defendants was sought jointly and severally. Thus, the relief sought for was only one and it is was common to all. In such a case, it is not the right of the plaintiff to make an independent claims against the sureties under the surety bonds that will be the deciding factor. It is the law embodied in Order 22, rule 4 and 5 of the Civil Procedure Code as enunciated by the Supreme Court in all the aforesaid three decisions which will govern the proceedings because, in the same proceeding, there will be two conflicting decrees one dismissing the claim of the plaintiff in respect of the very subject-matter as against the first defendant and decreeing the same claim of the plaintiff against defendants Nos. 2 and 3. No doubt the surety bond is very widely worded and defendants Nos. 2 and 3, as already pointed out, have given up their rights under sections 133, 134, 135, 139 and 141 of the Contract Act. But nevertheless, the proceeding being one, the court in the same proceeding in respect of the same subject-matter cannot pass two conflicting decrees. We are also of the view that as the liability of the sureties is in relation to the liability of the first defendant, which arose out of the loan advanced to him and the liability of the first defendant came to be extinguished on the failure of the plaintiff to bring the legal representatives of the deceased defendant No. 1 on record. The legal representatives of the deceased first defendant will not also be liable to reimburse defendants Nos. 2 and 3 if the plaintiff were the secure a decree against them and realise the amount. The legal representatives of the deceased first defendant are not liable because they were not brought on record in the suit on the death of the first defendant. Secondly, the claim of the plaintiff abated as against them and the suit was dismissed. Defendants Nos. 2 and 3 are the sureties. In the event of the sureties making the payment, in law, they are entitled to have it reimbursed from the principal debtor or his legal representatives. But by reason of the filing of the suit by the creditor (plaintiff) against the principal debtor and his sureties (defendants Nos. 1, 2 and 3), the plaintiff by allowing the suit to abate as against defendant No. 1 by its negligence, has made it impossible for the sureties to have the amount they would be required to pay if the decree were to be passed against them reimbursed from the legal representatives. Of course, the same would not have been the result if the suit were to be filed only against the sureties or against the first defendant - the principal debtor - without impleading the sureties, as, in that event, there would not have been the same proceedings against all of them and as a result, there could not have been one adjudication by the court against them. This being the position, defendants Nos. 2 and 3 will not be able to have the amount paid by them under the decree obtained by the plaintiff reimbursed by the legal representatives of defendant No. 1. Such a situation will lead to and will cause great injustice to defendant Nos. 2 and 3 for no fault of theirs. The fault is to the plaintiff as it failed to bring the legal representatives of the deceased-first defendant (principal debtor) on record. Therefore, it is the plaintiff which has to suffer and not defendants Nos. 2 and 3. Of course, the same would not have been the result if the suit had been brought only against a surety or the sureties or against the principal debtor only. In that event, the death of the first defendant would not have affected the right of the plaintiff to proceed with the suit against the sureties as the suit would have been only against the sureties and it would not have affected the right of the sureties to seek reimbursement from the legal representatives of the principal debtor to the extent of the property of the principal debtor in the hands of his legal representatives.
31. However, learned counsel for the plaintiff has placed reliance on the several decision to which we now advert. Al. Sp. S. Rm. Subramanian Chettiar v. Chinnamuthu Batcha Rowther, AIR 1942 Mad 145, was a case in which the liability of a principal debtor was discharged by operation of law. Therefore, it was held that in the light of the provisions contained in section 134 of the Contract Act, the liability of the surety was not discharged. Such a situation does not exist in the instant case. In the instant case, the liability of the principal debtor was discharged not because of any operation of law but because of the negligence on the part of the plaintiff in not filing an application to bring the legal representatives of the deceased first defendant on record within the time allowed by law. If the application had been filed in time and the legal representatives of the deceased first defendant had been brought on record, the provisions of sub-rule (3) of rule 4 of Order 22 of the Civil Procedure Code would not have attracted. Therefore, the said decision does not help the plaintiff.
32. Nellore Co-operative Urban Bank Ltd. v. Akili Mallikarjunayya, AIR 1948 Mad 252, was a case in which an award was passed against the principal debtor and a surety under the Madras Co-operative Societies Act. However, the liability of the principal debtor was discharged under section 10(2) of the Madras Debt Conciliation Act. The court held that the such a discharge of liability of the principal debtor was due to operation of law because the Madras Debt Conciliation Act provided for it. Therefore, it was held that in the light of the provisions contained in section 134 of the Act the liability of the surety did not come to an end. While dealing with section 145 of the Contract Act, it was also further held that the liability of the principal debtor to pay to the respondent whatever sum the latter has rightfully paid under the guarantee will not arise until the creditor has recovered from the surety, the amount due under the award or decree passed against both the principal debtor and the surety and such contingent and future liability was obviously not within the purview of the proceedings under the Debt Conciliation Act and cannot be affected by the discharge of the principal debtor's liability to the creditor. Therefore, it is not possible to hold that the said decision is applicable to the facts of the instant case.
