Trilok Nath vs Sardar Kesar Singh

Ali, J.

This is a civil miscellaneous first appeal against an order of the Additional District Judge Jammu rejecting the prayer of the decree holder for taking

execution proceedings against the surety Sardar Harbans Singh who is on of the respondents in this court.

The facts out of which the present appeal arises may be briefly summarised thus :

A suit for money was brought by the plaintiff decreeholder against Sirdar Kesar Singh and others and an application for attachment before

judgment was filed before the court in the course of which the respondent Harbans Singh stood a surety and executed a surety bond in the court of

the Additional District Judge Jammu for payment of Rs. 5700 in case a decree was passed against the defendants. Subsequently it appears that the

decree holder compromised the case with the principal debtor namely Sardar Kesar Singh and absolved the other defendants. A consent decree

for an amount of Rs. 5120 was passed by the court on 11111958 under which Kesar Singh was to pay the amount by instalments up to the end of

June 1960. As, however, the decretal amount was not paid by the judgment debtor Kesar Singh, the decree holder applied to the court to

proceed against the surety on the basis of his surety bond and to realise the amount by attachment and sale of property belonging to S. Harbans

Singh surety. The court below rejected this prayer on the ground that by virtue of a consent decree having been passed the surety stood

discharged aid no execution could be taken against him as his liability had ceased to exist. The Additional District Judge, Jammu apparently applied

the principles of Sections 135 to 139 of the Contract Act to the facts of the case.

Mr. Das, appearing for the appellant submitted that the principles of Sections 135 to 139 of the Contract Act would have no application to a bond

which is executed by the surety under the provisions of Order 38 C. P. C. in favour of a court. He further contended that as the terms of the bond

did not specifically exclude a consent decree, the mere fact that the decree holder compromised his case with the judgment debtor and a

compromise decree was passed does not absolve the surety of his liability. It is, no doubt, true that the provisions of Sections 135 to 159 of the

Contract Act would not apply in terms to a surety bond executed in favour of a court, bat it has now been generally settled as good law that,

nevertheless, the principles contained in these sections would continue to apply, to a surety bond executed in favour of a court. In this connection, I

am fortified by the view taken in a number of decisions which show a general consensus of judicial opinion on this point. In Pirthi Singh Vs. Ram

Charran Aggarwal reported in A. I. R. (31) 1944 Lahore 428, their Lordships of the Lahore High Court observed as follows :

The surety bond in favour of a court may not literally fall within the definition of a contract of guarantee but the existence of a contract is not sine

quo non for the application of the principles of equity to which reference has been made and on which ss. 133 to 141 Contract Act were

themselves based...

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I am thus inclined in equity to read the surety bond although ex facie in favour of the court as a bond in favour of the creditor in the sense that any

arrangement between him and the principal debtor without the surety's knowledge and consent which has the effect of granting time for payment or

impairs the surety's remedies against the principal debtor which he would have been entitled to pursue on discharging his obligations or converts the

contract between the creditor and debtor into a different one from what the surety had stood a guarantee for, would entitle the surety to be relieved

of his engagement and operate as a discharge.

To the same effect is a recent decision of the Calcutta High Court reported in A.I.R. 1957, Cal 648 which followed the aforesaid Lahore High

Court decision and their Lordships while citing a number of decisions observed as follows :

Held that these decisions are more in point and support the propositions that the principles underlying Ss. 133 to 141, Contract Act apply to

bonds in favour of courts, although the sections may not be by themselves applicable. The other decision on which Mr. Bannerjee relied namely

I.L.R. 43 Madras 272 (A. I. R. 1920 Madras 355) (E) was also cited before their Lordships and their Lordships held that two of the subsequent

division benches in Madras do not share the view expressed in this decision. Having given a careful consideration to the matter I am of opinion that

the view taken by their Lordships in the said case of Pirthi Singh V. Ram Charran (c) on the point is correct and should be accepted.

To the same effect is the decision of the Calcutta High Court reported in 1933 Cal 337. The Bombay High Court in 1939 Bom. 23 and the

Madras High Court in 1933 Madras, 625 seem to have followed the same principles. A later decision of the Punjab High Court reported in 1958

Punjab, 337 was also of the same view.

