TMI Blog2001 (9) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... debts, to the extent of ₹ 10,000/-and as the first Judgment Debtor is an agriculturist and the first Judgment Debtor borrowed the amount for agricultural purpose, the debt is also deemed to have been discharged. Thereafter, the executing Court framed the point 'whether the decree obtained against the respondent/second Judgment Debtor is executable or not?' The executing Court relying upon a Judgment of this Court in the case of Royal Finance Corporation, Gudur v. Venkata Seshayya 1983 (2) ALT 344, held that as the debt had abated against the principal Debtor, the debt against the surety also stands discharged. Therefore, the executing Court dismissed the execution petition. Aggrieved by the said order, the petitioner/Decree Holder has come up in the present revision. 3. The learned Counsel for the petitioner contended that the executing Court is in error in dismissing the execution petition as not executable against the respondent/ 2nd Judgment Debtor. It is contended that as the suit was decreed against the second Judgment Debtor, the executing Court cannot go behind the decree and hold that the decree is not executable against the second Judgment Debtor. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the trial Court has rightly held that though a decree was passed against the surety, even though the suit has abated and the debt also stands discharged against the principal Debtor, still such a decree is not executable, as according to the executing Court, the liability of the surety stands discharged. 6. From the above rival contentions the issue to be considered is 'whether the plaintiff/Decree Holder can proceed against the surety when the principal Debtor's liability stands discharged?' 7. The facts are not in dispute that the petitioner herein, who was the creditor, filed the suit - O.S.No. 185 of 1985 against both the principal Debtor and the surety impleading them as Defendants 1 and 2. During the pendency of the suit, the principal Debtor died and no legal representatives were brought on record. The result was that the suit against the principal Debtor had abated. But, however, the trial Court passed a decree against the 2nd Defendant, who was only a surety. When the Decree Holder filed the execution petition, the surety against whom the decree was passed took the objection that the decree is not executable against him and the executing Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor 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. Section 139 also contemplates the discharge of surety by the creditor's act or omission impairing surety's eventual remedy. As per Section 140, where a guaranteed debt has become due, or on default of the principal Debtor, the surety, upon payment, is invested with all the rights, which the creditor had against the principal Debtor. In the above provisions, it is clear that the rights and obligations on both the creditor and the surety are provided. In the present case it is a fact that though the creditor filed the suit both against the principal Debtor and the surety, the principal Debtor died during the pendency of the suit and because of the omission on the part of the creditor the suit stands abated against the principal Debtor. The effect of it is the creditor cannot proceed against the principal Debtor or his legal heirs and the debt stands discharged because of the omission to act on the part of the creditor. Now it is to be examined 'whether by the said omission on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberty to enforce its dues in question against the Defendant No.2 only after having exhausted its remedies against Defendant No.1. The plaintiff therefore filed an appeal challenging the legality and propriety of the said direction. The High Court dismissed the appeal. Hence, the matter was carried in further appeal before the Supreme Court. The Apex Court after referring to Order XXI, Rule 11 CPC as well as to the provisions of Section 140 of the Indian Contract Act and observing that the very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the sureties, held - A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. The impugned direction cannot be justified under Order 20, Rule 11(1). Assuming that apart from Order 20, Rule 11(1) the Court had the inherent power under Section 151 to direct postponement of execution of the decree, the ends of justice did not require such postponement. Holding so, the Apex Court set aside that portion of the decree, which postponed the execution of the decree against the surety. In the case of Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the guarantor. The Apex Court also held- The guarantor in the present suit never took any pleas to the effect that his liability is only contingent if remedies against the principal Debtors fail to satisfy the dues of the Decree-Holder. If such a pica had been taken and the Court trying the suit had considered the plea and gave any finding in favour of the guarantor, then it would have been a different position. But in the present case, on the fact of the decree, which has become final, the Court cannot construe it otherwise than its tenor. No executing Court can go beyond the decree. All such pleas as to the rights which the guarantor had, had to be taken during the trial and not after the decree while execution is being levied. The