1932 (3) TMI 24 - HC - Indian Laws

Court rules appellant not entitled to security benefit from bank in insolvency case. Appeal dismissed.

R.M.M.S.T. Vyravan Chettiar Versus The Official Assignee of Madras

The court dismissed the appeal, ruling that the appellant was not entitled to the benefit of the security held by the Indian Bank against the insolvent. ... - Issues Involved:1. Whether there was a specific agreement of suretyship between the appellant and the insolvent.2. Whether the appellant is entitled to subrogation rights under Section 141 of the Indian Contract Act.3. Whether the appellant occupies a position analogous to that of a surety in equity.Issue-wise Detailed Analysis:1. Specific Agreement of Suretyship:The appellant claimed that there was a specific agreement of suretyship between himself and the insolvent, wherein each would act as a surety for the other's share of the debt. The court found no evidence to support this claim. The learned Judge held that 'the evidence does not make out any specific agreement between the parties to the effect that, though as between the Indian Bank and the debtors they were jointly and severally liable, as between themselves each should be regarded as a surety for the other in respect of his moiety of the debt.' Consequently, the court dismissed the application based on the lack of a specific agreement.2. Subrogation Rights under Section 141 of the Indian Contract Act:The appellant argued that he should be subrogated to the rights of the Indian Bank under Section 141 of the Indian Contract Act, which entitles a surety to the benefit of every security held by the creditor against the principal debtor. The court examined the applicability of Sections 140 and 141 of the Indian Contract Act. Section 140 states that a surety, upon payment of the debt, is invested with all the rights which the creditor had against the principal debtor. Section 141 extends this right to the benefit of every security held by the creditor. However, the court found that these sections apply only to cases of suretyship strictly so called, where a surety agrees with the creditor to discharge the liability of the principal debtor in case of default. The court concluded that 'persons who are jointly and severally liable on promissory notes are not sureties under Section 126 of the Indian Contract Act, nor do such persons occupy a position analogous to that of a surety strictly so called to attract the provisions of Section 141 of the Contract Act.'3. Position Analogous to a Surety in Equity:The appellant contended that even if he was not a surety strictly speaking, he occupied a position analogous to that of a surety and should be entitled to the benefit of the security held by the Indian Bank. The court referred to the case of Duncan, Fox & Co. v. North and South Wales Bank, which distinguishes between three kinds of liabilities: (1) agreements constituting the relation of principal and surety to which the creditor is a party, (2) similar agreements between the principal and surety only, and (3) cases where there is a primary and secondary liability without any contract of suretyship. The court found that the present case did not fall within any of these categories. The liability on the promissory notes was joint and several, meaning the debt was equally that of both parties, and there was no question of one being primarily and the other secondarily liable. The court concluded that 'the principle of the decision in Duncan, Fox & Co. v. North and South Wales Bank has no application to the present case.'Conclusion:The court dismissed the appeal, holding that the appellant was not entitled to the benefit of the security held by the Indian Bank against the insolvent. The appellant failed to prove the existence of a specific agreement of suretyship and did not occupy a position analogous to that of a surety to attract the provisions of Section 141 of the Indian Contract Act. The appeal was dismissed with costs.