{"id":186471,"date":"1962-09-04T00:00:00","date_gmt":"1962-09-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/raja-bahadur-dhanraj-girji-vs-raja-p-parthasarathy-on-4-september-1962"},"modified":"2018-12-08T20:37:57","modified_gmt":"2018-12-08T15:07:57","slug":"raja-bahadur-dhanraj-girji-vs-raja-p-parthasarathy-on-4-september-1962","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/raja-bahadur-dhanraj-girji-vs-raja-p-parthasarathy-on-4-september-1962","title":{"rendered":"Raja Bahadur Dhanraj Girji vs Raja P. Parthasarathy … on 4 September, 1962"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Raja Bahadur Dhanraj Girji vs Raja P. Parthasarathy … on 4 September, 1962<\/div>\n
           PETITIONER:\nRAJA BAHADUR DHANRAJ GIRJI\n\n\tVs.\n\nRESPONDENT:\nRAJA P. PARTHASARATHY RAYANIMVARU  AND OTHERS.\n\nDATE OF JUDGMENT:\n04\/09\/1962\n\nBENCH:\n\n\nACT:\n Surety Bond-Executed in favour of Court--Compromise  decree\nin  the\t proceeding, if effects a  discharge-Equitable\trule\nIndian Contract Act, 1872 (9 of 1872), ss.  135, 126.\n\n\n\nHEADNOTE:\nAlthough s. 135 of the Indian Contract Act does not in terms\napply  to  a surety bond executed in favour  of\t the  court,\nthere  can  be no doubt that the equitable  rule  underlying\nthat section must apply to it.\tThe reason for the said rule\nwhich entitles the surety to a discharge is that he must  be\nable at any time either to require the creditor to call upon\nthe principal debtor to pay off his debt, or himself to\t pay\nthe debt and seek his remedy against the principal debtor.\nThe  question as to whether the liability of the  surety  is\ndischarged  by\ta compromise in the judicial  proceeding  in\nwhich  the surety bond is executed must depend on the  terms\nof  the bond itself.  If the terms indicate that the  surety\nundertook the liability on the basis that the dispute should\nbe\n922\ndecided on the merits by the court and not amicably settled,\nthe compromise will effect a discharge of the surety.\nThe  Official Liquidators, The Travancore National &  Quilon\nBank  Ltd. v.  The Official Assignee of Madras<\/a> 1. L. R\t1944\nMad. 708, Parvatibai v. Vinayak Balvant, 1. L. R. 1938\tBom.\n794.   Mahomedalli Ibrahimji v. Laxmibai, (1929) I..  L.  R.\nLIV  Bom.  II 8, Narsingh  on v. Nirpat Singh, (1932) I.  L.\nR.  XI\tPatna  590 and Muhammad Yusaf  v.  Ram\tGobindaOjha,\n(1927) 1. L. R. LV Cal. 91, referred to.\nBut  if\t the  terms show that the  parties  and\t the  surety\ncontemplated  that there might be an amicable settlement  as\nwell,  anti  the surety executed the bond  knowing  that  he\nmight be liable under the compromise decree, there can be no\ndischarge and the surety will be liable under the compromise\ndecree.\nHaji  Ahmed  v. Maruti Ramji, (1930) 1. L. R.  LV  Bom.\t 97.\nAppunni\t Nair v. Isack Mackadan,(1919) 1. L. R. 43 Mad.\t 272\nand Kanailal Mookerjee v. Kali Mohan Chatterjee, A. 1. R.\n1957 Cal. 645, referred to.\nConsequently, in the present case where the surety bond\t was\nexecuted in favour of court and by it the sureties undertook\nto  pay certain amount of money on behalf of the  respondent\nif  decreed by the court and the compromise  decree  between\nthe parties introduced complicated provisions enabling the e\nappellant to take possession of the properties in adjustment\nof  rival claims, granted time, albeit to both the  parties,\nto  discharge  their  obligations  thereunder  and  included\nmatters extraneous to the judicial proceedings in which\t the\nsurety bond was executed.\nHeld,  that the sureties stood discharged by the  compromise\ndecree.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  APPELLATE JURISDICTION:\t    civil Appeals Nos.\t243,
\n344 and 45 of 59.\n<\/p>\n
Appeals\t from the judgment and order dated January 12,\t195O
\nof the Madras High Court in A.\t   A. O. Nos. 288 to 290  of
\n1946.\n<\/p>\n
Alladi Kuppuswamy, S. B. Jathar and K. B. Choudhuri, for the
\nappellants,
\nA. V. Viswnatha Sastri,V. Vedantachari and T. Satyanarayona,
\nfor respondent No. 2 (]in C. A. No. 345 of 59.)
