TMI Blog1980 (11) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the aforesaid suit on a promissory note against respondent No. 2 original defendant No. 1 as the principal debtor and the present appellant-defendant No. 2 as a surety. It is the case of the plaintiff-bank that defendant No. 1 had borrowed an amount of ₹ 5,000/- on 19th September 1968 from the plaintiff bank by opening an account and the present appellant-defendant No. 2 had stood surety and guarantee for defendant No. 1 and both the defendants had executed a promissory note for ₹ 5,000/- on 19th September 1968. Defendant No. 1 paid some amount and after giving credit for the said amount, an amount of ₹ 4,337-48 was found outstanding from defendant No. 1 in 1971. As the said defendant had not paid the said amount, the plaintiff bank served the said defendant with a notice on 27th September 1971. Defendant No. 1 acknowledged the debt by his letter dated 10th October 1971. As the amount was ultimately not paid up by the defendants, the plaintiff-bank filed the aforesaid suit for recovery of ₹ 4,337-48 from both the defendants with running interest at 12% per annum. 4. Original defendant No. 1-the principal debtor though duly served did not appear and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, that has brought dissatisfied defendant No. 2 to this Court by way of the present second appeal. 8. It is apparent that now the dispute centres round the plaintiff-bank on one hand and the surety-defendant No. 2 on the other. The bank's decree against defendant No. 1 principal debtor has become final and the principal debtor's liability is, therefore, no longer in controversy at the present stage. 9. Mr. Shethna, the learned Advocate appearing for the appellant-defendant No. 2 contended that the appellate court had committed an error of law when it held that the suit was not barred against defendant No. 2 who was a surety. Mr. Shethna contended that even though as per the surety bond, Ex. 43, the surety had accepted his liability to be treated as a co-promissor and joint debtor, even then, as per Section 20 of the Limitation Act, 1963, part payment of the joint debt or any acknowledgement by a co-debtor cannot extend the period of limitation against non-paying or non-acknowledging co-debtor or co-promissor. Mr. Sheth relying upon two Division Bench judgments of the Bombay High Court and other decisions of other High courts, contended that part-payment or acknowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he suit has been filed on 10-10-1971. Thus, on the date of the suit, the remedy of the creditor against the principal debtor to enforce the promissory note dues was quite alive as it had gone extended by various part-payments of the loan amount by the principal debtor. The only short question is whether such extension of limitation for enforcing the creditor's remedy against the principal debtor was also available against the surety-present appellant when he himself had not made any part-payments towards the suit dues nor had he made any acknowledgement himself nor had he authorised the principal debtor-defendant No. 1 to make any part-payment or acknowledgement on his behalf. It is further an admitted fact that on 10-10-1971, in reply to the suit notice, defendant No. 1 - original principal debtor also made acknowledgement of his subsisting liability to pay the balance of the dues under the said promissory note. In the background of these proved and admitted facts, the short question which has been posed for my consideration has to be answered, as to whether the part-payment and acknowledgement of liability on the part of the principal debtor qua creditor would extend the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difficulty of treating the interest as due on the surety's debt, they thought, this question must be answered in the negative. It was further observed that the question propounded in the reference excluded an express authority and the relation of principal and surety does not give rise to any implied authority. The Division Beach further observed that it was no doubt provided by Section 128 of the Contract Act that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract but that section must be read together with the Limitation Act, and not so as to nullify the provision in that Act contained, limiting the time within which a suit must be brought after the accrual of a cause of action. It was accordingly held that payment of interest by the debtor within limitation did not give a fresh starting point of limitation against the surety. The aforesaid decision of the Bombay High Court was followed by a later Division Bench judgment of the Bombay High Court in Raghavendra Gururao Naik v. Mahipat Krishna Shollapur A.I.R. 1926 Bom. 244. In that decision another bench of the Bombay High Court consisting of L.