Kandasamy vs Valluvar Financiers

S. Jagadeesan, J.—By consent of both the sides, the civil revision petition itself is taken up for final disposal.

The revision has been filed against the order or arrest in E.A. No. 154 of 1994. The counsel for the petitioner contended that the decree was

passed on 4.5.1991 and thereafter the decree-holder filed E.P. No. 371 of 1991 for arrest of both the principal-debtor and the guarantor, the

petitioner being the guarantor. Subsequently, the principal-debtor took out Insolvency proceedings and the same is pending. In view of this, the

decree-holder gave up the principal-debtor in the E.P. and proceeded against the petitioner alone. When the Insolvency proceeding against the

principal-debtor is pending, the liability of the prin-cipal-debtor is under doubt and as such the decree Cannot be executed against the guarantor,

the petitioner herein. Further, the principal-debtor himself has paid the decree amount. Having given up the prin-cipals-debtor, the decree-holder

cannot proceed against the guarantor alone.

The counsel for the respondent contended that both the pleas are raised for the first time before this Court and hence, the same cannot be

entertained. Earlier, the petitioner was arrested on 29.4.1994, and he paid a sum of Rs. 100 and thereafter released. Subsequently, the petitioner

filed E.A. No. 154 of 1994 to stay the execution proceedings. In the meanwhile, it is admitted that a revision has been filed before this Court on

the ground that arrest was ordered without any reason and there is no finding with regard to the means of the petitioner. The said revision was

allowed, and the matter was remitted to the executing court. Now, once again arrest was ordered and the same is being challenged here. When the

dismissal of the E.A. No. 154 of 1994 has not been challenged, it is not open to the petitioner to challenge the order of arrest.

I have carefully considered the contentions of both the counsel. E.A. No. 154 of 1994 has been filed by the petitioner, seeking for the stay of

the execution proceedings on the basis of the pendency of I.P. No. 2 of 1992. Admittedly, the said application has been dismissed on 13.2.1995

and the order of dismissal has not been challenged. When that order has not been challenged, now it is not open to the petitioner to plead that due

to the pendency of the I.P., the execution cannot be proceeded with. Having allowed it to become final, it is not open to the petitioner once again

to raise the same issue before this Court. So far as the order of arrest is concerned, the lower court has passed the the order only on the ground

that the decree is joint and several and hence, the petitioner is liable to pay the decree debt and further, the said petition filed by the petitioner in

E.A. No. 154 of 1994 has been dismissed and hence, the lower court ordered the arrest.

When the order of arrest is sought for, admittedly the earlier C.R.P. has been allowed and the matter has been remitted to the executing court to

consider the matter on merits. To consider the matter on merits means not only the objection raised by the petitioner with regard to the

executability of the decree but also with regard to the means in respect of the petitioner. The lower court has considered the objections raised with

regard to the executability of the decree and did not give any finding with regard to the means of the petitioner and that he is evading to discharge

of the decree debt in spite of having such means. In the absence of such finding, I am of the view that the order of arrest cannot be sustained.

Since the objection has been raised with regard to the executability of the decree also and in order to avoid any doubt before the Executing

Court, that question has also to be decided. It is the contention of the counsel for the petitioners that in view of the pendency of the Insolvency

petition and in view of the giving up of the principal-debtor, the present execution petition is not maintainable.

Mr. S. Balasubramnaiam, learned Counsel for the respondent, however, contended that once the suit has been decreed and the decree is to the

effect that the defendants, the principal-debtor as well as the guar-antor are liable to pay the decree amount jointly and severally, it is open to the

decree-holder to proceed against the guarantor for recovery of the amount. The learned Counsel drew the attention of this Court to the Judgment

reported in Chadalavada Seetharamayya Vs. Velivolu Kesavayya, , wherein it has bene held as follows:

The present case has to be considered with ref-erence to Section 44, Provincial Insolvency Act. Section 44(2), Provincial Insolvency Act lays

down: ""Save as otherwise provided by Sub-section (1) an order of discharge shall release the insolvent from all debts provable under this Act.

