TMI Blog1990 (12) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... -4-1969 and also under a hypothecation deed executed by him on 7-4-1969 hypothecating 3 HP pumpset for which the loan was advanced to defendant No. 1 -- H. Malegowda. Defendants 2 and 3 were the guarantors who had executed a guarantee bond on 7-4-1969. As the loan amount was not repaid, the Bank of Baroda -- the plaintiff-filed the aforesaid suit seeking a decree in the following terms : (a) For repayment of the said sum of Rs. 4,545-81; (b) Interest at the rate of 10% per annum from date of suit till date of decree; (c) Court costs; (d) Interest on the aggregate at the rate of 6% per annum from the date of decree till date of realisation; (e) That in default of the defendants to pay the said sum to cause the hypothecated pumpset with its fittings etc. described in the Schedule hereunder to be seized and sold and out of the net sale proceeds thereof, the amount due to plaintiff be adjusted towards the amount due and the deficiency, if any, be recovered from the defendants personally and from their other assets; and (f) For such other and further reliefs as this Hon'ble Court deems fit to grant in the circumstances of this case. 4. In the plaint, the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent up in appeal before the Civil Judge, Bangalore City. The learned Civil Judge concurred with the views expressed by the trial Court and held that in spite of the fact that the plaintiff failed to bring the L.Rs. of the deceased defendant-1 on record and the suit had abated against defendant 1, it could nevertheless be continued against the remaining defendants and the decree could be passed against them and in such an event there will be no conflicting decrees. Accordingly, the appellate Court confirmed the decree of the trial Court, Hence this second appeal by defendant-3. 8. This appeal is referred to a Division Bench by our learned Brother B. P. Singh J., on the ground that the appeal involves a substantial question of law required to be decided by a Division Bench. Hence this appeal is before a Division Bench. Having regard to the contentions urged on both sides, the following points arise for consideration : (1) Whether, in law, it is permissible to enter into a contract giving up the rights available to a surety under Chapter VIII of the Indian Contract Act? In other words, whether it is open to contract outside the provisions of Chapter VIII of the Indian Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nked together and one is connected with another. Therefore, all these provisions pertaining to surety and guarantee and the principal debtor have to be read together and not in isolation. Section 128 of the Act specifically provides that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. In the other provisions contained in Chapter VIII relating to the rights of the sureties, we do not find the words 'unless it is otherwise provided by the contract' or 'subject to the contract as may be arrived at by the parties'. Therefore, different views are expressed by the High Courts as to whether it is open to contract outside the provisions of Chapter VIII of the Act pertaining to rights of the sureties. 10. High Court of Punjab in Union of India, Ministry of Food and Agriculture (Department of Food), New Delhi v. Pearl Hosiery Mills has held that (para 25): Moreover, I am of the opinion that the provisions of S. 133 of the Indian Contract Act are not subject to a contract to the contrary between the parties to the contract. This Section is in unqualified terms. It was not necessary to put in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got a right to contract out of the rights and liabilities mentioned in the contract. That is envisaged by Section 128 of the Contract Act. Therefore, merely because we do not find words 'notwithstanding anything contained to the contrary etc;' in S. 141, it does not follow that the parties cannot contract out of the rights and liabilities laid down in S. 141 of the Contract Act. In this case, defendant-4 has agreed that she will not claim the benefit given to her under S. 141 of the Contract Act. She herself is a party to that surety bond. Therefore, it is not open to her now to contend that the said clause is neither bad in law or is not enforceable. 11. We are of the view that as the provisions contained in Chapter V11I of the Act relate to indemnity and guarantee, they deal with one subject and they are to be read together. The liability of the surety as stated in general terms in S. 128 of the Act is no doubt co-extensive with that of the principal debtor, but this liability is also subject to the terms of the contract; because S. 128 of the Act itself specifically provides that the liability of a surety is co-extensive with that of the principal debtor unless it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is of such a nature that if permitted, it would defeat the provisions of any taw; or is fraudulent or involves or implies injury to the person or property of another; or the Court regards it as immoral or opposed to public policy. It also further provides that in each of the cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void. In the case of a contract of guarantee, the consideration is advancing of loan to a principal debtor. The object of the agreement is to secure the debt of the creditor. Therefore, neither the consideration is unlawful nor the object of the agreement is unlawful. Both are also not forbidden by law. However, the contention is that the surety bond which provides that the surety will not be entitled to any of the rights conferred on him by Sections 133, 134, 135, 139 and 141 of the Act has the effect of defeating the provisions contained in Chapter VIII of the Act, therefore, it is hit by Section 23 of the Act. Section 23 is mainly concerned with the consideration or object of an agreement. In the instant case, as already pointed out, the consideration and object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliefs arising out of the contract. Therefore, it amounted to denying the right to seek relief and disabled the contractor to enforce the right under the contract. Hence, such a clause was held to be not enforceable. It is not possible to appreciate as to how the said decision is relevant to the case on hand. In this case, defendants-2 and 3 have voluntarily under the surety bond given up the rights available to the sureties under the provisions contained in Sections 133, 134, 135, 139 and 141 of the