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The surety, under the terms of the contract, is either jointly or separately liable, along with the principal debtor; if the debts are deemed joint, Section 21(2) of the Limitation Act shows that the payment by one of (hem (the debtor) does not extend the time; on the other hand, if the debts are deemed distinct, the same result follows upon a true construction of Section, 20 itself. Section 128 of the Contract Act, which makes the liability of the surety co-extensive with that of the principal debtor is of no assistance to the plaintiff, as it must be read along with the provisions of the Limitation Act; it defines the measure of the liability and has no reference to the extinction of liability by operation of the Statute of Limitation. It was further observed: A payment of one person cannot keep alive the remedy against another unless the circumstances are such that payment by the one may be regarded as a payment for the others. There is nothing in the relation of principal and surety itself which makes payment by the principal binding as a payment by the surety. As I have already stated above, the aforesaid Calcutta decision in Brqjendra Kishore's case (supra) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view which Mr. Trivedi is contending for the plaintiff-bank. Lort-Williams, J. in the said case held as under: In case of principal and surety, there are two distinct contracts in respect of one debt common to both. There cannot be two distinct debts, otherwise payments on account of principal or interest by the principal would not ipso facto, reduce the debt due by the surety and vice versa, as they do. Hence, payments of principal or interest by either principal or surety and acknowledgements in accordance with the provisions of the section create a fresh period of limitation in respect of the common debt as against either the principal or the surety. The expression fresh period of limitation is in general terms, and there is nothing in the section to indicate that the new period of limitation is only to operate against the person making the payment. It was further observed: The principal or the surety is authorised by the other, by implication, to make payments on account of the common debt, and in the manner provided by the section. The object and intention of the arrangement made by the principal and surety is that the principal shall pay the debt and thus reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d property under a money decree made against the mortgagor, whether the purchase was of the whole or only of part of such property. Thus, strictly speaking, the aforesaid Calcutta decision will not be relevant for deciding the present controversy. 19. Mr. Trivedi then draw my attention to a decision of the Kerala High Court in Popular Bank Ltd. v. The United Coir Factories I.L.R. 1961 Ker 493. Raman Nayar, J. had the occasion to consider the question whether acknowledgement of the liability by the principal debtor extended the period of limitation against the guarantor also in case of a continuing guarantee. In that connection, it was observed by Raman Nayar, J. as under: In respect of any debt incurred by the principal during the currency of the guarantee, the surety is liable so long as the debt is recoverable from principal. It does not matter that the principal has kept the debt alive by acknowledgements under Section 9 of the Limitation Act or by payments under Section 20, for, by these acts, there is no renewal of the debt, and no new debt created which is not covered by the guarantee. The debt remains the same, namely, the debt guaranteed; only the bar of time agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee requires concurrence of three persons the principal debtor, the surety and the creditor. It was further observed: The liability of the surety under Section 128, Contract Act is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. It is therefore necessary to consider whether in the terms of the bond there is anything which shows that the liability of the surety is not co-extensive with that of the principal debtor. The Supreme Court in the aforesaid decision had to consider the terms of the suretyship agreement under which the Managing Director or the Managing Agent of the Company in his individual capacity executed a bond called an agreement of guarantee, reciting that he, the managing director, guaranteed to the bank, payment on demand of all monies which may at any time be due to the Bank from the company on the general balance of that account with the bank. The Supreme Court interpreted the said terms as creating contract of continuing guarantee and observed: The guarantee was to be a continuing guarantee for the ultimate balance which shall remain due to the bank on such cash credit account. It is pertinent to not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod for any reason, unless the surety has expressly consented to be bound by grant of such extension or has exhibited an unequivocal conduct to be so bound, he could not be held liable as a surety for the extended liability of the principal debtor. Otherwise, lot of mischief may accrue. Take for example, a case where the principal debtor is on the brink of insolvency. The creditor having known this, may persuade the principal debtor, behind the back of the surety to pay a small amount of debt say ₹ 10/-within limitation with the ultimate view to rope in the surety for the entire balance. The principal debtor who is practically insolvent may not mind paying this small amount as he has nothing to lose thereby while it may result in creating a very heavy liability for the surety who may be in affluent circumstances and who may be totally ignorant of the subterfuge resorted to by the creditor and principal debtor behind his back or without his consent. This result would naturally be inequitable and unjust. The view taken by the Bombay decisions insulates against such unjust results which may otherwise detract persons from being sureties and may elbow out these good sureties who a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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