1. Special Civil Suit No. 3 of 1967 was filed by the respondent - firm for recovery of an amount of Rupees 22,717.12 and costs with interest at 12 per cent per annum from the date of suit till recovery. The defendant put in contentions disputing the claim on plaintiff. After filing the suit, an application for attachment before judgment under Order 38, Rule 5 of the Civil Procedure Code was made by the plaintiff. The property was attached but the attachment was removed as the defendant furnished security in the shape of a surety bond executed by the present appellant agreeing to hold himself liable for the decree to be passed to the extent of Rs. 25,000/-.
2. Subsequently on November 14, 1968 a consent decree was made by the trial Court for Rs. 22,717.12, costs of the suit and interest at 12 per cent per annum but subject to a condition that if payments were made as detailed in the terms of compromise, the decree was to be entered as satisfied provided the amount of Rs. 20,000/- was paid. After this decree was made, the respondent firm made an application for execution and had the property of the appellant - surety attached on September 9, 1969. On October 8, 1969 the attached property was ordered to be sold for satisfaction of the decree. Against this order for sale, the appellant - surety filed the present appeal.
3. When this matter reached hearing before Vaidya, J., one point was placed before the learned Judge, namely that there is a conflict of decisions of two Division Benches of this Court. The learned Judge having found that the conflict exists referred this matter to a Division Bench. The point shown to exist was whether by reason of the fact that a decree by a compromise was made, the surety who had agreed to pay the decretal amount was discharged.
4. Mr. Dalvi appearing for the appellant contended that although in strict terms a surety bond executed in favour of the Court would not be covered by Sections 133 and 135 of the Contract Act, still this Court has held that the principles embodied in Sections 133 and 135 of the Indian Contract Act would apply. It was urged by him that the surety could not be expected to anticipate that the plaintiff and the defendant would settle the claim and that the defendant would submit to a decree shifting the liability from himself to the surety. The fact that the decree was by compromise was, according to Mr. Dalvi, a variation of the original terms of the surety bond and necessarily therefore if the principles of Sections 133 and 135 of the Contract Act applied, the surety was entitled to contend that he was discharged.
5. In support of his contention that the principles embodied in Sections 133 and 135 of the Indian Contract Act applied to the surety bond executed in favour of the Court, reliance was placed by Mr. Dalvi on Parvatibai v. Vinayak 40 Bom LR 989 : AIR 1939 Bom 23. The facts of this case were as follows : The defendant in the suit offered two sureties who executed bonds to the Court for securing the payment of mesne profits for two years. Against the decree made in the suit, an appeal was filed by the defendant. A stay of execution by offering fresh security was also obtained by the defendant - appellant. After the appeal was dismissed an execution was sought by the decree - holder for mesne profits against the original sureties. A contention was taken by sureties that they were discharged. Broomfield, J., while considering this question observed that although having regard to the definitions in Section 126 of the Indian Contract Act, Sections 133, 135 and 139 cannot apply in terms to a transaction of the type, where the bond is given to the Court, it does not follow that the principles underlying those provisions should not be applied mutatis mutandis. The learned Judges then held that this was a case in which the Court was itself responsible for a change in the situation which materially affected the position of the first sureties under the terms of their surety bonds and held that the sureties were discharged. Mr. Calvi placed great reliance upon this case to urge upon that the two points which were decided in this case satisfactorily established, firstly that the principles of Sections 133 and 135 of the Contract Act applied to a surety bond executed in favour of the Court and secondly that if there is a variance between the terms of the surety bond and the ultimate order that is passed, there is ground to hold that the sureties are discharged. But one circumstance that has to be considered in addition to these two factors is that the learned Judges held in that case that the surety was adversely affected by the course of action taken by the Court itself and that this adverse effect was to the prejudice of the surety.
6. This point, however, whether a surety is discharged upon a compromise after a surety bond is executed by a third person for satisfaction of a decree by Court has been dealt with on several occasions by this Court and by the other High Courts. The earliest decision on this point of this Court is to be found in Shivappa bin Gurlingappa v. Nagappa bin Shivapa Kudrimoti (1894) Bom PJ 25. Jardine. J., observed in this decision as follows :-
'It is argued that the bond being conditioned as to what the Court might adjudge, that verb excluded a decree passed is beyond its purview. We do not think, however, that we ought to limit the meaning in this manner. It is matter of notoriety that many suits are terminated by consent decrees, and we cannot hold that the creditor's taking the usual advantage of the debtor's consenting to the claim was inconsistent with the terms of the bond.'
