1987 (5) TMI 380 - HC - Companies Law

Summary

Issues Involved:
1. Substitution of deceased defendants and setting aside abatement.
2. Dismissal of the suit against the remaining guarantors after the principal debtor's dissolution.
3. Application of Section 134 of the Contract Act regarding discharge of sureties.
4. Application of Section 137 of the Contract Act regarding forbearance to sue.
5. Application of Section 138 of the Contract Act regarding release of co-sureties.
6. Sufficiency of reasons for setting aside abatement.

Detailed Analysis:

1. Substitution of Deceased Defendants and Setting Aside Abatement:
The plaintiff sought to record the deaths of several defendants and substitute their legal representatives, specifically Prabuddha Chatterjee for defendant No. 6. The application for substitution was delayed by 4 days due to inadvertence. The trial judge rejected the application, citing no sufficient explanation for the delay. The appellate court found that the plaintiff had affirmed the affidavit within the prescribed time, and the delay was due to the advocate's inadvertence. The court held that clients should not suffer for their advocate's laches, referencing the case of Rafiq v. Munshilal. Consequently, the appellate court found sufficient cause for the delay and set aside the abatement.

2. Dismissal of the Suit Against Remaining Guarantors:
The trial judge dismissed the suit against the remaining guarantors, holding that the plaintiff could not proceed against them after allowing the suit against the principal debtor and some guarantors to be dismissed. The appellate court disagreed, noting that the principal debtor was discharged by operation of law (dissolution), not by any act or omission of the plaintiff. The court emphasized that the discharge of a principal debtor by operation of law does not discharge the sureties.

3. Application of Section 134 of the Contract Act:
Section 134 states that a surety is discharged by any contract between the creditor and the principal debtor releasing the latter, or by any act or omission of the creditor leading to the discharge of the principal debtor. The appellate court found that there was no contract releasing the principal debtor and no act or omission by the plaintiff resulting in the debtor's discharge. The principal debtor's dissolution was by operation of law, which does not discharge the sureties.

4. Application of Section 137 of the Contract Act:
Section 137 states that mere forbearance to sue the principal debtor does not discharge the surety. The appellate court held that the plaintiff's omission to sue the principal debtor did not discharge the sureties. The court referenced previous decisions indicating that forbearance to sue within the limitation period does not discharge the surety.

5. Application of Section 138 of the Contract Act:
Section 138 provides that releasing one co-surety does not discharge the others nor free the released surety from responsibility to the other sureties. The appellate court held that the plaintiff's decision not to proceed against some sureties did not discharge the remaining sureties. The court criticized the trial judge's reliance on the Supreme Court decision in Sri Chand v. Jagdish Prasad, clarifying that the case did not support the dismissal of the suit against remaining co-guarantors based on res judicata principles.

6. Sufficiency of Reasons for Setting Aside Abatement:
The appellate court found sufficient cause for not making the application for setting aside the abatement within the prescribed time. The plaintiff had affirmed the petition within the time limit, and the delay in taking out the summons was due to the advocate's inadvertence. The court emphasized that clients should not suffer for their advocate's mistakes.

Conclusion:
The appellate court allowed both appeals, set aside the trial judge's judgment and order, and granted the plaintiff's prayers for substitution and setting aside the abatement. The court found that the suit could proceed against the remaining guarantors despite the principal debtor's dissolution and the dismissal of the suit against some guarantors. The court emphasized the principles under Sections 134, 137, and 138 of the Contract Act, ensuring the sureties' liability remained intact.