\n923<\/span>
\nT.V. R. Tatachari, for respondents Nos. 3 to 6 (in C.  A.
\nNos.  343 and 344 of 59) and respondents Nos. 5 to 8 (in  C.
\nA. No. 345 of 1959.)
\n1962.  September 4. The Judgment of the Court was  delivered
\nby
\nGAJENDRAGADKAR,\t J.-[ After disposing of Civil Appeals\tNos.
\n343 and 344 of 1959, his Lordship proceeded as follows].
\nThat  takes us to Civil Appeal No. 345 of 1959 in which\t the
\nappellant  wants  liberty  to proceed  against\tthe  surety,
\nrespondents  Nos. 2 and 3. This claim has been\trejected  by
\nboth  the  High Court.\tBut the decision of the\t High  Court
\nproceeds  on  the  basis that the appellant  was  himself  a
\ndefaulter  and so, he could not be permitted to enforce\t his
\nremedy\tagainst\t the  sureties.\t Since on  the\tquestion  of
\ndefault,  we have come to a contrary conclusion, it  becomes
\nnecessary  to examine whether the appellant is\tentitled  to
\nseek his remedy against the surety.\n<\/p>\n
In  determining\t this  question, it is\tnecessary  first  to
\nenquire\t into  the  nature  and\t extent\t of  the   liability
\nundertaken  by\trespondents Nos. 2 and 3  in  executing\t the
\nsurety bond.  The surety bond was executed on the 29th Sept.
\n1935.\tClause\t5  of  the surety  bond\t which\tis  relevant
\nprovides that the sureties covenant that if the order of the
\nHigh Court in C. M. A. No. 362\/1929 be reversed or varied by
\nthe  Privy Council and as a result of the said variation  or
\nreversal  respondent No. 1 becomes liable to pay by  way  of
\nrestitution  any amount to the said appellant in  the  Privy
\nCouncil,  the  sureties would pay whatever  sum\t may  become
\npayable\t by  the  said respondent and that  if\tthey  failed
\ntherein, then any sum payable shall be realised in the\tman-
\nner specified in the said clause.  This bond was executed in
\nthe favour of the court.\n<\/p>\n
924<\/span><\/p>\n
The  appellant contends that as a result of the decision  of
\nthe  Privy  Council, the matter was remitted  to  the  trial
\nCourt  for ascertaining the amount due to the appellant\t and
\nit was during the pendency of the appeals which were pending
\nin  the Madras High Court against the decision of the  trial
\nCourt on the applications made by the respective parties  in
\nthe  remanded  proceedings that the  compromise\t decree\t was
\npassed\tbetween\t the appellant and respondent No. 1  and  so
\nwhatever is claimable by the appellant by virtue of the said
\ncompromise  decree  must attract the  operative\t portion  of
\nclause 5 of the surety bond.  On the other hand, Mr.  Sastri
\nfor the surety agrees that the surety bond must be  strictly
\nconstrued and it is only if the amount claimed by  appellant
\nfrom  respondent No. 1 can be said to be the result  of\t the
\nreversal  or  variation by the Privy Council of\t the  orders
\nunder appeal before it that the surety bond can be proceeded
\nagainst.   Mr. Sastri urges that when disputes were  pending
\nbetween the appellant and respondent No. 1 before the Madras
\nHigh  Court,  the parties compromised the disputes  and\t the
\ncompromise decree which followed acts as a discharge of\t the
\nliability  of  the sureties.  In support of  this  argument,
\nreliance  is placed on the equitable  principles  underlying
\nsection\t 135  of the Indian Contract  Act.   Mr.  Kuppuswamy
