1950 (8) TMI 19 - HC - Companies Law

Summary

Issues Involved:
1. Liability of a non-agriculturist surety for a debt scaled down under the Madras Agriculturists' Relief Act.
2. Interpretation of the Madras Agriculturists' Relief Act regarding the extinguishment of debt.
3. Applicability of the Contract Act provisions to the surety's liability.
4. Judicial precedents and their relevance to the case.

Detailed Analysis:

1. Liability of a Non-Agriculturist Surety:
The primary issue referred to the Full Bench was whether a non-agriculturist surety would be liable for the entire debt even though the principal debt was scaled down under the Madras Agriculturists' Relief Act. The court concluded that a non-agriculturist surety will not be liable for the entire debt when the principal debt has been scaled down. The surety's liability is co-extensive with that of the principal debtor, meaning it is no less or more than that of the principal debtor. Therefore, the surety's liability would also be scaled down to the extent of the principal debtor's liability.

2. Interpretation of the Madras Agriculturists' Relief Act:
The court examined whether the Madras Agriculturists' Relief Act intended to extinguish the debt or merely bar the remedy. The court held that the Act intended to extinguish the debt to the extent of the difference between the unsealed and scaled-down amounts. This conclusion was supported by the provisions of Section 19 of the Act, which allows for the amendment of the original decree by scaling down. The court emphasized that the phrase "shall be deemed to be discharged" indicates a discharge by operation of law, not merely a bar of remedy.

3. Applicability of the Contract Act Provisions:
The court discussed the applicability of Sections 133, 134, 135, and 128 of the Contract Act to the surety's liability. Section 128 states that the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. The court held that the surety's liability is accessory and secondary, and if the principal debtor's liability is discharged or reduced, the surety's liability is also proportionately reduced. The court rejected the argument that the Madras Agriculturists' Relief Act did not intend to benefit the surety, stating that the Act aimed to prevent unjust loss to the surety by extinguishing the debt.

4. Judicial Precedents:
The court reviewed several judicial precedents, including the conflicting decision in Subramanian Chettiar v. Batcha Rowther, which held that a non-agriculturist surety was liable for the entire debt. The court disagreed with this decision, stating that it failed to recognize the extinguishment of the debt under the Madras Agriculturists' Relief Act. The court also referred to other cases, such as Arunachalam v. Seetharam Naidu and Sami Iyer v. Ramaswami Chettiar, which supported the view that the surety's liability is co-extensive with that of the principal debtor.

Conclusion:
The Full Bench concluded that a non-agriculturist surety is not liable for the entire debt when the principal debt has been scaled down under the Madras Agriculturists' Relief Act. The surety's liability is limited to the scaled-down debt due by the principal debtor. The court dismissed the appeal with half the costs of the respondent, considering the appeal was filed based on a now-overturned precedent.