Act. Therefore, it is not possible to apply the said decision to the case on hand. 13. In Suresh Mahajan's case it has been held that in order to attract Section 23 of the Act, it is not necessary that the contract should be tainted with illegality but it should contain the terms which are so unfair and unreasonable that they shock the conscience of the Court. All that it can be said that the said observations are in general terms and not with reference to the specific terms of the contract. Further, we have already pointed out that there is nothing unusual or illegal for a party to give up his right in order to secure a certain thing. In the instant case, defendants 2 and 3 wan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize the 'wronged', by denying to the victim of exploitation access to justice. Such is not the situation here. There is no law prohibiting a person offering the surety from giving up of any of his rights nor is there any law which prohibited the creditor from entering into and obtaining such a surety bond. Therefore, it is not possible to hold that any element of oppression is involved in the transaction of lending money on a surety. Hence the decision in Mohammed Salauddin's case is not applicable to the case on hand. 15. Reliance is also placed on a decision of the Supreme Court in Pomal Kanji Govindji v. Vrajlal Karsandas Purohit In that decision, the Supreme Court has considered the clog on equity of redemption and has held that a condition imposed in the mortgage deed stipulating the time for redemption whether it amounts to a clog on the right of equity of redemption depends upon the facts and circumstances of each case. While dealing with the said question, it has also been further observed that provided it does not lead to taking advantage of the oppressed or depressed people. The law must transform itself to the social awareness. Poverty should not be unduly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he suit as against the defendant-1 was allowed by the plaintiff to become final. 17. In State of Punjab v. Nathu Ram the Supreme Court has held that the abatement of an appeal means not only that the decree between the appellant and the deceased respondent has become final but also, as a necessary corollary, that the appellate Court cannot, in any way, modify that decree directly or indirectly. The reason is plain. It is that in the absence of the legal representatives of the deceased respondent, the appellate Court cannot determine anything between the appellant and the legal representatives which may affect the rights of the legal representatives under the decree. It is immaterial that the modification which the Court will do is one to which exception can or cannot be taken. What is observed in connection with the appeal is also relevant in connection with the suit inasmuch as the abatement results in dismissal of the suit. The claim made against the deceased defendant stands dismissed. That decree dismissing the suit against deceased -- defendant No. 1 cannot even be modified or reversed by the appellate Court in the absence of an appeal. But as between the 1st defendant agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be conflicting decrees in one and the same proceeding. Both the sides have placed reliance on several decisions. We now proceed to consider them. 19. Nathu Ram's case arose out of a proceeding initiated by way of reference made under the Punjab Land Acquisition (Defence of India) Rules, 1943 for higher compensation. During the pendency of the appeal before the appellate Court, one of the parties, who was entitled to share the compensation died. Therefore, it was held that in the absence of the heirs of Nathu Ram who died during the pendency of the appeal, a decree of the Court below could not be upset as it would result in passing contradictory decrees. In the course of the judgment, the Supreme Court pointed out certain tests to determine the question as to whether the Court could deal with such matters in the absence of the legal representatives of the deceased brought on record. The relevant portion is as follows (Para 6): The question whether a Court can deal with such matters or not, will depend on the facts of each case and therefore no exhaustive statement can be made about the circumstances when this is possible or is not possible. It may, however, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h v. Nidhan Singh (C. A. No. 563/1962 dated 14-12-1964) Reported in 1964 SC 363 and held as follows (para 6): Liability of the sureties is under the law joint and several. If a creditor seeks to enforce the surety bond against some only of the joint sureties, the other sureties will not on that account be discharged; nor will release by the creditor of one of them discharge the other; vide Sections 137 and 138 of the Contract Act. But the fact that the surety bond is enforceable against each surety severally, and that it is open to the creditor to release one or more of the joint sureties, does not alter the true character of an adjudication of the Court when proceedings are commenced to enforce the covenants of the bond against all the sureties. We are not concerned in this appeal with the privilege which a creditor may exercise, but with the effect of an adjudication which the Court has made in a proceeding to enforce the covenant of the Bond. The mere fact that the obligation arising under a covenant may be enforced severally against all the covenanters does not make the liability of each covenantor distinct. It is true that in enforcement of the claim of the decree-holder t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e brought the action for the necessary relief against those respondents alone who are still before the court and (c) when the decree against the surviving respondents, if the appeal succeeds, be ineffective that is to say it could not be successfully executed. These three tests, as pointed out by this Court in Sri Chand v. M/s. Jagdish Pershad Kishan Chand are not cumulative tests. Even if one of them is satisfied, the court may dismiss the appeal. It also reiterated the rule laid down in Nathu Ram's case. Thus, it is clear from the aforesaid decision that the principles enunciated in Nathu Ram's case and as well as that of Sri Chand's case are affirmed. The case on hand falls within the ratio laid down in para-9 of Sri Chand's case. It is no doubt true that it was open to the plaintiff to file a suit against the defendants 2 and 3 leaving defendant-1 and obtain a decree. It