1990 (12) TMI 341 - HC - Indian Laws

Appeal allowed for defendant-3, suit dismissed, decree upheld for defendant-2. Costs allocated accordingly.

T. Raju Setty Versus Bank of Baroda

The appeal was allowed, and the judgments and decrees of the lower courts were set aside concerning defendant-3. The suit against defendant-3 was ... - Issues Involved:1. Contract outside the provisions of Chapter VIII of the Indian Contract Act.2. Continuation of suit against sureties when it abates against the principal debtor.3. Passing a decree against sureties.Detailed Analysis:Issue 1: Contract Outside the Provisions of Chapter VIII of the Indian Contract ActChapter VIII of the Indian Contract Act, 1872, deals with indemnity and guarantee. The court examined whether it is permissible to enter into a contract giving up the rights available to a surety under this chapter. The court noted that all provisions in Chapter VIII are interconnected and should be read together. Section 128 specifically provides that the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. The court acknowledged differing views from various High Courts but concluded that it is permissible for a surety to waive rights under Chapter VIII, provided such waiver is not hit by Section 23 of the Act. The court held that such a contract is not opposed to public policy and does not defeat the provisions of law. Therefore, the surety can waive rights available under Sections 133, 134, 135, 139, and 141 of the Act.Issue 2: Continuation of Suit Against Sureties When It Abates Against the Principal DebtorThe court considered whether a suit for recovery of money can proceed against sureties when it abates against the principal debtor due to the failure to bring the legal representatives of the deceased principal debtor on record. The court noted that the suit had abated against the principal debtor, and the plaintiff did not challenge this abatement. The court referred to the Supreme Court's decision in State of Punjab v. Nathu Ram, which held that abatement results in the dismissal of the suit and the decree dismissing the suit against the deceased defendant becomes final. The court emphasized that in such cases, there would be conflicting decrees if the suit continued against the sureties. The court held that the liability of the sureties is related to the principal debtor's liability, which was extinguished due to the plaintiff's negligence in not bringing the legal representatives on record.Issue 3: Passing a Decree Against SuretiesThe court examined whether a decree could be passed against the sureties when the suit abated against the principal debtor. The court noted that the plaintiff sought a decree jointly and severally against all defendants. The court referred to the Supreme Court's decision in Sri Chand v. M/s. Jagdish Pershad Kishan Chand, which held that the fact that the surety bond is enforceable against each surety severally does not alter the true character of an adjudication when proceedings are commenced to enforce the covenants of the bond against all sureties. The court held that in the same proceeding, there cannot be conflicting decrees, one dismissing the claim against the principal debtor and another decreeing the same claim against the sureties. The court concluded that the plaintiff's failure to bring the legal representatives of the deceased principal debtor on record made it impossible for the sureties to seek reimbursement from the principal debtor's estate, leading to potential injustice to the sureties.Conclusion:The appeal was allowed, and the judgments and decrees of the lower courts were set aside concerning defendant-3. The suit against defendant-3 was dismissed. However, the decree against defendant-2, who did not contest the suit, was not disturbed. Each party was directed to bear its respective costs in the appeal.