33. In Raghavendra Gururao Naik v. Mahipal Krishna Shollapur, AIR 1925 Bom 244, the surety went on making bona fide payment of interest to keep his liability alive pursuant to the decree obtained against him by the creditor. Such payment by the surety to the creditor was not a wrongful payment within the meaning of section 145 of the Act. Therefore, the creditor's remedy against the principal debtor was not barred by limitation. Such a proposition of law has not arisen in the case on hand. Therefore, it is not applicable.
34. In Mahanth Singh v. U Ba Yi, AIR 1939 PC 110, on a consideration of the provisions contained in sections 134, 139 and 2(j) of the Contract Act, it was held that failure to sue the principle debtor until recovery was barred by the statutes of limitation did not operate as a discharge of the surety. This decision is pressed into service in support of the contention of learned counsel for the plaintiff that the fact that the suit was dismissed against defendant No. 1 did not in any way affect the claim of the plaintiff against defendant Nos. 2 and 3. It may be noticed that in that case after the suit commenced, the four trustees were removed from their positions as trustees of the pagoda, and eight others were appointed in their place. The application was made to add the eight new trustees as defendants in the place of the old. The application was granted and thereupon the names of the four original trustee were struck out and those of the new trustees inserted in their place. However, when the case came up for trial before the hearing on the merits, the learned trial judge suggested that the liability of the original trustees. That application was rejected. The suit then proceeded to trial, the claim against the new trustees was dismissed and the guarantor was found liable. In the context of these facts, the Privy Council held that failure to sue the principal debtor until the recovery was barred by the statutes of limitation did not operate a discharge of surety. It was also, however, held that wherever the debtor had not been actually released, the creditor may reserve his rights by notifying the debtor that he does so, and this reservation would be effective not only where the time of payment is postponed but even where the creditor has entered into an agreement not to sue the debtor. In neither case was there any deception of the debtor since he knew that he was still exposed to a suit at the will of the surety. If the only result of striking out the debtors from the action was the preclude the creditors from bringing a fresh suit in respect of the subject-matter against them, and was not to release or discharge the principal debtor, then the debt remains a debt though the creditor, by reason of a rule of procedure, would not himself bring an action upon it. In such a case, if the creditor continues his suit against the surety though he withdrew his claim against the principal debtor, the creditor would deemed to have reserved his rights against the surety and, therefore, the surety's liability was not discharged. Thus it is clear that in that case, the creditor's claim against the principal debtor was not dismissed, nor was it given up by the creditor by striking out the principal debtor. It was held in the facts and circumstances of that case that he reserved his right to proceed against the sureties. Therefore, it is not possible to apply the principle laid down in the aforesaid case to the case on hand. The aforesaid principle is confined to the facts stated in that case.
35. Pestonji Manekji Modi v. Bai Maherbai [1928] 112 IC 740 (Bom) was a case in which by operation of law the liability of the principal debtor was discharged. Therefore, it was held that the surety was not discharged and he could even be held liable. We have already pointed out that in the instant case the liability of the principal debtor has been extinguished not because of any operation of law but, because of the negligence on the part of the bank to bring the legal representatives of the deceased principal debtor on record. Therefore, the proposition of law laid down in this case also cannot be applied to the facts of the present case.
36. In Charu Chandra Bandopadhaya v. Mr. L. Faithful [1919] 53 IC 999, it was held that the liability of a principal and his surety though arising under the same transaction were distinct because the liability of the surety does not necessarily in all cases arise simultaneously with that of the principal, and it may happen that the remedy against the principal is barred when the liability of the surety arises. It was also further held that the question depended on the terms of the contract of guarantee by which the surety has bound himself. The limitation against the sureties will being to run from the date of the sureties' own contract; that the liability of the sureties having arisen simultaneously with that of defendants Nos. 1 and 2 and with the making of the advance, the suit against the sureties was barred under article 115, Schedule I, to the Limitation Act. Thus, that was a case in which the question of limitation was decided and not the question which has arisen in the instant case. Therefore, it is not possible to place any reliance on the aforesaid decision.