Sub-section (3) of Section 44 provides that:

An order of discharge shall not release any person who at the date of the presentation of the petition was a partner or cotrustee with the insol-vent,

or was jointly bound or had made joint contract with him or any person who was surety for him.

It is seen that under Sub-section (3) of Section 44, Provincial Insolvency Act a person who is jointly bound or had made any contract with the

insol-vent or a partner 3on the date of the presentation of the petition is liable in spite of the insolvent''s discharge under Sub-section (2). If the

contention of Mr. Narasaraju that the appellant''s case is governed by the principle stated in Subramania Chettiar v. Narayanaswami Gounder

(1950) 2 M.L.J. 674 is to prevail, a surety who gets pro tanto discharge when the principal debt is extin-guished should also be released from all

liability and his case will not attract the provisions Sub-section (3). But the wording of this sub-section makes it clear that a surety comes within the

meaning of Sub-section (3) because obviously a surety is one who is jointly liable with the insolvent.

Yet another decision referred to by the counsel for the respondent is Maharashtra State Electricity Board, Bombay Vs. Official Liquidator, High

Court, Ernakulam and Another, , wherein it has been held as follows:

The fact the company liquidation i.e., the prin-cipal-debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e.,

the guarantor. u/s 128 of the Indian Contract Act, the, liability of the surety is co-extensive with that of the principal-debtor unless it is otherwise

provided by the contract. A surety is no doubt discharged u/s 134 of the Indian Contract Act by any contract between the creditor and the

principal-debtor by which the principal-debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge

of the principal-debtor, but a dis-charge which the principal-debtor may secure by operation of law in bankruptcy for in liquidation proceedings in

the case of a company) does not absolve the surety of his liability.

The learned Counsel for the respondent further placed reliance upon the decision reported in Charan Singh v. Security Finance Pvt. Ltd. AIR

1988 Del 130, wherein it has been held as follows:

It is equally clear that after the decree has been passed making all the judgment debtors coll6ctively and severally liable to pay the amount to the

decree holder, the decree holder has a right to recover all the amount of the decree from any of the judgment debtors and he may not pursue his

remedy against one or the other judgment debtor. The provisions of Sections 133 to 139 of the Contract Act, referred to above, apply only where

the rights of the parties have not crystallised and merged in a decree of the Court. Those provisions would not apply to the judgment debtors. I find

myself in agreement with the reasons and the ratio laid down in the judgments of the Madras and Kerala High Courts and express my inability to

follow the decision given by Jammu and Kash-mir High Court.

From the principles laid down as above, it is clear that once the suit has been decreed making the judgment-debtor liable jointly and severally,

then the discharge of the principal-debtor by operation of law will not exclude the liability of the guar-antor to pay the decree debt. Once the

defendants are bound to discharge the decree debt jointly and severally, each one is liable to pay the same. But, of course, the collection should

not exceed the decree amount.

The exception for this principle is only Section 134 of the Contract Act i.e., only if the decree-holder gives a discharge by his own action or

omission. There is no question of implied discharge and the discharge should be specific. In this case, there is absolutely no plea that the decree-

holder has given a discharge in respect of the principal-debtor in order to disentitle him to recover the decree debt. The only plea of the petitioner

is that the decree-holder had given up the principal-debtor in order to disentitle him to recover the decree debt. The only plea of the petitioner is

that the decree-holder had given up the principal-debtor arid as such is not entitled to proceed with the decree. This contention cannot be

accepted, as it is open to the decree-holder to recover the decree debt from any one of the judgment-debtors. 11. For the reasons stated above, I

find that the execution is maintainable. In view of the earlier finding, E.P. is remanded to the lower court to find out the means of the petitioner in

order to pass an order of arrest. The civil revision petition is allowed and the E.P. is remanded to the lower court for fresh dis-posal in accordance

with law. C.M.P. No. 5367 of 1995 is dismissed. No costs.