Surety liability under a guarantee is limited by the contractual ceiling despite creditor actions against the principal debtor.

A power of attorney executed and notarised attracted the presumption of due execution, so the plaint was treated as validly authorised and instituted. The guarantee covered principal liability as well as costs and expenses, so the suit disclosed a cause of action against the surety and remained maintainable as a distinct claim from the mortgage proceedings. The surety was not discharged because the creditor's consent decree, execution steps and dealings with the mortgaged security did not amount to statutory discharge, and the guarantee contained effective consent and waiver clauses. Liability was nevertheless confined to the contractual ceiling of Rs. 60 lakhs, with no basis for recovery beyond that limit.

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Issues: (i) whether the plaint was signed, verified and instituted by a duly authorised person; (ii) whether the plaint disclosed a cause of action for the claim towards costs and whether the suit was maintainable against the defendant as surety; (iii) whether the defendant stood discharged from surety liability on account of the creditor's proceedings against the principal debtor, sale of mortgaged assets and the terms of the guarantee; and (iv) the extent of the defendant's liability and whether interest beyond the contractual limit could be awarded.

Issue (i): whether the plaint was signed, verified and instituted by a duly authorised person.

Analysis: A power of attorney executed before and authenticated by a notary public attracts the statutory presumption under section 85 of the Evidence Act. That presumption extends to due execution by the corporate principal and to the authority of the officers who executed the instrument on its behalf, unless rebutted. The evidence of authentication and the surrounding documents were sufficient to prove authority.

Conclusion: The plaint was validly signed, verified and instituted by a duly authorised person, in favour of the plaintiff.

Issue (ii): whether the plaint disclosed a cause of action for the claim towards costs and whether the suit was maintainable against the defendant as surety.

Analysis: The guarantee deed covered the principal liabilities, including costs and expenses, so the plaint disclosed a cause of action for that component of the claim. The suit on the guarantee was based on a distinct cause of action from the earlier mortgage suit against the principal debtor, and was therefore maintainable.

Conclusion: The plaint disclosed a cause of action for costs and the suit was maintainable, in favour of the plaintiff.

Issue (iii): whether the defendant stood discharged from surety liability on account of the creditor's proceedings against the principal debtor, sale of mortgaged assets and the terms of the guarantee.

Analysis: A consent decree for the full amount against the principal debtor was not a composition within section 135 of the Contract Act, and the appointment of a receiver in execution did not discharge the surety. The creditor had not lost or parted with the security within section 141 because the mortgage rights remained enforceable and the surety could still claim their benefit on payment. The guarantee itself contained consent and waiver clauses sufficient to cover such acts, and the alleged oral consent was not proved.

Conclusion: The defendant was not discharged from surety liability, in favour of the plaintiff.

Issue (iv): the extent of the defendant's liability and whether interest beyond the contractual limit could be awarded.

Analysis: The guarantee limited the defendant's liability to Rs. 60 lakhs. Although the principal debtor's liability included the decretal amount and costs, the surety's undertaking could not exceed the contractual ceiling. No separate contractual, statutory or equitable basis for pre-suit interest beyond that limit was established against the surety.

Conclusion: The defendant's liability was confined to Rs. 60 lakhs, and the additional claim was not recoverable against the surety.

Final Conclusion: The plaintiff succeeded only to the extent of the contractual limit under the guarantee, with proportionate costs and future interest as awarded by the Court.

Ratio Decidendi: A surety may be held liable on a guarantee despite the creditor's bona fide suit and compromise with the principal debtor, unless the creditor's acts amount to a statutory discharge under the Contract Act or the guarantee itself does not waive such rights; where the guarantee fixes a monetary ceiling, recovery from the surety cannot exceed that limit.

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