37. In Maharashtra State Electricity Board v. Official Liquidator , sections 128 and 134 of the Contract Act were considered. On the basis of the provisions contained in those sections it was held that the surety bank's liability is co-extensive with that of the principal debtor, i.e, the company. Though under section 134 of the Contract Act, the bank is discharged by release or discharge of the principal debtor, a discharge which the principal debtor may secure by operation of law in bankruptcy or in liquidation proceedings in the case of a company does not absolve the surety of his liability. Therefore, it is clear that the said decision also cannot be applied to the facts of the present case because in the instant case the suit is filed against the principal debtor and the sureties and it has abated against the principal debtor. We have already pointed out that in the same proceedings there cannot be conflicting decrees in respect of the same subject-matter.
38. A decision of a Division Bench of the Calcutta High Court in United Bank of India v. Modern Stores (India) Ltd., was also pressed into service by learned counsel for the bank. In that case, a decision of the Supreme Court in Sri Chand v. Jagdish Prasad, AIR 1966 SC 1427, was distinguished. While referring to Sri Chand's case, , it has been held as follows (at page 707) :
"The learned trial judge has also relied on a decision of the Supreme Court in Sri Chand v. Jagdish Pershad Kishan Chand, AIR 1966 SC 1427. In our view, the learned trial judge had not appreciated the ratio of the decision of the Supreme Court in the said case. In that case, the Supreme Court has recognised that the liability of the surety is joint and several and if a guarantor seeks to enforce the surety bond against some only of the joint sureties, the other sureties will not on that account be discharged nor will release by the creditor of one of the them discharge the other. As pointed out by Dr. Banerjee, in our view, rightly, in that case the Supreme Court was concerned with the fact that three of the sureties appealed from the order of the lower appellate court an in that the appeal one of the appellants died and the Supreme Court had held that the appeal had abated because the representatives of the second appellant had not been brought on record. We accept the interpretation put by Dr. Banerjee that the appeal in that case had abated not because the release of sureties could not be taken as discharge of the others but that the appeal would have affected jointly the rights of the appellants who were three of the sureties. In our view, this decision is not an authority for the proposition that if the suit against one of the co-guarantors is allowed to be dismissed, then the suit against one of the co-guarantors should also be dismissed on the basis of the principles of res judicata as held by the learned trial judge."
39. With great respect to their Lordships of the Calcutta High Court who constituted the Bench, we find it difficult to agree with the aforesaid view. While considering Sri Chand's case, AIR 1966 SC 1427, we have reproduced para 9 of the judgment in which it has been specifically laid down that the fact that the surety bond is enforceable against each surety severally and that it is open to the creditors to release one or more of the joint sureties does not alter the true character of an adjudication by the court when proceedings are commenced to enforce the convenants against all the sureties. This and the further observations contained in the latter portion of that para are not correctly appreciated. We have held that even though several options are open to the creditor for recovering the debt, either proceeding against principal debtor and the sureties, in a case where the creditor chooses to proceed against the principal debtor and the sureties jointly and severally and the suit abates against the principal debtor, the suit cannot be decreed against the sureties because, in respect of the same subject-matter of the suit, there will be two conflicting decrees. This is the import of para 9 of the judgment of the Supreme Court in Sri Chand's case, AIR 1966 SC 1427. The interpretation placed in Modern Stores India Ltd's case [1990] 69 Comp Cas 697 by the Calcutta High Court does not square with the proposition laid down in para 9 of the judgment in Sri Chand's case, AIR 1966 SC 1427. Therefore, we disagree with the view taken in Modern Stores Indian Ltd's case [1990] 69 Comp Cas 697 (Cal).
40. For the reasons stated above, it is held that the courts below are not justified in law in holding that there will not be any conflicting decrees in the event the suit is decreed against defendants Nos. 2 and 3. Accordingly points Nos. 2 and 3 are answered in the negative and in favour of the defendants and the against the plaintiff.
41. There is also one more aspect of the case which also deserves to be considered. In the earlier portion of this judgment, we have pointed out that defendant No. 2 remained ex parte and the suit was decreed against him. Defendant No. 2 did not go up in appeal. Therefore, the decree passed against defendant No. 2 has become final. We do not consider that this is a case in which we will be justified in exercising our power under Order 41, rule 33 of the Civil Procedure Code. The second defendant himself has accepted the decree and acquiesced in it and has not preferred any appeal against that decree. Therefore, the decree of the lower appellate court in so far it confirms the decree of the trial court as against defendant No. 2 shall have to be retained.
42. For the reasons stated above, the appeal is allowed. The judgment and decree of the courts below in so far they relate to appellant-defendant No. 3 are set aside. The judgment and decree of the courts below as against defendant No. 2 are not disturbed. The suit of the plaintiff as against defendant No. 3 is dismissed. In view of this, it is unnecessary to consider I.A. No. II seeking amendment to the written statement filed by the appellant.
43. In the fact and circumstances of the case, we direct that each party should bear their respective costs in this appeal.