Reconstruction scheme does not discharge surety; joint family estate not bound by company guarantee absent legal necessity.

A sanctioned reconstruction scheme under section 153 of the Companies Act does not, by itself, discharge a surety for the balance of the company's debt; the surety's obligation remains co-extensive and the creditor's acceptance of part satisfaction from the company does not extinguish it. The court also held that a guarantee executed for the company's benefit did not bind the managing agents' joint family estate, because no legal necessity was proved and the transaction was not established as an ordinary incident of the family business. Liability therefore survived against the surety, while the claim against the joint family estate failed.

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Issues: (i) whether a creditor's receipt of part payment under a sanctioned scheme of reconstruction discharged the surety from liability for the balance; (ii) whether the joint family estate of the managing agents was liable on the guarantee on the ground of legal necessity or as an ordinary incident of the family business.

Issue (i): whether a creditor's receipt of part payment under a sanctioned scheme of reconstruction discharged the surety from liability for the balance.

Analysis: A sanctioned scheme under section 153 of the Companies Act operates with statutory force. Where the principal debtor is relieved by operation of law under such a scheme, the surety is not thereby discharged. The liability of the surety is co-extensive with that of the principal debtor, but it is not alternative, and the creditor's acceptance of part satisfaction from the company does not extinguish the surety's independent obligation.

Conclusion: The surety was not discharged, and liability survived against defendant No. 1.

Issue (ii): whether the joint family estate of the managing agents was liable on the guarantee on the ground of legal necessity or as an ordinary incident of the family business.

Analysis: The guarantee was given for the mill company's benefit, but the family business was under no legal obligation to procure funds for the company. No legal necessity was proved to justify binding the joint family estate. The contention that such a guarantee was an ordinary incident of the joint family business also failed for want of proof and proper pleading. On the record, the estate could not be made liable merely because similar letters had been issued to other creditors.

Conclusion: The joint family estate was not liable, and the claim against defendants Nos. 2 and 3 failed.

Final Conclusion: The creditor succeeded against the surety, but the claim against the joint family estate was rejected, resulting in a partial allowance of the appeal.

Ratio Decidendi: A scheme of reconstruction sanctioned under the Companies Act does not, by itself, discharge a surety for the company's debt, and a guarantee given for the benefit of a company does not bind a joint family estate unless legal necessity or a proved business incident is established.

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