1958 (2) TMI 53 - HC - Indian Laws

Summary

Issues Involved:
1. Nature of the security bond executed by the first respondent.
2. Whether the liability of the first respondent was primary or secondary.
3. Effect of the compromise entered into between the appellant and the principal debtor on the liability of the first respondent.
4. Applicability of Section 135 of the Indian Contract Act.
5. Whether the first respondent was a joint debtor or a surety.
6. Validity of the arguments presented by the appellants regarding the tripartite arrangement and the nature of the bond.

Issue-wise Detailed Analysis:

1. Nature of the security bond executed by the first respondent:
The bond executed by the first respondent, Srinivasa Thangirayan, was styled as a deed of security (Jamin Pattarom) dated 23rd September 1945 in favor of the bank for a sum of Rs. 25,000. The bond was intended to offer security for the overdraft facilities extended to Munia Servai by the bank. The court analyzed the operative portions of the bond and concluded that it was a surety bond, as it was executed to provide additional security for the transactions of Munia Servai, who was the principal debtor.

2. Whether the liability of the first respondent was primary or secondary:
The court held that the liability of the first respondent, Srinivasa, was secondary and arose only on the default of Munia Servai, the principal debtor. The bond did not indicate that Srinivasa's liability was independent or original. Instead, it was a collateral or secondary engagement to perform the promise or discharge the liability of Munia Servai. The court emphasized that the document itself was styled as Jaminpattram, meaning a surety or security bond, and the primary obligation was that of Munia Servai.

3. Effect of the compromise entered into between the appellant and the principal debtor on the liability of the first respondent:
The court noted that a compromise was entered into between the Official Liquidators and Munia Servai on 21st October 1953, which compounded and fixed the amount due from Munia Servai. The learned Judge held that by reason of this compromise, without Srinivasa being a party thereto, Section 135 of the Indian Contract Act was attracted, and the liability of Srinivasa stood discharged. The court agreed with this view, stating that the composition with the principal debtor without reference to the surety discharged the surety from liability.

4. Applicability of Section 135 of the Indian Contract Act:
Section 135 of the Indian Contract Act was central to the court's decision. This section provides that a contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue the principal debtor, discharges the surety unless the surety assents to such contract. The court found that the compromise entered into between the appellant and Munia Servai without Srinivasa's consent attracted Section 135, thereby discharging Srinivasa from his liability under the surety bond.

5. Whether the first respondent was a joint debtor or a surety:
The court rejected the appellants' contention that Srinivasa was a joint debtor with Munia Servai. It was clear from the bond that there was no joint promise made by Munia Servai and Srinivasa to the bank. The advance of money was made solely to Munia Servai, and the security was demanded only with respect to his liability. Therefore, Srinivasa's liability was secondary, arising on the default of Munia Servai, who was primarily liable to the bank.

6. Validity of the arguments presented by the appellants regarding the tripartite arrangement and the nature of the bond:
The appellants argued that for a contract of guarantee or suretyship, there must be a tripartite arrangement between the creditor, the principal debtor, and the surety. They contended that there should be a definite agreement between the principal debtor and the surety regulating their rights inter se. The court disagreed with this contention, stating that the bond in question satisfied the test of a surety bond and was undoubtedly a tripartite arrangement. The court emphasized that the relationship inter se the surety and the principal debtor need not be the subject of an express contract to which the creditor should be a party.

Conclusion:
The court concluded that the bond executed by the first respondent was a surety bond, and the first respondent was discharged from his liability under the bond by reason of the appellant entering into a composition with the principal debtor without any reference to the surety. The appeal was dismissed with costs, and the appellants were entitled to take their costs out of the estate.