It is, therefore, clear that it is generally agreed that the principles underlying Sections 135 to 139 Contract Act would apply to a surety bond

executed in favour of a court. The learned counsel for the appellant, however, strongly relied on a decision of the Kerala High Court reported in

1961 Kerala, 312 in support of the proposition that even the principles of the aforesaid sections of the Contract Act would not apply to a surety

bond executed in favour of a court. We have carefully gone through that decision and we do not think that the decision goes to that extent. In that

case, their Lordships were really concerned about the question as to whether under the terms of the surety bond in the case before their Lordships

the surety would be discharged merely by virtue of a consent decree being in favour of the decree holder. Their Lordships in that case held that as

the terms of the bond did not exclude the discharge of the surety in the event of a compromise decree, the surety would be liable. In my opinion,

the question as to whether a surety is discharged on a compromise being entered into between the judgment debtor and the decree holder and a

consent decree being passed on such a compromise would naturally depend on the facts and circumstances of each case and particularly on the

terms of the bond executed by the surety in each case. It is obvious that where the compromise is effected without the consent of the surety by

which he is seriously prejudiced and when such a compromise was not contemplated by the surety when he executed the bond, a consent decree

under these circumstances would certainly discharge the surety and absolve him of his liability. In Mahomedalli Ibrahimji V. Lakshmibai Anant,

reported in A. I R. 1930 Bombay 122, their Lordships observed as follows :

The correct test, I think, to apply to this case is, whether the compromise which was subsequently embodied in the decree was in the

contemplation of the plaintiff and the surety when the latter became a surety............

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It is true that mere forbearance to recover the debt might not release the surety but giving the debtor the right to refuse to pay except parts of th

debt at stated intervals alters the position of the surety as regards the debtor. His rights against the debtor are prejudiced by this compromise, and,

I think, it can fairly be said that such a compromise was not one which was contemplated by him when he entered into the surety ship.

It is also generally settled as good law that a mere passing of a consent decree does not absolve the surety because when the surety undertakes to

be bound by any decree that may be passed such a recital includes a bonafide compromise which is entered into by the parties without any fraud ;

but in cases where there is an express recital in the surety bond or one by necessary implication by which the liability is restricted only to a decree

on contest, the surety would stand discharged if a compromise decree is passed. In Haji Ahmed Karim V. Maruti Kavji Bhonsle reported in A. I.

R. 1931 Bombay, 55 a division bench of the Bombay High Court observed as follows :

The first question in these cases, in our opinion, is whether a compromise as such is or is not excluded under the terms of the surety bond. That

must be a question of fact in each case In the present case, we are unable to accept the argument for the appellant that the mention of the three

courts in the surety bond necessarily implies a contest in the courts and excludes a compromise.

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It follows on this view that a compromise as such is not explicitly or implicitly outside the terms of the surety bond in this case. The collusion alleged

is not supported by the evidence, the trial court does not find it proved ; the lower appellate court found it not proved.

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On these facts the law is, in our opinion, clear that the surety cannot resist enforcement of the bond on a compromise on the face of it bona fide.

The bond itself does not stipulate that even such a compromise should not be entered into without his knowledge and consent.

Their Lordships in that case held that as the terms of the bond did not exclude a bona fide compromise, the surety was liable, even if a consent

decree was passed. The same view was taken by the Madras High Court in A.I.R. 1940 Mad 437, as also by the Calcutta High Court in 1932

Calcutta, 858. In a recent decision of the Calcutta High Court reported in A.I.R. 1957 Calcutta, 645 their Lordships observed as follows :

I agree with the view taken by their Lordships in the said case of Jia Bai V. Joharmull Bothra (A) on this point and in my opinion it cannot be said

as a broad proposition that wherever there is a consent decree the person who stood surety for the claim of the plaintiff is discharged. It would, in

my opinion, depend in each case on the terms of the decree and on the terms of the bond as to whether a consent decree in question discharged

the x surety. In this case, I do not think that the consent decree if it is taken to be a decree for the payment of the sum claimed with interest is not

within the terms of the bond.

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S. R. Das Gupta J. referring to the observations of Rankin C. J. in an earlier case observed as follows:

It should be noted, as Rankin C. J. himself observed, that the case before their Lordships did not raise that exact question. These observations, it

must be admitted, are in the nature of obiter dictum. Apart from that what Rankin C. J. observed was that if it is to be contended that the surety is

discharged from bond in any case where there is a consent decree providing for postponed payment or payment by instalments then his Lordship

was not prepared to assent to such a proposition In other words, according to his Lordship there cannot be such a broad and general proposition,

namely that whenever there is a consent decree providing for postponed payment or payment by instalments, then the surety is discharged. It

seems to me that what the learned C. J. meant was that this question will have to be decided in each case on its own facts and it cannot be laid

down in the general terms covering all cases that whether there is a consent decree providing for postponed payment or payment by instalments,

then the surety is discharged.

On a consideration of the authorities mentioned above, it is clear to us that the main test which is to be applied is whether the terms of the bond

expressly or impliedly exclude the liability of a surety in the event of a consent decree being passed. We would, therefore, first construe the terms

of the bond in the instant case to find out the exact nature of the undertaking given by the surety in this case. In the surety bond, the recital is as

under :

Lihaza muzhir zaman hokar ikrar karta hai aur likh deta hat kih agar basurat sadoor digri muddha 'alalam zaridigri wa kharcha muqadma

hasabulhuham 'adalat ada karne se qasar rahenge to muzhir zaman baqadar 5700 rupia zarizamanat raqam talab kardah hasabulhukam 'adalat az

girah khud dakhal karoonga.

