1977 (4) TMI 178 - HC - Indian Laws

Summary

Issues Involved:

1. Authority to Bind the Second Defendant
2. Applicability of the Indemnity Policy to Advances Made Prior to its Date
3. Prematurity of the Claim Against the Insurer
4. Extent of Liability of the Insurer Relative to the Principal Debtor
5. Deduction of Payments Made During Suit Pendency

Summary:

Issue 1: Authority to Bind the Second Defendant

The appellant contended that K.G. Merchant, who executed Exhibit P-6, lacked authority to bind the second defendant. However, the court found that the premium paid by the first defendant was appropriated by the appellant, indicating ratification of the contract by the appellant. The court held that the appellant was disabled from disowning the contract, and the contract under Ext. P-6 was binding on the appellant.

Issue 2: Applicability of the Indemnity Policy to Advances Made Prior to its Date

The appellant argued that Ext. P-6 could only be invoked for advances made after 28-12-1967. The court noted that the first defendant continued to make withdrawals after this date, which were permitted due to the guarantee under Ext. P-6. Therefore, the court held that the continued operation of the account and further withdrawals were in pursuance of the Policy Ext. P-6, and the liability covered advances made after 28-12-1967.

Issue 3: Prematurity of the Claim Against the Insurer

The appellant contended that the remedy against the insurer would arise only after exhausting remedies against the principal debtor. The court clarified the distinction between a contract of indemnity and a guarantee, noting that the liability under Ext. P-6 arose upon default by the first defendant. The court held that the claim was not premature as the liability of the appellant arose in consequence of the default by the first defendant.

Issue 4: Extent of Liability of the Insurer Relative to the Principal Debtor

The appellant argued that the decree against the insurer should be limited to the extent of the personal decree against the principal debtor. The court noted that the liability of the surety and the principal debtor, though arising from the same transaction, are distinct. The court held that the decree against the appellant should not be limited to the personal decree against the principal debtor and answered this point against the appellant.

Issue 5: Deduction of Payments Made During Suit Pendency

The appellant pointed out that the sum of Rs. 33,760.85 paid during the pendency of the suit was not deducted in the decree against the first defendant. The court acknowledged this and directed that in drawing up the decree against the first defendant, this payment should be taken into account. The court also ordered that two separate decrees be drawn up, one against the appellant and the other against the first defendant, with appropriate adjustments for any realizations made under either decree.

Conclusion:

The appeal was dismissed except for the modification regarding the deduction of payments made during the pendency of the suit. The court directed the parties to bear their own costs in the appeal.