Ranade, J., while concurring with the order proposed by Jardine, J. observed as follows :
'The adjudication by the court is only a means to an end, and in the absence of fraud there is nothing to prevent a judgment - debtor obtaining a consent decree and saving costs, or, as in this case compromising his creditor's claim.'
The observations of the learned Judges are clear enough to indicate that the words 'a decree to be made by the Court' would also include a decree by consent between the plaintiff and the defendant.
7. The next judgment on the point which is the subject - matter of conflict between two Division Benches is Mahomedalli v. Lakshmibai 31 Bom LR 1442 : AIR 1930 Bom 122. the facts of this case were that in a suit to recover money, attachment before judgment was obtained by the plaintiff, and the husband of the respondent stood surety and executed a bond in form 6 to App. F. Civil Procedure Code. Subsequently the plaintiff and defendant arrived at a compromise under which the amount in dispute was agreed to be paid in monthly instalments. The question whether in view of these terms of compromise the surety was discharged. The learned Judges of the Division Bench did not agree on the first point whether by reason of the fact that the decree was passed by consent it followed ipso facto that the surety was discharged. It was observed by Kemp, Acting, C. J. that the correct test to apply to that case was whether the compromise which was subsequently embodies in the decree was in the contemplation of the plaintiff and the surety when the latter became a surety. But in the application of the test the learned Judge did not hold that that would be sufficient ground for holding that the surety was discharged. It was observed that it would be nine months before the surety's liability was extinguished by reason of the compromise decree and that during those nine months the position of the judgment - debtor might have altered very much for the worse. It was further observed that the surety's rights against the debtor were prejudiced by the compromise and that therefore such a compromise was not contemplated when the surety bond was given by the surety. Blackwell, J., agreed with Kemp Ag. C. J. on this point and they held that the surety was discharged. One thing to be noticed in this connection is that by the mere fact that there was a compromise, the learned Judges did not hold that the surety was discharged.
8. The third case on the point and the case on which a conflict was considered by Vaidya, J., was Haji Ahmed Karim v. Maruti Ravji 32 Bom LR 1394 : AIR 1931 Bom 55. A similar point had arisen in this case whether a surety was discharged by reason of the fact that the decree was not in invitum but it was passed by consent. Madgavkar, J., who delivered the judgment of the Bench observed as follows :
'The first question in these cases, in our opinion, is whether a compromise as such is or is not excluded under the terms of the surety - bond. that must be a question of fact in each case.' The opinion of the Division Bench after considering the question was as follows :- 'It follows on this view that a compromise as such is not explicitly or implicity outside the terms of the surety bond in this case.'
The position, therefore, was that a compromise could not be excluded from the term 'a decree of the Court' to be found in the surety bond. We find on going through the decisions of the two Division Benches in 31 Bom LR 1442 : AIR 1930 Bom 122 and 32 Bom LR 1394 : AIR 1931 Bom 55 that there is in fact no such conflict on this point. An opinion was expressed by Kemp Ag. C. J., but that opinion was personal to him and did not become the opinion of the Bench as Blackwell, J., did not concur in that opinion. From these decisions we find that it depends upon the construction of the surety bond whether the surety is discharged or continues to be liable.
9. The Calcutta High Court in Jia Bai v. Joharmull Bothra : AIR1932Cal858 concurred with the decision in 32 Bom LR 1394 : AIR 1931 Bom 55. Rankin C. J. while considering this point observed ILR Cal 1461 = (at page 863 of AIR) as follows :-
'In this appeal, we have been referred to the decision in 32 Bom LR 1394 : AIR 1931 Bom 55. In that case, a Division Bench of the Bombay High Court, in a judgment with which I fully agree, as I do with the judgment of Lord - Williams, J., in the present case, examined the terms of the surety bond which said that, in case the defendant failed to pay the decree.' 'I bind myself to pay any sum upto Rs. 3,000/- according to the orders of the Court'. The Bombay High Court held that the bond in that form was just as applicable to a consent decree as to any other .............. Assuming that the consent decree is not in anywise fraudulent, It is just as much within the terms of such a bond as any other decree and indeed it strikes one as rather surprising that the ordinary form of a bond in a case under Order XIV should not be supposed to cover the case of consent decree'.
10. Similarly in Annadana Jadaya v. Konammal, ILR 56 Mad 625 : AIR 1933 Mad 309 the Madras High Court held that the consent order had not the effect of releasing the surety. Of course, on facts it was held that the surety was discharged because time was given to the judgment - debtor to pay which had materially affected the rights of the surety. In Kabiruddin v. Debisingh AIR 1935 Nag 16, the Nagpur High Court expressed itself as follows :
'A consent decree is not any the fees a decree because it is agreed to by the parties to the suit, and though for certain limited purposes it is treated on the same footing as the agreement itself, the rules of contract for not apply in their entirety nor do those of tort. Where therefore a surety under takes to be bound by such decree or order as may be passed by the Court, he undertakes to be bound by a consent decree as well as by one after contest.'
