1. This is an appeal by the plaintiff in a suit for a declaration that he was discharged from liability as surety for the fulfilment of a decree against the judgment-debtor in a previous suit, and for an injunction restraining defendant No. 1 from executing the decree against him.
2. The facts are shortly these :-Defendant No. 1 obtained a money decree against defendant No. 2 in 1925 Defendant No. 2 then filed a suit in 1926 to set aside the decree and applied for stay of execution pending the disposal of his suit. The Court granted stay on furnishing security. The plaintiff accordingly stood surety for defendant No. 2 for the fulfilment of the decree in the first suit. Defendant No. 2's suit was dismissed. Thereafter on December 4, 1934, there was an adjustment of the decree in the first suit between defendants Nos. 1 and 2 by which it was settled that defendant No. 2 should pay to defendant No. 1 Rs. 3,000 by annual instalments of Rs. 500. It is clear that that adjustment varied the terms of the decree in the first suit inasmuch as time was granted to the judgment-debtor to pay the decretal amount in instalments. It also appears that the adjustment was made behind the back of the surety. Thereafter defendant No. 1 filed a darkhast to execute his decree against defendant No. 2 as we'll as the surety. Defendant No. 2 applied for certifying the adjustment arrived at between him and defendant No. 1. But the application was made after the period of limitation was over. In the darkhast proceedings defendant No. 2 as we'll as the present plaintiff contended that the decree had been adjusted and the adjustment should be recognised even though the application for certifying the adjustment was time-barred. The present plaintiff had further pleaded that on account of the adjustment he was discharged from his liability as surety. The executing Court held that it was not open to defendant No. 2 as well as the surety to plead adjustment after the period of limitation for certifying it had expired. On that finding the executing Court did not think it necessary to record any finding on the present plaintiff's contention that he had been discharged from his liability on account of the adjustment), The Court held that as the adjustment cannot be looked at the darkhast should proceed further. The present suit was thereafter filed by the plaintiff for a declaration that he had been discharged from his liability as a surety on account of the adjustment and that therefore the decree cannot be executed against him. The material defendant was defendant No. 1, the original decree-holder. He contended that the present suit was barred by Section 47 of the Civil Procedure Code, that it was also barred by the principle of res judicata and that the plaintiff was not entitled to prove the alleged adjustment in this suit.
3. The trial Court held on all the issues in the plaintiff's favour. It was held that there was no bar under Section 47 as the plaintiff was not a party to the former suit, that it was not barred by res judicata as the issue whether the plaintiff was discharged from his suretyship had not been decided in the execution proceedings, and it was held on the merits that the adjustment had the effect of giving time to the judgment-debtor and that therefore on the principle underlying Section 135 of the Indian Contract Act the surety was discharged. The suit was, therefore, decreed as prayed.
4. On appeal, the learned Assistant Judge agreed with the trial Court in holding that the suit was neither barred by Section 47 nor by res judicata. On the merits he held that the adjustment had been proved, that it had also the effect of granting time to the judgment-debtor, and that therefore if it could be recognised, it would discharge the surety from his liability, and he further held that the adjustment would have prejudiced the plaintiff as time was granted to the judgment-debtor. However, the learned Judge was of the opinion that the surety cannot plead the adjustment and the discharge of his liability, when the judgment-debtor himself could not successfully put forward that plea. In other words, he was of the opinion that although a separate suit by the surety for a declaration which he had asked would not be barred by Section 47, the surety would be bound by: the decision of the executing; Court that the adjustment cannot be recognised as it had not been certified by the Court. The reasoning of the learned Judge was that as the adjustment could not be recognised, the plaintiff cannot prove that he had been prejudiced and that therefore he cannot take the benefit of Section 135 of the Indian Contract Act. On those grounds the appeal was allowed and the plaintiff's suit dismissed.
5. The plaintiff has, therefore, come to this Court in second appeal and the main contention urged by Mr. Desai on his behalf is that the lower Court was wrong in holding that the plaintiff was precluded from proving in this suit that the adjustment, even though uncertified, discharged him from liability. The appellant's contention in short is that any adjustment between the creditor and the debtor would forthwith relieve the surety from his liability, because the original agreement was superseded by a new agreement. Whether the new agreement requires to be certified by the Court would be a question between the creditor and the debtor but not one between the creditor and the surety. It is further contended that it is open to a surety to file a suit on the ground that though the adjustment being uncertified may prevent the executing Court from recognising it, it can be pleaded by the surety in a regular suit, and it is lastly contended that even as between the judgment-creditor and the judgment-debtor although an uncertified adjustment cannot be recognised by the executing Court, it would still be open to the judgment-debtor to file a suit for damage's against the creditor if the latter had, in pursuance of the adjustment, received some benefit and had still applied for execution of the decree without recognising the adjustment, and that therefore, it was open to the Court in a regular suit to pass a decree for damages on the basis of such an uncertified adjustment. In order to appreciate this argument it is necessary to see what are the rights and liabilities governing the surety in such cases. Section 135 of the Indian Contract Act lays down that
a contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue the principal debtor, discharges the surety, unless the surety assents to such contract.
6. It has been held by our Court in Parvatibai v. Vinayak : AIR1939Bom23 that the principle underlying this section would apply to the case of a surety who has passed a bond to the Court for the fulfilment of any obligation by the debtor. If then there was no question of any uncertified payment, the surety would be certainly discharged if time was granted to the judgment-debtor, and there is no doubt that in the present case there has been a variation of the original decree by granting time to the' judgment-debtor.
