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Issues: (i) whether the guarantor was bound by the compromise reached between the bank and the principal debtors and remained liable for the debt; (ii) whether the auction sale confirmed in favour of the auction purchaser could be set aside.
Issue (i): whether the guarantor was bound by the compromise reached between the bank and the principal debtors and remained liable for the debt.
Analysis: Under Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor unless the contract provides otherwise. The guarantee deed specifically stated that any judgment or award obtained against the principal debtor would bind the guarantor. A compromise entered into by the bank and the principal debtors therefore bound the guarantor as well. Mere ignorance of the settlement was not accepted as a valid ground to avoid liability.
Conclusion: The guarantor remained liable and was bound by the compromise.
Issue (ii): whether the auction sale confirmed in favour of the auction purchaser could be set aside.
Analysis: The auction purchaser had paid the full sale consideration, the sale had been confirmed, the sale certificate had been issued, and possession had remained with him for a substantial period. The conduct of the respondents, including repeated failure to comply with payment directions, was also relevant. In these circumstances, interference with the completed sale was considered inequitable.
Conclusion: The auction sale was not liable to be set aside.
Final Conclusion: The High Court's order was set aside and the appeals were allowed, with the auction purchaser's possession and the completed sale being protected.
Ratio Decidendi: A surety is bound by a compromise or award against the principal debtor where the guarantee expressly so provides, and a completed auction sale confirmed and acted upon will not ordinarily be disturbed on equitable grounds absent compelling legal infirmity.
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