11. Similarly the Kerala High Court in Chakkuny v. Viswanatha Iyer, : AIR1961Ker312 , also held that a consent decree would be included in the expression 'decree passed by Court'.
12. On the point, therefore, whether a consent decree would be included within the expression 'a decree to be passed by the Court', the decisions of the Calcutta High Court, Madras High Court, Nagpur High Court as it then was and the Kerala High Court are consistent and in agreement with the decisions of this Court. Obviously therefore there is no substance in the contention advanced by Mr. Dalvi that upon the passing of a decree by consent the surety is ipso facto discharged.
13. However, it has been consistently held by our High Court and also by the other High Courts that this rule is subject to three limitations, (1) that the decree is not the result of a fraud, (2) that the decree is not by collusion between the plaintiff and the defendant and (3) that the decree has not prejudiced the surety in any respect. In this case there is no argument advanced before us that either there was a fraud in the making of the decree or that there was collusion between the plaintiff and the defendant which had brought about the consent decree. The point to be considered therefore is whether the rights of the surety are in any way prejudiced by the consent decree that is made therein.
14. According to Mr. Dalvi appearing for the appellant, the very fact that the decree is made by consent is itself sufficient to prove that it is adverse to the rights of the surety. On this point reliance was placed by Mr. Dalvi on the observations of Broomfield, J., in 40 Bom LR 989 :AIR 1939 Bom 23. The learned Judge quoted the observations in Keshavlal v. Pratapsingh 34 Bom LR 167 : AIR 1932 Bom 168 to the following effect :-
'If there is a substantial alteration in a contract by the principal, without the consent of the surety, even if there be no extra prejudice to the surety which can be shown to exist, the surety will be discharged, because the Court will not go into the question whether there has been any actual prejudice or not. The surety is to be the judge whether he will continue to remain liable on the new contract or not.'
Broomfiled, J., then observed as follows :
'On the same principle the respondents are not bound to prove that they have actually been prejudiced.'
Reliance was placed upon these observations by Mr. Dalvi to urge that it is not necessary that prejudice in fact must be proved by the surety but that an alteration in the original terms of the bond is sufficient to prove that prejudice has been caused.
15. In order to substantiate his argument that the sureties are discharged, it was further urged by Mr. Dalvi that when there is a variance between the surety bond and the ultimate decree that is passed, there is a substantial alteration in the terms so far as the surety is concerned and that in such cases no prejudice need be proved. The terms of the surety bond of which a translation was given in the lower court was as follows :-
'The said defendant will personally and voluntarily pay without fail to the plaintiff the entire amount with costs which will be declared as payable in pursuance of the decree which the Civil Judge, Senior Division, Ratnagiri will pass in the suit after a trial finally and will satisfy the amount according to the decree which will be passed for the plaintiff. But if he does not pay accordingly, I personally or after me my heirs and executors of my will bind ourselves to pay an amount not exceeding Rupees twenty five thousand out of the amount which will be due to the plaintiff according to the said decree ...................'
Emphasis was laid by Mr. Dalvi on the expression 'the decree which the Civil Judge, Senior Division, Ratnagiri will pass in the suit after a trial finally.' The learned single Judge has reproduced in original Marathi the relevant term of the bond in his judgment. The Marathi term is as follows :
The word ' (.....) ' (after trial) was, according to Mr. Dalvi, not the same as a decree by compromise. According to Mr. Dalvi, a decree by compromise was not after trial. On the construction of this term we find that Mr. Dalvi is not supported by any decided case, namely, that a decree by consent is not a decree after trial. We have referred to the various decisions which have held that a consent decree is not excluded from the term 'decree' in the surety bond. Necessarily therefore it must be held that there is not substance in this contention that a consent decree materially alters the terms of a surety bond executed in this case. The other cases in which the surety was held to be discharged were either on the ground that there was fraud in the making of the decree or that there was collusion between the plaintiff and the defendant in the suit or that by grant of time to the defendant, the surety was adversely affected in his rights. In the instant case there is no argument that the surety was in any way prejudiced. In fact we find that from the terms of the decree, the amount of the decree is reduced to Rs. 20,000/- from Rs. 22,000/- and odd and costs etc. In fact, the liability of the surety is reduced by the compromise and the burden is not increased nor is the right of the surety affected in any way. We, therefore, hold that the appellant fails to prove that he is discharged.
16. In the result, the appeal is dismissed with costs.
17. Appeal dismissed.