\ncontests this position and urges that s. 135 is inapplicable
\nto a surety bond executed in favour of a court and he argues
\nthat appellants remedy against the surety is not affected by
\nthe  fact  that\t the  dispute  between\tthe  appellant\t and
\nrespondent  No. 1 was amicably settled and terminated  in  a
\ncompromise decree.\n<\/p>\n
This controversy raises the question as to whether s. 135 of
\nthe Indian Contract Act or principles underlying it apply to
\nsurety\tbonds executed in favour of the court.\tSection\t 135
\nprovides  that\ta  contract between  the  creditor  and\t the
\nprincipal debtor, by which the creditor makes
\n\t\t\t    925<\/span>
\na composition with   or promises to give time to, or not  to
\nsue, the principal debtor discharges the surety, unless\t the
\nsurety assents to such contract.  There can thus be no doubt
\nthat a contract of suretyship to which s. 135 applies  would
\nbe  unenforceable  if the debt in  question  is\t compromised
\nbetween\t the debtor and the creditor without the  assent  of
\nthe  surety.  But this provision in terms cannot apply to  a
\nsurety\twho  has  executed a bond in favour  of\t the  court,
\nbecause such a contract of guarantee of suretyship does\t not
\nfall  within  the scope of s. 126 of the  Contract  Act.   A
\ncontract of guarantee under the said section postulates\t the
\nexistence  of  the  surety, the\t principal  debtor  and\t the
\ncreditor, and this requirement is not satisfied the case  of
\na  bond\t executed in favour of the court.  Such\t a  bond  is
\ngiven to the court and not to the creditor and it is in\t the
\ndiscretion  of\tthe  court  to\tenforce\t the  bond  or\tnot.
\nTherefore,  there  cannot be any doubt that  in\t terms,\t the
\nprovisions of s. 135 cannot apply to a court bond.
\nIt  is also clear that the equitable  principles  underlying
\nthe  provisions\t of s. 135 apply to such a  bond.   If,\t for
\ninstance,  the\tdecree-holder gives time  to  the  judgment-
\ndebtor\tand  promises  not to seek his\tremedy\tagainst\t him
\nduring that period, there is no reason why the extension  of
\ntime  granted  by  the creditor to  the\t debtor\t should\t not
\ndischarge the surety even where the surety bond is  executed
\nin  favour of the court.  The reason for the equitable\trule
\nwhich\tentitles   the\tsurety\tto  a  discharge   in\tsuch
\ncircumstances is that the surety should be able at any\ttime
\nto require the creditor to call upon the principal debtor to
\npay  off his debt or himself pay off the debt and  seek\t his
\nremedy\tagainst the principal debtor.  If the  creditor\t has
\nbound  himself\tnot  to claim the debt\tfrom  his  principal
\ndebtor, that materially affects the right
\n926<\/span>
\nof  the\t surety\t and so, whenever time it;  granted  to\t the
\ndebtor\tby the creditor without the consent of\tthe  surety,
\nthe  surety can claim discharge.  This\tequitable  principle
\nwould apply as much to a surety bond to which s. 126. of the
\nContract Act applies as to a surety bond executed in  favour
\nof  the court.\tTherefore, we see no justification  for\t the
\nargument  that even the equitable principles underlying\t the
\nprovisions of s. 135 of the contract Act should not apply to
\nsurety bonds executed in favour of the court.
