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TMI Blog1969 (9) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... termined. We deem it necessary to observe that a binding obligation created under a composition under section 391 of the Companies Act, 1956, between the company and its creditors, does not affect the liability of the surety unless the contract of suretyship otherwise provides. The High Court, in our judgment, should have stayed the suit and after "the ultimate balance" due by the company was determined, the court should have proceeded to decree the claim according to the provisions of clause 4 of the bond. We accordingly modify the decree passed by the trial court. Liability of Ranjit Singh being only for payment of "the ultimate balance" which remains due on the cash credit account with the bank in favour of the company, the court will, when such ultimate balance is determined, proceed to pass a decree in favour of the bank. - 1957 AND 1958 OF 1966 - - - Dated:- 17-9-1969 - J.C. SHAH AND A.N. GROVER, JJ. H.R. Gokhale, M.M. Kshatriya and G.S. Chatterjee for the Appellant. M.C. Chagla, A.K. Verma, B. Datta and J.B. Dada-chanji for the Respondent. JUDGMENT Shah, J. Ranjit Singh was a director of Ranjit Singh and Sons Ltd., which acted as a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the company and for a decree for payment of that amount against Ranjit Singh with costs and interest pendente lite. In a joint written statement it was contended, inter alia , that Ranjit Singh was "only a guarantor and not a co-debtor" and that he could be made liable only in case of default by the company, and since the company had made no default the suit against Ranjit Singh was not maintainable. Certain preliminary issues were raised by the trial judge at the hearing of the suit out of which the following are relevant: "(1)Whether the plaintiff (bank) is not entitled to file this suit as against the defendant No. 1 (the company) without obtaining the leave of the company judge as alleged ? If so, its effect ? (2)Whether the court has no jurisdiction to decide on the merits of the plaintiff's claim in view of the facts as alleged in para. 12(A) of the written statement ? If so, its effect ? (3)Whether the suit against defendant No. 2 (Ranjit Singh) is not maintainable as pleaded under paras. 7,13 and 14 of the written statement ?" The trial court held that the suit was not. maintainable against the company without obtaining leave of the company judge, and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt accordingly confirmed the decree of the trial court even in favour of Ranjit Singh. With special leave granted by this court, these two appeals have been preferred by the bank. The bank claimed a mere declaration against the company and not a decree for payment of the amount due. Section 391 of the Companies Act, 1956, in so far as it is material, provides : "(1)Where a compromise or arrangement is proposed ( a )between a company and its creditors or any class of them ; or ( b )between a company and its members or any class of them; the court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. (2)If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndently liable for another person's conduct may amount to a contract of indemnity. A contract of guarantee requires concurrence of three persons the principal debtor, the surety and the creditor the surety undertaking an obligation at the request, express or implied, of the principal debtor. The obligation of the surety depends substantially on the principal debtor's default; under a contract of indemnity liability arises from loss caused to the promisee by the conduct of . the promisor himself or by the conduct of another person. In the present case the company did not execute the bond. But the bond executed by Ranjit Singh was one of four documents executed on 27th June, 1953. It was part of the scheme to ensure payment of the amount due at the foot of the cash credit account in favour of the bank. The company executed by its managing agents ( i ) a promissory note ; ( ii ) a deed of hypothecation; and ( iii ) a letter assuring the bank that the company shall remain solely responsible for all loss, damage or deterioration to the stocks hypothecated with the bank. The bank also insisted upon a promise by some other person to pay the debt, and as a part of the same arrangement Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility against the borrower, or may even show a credit in favour of the borrower, but shall continue in operation in respect of subsequent transactions. (4) I further declare that all dividends, compositions, payments received by you from the said borrower or any other person or persons liable or his or their representatives shall be taken and applied as payment in gross without any right on the part of myself or my representative to stand in your place in respect of or to claim the benefit of any such dividends, compositions or payments until full amount of all your claims against the said borrower or his/their representatives which are covered by this guarantee shall have been paid and that this guarantee shall apply to and secure ultimate balance which shall remain due to you on such cash credit account up to the extent of Rs. 13,00,000............. (8) I also agree that the bank shall be entitled to recover its entire dues under the said cash credit account from my person or property upon default in payment by the said borrower." By clause 4 it is expressly stipulated that the bond secured "the ultimate balance" remaining due to the bank. Therefore, unless and until the ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit in this court that in accordance with the scheme the total amount due to the bank was determined at Rs. 1,41,536-7-3, as the ultimate balance and a cheque for Rs. 35,721 was sent to the bank on 6th October, 1956, being 25% plus the other pro rata payments allowed by the trustees to the creditors, but the bank did not cash the cheque. Thereafter, by letter dated 28th October, 1966, the bank requested that a fresh cheque be issued to them. Accordingly, a fresh cheque for Rs. 38,04746 was issued to the bank on 5th November, 1966, comprising Rs. 35,721 on the basis of the old cheque plus Rs. 2,32646 sanctioned for pro rata payment to the bank by the trustees on 3rd November, 1966, at the rate of 50 per cent. of the then balance due. Thereafter, another cheque for Rs. l,74450 being 50 per cent. of the amount then due to the bank was also forwarded to the bank on 29th January 1958, in pursuance of another pro rata payment resolution passed by the trustees and the balance now due to the bank out of the original amount is Rs. l,74409 only. We are unable to investigate the correctness of these averments. The decree passed by the High Court is set aside and the suit be reman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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