Thutta Venkataswami vs Vissamsetti Kotilingam and Another

Wallace, J.—The question for decision in this appeal is whether an agreement by a decree-holder in a composition by his judgment-debtor

with his creditors generally to accept a percentage of his decree debt in full satisfaction of the whole debt is an adjustment which can be recorded

under Order 21, Rule 2 as an adjustment of the decree. The Lower Appellate Court has held that it could not be recorded, and the appellant (the

judgment-debtor) appeals.

The respondent, who is the transferee from the original decree-holder, at one stage of his argument, challenged the existence of any

composition, but both the Lower Courts have held on the evidence that there was a composition between the judgment-debtor and his creditors,

under which they agreed some of them to accept 75 per cent. of their debt and some 80 per cent. in full satisfaction, and the present decree-holder

was in the latter class. He had filed an execution petition for the whole decree amount on 14th September, 1921, but dropped it after the

composition agreement. It is quite clear that he was a party to that mutual agreement. That the present transferee-respondent was also aware of the

composition is clear from the fact that the sum for which the decree was transferred to him was not the full amount of the decree, but practically the

amount which the decree-holder under the composition had agreed to take.

This composition was in October, 1921, about one month after the decree. On 18th November, 1921, the judgment-debtor, the appellant,

deposited into the first Court the amount due to his decree-holder under the adjustment on the footing of the decree, that is, 80 per cent. of the full

amount due. It appears from the evidence that the money was first tendered to the decree-holder but he said that he had already transferred the

decree to the present 1st respondent. It does not appear that the money was then tendered to the 1st respondent, but it was paid into Court by the

judgment-debtor on 18th November, 1921, along with his application to record satisfaction, to which application both the original decree-holder

and the transferee were made parties. This deposit was mentioned by the judgment-debtor in his affidavit in the I.A. dated 16th November, 1921,

and this fact was not controverted either by the decree-holder or his transferee. I am asked to remand the case for a finding as to the tender but it

is unnecessary, since to the knowledge of both these parties the money was deposited into the Court for payment to the party entitled to execute.

If the adjustment therefore can be pleaded as a bar in Execution, the amount which the decree-holder had agreed to accept in full discharge of the

decree was paid into Court on 18th November, 1921. No time was fixed under the composition for payment, but one month after the composition

is certainly a reasonable time.

That a mutual agreement by creditors to accept a less sum than their full debts in full discharge of their debts is an enforceable contract in this

country is not, I think, open to doubt. The illustrations to Section 63 of the Indian Contract Act seem to me to make this clear. On the other side, it

is argued that that section itself implies an original contract to which there was a promisor and a promisee ; but I do not think the language used

must necessarily import more than an ordinary obligation and implied promise of a debtor to pay back his creditor. Illustrations (b), (c) and (e) are,

so far as appears from the language used, ordinary debts and not debts due under any contract. When the illustrations allude to a specific contract

debt it is so specifically stated-see Illustration (d). Illustration (e) is practically conclusive for the purpose of this case, that such a composition with

creditors is an enforceable contract, though in the case of illustrations (b) and (c) there may be no new contract created, and though until actual

tender of payment, it may be still open to the creditor to refuse to accept part payment in full satisfaction, a case analogous to that in the decision of

the Calcutta High Court reported in Debendra Narain Sinha v. Sourindra Mohan Sinha (1914) 24 IC 391. In the case of illustration (e) there is a

fresh contract for which there is consideration, namely, the agreement of other creditors also to be content with part-payment and thus release

money for the discharge of other debts.

Now, if that is the position in the case of an ordinary debt, I fail to see how it is changed when the debt is embodied in a decree. In either case,

the arrangement is an adjustment of the debt due, though it cannot be enforced unless certified vide Veerappa Chettiar v. Arumugam Poosari

(1907) 17 MLJ 527 and the ratio decidendi of Periathambi Udayan v. Vellaya Goundan ILR (1897) M 409 and payment in terms of the

adjustment will be under the terms of its full satisfaction for the debt. It is contended that parties to a decree cannot vary their decree right. This

seems tantamount to saying that there can be no adjustment of a decree. Adjustment is clearly not the same thing as satisfaction. If Rule 2 of Order

21 meant to say that the decree is otherwise satisfied in whole or in part it would have said so. Adjustment is some method of settling the decree

which is not provided for in the decree itself. If the decree-holder can still execute the decree in full in spite of the adjustment, then there has been

no adjustment at all. This seems to me therefore clearly a case to which Order 21, Rule 2 applies.

The respondent, however, further pleads that the decree-holder is entitled to resile from the adjustment if he likes, and that, if he resiles, then the

decree has not been adjusted, to use the words of the rule, "" to the satisfaction of the decree-holder. "" As noted above, such a result may be

permissible when there has been no mutual composition between the judgment-debtor and the creditors ; but when there is this composition, it is

not open to a single creditor to resile from the fresh contract. The respondent contends that, even if that be so, the method of enforcing the contract

on him is not by forcing him to abide by the execution proceeding, but by leaving the judgment-debtor to sue him for damages for breach of

contract ; and this is the view that the Lower Appellate Court has taken. If this fresh contract is, as I hold, an adjustment of the debt, I cannot see

why such an adjustment should not be recorded. That is the purpose of the rule, unless the unfortunate debtor, after he has secured his

composition, is then thrown into the position of having to sue any and every creditor who chooses to resile from the composition. An adjustment of

that sort would be worse than no adjustment at all. The adjustment when made was "" to the satisfaction of the decree-holder, "" and that is what is

meant by these words when Used in the rule.

The next point taken is that the tender was not made to the transferee and that it will not bind him. This again cannot be upheld. The transferee

succeeds to the contract made by his transferor and is bound to accept whatever the transferor was bound to accept. In this case I think it is-clear

that the decree-holder agreed under a mutual composition scheme to accept payment of ,8o per cent, of his debt in full satisfaction of his debt, if

paid within a reasonable time ; and the money was paid within a reasonable time. This, therefore, was an adjustment of the debt tantamount to full

satisfaction of the decree, and the judgment-debtor is entitled to plead that as a full defence to any execution application and to have this full

satisfaction recorded under Order 21, Rule 2.

I, therefore, reverse the order of the Lower Appellate Court and restore that of the District Munsif with costs here and in the Lower Appellate

Court. The transferee ''decree-holder may draw out the money deposited by the petitioner in the First Court.