\nIn  determining the question as to whether  liability  under
\nsuch a ‘surety bond is discharged by reason of the fact that
\na  compromise  decree  had  been  passed  in  the   judicial
\nproceedings in which the surety bond came to be executed, it
\nwill  always be necessary to examine the terms of  the\tbond
\nitself.\t  Did  the surety contemplate when he  executed\t the
\nbond  that  the dispute pending between the debtor  and\t the
\ncreditor may be compromised, or did be contemplate that\t the
\ndispute\t would,\t and must be settled by the  court  and\t not
\ncompromised  by\t the  parties?\tIf the\tterms  of  the\tbond
\nindicate  that\tthe surety undertook the  liability  on\t the
\nbasis that the dispute would be decided on the merits by the
\ncourt  in invitium and would not be amicably  settled,\tthen
\nthe compromise of the dispute would discharge the  liability
\nof the surety (vide The Official Liquidators, The Travancore
\nNational  &  Quilon Bank Ltd. v. The  Official\tAssignee  of
\nMadras,<\/a>(1)  Parvatibai v. Vinayak Balvant  (2);\t Mahomedalli
\nIbrahimji v. Laxmibai, (3); Narsingh Mahton v. Nirpat  Singh
\n(4)  and Muhammad Yusaf v. Ram Gobinda Ojha. (5) If, on\t the
\nother  hand, from the terms of the bond it appears  that  it
\nwas  within the contemplation of the parties  including\t the
\nsurety
\n(1) I.L.R, 944 Mad. 708.\n<\/p>\n
(2)  I.L.R. 1938 Bom. 794.\n<\/p>\n
(3)  (1929) I.L.R. LIV Bom. 118.\n<\/p>\n
(4) (1932) I.I.R. XI Patna 590.\n<\/p>\n
(5) (1927) I.L.R. LV Cal. 91 .\n<\/p>\n
\t\t\t    927<\/span><\/p>\n
that  the  dispute may be amicably settled  and\t the  surety
\nexecuted the bond knowing that his liability may arise\teven
\nunder  the  compromise\tdecree,\t then  the  passing  of\t the
\ncompromise  decree will not entitle him to  claim  discharge
\nvide  Haji Ahmed v. Maruti Ramji; (6) Appunni Nair v.  Isack
\nMackadan,   (7)\t and  Kanailal\tMookerjee  v.\tKali   Mohan
\nChatterjee  (3).  The question would thus always be  one  of
\nconstruing  the\t surety bond in order to  decide  whether  a
\ncompromise decree discharges the surety or not.
\nTurning\t to the bond passed by respondents Nos. 2 and  3  in
\nthe  present  case, it is impossible to, hold  that  it\t was
\nwithin the contemplation of the sureties when they  executed
\nthe  bond  that\t the parties  would  amicably  settle  their
\ndispute in the manner they have done.  At the time when\t the
\nsurety\tbond was executed, the dispute pending\tbetween\t the
\nparties\t was the money dispute the decision of\twhich  would
\nhave ended in an order directing one party to pay another  a
\ncertain\t  specified  amount.   The  compromise\tdecree\t has
\nintroduced  complicated provisions for the  satisfaction  of
\nthe  appellants\t claim against respondent No. 1.  Under\t the
\ncompromise decree, the appellant would have been entitled to
\ntake  possession  of  the properties in\t suit  and  in\tthat
\nprocess,  rival claims of both the parties would  have\tbeen
\nadjusted.   We\tare  satisfied that the\t material  terms  in
\nclause\t5  of  the  surety bond could  not  be\tsaid  to  be
\nattracted when the parties chose to settle their dispute  in
\naccordance  with  the  terms of\t the  compromise  agreement.
