1943 (8) TMI 3 - HC - Indian Laws

Appeal allowed, appellant entitled to share in mortgage security based on debt share. Court directs sale of property.

Parvateneni Bhushayya Versus Potluri Suryanarayana and ors.

The appeal was allowed, and the appellant was declared entitled to a share in the mortgage security in proportion to the debt discharged by him. The court ... - Issues Involved:1. Entitlement of Surety to the Benefit of Security2. Existence of Partnership3. Maintainability of the Suit4. Bar of Limitation5. Rights under Sections 140 and 141 of the Indian Contract Act6. Applicability of Section 92 of the Transfer of Property ActIssue-wise Detailed Analysis:1. Entitlement of Surety to the Benefit of SecurityThe primary issue was whether the surety, having discharged the debt, was entitled to the benefit of the security held by the creditor. The court held that the surety, upon payment of all that he was liable for, is invested with all the rights which the creditor had against the principal debtor, as per Section 140 of the Indian Contract Act. The court found that the surety, having paid his portion of the debt, was entitled to a proportionate share in the mortgage security.2. Existence of PartnershipThe court examined whether the defendants were partners in the business carried on by Chitta Venkateswarlu and Anne Veerayya. Despite the defendants' contention that they were not partners and were only capitalists, the court found that the evidence, including a partnership deed and business accounts, indicated that they were indeed partners. Thus, they were among the debtors to the Imperial Bank with reference to the debt guaranteed by the surety.3. Maintainability of the SuitThe defendants argued that the suit was not maintainable because the plaintiff's brother became entitled to the suit amount under a partition arrangement. The court rejected this argument, stating that the plaintiff, being the surety and the person who discharged the debt, was entitled to maintain the suit. The court also noted that the plea of non-joinder of the plaintiff's brothers was not warranted and was improperly allowed to be raised.4. Bar of LimitationThe court found that the suit was not barred by limitation. The learned Subordinate Judge had erroneously concluded that the suit was time-barred except for the last payment. The court clarified that all payments made by the surety were within three years of the suit, thus within the limitation period.5. Rights under Sections 140 and 141 of the Indian Contract ActThe court discussed the provisions of Sections 140 and 141 of the Indian Contract Act. Section 140 states that the surety, upon payment of the guaranteed debt, is invested with all the rights of the creditor against the principal debtor. The court held that the surety was entitled to the benefit of the security held by the creditor at the time of payment. The court also clarified that Section 141 did not enable the creditor to withhold any security from the surety.6. Applicability of Section 92 of the Transfer of Property ActThe respondents argued that under Section 92 of the Transfer of Property Act, the surety could not claim subrogation until the mortgage was redeemed in full. The court held that Section 92 was inapplicable as it dealt with the right of subrogation in cases of mortgage redemption, whereas the present case involved additional security provided by the principal debtors. Therefore, the surety's right to the security was governed by Section 140 of the Indian Contract Act, not Section 92 of the Transfer of Property Act.Conclusion:The appeal was allowed, and the appellant was declared entitled to a share in the mortgage security in proportion to the debt discharged by him. The court directed the lower court to pass a preliminary mortgage decree for the sale of the hypotheca, with the appellant entitled to a share of the proceeds. The case was remanded to the lower court to decide the question of scaling down the debt under the Madras Agriculturists' Relief Act and to dispose of the suit in light of the findings and observations contained in the judgment.