TMI Blog1950 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... minor sons of defendant 1. Defendant 8 was a surety for the debt and had executed a letter of guarantee and renewed his liability thereunder, just as the principal debtors had renewed their liability for the debt under endorsements. So, the suit was not barred against either the principal debtors or the surety. But the principal debtors claimed that they were entitled to a scaling down of the debt under the Madras Agriculturists' Belief Act, being agriculturists. The surety defendant 3 contended that the varthamanam executed by him did not amount to a contract of guarantee and that at any rate limitation had already operated against him. He contended further that he was also entitled to scaling down of the whole debt under the Madras Agriculturists' Relief Act, as his guarantee, even if there was one, would amount only to a guarantee of the amount actually payable by the principal debtor on the dates of his renewal of it after 22-3-1938. He also stated that 24 per cent, interest claimed in the plaint was penal and unconscionable and that the plaintiff could not claim more than 5 per cent simple interest per annum. The learned Subordinate Judge held that there was no bar of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down under the Madras Agriculturists' Relief Act and the payment of the scaled down amount does not extinguish the debt itself, but only bars the remedy of the creditor as against the agriculturist debtor as regards the balance of the amount, and that the debt itself continues, as in the case of a debt barred by limitation, is not recoverable in bankruptcy. In other words, he equated this case with cases of debts barred by limitation or not recoverable under the bankruptcy law, and relied on the observations in HIGH COURT, 33 Mad. 308 : 7 I. C. 898. In that case, Benson C. J. and Krishnaswami Aiyar J. held that a debt the recovery of which is barred by limitation is not extinguished and the debtor is not, by reason of the bar of limitation discharged therefrom and that the omission of the creditor to sue the debtor within the period of limitation is not an act the legal consequence of which is the discharge of the debtor and such omission has not the effect of discharging the surety under Sections 134 and 137, Contract Act. They wont on to say that there was hardly any room for doubt in the fact of the express language of Section 28, Limitation Act, which merely extinguishes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows : A guarantee is not put an end to by reason of the debt becoming unenforceable against the principal by reason of matters happening subsequently, unless it is due to an act or omission of the creditor contrary to his duty to the surety. Thus a surety is liable though the claim against the principal be barred by the statute of limitation or by reason of the bankruptcy of the principal. 4. He relied further on the provisions of Sections 133, 134, 135 etc., Contract Act, which according to him are the only sections which will discharge the surety or enable the surety to claim the benefit given to the principal debtor and which do not maintain the benefit under the Madras Agriculturists' Relief Act given to the surety by adding to or amending the sections of the Contract Act or even the section of the Madras Agriculturists' Relief Act. According to him, this also shows that the Madras Agriculturists' Relief Act never intended to extinguish the debt or liability of the debtor, but only to bar the remedy regarding the amount lost by the scaling down. He strongly relied on the wording of Section 7 which uses the phrase No sum in excess of the amount as so s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Bench of this Court, that if an agriculturist debtor executes a promissory note in favour of his creditor including in it a sum which cannot be recovered from him under the Madras Agriculturists' Relief Act because of the scaling down the promissory note will be devoid of consideration to the extent to which the promissory note amount exceeded the amount due on a proper scaling down of the debt. That too shows the intention of the Madras Agriculturists' Relief Act to discharge or extinguish the debt to the extent of the difference between the unsealed and scaled down amount. 5. It was then argued by Mr. Ramchandra Aiyar for the appellant, that the object of the Madras Agriculturists' Relief Act is only to benefit an agriculturist debtor, and that, therefore, this non-agriculturist surety could never have been intended to be, or really, be benefited under any provision of the Madras Agriculturists' Relief Act. The proposition is not sound. A Bench of this Court, consisting of King and Patanjali Sastri JJ. negatived its soundness when it was raised before it in Arunachalam v. Seetharam Naidu , I. L. R. (194l) Mad. 930 : A. I. R. (28) 1941 Mad. 584 a case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposing the surety were an agriculturist and the principal debtor was not an agriculturist, it could not be urged that the principal debtor could claim scaling down simply because the surety could claim it and his liability was co-extensive with the surety's. But here he is forgetting that the liability of the surety is accessory and secondary while the liability of the principal debtor is not and so the principal debtor, who is not an agriculturist and whose liability is primary, and not secondary or accessory, can be made to pay the full amount. In Sami Iyer v. Ramaswami Chettiar , 44 M. L. J. 171 : (A. I. R.1923 Mad. 340), a Bench of this Court, consisting of Spencer and Venkatasubba Rao JJ., held that the liability of a surety for a debt ceased to exist when his principal's debts were extinguished. In that case the debt was extinguished by an act which caused the merger of the estates of the debtor and the creditor. We are of opinion that Section 133 etc., Contract Act, do not exhaust the modes of discharges of a surety as they do not even mention the case of a voluntary payment of the entire debt or portion of the debt by the principal debtor to the creditor as effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy against the agriculturist debtor. I am unable to agree. There, defendant 1 was an agriculturist but not defendant 8 from whom the whole of the unsealed debt could have been recovered. Defendant 1 paid the whole debt, which he would not have been bound to pay under the Act, and then pleaded for scaling down and recovering the excess, paid, by him. But, of course, the Court refused his request, as there was no debt recoverable from him by process of law when he made the application, and under Section 8(4), Madras Agriculturists' Relief Act, a creditor was not required to refund any sum which had been paid to him. It did not say that the Madras Agriculturists' Relief Act did not extinguish the debt but only barred the remedy. The argument of Mr. Ramachandra Aiyar that the debt is not extinguished but only barred because an agriculturist need not take advantage of the Madras Agriculturists' Relief Act but may pay the unscaled amount is unconvincing. A surety whose obligation is released under Sections 133 to 137, Contract Act can also pay up if he likes. 9. Now we come to the second point, namely, assuming that the intention of the Madras Agriculturists' Relief Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the surety's engagement, being one of indemnity, would diminish in like proportion. So, if the sum recoverable became zero, owing to the decree being reversed, the surety's liability would also be reduced to nothing. It is obvious that in a case like this, where the decree is amended under Section 19, Madras Agriculturists' Relief Act, and the amount recoverable by a plaintiff from the principal debtor is diminished in appeal, the surety's engagement, being one of indemnity, would diminish in like proportion; and if the sum recoverable from the principal debtor becomes zero, under the amended decree the surety's liability would also be reduced to nothing. 10 . Niyogi J. in Babu Rao v. Babu Manakkal , I. L. R. (1939) Nag. 175 : A.I.R. 1938 Nag. 413 lays down the principle in a different, though equally effective manner as follows : When the creditor seeks to enforce the debt against the surety, the latter is legitimately entitled to ask 'is the principal debtor himself liable ? If not, he has committed no default and you cannot compel me to discharge an obligation which has no existence. If, on the other hand, I pay you, how can I recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en there is no warrant in that section for any such conclusion. The second reason given; is that when a new statutory provision has had the effect of granting a partial discharge to the principal debtor, and the creditor has taken no part in releasing the principal debtor from his liability, the remedy of the creditor against the guarantor will not be affected. In other words, they held, like the Bench which decided the Nellore Co-operative Urban Bank Ltd. v. Mallikarjunayya AIR1948Mad252 (Patanjali Sastri and Thyagarajan JJ.) that a statutory discharge of the whole or any part of a principal debtor's debt will not discharge the surety pro tanto as the creditor has taken no part in releasing the principal debtor from his liability. But it is, obvious that this position will not be valid when the debt itself has been extinguished as regards the principal debtor by the statute, as I have held to be the case under the Madras Agriculturists' Relief Act, and there is nothing; to be recovered from him, and so nothing to be recovered from the surety, who has only guaranteed the same debt, as was due from the principal debtor his engagement, being merely accessory to the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettiar , 44 M.L.J. 171 : A. I. R. 1923 Mad. 340 and in Babu Rao v. Babu Manaklal , I.l.r. (1939) Nag. 175 : A. I. R. 1938 Nag. 413 the ruling in Syed Fakir v. Abdul Samad Khan , I.L.R. (1938) Nag. 354 : A. I. R. 1938 Nag. 101 is not very relevant for this question but it shows that sureties cannot be held responsible for damages occurring to the creditor by acts for which they are not responsible, and those acts, in my opinion, will cover also acts of the Legislature extinguishing the debt of the principal debtor, us under the Madras Agriculturists' Relief Act. 12. Unhampered by judicial decisions also, on a fair reading of the provisions of the Contract Act, I am inclined to hold that as the liability of the surety is co-extensive with that of the principal debtor, if the latter's liability is scaled down in an amended decree, or otherwise extinguished in whole or in part by statute, the liability of the surety also is pro tanto reduced or extinguished. Paragraph 192 of Halsbury's Laws of England, Vol. 16, 1935 Edn., contains the following passage : Whatever expressly or impliedly discharges the principal debtor from liability usually discharges the surety al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment of sections by a Legislature consequent on a wrong decision, when it is satisfied about the true import of a particular section or sections in a piece of Legislation. In the circumstances mentioned above, this argument has even less weight. 14. In the end therefore, I hold that Subramanian Chettiar v. Batcha Rowther AIR1942Mad145 was wrongly decided, and answer the reference made to us as below : A non-agriculturist surety will not be liable for the entire debt when the principal debt has been scaled down under the provisions of the Madras Agriculturists' Relief Act, but will be liable only to the extent of the scaled down debt due by the principal debtor. Subba Rao J. 15. I agree. I have nothing more to add to what I have already expressed in the order referring the question to the Full Bench. Balakrishna Ayyar, J. 16. I agree with the answer proposed. (This appeal coming on for final hearing on 29-8-1950 after the expression of opinion by the Full Bench the Court consisting of Subba Rao and Panchapakesa Aiyar JJ. delivered the following Judgment.) Panohapakeaa Ayyar, J. 17. The Full Bench, to which the main question of law was referred b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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