result is that the appeal is allowed and the impugned orders of the High Court dated 23rd May, 1990 and of the learned Additional District Judge dated 5th May, 1989 are set aside and it is held that the Decree Holder is entitled to proceed against the guarantor (Judgment Debtor No.4) for the execution of the aforesaid decree. Holding so, the order of the High Court was reversed. In the case of V. Seetharamaiah v. Srirama Motor Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any positive act of negligence on the part of the plaintiff which resulted in the loss of the security, the 2nd defendant cannot claim to be discharged as a surety. For the foregoing reasons, we hold that the 2nd defendant did not stand discharged from liability as surety. In the case of MSEB Bombay v. Official Liquidator (supra) the dispute relates to the right of the Maharashtra State Electricity Board to encash the bank guarantee given by a bank on behalf of the Company, which was in liquidation. In pursuance of the tenders called for by the Board for supply certain materials, one of the terms was either to deposit a sum of ₹ 50,000/- or furnish bank guarantee. Accordingly, Cochin Malleables (Private) Limited (in liquidation) furnished bank guarantee to the Board for a sum of ₹ 50,000/-. When the said amount was proposed to be encashed by the Electricity Board by calling upon the bank to pay the said amount, the bank informed the same to the Official Liquidator, who in turn made an application before the Company Court under Section 456(2) of the Companies Act, 1956 read with Rule 9 of the Companies (Court) Rules, 1959, praying for an order restraining the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal Debtor had abated by an act of omission on the part of the creditor. As a result of the omission on the part of the creditor in bringing the legal representatives on record, the surety's right that was provided under Section 140 of the Contract Act to proceed against the principal Debtor had been lost. Apart from that in terms of Section 134, the surety is discharged by the omission of the creditor in allowing the suit to abate against the principal Debtor and consequently in the discharge of the debt against the principal Debtor. 12. However, in the case of Nur Din v. Allah Ditta (supra) the Lahore High Court considered whether bar of limitation of remedy against the principal Debtor would result in discharge of the surety. It was held by the Lahore High Court, the omission of the creditor to sue the principal Debtor within the period of limitation does not discharge the surety, inasmuch as though the remedy of the creditor against the principal Debtor is gone, the debt due to him is not extinguished. On the same principle it was held that though the debt against the principal Debtor abates, the liability of the surety does not discharge. But in the above decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no existence..... In Halsbury's Laws of England, IV Edition, Volume 20, Paragraph 284 at page 154, the effect of discharge of principal Debtor by operation of law has been stated thus: Whatever expressly or impliedly discharges the principal Debtor from liability usually discharges the surety also, as his position is thereby altered without his consent, notwithstanding that the alteration is accomplished by operation of law. He is therefore discharged where he can establish that the alteration changes the nature of the liability. By operation of law the burden of debt is lifted off from the shoulders of the principal Debtor and stands extinguished. The surety on his discharging the liability seeks subrogation under Section 140 of the Contract Act and thereby fastens back the liability on the 'Debtor', The question is could this consequence be countenanced? My answer is 'No' because if allowed to prevail, it would not only breed evasion of the Act but also feed defeat of the object of the Act, the negation thereof is the endeavour of the Court. This is also what Venkata Subba Rao, J., has succinctly stated in Sami Aiyer v. Ramaswamy Chettiar (AIR 192 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Karnataka High Court held that when once the suit against the principal Debtor abates, it abates altogether and the suit cannot be decreed against the sureties, as according to it, there will be two conflicting decrees. In the light of the above judgment, the suit abates and no decree could be passed and even if a decree is passed it is only a nullity. 15. In the present case also though the principal Debtor did not claim the relief under the Act 7 of 1977, but due to his death the suit had abated and the debt against him stands discharged. When once the debt stands discharged against the principal Debtor, more so, as a result of an omission on the part of the creditor, I do not find that there is any case for the creditor to proceed against the surety. The liability of the surety is always to make good the loss that was caused as a result of the default of the principal Debtor and if the surety discharges the liability of the creditor he can have a right to proceed against the principal Debtor. In the present case as a result of the omission of the creditor, the surety is denied of such a right. In such a case, it would not be proper to hold that the surety is stil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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