A perusal of these terms clearly show that the surety did not either impliedly or specifically exclude the passing of a consent decree and, therefore,

on the terms of the bond in the present case, there can be no doubt that a consent decree was in contemplation by the surety and on that ground

alone the surety cannot assail the execution taken out against him.

Learned counsel for the respondent, however, relied on a decision of the Patna High Court reported in A.I. R. 1932 Patna, 313. We have gone

through that case and we find that in the bond executed in that case, there was a clear mention by the surety in the bond that he will be liable only if

a decree was passed after the case was decided on merits. In this connection, their Lordships while quoting the recitals in the bond observed as

follows :

The contract of surety, the surety bond, is quite explicit in character. The surety gives the property mentioned in the surety bond as security to

meet the following contingency as stated in the bond :

If God forbid, the suit is decided against the defendants and a decree for mesne profits is passed in favour of the plaintiffs, the plaintiffs would

realize the amount of decree for mesne profits from the property mentioned in this deed.

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Thus in that case, the surety clearly contemplated a decree on contest and excluded a consent decree because the words ""If God forbid the suit is

decided against the defendants"" can only contemplate a decree on contest and not a consent decree. Their Lordships of the Patna High Court

were right in holding that the surety was not liable on the facts and the circumstances of that case. The present case, however, as also the recitals in

the bond before us are essentially different from the recitals in the bond in the Patna case. In these circumstances, therefore, the Patna case,

referred to above, does not seem to be of any assistance to the respondent.

There is however another circumstance which, in our opinion, clearly brings into play the principles contained in Section 139 of the Contract Act.

Section 139 of the Contract Act runs as follows :

If the creditor does an act which is inconsistent with the right 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.

It appears that under the compromise the creditor dismissed the other defendants from their liability and restricted his claim only to the principal

defendant namely Sardar Kesar Singh ; such a contract on the part of the creditor was no doubt inconsistent with the rights of the surety and also

seriously impaired the remedy of the surety against the other defendants who were dismissed from action. Moreover, such a compromise was

directly against the recitals of the surety bond itself, where the surety had clearly mentioned that he will be liable only if a decree was passed against

all the defendants and if all of them (defendants) were unable to pay the amount. The principle, therefore, contained in Section 139 Contract Act

would be clearly applicable to the facts of the present case, and the surety would stand discharged. In an almost similar case, the Madras High

Court seems to have taken the same view In Gundla Venkamma V. Rao Sahib Kotla Sanyasayya reported in A. I. R. 1938 Madras, 422 where

their Lordships held as under :

On a construction of the bond in the light of the surrounding circumstances it is fairly clear that obligation was undertaken by the defendant on

behalf of both the defendants in the said suit namely Joga Kondamma and Joga Sitaramulu ; and two conditions have to be fulfilled by the creditor

(plaintiff) before she can enforce the liability under the bond, namely (1) there must be a decree against both the defendants in the said suit, and (2)

there must be a failure to recover the money from both the said defendants or their property. Where, therefore as a result of an act or omission of

the creditor, there is a variation of the liability undertaken or a departure in the terms of the bond, the surety will be discharged from his obligation

there under, and it is immaterial whether the variation is substantial or material, because the contract ceases to be one which he has undertaken to

fulfil. A compromise decree against one of the defendants cannot be held to be a decree against the 'defendants' within the meaning of the surety

bond and the plaintiff cannot be heard to say that she has failed to recover the amount from the defendants..........

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By reason of the dismissal of the suit, the eventual remedy of the surety to proceed against one of the principal debtors has been impaired. There

can be no doubt that the intention of the parties was that all the defendants should be held bound by the decree because under the arrangement

entered into between Joga Rumulu and Joga Sitaramulla each became entitled to half of the property left by Joga Ventakaswami and if a decree is

obtained against one of them, it would be impossible for the creditor to proceed against the property of the other or for the surety to enforce the

implied promise against that other in case the surety was compelled to make the payment which the defendants were liable to pay under the

decree.

To the same effect is an earlier decision of the Madras High Court reported in 1920 Madras 311.

Learned counsel for the appellant has been unable to cite any decision taking a contrary view, in these circumstance. Even the decision reported in

A. I. R. 1961 Kerala 312 referred to above, seems to be silent on this point. This is, therefore, a clear reason why the surety stood discharged.

Another question that was raised before us was as to whether the surety would stand discharged by the conduct of the creditor in agreeing to grant

time to the debtor till June 1960 and in accepting the amount in instalments. There seems to be some divergence of judicial opinions on this

question and it is not necessary for us to go into it in view of our finding that bj virtue of the fact that the other defendants were dismissed from

action and a consent decree was passed thereby, 'the surety stands discharged.

For the reasons given above, we are in complete agreement with the view of the learned Additional District Judge, Jammu that the surety was not

liable and that the execution taken out against him was not maintainable.

The appeal accordingly fails and is dismissed with costs.