\nBesides, it is clear that the compromise agreement gave time
\nto  respondent\tNo.  1 and the decree  was,  therefore,\t not
\n‘executable immediately after it was passed.  In  substance,
\nby the decree, time was granted though it is true that\ttime
\nwas   granted  to  both\t the  parties  to  discharge   their
\nrespective obligations under
\n(6) (1930) I.L R. LV Bom 97.\n<\/p>\n
(7) (1919) I.L.R. 43 Mad. 272.\n<\/p>\n
(8) A.I.R. 1957 Cal 645.\n<\/p>\n
928<\/span><\/p>\n
the  compromise.   That is another reason why we  think\t the
\nliability  of respondents No. 2 and 3 under the surety\tbond
\nis discharged as a result of the Compromise decree.
\nThere  is  yet another consideration which  is\trelevant  in
\ndealing\t with this point.  It is common ground that  amongst
\nthe  disputes  which were settled between  the\tparties\t was
\nincluded  the claim made by respondent No. 1 for damages  on
\naccount of the fact that the appellant had created occupancy
\nrights\tin favour of strangers in respect of the  properties
\nwhich were in his possession as a mortgagee.  This claim  is
\nplainly\t outside the proceedings contemplated and  permitted
\nby  the\t order\tpassed by the Privy Council,  and  yet\tthis
\ndispute\t has  been settled by the  compromise  decree  which
\nmeans  that a matter which was strictly not germane  to\t the
\njudicial  proceedings in which the surety bond was  executed
\nhas   been  introduced\tby  the\t parties  in   their   final
\nsettlement.   Therefore,  we are satisfied that\t though\t the
\nappellant  succeeds in showing that he was not a  defaulter,
\nhe  cannot seek his remedy against the\tsurety,\t respondents
\nNos. 2 and 3.\n<\/p>\n
An  attempt  was  made by Mr.  Kuppuswamy  to  suggest\tthat
\nrespondents  Nos.  2 and 3 should not have been\t allowed  to
\nraise  ibis  point before the High Court,  because  no\tsuch
\npoint bad been taken by them in the trial Court.  We do\t not
\nthink  there is any substance in this argument.\t It is\ttrue
\nthat  respondents  No.\t2  and\t3  did\tnot  take  any\tsuch
\ncontention  in\tthe  trial Court, but that  may\t be  because
\nparties had then concentrated on the issue as to who was the
\ndefaulter.  But when the appeals were argued before the High
\nCourt, this point was specifically urged by respondent No. 2
\nand it has been considered by the High Court.  No doubt\t Mr.
\nKuppuswamy  ingeniously suggested that this was not  a\tpure
\nquestion of law and so, the High Court
\n\t\t\t    929<\/span>
\nshould\tnot have allowed it to be raised for the first\ttime
\nin  appeal.   The  argument is that if the  point  had\tbeen
\nraised\tin the Court of first instance, the appellant  would
\nhave  shown that respondents Nos. 2 and 3 bad  consented  to
\nthe   compromise   agreement  between  the   appellant\t and
\nrespondent No-. 1. This is clearly an afterthought.  If\t the
\nappellant’s case was that respondents Nos. 2 and 3 were\t not
\ndischarged  by\tthe  compromise\t decree\t because  they\twere
\nconsenting parties to the compromise agreement, they  should
\nhave  stated  so before the High Court and  the\t High  Court
\nwould then have either called for a finding on that issue or
\nwould have refused permission to respondents Nos. 2 and 3 to
\nraise that point.\n<\/p>\n
The  result  is, Civil Appeal No. 345 of 1959 fails  and  is
\ndismissed with costs,
\nAppeal dismissed.\n<\/p>\n
930<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Raja Bahadur Dhanraj Girji vs Raja P. Parthasarathy … on 4 September, 1962 PETITIONER: RAJA BAHADUR DHANRAJ GIRJI Vs. RESPONDENT: RAJA P. PARTHASARATHY RAYANIMVARU AND OTHERS. DATE OF JUDGMENT: 04\/09\/1962 BENCH: ACT: Surety Bond-Executed in favour of Court–Compromise decree in the proceeding, if effects a discharge-Equitable rule Indian Contract Act, 1872 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-186471","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nRaja Bahadur Dhanraj Girji vs Raja P. 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