7. The question then is whether the position would be different if the adjustment is arrived at between the parties to the suit and is not certified to the Court. Order XXI, Rule 2, Sub-rule (3), provides that a payment or adjustment, which has not been certified or recorded, shall not be recognised by any Court executing the decree. So far as the judgment-creditor and the judgment-debtor are concerned, it is, therefore, clear that if the adjustment is not certified, the executing Court cannot vary the terms of the decree. It has, however, been held that if the creditor executes the decree ignoring such i uncertified adjustment, the remedy of the judgment-debtor is to sue the decree-holder for damages sustained by him by reason of the breach of the contract represented by the adjustment, and that he can file such a suit even before the whole of the decretal amount is recovered from him by the decree-holder, because his cause of action arises on the presentation of the application by the decree-holder to execute the original decree : In the matter of Medai Kaliani Anni. I.L.R. (1907) Mad. 545 Our Court has also held in Hanmant v. Subbabhat I.L.R. (1898) 23 Bom. 394 that the provisions of Section 244 of the former Civil Procedure Code are no bar to a suit to recover damages for breach of a contract not to execute a decree on account of its adjustment.
8. The position, therefore, is that although an uncertified adjustment cannot be recognised by the executing Court, it can be taken into consideration by a Court other than the executing Court in a suit to recover damages by the judgment-debtor, and in such a suit it is probable that the damage's awarded to the judgment-debtor would put the parties in the same position as if the adjusted decree was binding upon them.
9. That being the position with regard to the judgment-debtor, there is no reason why the liability of the surety should be governed by a different consideration. If the judgment-debtor is entitled to file a suit for damages against the decree-holder if he ignores an uncertified adjustment, it cannot be said that the decree-holder is entitled to execute the decree against the surety ignoring the adjustment. So far ate the execution proceedings are concerned, it may be said that neither the judgment-debtor nor the surety can plead an uncertified adjustment in those proceedings. It does not follow, however, that it cannot be recognised in a regular suit if it is competent to the party to file such a suit. Now, as I said before, it is competent to the judgment-debtor to file a suit for damages and so far as the surety is concerned, it is clear that he does not come within the provisions of Section 47 as he was not a party to the original suit, and therefore, it is open to him to file a suit for a declaration that he had been discharged on account of an adjustment between the creditor and the debtor. In such a suit the Court has to consider whether the adjustment had been arrived at, and if so, whether it varies the terms of the original agreement by giving time to the debtor. If it is found that it has so varied, then in my opinion under the' general principles governing the liability of the surety, it would be open to the Court to grant a declaration to the surety that he had been discharged from his liability. The law as observed by the Privy Council in Pratapsing Moholalbhai v. Keshavlal Harilal (1934) 37 Bom. L.R. 315 is that the surety is discharged forthwith on the contract being altered without his consent. The lower Court has relied upon a decision in Tambi Reddy v. Devi Reddy I.L.R. (1898) Mad. 325 which held that the surety could not plead adjustment or discharge of a decree, when the judgment-debtor himself could not successfully put forward that plea. But there the Court was considering such a plea in execution proceedings and the appeal had been filed from the order in execution,. In the present case, however, the question arises not in execution proceedings but in a regular suit filed by the surety. In my view, therefore, that decision does not apply to the facts of this case.
10. I am accordingly of the opinion that, on the findings of the lower Court, as the original decree' has been materially altered without the consent of the surety, he was discharged, even though the adjustment had not been certified to the executing Court.
11. It is, however, urged by Mr. Dharap on behalf of the respondent that the present suit is barred by res judicata. His contention is that in the execution proceedings there was an express issue framed as to whether the surety had been discharged from his liability, and although the Court held that it was not necessary to make any finding on that issue because of the finding that neither the judgment-debtor nor the surety can apply for the recognition of the uncertified adjustment, the ultimate order of the Court was that the darkhast should proceed. That order was binding on the surety and it operated as res judicata to the present suit where the plaintiff sought the relief that the decree should not be executed against him. Both the lower Courts have repelled that contention on the ground that the issue as to whether the surety was discharged from his liability had not been decided by the executing Court, and further] that it could not have been decided as the surety was. not a party to the regular suit. Mr. Dharap's contention, however, is that although the executing Court did say that it was not necessary to decide that issue, the final order that the darkhast should proceed necessarily implied that the surety had not been discharged. I do not think, however, that that implication necessarily follows from the order. The executing Court held that as neither the judgment-debtor nor the surety applied within the period of limitation for certifying the adjustment, it was not open, so) far as those proceedings went, to plead that only the adjusted decree could be executed, and it was not, therefore, necessary at all to go into the question as to whether the surety had been discharged from his liability. There is moreover another reason which would also lead to the conclusion that this point is not barred by res judicata. As has been rightly held by the lower Courts, and conceded here also, the surety was not governed by Section 47 of the Civil Procedure Code as he was not a party to the original suit, and therefore he was entitled to file a regular suit. If, therefore, the executing Court did not make any finding on the question as to whether the surety had been relieved from his liability on account of the adjustment, it would be open to him to agitate that question in the regular suit which he could have filed even though he had been impleaded in the darkhast. The executing Court thought that as the adjustment was uncertified, it could not go into the question as to whether that adjustment relieved the surety from his liability. There was, therefore, no decision on that point which would operate as a bar to the present suit, and I therefore agree with the lower Court that the present suit is not barred by res judicata.
12. In the result, therefore, the appeal is allowed, the decree of the lower appellate Court is reversed and the decree of the trial Court is restored with costs throughout against respondent No. 1.