Suresh Kumar Patel vs State of Madhya Pradesh & another

This appeal has been filed by the appellant / plaintiff under

Section 96 of the Code of Civil Procedure, against the judgment and decree

dated 03.09.1998, passed by the District Judge Sehore, in Civil Suit No. 6B

of 1995, whereby the claim for recovery of Rs. 2,06,582/- was disallowed.

During the trial, learned Trial Court proceeded ex-parte against

respondent no. 1, who is the main borrower.

In short, appellant / plaintiff''s case is that respondent no. 1

having taken loan of Rs. 1 lakh from the appellant/Bank on 14.4.1984 for

purchasing a Mini Bus. For this transaction, many documents have been

executed by the respondents. They have taken joint liability to repay loan

account. Respondent no. 3 and 4 were the guarantors. They also executed

the guarantee letter in favour of appellant / plaintiff / bank. The

respondent no. 1 and 2 were the defaulters in regular payment.

Therefore, notice were issued by the appellant to the respondents. The

respondents failed to repay the loan. Therefore, the appellant / Bank filed

the civil suit.

Respondents no. 3 and 4 in their written statements denied

their liability. They have stated that bank is entitled to recover its loan by

selling the aforesaid minibus for which loan has been taken by the

respondent no. 1 but the appellant had not proceeded against the

respondent No. 1 to recover the entire amount in lumpsum. Therefore, the

agreement with respondents no. 3 and 4 as guarantor has become

ineffective. They are not responsible to repay the loan amount and bank is

not entitled to recover the loan amount from them.

Learned trial Court found that the respondent no.1 had taken

loan from the appellant/Bank for purchasing a Mini Bus on 14.4.1984 and

the respondents no.2 to 4 undertake the guarantee for repaying the

aforesaid loan along with the respondents no.1. The learned trial Court has

not appreciated that being a guarantor of respondent no.1, liability of the

respondents no.2 to 4 co-existed with the principal borrower and holding

that the respondents no.3 and 4 have no liability to pay the amount

because their guarantee has been ineffective. Decree has been passed only

against the respondents no.1 and 2 for recovery of Rs.2,06,582/- with

interest @ 12.5% per annum.

The appellant/Bank has challenged the above findings on the

grounds that learned trial Court has erred in arriving the findings that

agreement of the respondents no.3 & 4 has come to an end without any

cogent and reliable evidence. The condition of the contract between the

parties cannot come to an end unilaterally without the consent of other

parties and the respondents no.3 & 4 have executed the guarantee deed in

favour of the appellant/Bank. They cannot absolve from their liability to

repay the entire loan amount. Therefore, the appellant has prayed to

modify the judgment and decree against the respondent no.3 and 4 and

liability be imposed against them along with the respondents no.1 and 2.

Having heard learned counsel for the parties, perused the

record and impugned judgment.

In para 4 of the impugned judgment, learned trial Court has

framed issues No.3 -d- - 3 ("VERNACULAR MATTER OMITTED") which reads as under:-

"VERNACULAR MATTER OMITTED"

It is important to note that with regard to above issue

findings are affirmative against the respondents no.2 to 4 because they

were guarantor in the disputed loan. Even then, learned trial Court

exonerated them from the liability to repay the loan along with

respondents no.1 and 2.

Para 7 of the judgment is important that, learned trial Court

has held that the respondents no.2 and 4 undertake the guarantee of the

respondent no.1, to repay the loan and executed guarantee deed Ex.P/7.

They have also admitted their signatures in the guarantee deed Ex.P/7.

Deciding the issue no.11 (B), learned trial Court exonerated the

respondents no.3 and 4 on the ground that Section 139 of the Indian

Contract Act. The guarantee given by the respondents no.3 and 4 has

become ineffective because the appellant/Bank failed to recover the entire

amount from the respondent no.1.

At page 10 of the impugned judgment in the 5 th and 6th line, it

is found that the vehicle purchased by the respondent no.1 has no value

now (at the time of his evidence) nor any condition has been imposed

upon the parties. Even then, learned trial Court exonerated the

respondents no.3 & 4.

Section 139 of the Indian Contract Act is provides as under:-

"If the creditor does any act which is inconsistent with the rights of

the surety, or omits to do any act which his duty to the surety requires him

to do, and the eventual remedy of the surety himself against the principal

debtor is thereby impaired, the surety is discharged."

The wordings of the aforesaid section show that, some condition on

which guarantor can be discharged from liability of repayment.

A surety who seeks to be relieved of the obligation imposed

upon him as surety and to be absolved from the liability must not only

show that the creditor has, by his acts or conduct, either prevented debtor

from doing the things which he undertook to do, or has connived at the

debtor''s omission to do those things or has enabled him to do something

which he ought not to have done, he must also show that the creditor has

done some act inconsistent with the rights of the surety, or omitted to do

any act which his duty towards the surety required him to do within the

meaning of section 139 . Thus, before the surety is discharged the following

two conditions must be satisfied (1) the creditor must do an act which is

inconsistent with the rights of the surety or he must omit to do any act

which his duty to the surety requires him to do; and (2) by the action or

inaction of the creditor referred to in ground (one), the eventual remedy of

the surety himself against the principal debtor is impaired. The said two

conditions were not fulfilled in the present case.

The creditor''s right to hold his securities until his whole debt is

paid is paramount to surety''s claim upon such securities, which only arises

when the creditor''s claim against such securities has been satisfied. The

liability of surety is not deferred until remedies against principal debtor are

exhausted.

Section 140 of the Indian Contract Act, 1872 provides that,

where a guaranteed debt has become due, or default of the principal

debtor to perform a guaranteed duty has taken place, the surety, upon

payment or performance of all that, he is liable for, is invested with all the

rights which the creditor had against the principal debtor.

In the case of "C.L. Aboobacker Vs. K.P. Ayishu, AIR

2000 Kernataka 29 (NOC) ", it is held that guarantor is liable for any

payment or performance of any obligation only to the extent the principal

debtor has defaulted.

Section 145 of the Indian Contract Act provides implied

promise to indemnify surety. It provides that in every contract of guarantee

there is an implied promise by the principal debtor to indemnify the surety,

and the surety is entitled to recover from the principal debtor whatever

sum he has rightfully paid under the guarantee, but no sum which he has

paid wrongfully. Therefore, the guarantor i.e. the respondents no.3 & 4 are

liable to repay the loan amount and they are entitled to recover it from the

principal debtor.

In the light of above legal provisions, the findings of learned

trial Court are not according to law and not according to the documents

executed by the respondents no.3 & 4 in favour of the appellant/Bank. The

findings of learned trial Court are totally erroneous and perverse, hence

liable to be set aside.

Accordingly, this appeal is allowed. The findings of learned trial

Court in favour of the respondents no.3 & 4 to exonerate them, from the

liability to repay the loan amount are hereby set aside. The appellant/Bank

is entitled to recover the balance amount from the respondents no.3 & 4 as

well as respondents no.1 and 2.

No order as to costs.