was also open to the plaintiff to file a suit against defendant-1 alone and in the event it failed to secure a decree against defendant-1, then to file a suit against defendants-2 and 3 also. The fact remains that out of the several options open to the plaintiff, it had availed one of them b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant, which arose out of the loan advanced to him and the liability of the 1st defendant came to be extinguished on the failure of the plaintiff to bring the L.Rs. of the deceased defendant-1 on record. The legal representatives of the deceased 1st defendant will not also be liable to reimburse defendants-2 and 3 if the plaintiff were to secure a decree against them and realise the amount. The legal representatives of deceased 1st defendant are not liable because they were not brought on record in the suit on the death of the 1st defendant. Secondly the claim of the plaintiff abated as against them and the suit was dismissed. Defendants-2 and 3 are the sureties. In the event of sureties making the payment, in law they are entitled to have it reimbursed from the principal debtor or his legal representatives. But by reason of the filing of the suit by the creditor (plaintiff) against the principal debtor and his sureties, (defendants-1, 2 and 3), and the plaintiff by allowing the suit to be abated as against defendant-1 by its negligence, has made it impossible for the sureties to have the amount they would be required to pay if the decree were to be passed against them reimbursed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, the provisions of sub-rule (3) of Rule 4 of Order 22 of the C.P. Code would not have attracted. Therefore, the said decision does not help the plaintiff. 22. Nellore Co-operative Urban Bank Ltd. v. Akili Mallikarjunayya was a case in which an award was passed against the Principal Debtor and a surety under the Madras Co-operative Societies Act. However, the liability of the Principal Debtor was discharged under Section 10(2) of the Madras Debt Conciliation Act. The Court held that such a discharge of liability of the Principal Debtor was due to operation of law because Madras Debt Conciliation Act provided for it. Therefore, it was held that in the light of the provisions contained in Section 134 of the Act the liability of the surety did not come to an end. While dealing with Section 145 of the Contract Act, it was also further held that the liability of the principal debtor to pay to the respondent whatever sum the latter has rightfully paid under the guarantee will not arise until the creditor has recovered from the surety, the amount due under the award or decree passed against both the principal debtor and the surety and such contingent and future liability was obvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually released, the creditor may reserve his rights by notifying the debtor that he does so, and this reservation would be effective not only where the time of payment is postponed but even where the creditor has entered into an agreement not to sue the debtor. In neither case was there any deception of the debtor since he knew that he was still exposed to a suit at the will of the surety. If the only result of striking out the debtors from the action was to preclude the creditors from bringing a fresh suit in respect of the subject-matter against them, and was not to release or discharge the principal debtor, then the debt remains a debt though the creditor by reason of a rule of procedure would not himself bring an action upon it. In such a case, if the creditor continues his suit against the surety though he withdrew his claim against the principal debtor, the creditor would be deemed to have reserved his rights against the surety and therefore, the surety's liability was not discharged. Thus it is clear that in that case, the creditor's claim against the principal debtor was not dismissed, nor it was given up by the creditor by striking down the principal debtor. Tt wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Bank is discharged by release or discharge of the principal debtor, but a discharge which the principal debtor may secure by operation of law in bankruptcy or in liquidation proceedings in the case of a company does not absolve the surety of his liability. Therefore, it is clear that the said decision also cannot be applied to the fads of the present case because in the instant case the suit is filed against the principal debtor and the sureties and it has abated against the principal debtor. We have already pointed out that in the same proceeding there cannot be conflicting decrees in respect of the same subject matter. 28. A decision of a Division Bench of Calcutta in United Bank of India v. Modern Stores (India) Ltd. was also pressed into service by the learned counsel for the Bank. In that case a decision of the Supreme Court in Sri Chand v. Jagdish Prasad AIR 1966 SC 1427 was distinguished. While referring to Sri Chand's case it has been held as follows (para 24): The learned Trial Judge has also relied on a decision of the Supreme Court reported in AIR 1966 SC 1427 (supra). In our view, the learned trial Judge had not appreciated the ratio of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l debtor, the suit cannot be decreed against the sureties because in respect of the same subject matter of the suit, there will be two conflicting decrees. This is the import of para 9 of the judgment of the Supreme Court in Sri Chand's case AIR 1966 SC 1427 The interpretation placed in Modern Stores Case by the Calcutta High Court does not square with the proposition laid down in para 9 of the judgment in Sri Chand's case. Therefore, we disagree with the view taken in Modern Stores India Ltd. 29. For the reasons stated above, it is held that the Courts below are not justified in law in holding that there will not be any conflicting decrees in the event the suit is decreed against defendants-2 and 3. Accordingly point Nos. 2 and 3 are answered in the negative and in favour of the defendants and against the plaintiff. 30. There is also one more aspect of the case which also deserves to be considered. In the earlier portion of this judgment, we have pointed out that defendant-2 remained ex parte and the suit was decreed against him. Defendant No. 2 did not go up in appeal. Therefore, the decree passed against the defendant No. 2 has become final. We do not consider that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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