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Adamsab Usmansab Kanakya Vs. Gurushinddayya Lingayya and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKarnataka High Court
Decided On
Case NumberSecond Appeal No. 381 of 1961
Judge
Reported inAIR1967Kant147; AIR1967Mys147
ActsCode of Civil Procedure (CPC), 1908 - Sections 145; Indian Contract Act, 1872 - Sections 126, 127, 128, 133, 134, 135, 136, 137, 138 and 139
AppellantAdamsab Usmansab Kanakya
RespondentGurushinddayya Lingayya and ors.
Appellant AdvocateK. Vittal Rao, Adv.
Respondent AdvocateS.C. Javali, Adv.
Excerpt:
.....by mr. javali, though the sections of the contract act mentioned above do not in terms apply to a surety bond executed in favour of a court, it is well established that the principles contained in those sections do apply, and as pointed out by seshagiri aiyar, j. but as the result of a compromise between the plaintiff and one of the defendants, a compromise decree was passed only against one defendant and the suit dismissed against the other, it was held therein that the dismissal of the suit against one of the defendants operated as a release of the surety on the principle that the guarantee extends only to a liability precisely answering the description contained in the document furnishing the guarantee. 14. the only basis for this argument is that the document distinctly stated..........this appeal agreed to furnish security or guarantee for the benefit of the second defendant. the surety bond in question was thereupon executed by the appellant. after reciting the circumstances leading to the appellant offerings to stand as surety for the second defendant, me bond sets out the nature and extent of the guarantee offered by the appellant in the following terms:--(original in kannada script herein transliterated)['sadar dawadalli dawa parkar lekkawagi sadaree daweyopratiwadiya virudhawagi wadiya k dicree: adalli aaage wadige pratiwadyn kodubahudad hanawannu conrtinawaru hukum madidastu roopaigalannu awanu kodistane'] this is the sentence the interpretation of which is the subject of keen controversy between the parties. there is another sentence in the bond which limits.....
Judgment:

1. In this Second Appeal by the surety for the performance of a decree, the only question raised relates to the interpretation of the principal or operative clause of the bond executed by him in favour of the Court.

2. The facts which are not in dispute are the following:--

The first respondent in this appeal filed a suit against the other two respondents as defendants 1 and 2 for the dissolution of and taking of accounts in respect of a partnership business alleged to have been carried by the parties for some years prior to the suit. According to the averments contained in the plaint, the plaintiff had been for a considerable time advancing moneys to the second defendant for or in connection with the business carried on by the latter in a small cloth shop conducted by him, and the understanding between the parties was that in lieu of interest for the advances, the borrower-second defendant should give me lender-plaintiff an amount equal to half share of the profits derived from the cloth business carried on by the borrower. There are also other averments in the plaint suggesting that the borrowings were later treated as contributions by the plaintiff to the capital of the firm, thus conferring upon the plaintiff the status of a partner. The second defendant appears to have repudiated in his written statement the plaint suggestion that the plaintiff was a partner or had acquired the status of a partner in the business carried on by him.

3. Upon or shortly after the institution of the suit, the plaintiff applied for the attachment of certain moveables belonging to the second defendant and also for the appointment of a Receiver to lake charge of the second defendants' cloth shop. It was at this stage and with a view to obviate the attachment and the appointment of a Receiver that the appellant in this appeal agreed to furnish security or guarantee for the benefit of the second defendant. The surety bond in question was thereupon executed by the appellant. After reciting the circumstances leading to the appellant offerings to stand as surety for the second defendant, me bond sets out the nature and extent of the guarantee offered by the appellant in the following terms:--(Original in Kannada script herein transliterated)

['Sadar Dawadalli Dawa parkar Lekkawagi sadaree Daweyo

pratiwadiya Virudhawagi Wadiya K Dicree: Adalli Aaage Wadige pratiwadyn Kodubahudad Hanawannu conrtinawaru Hukum madidastu Roopaigalannu Awanu kodistane']

This is the sentence the interpretation of which is the subject of keen controversy between the parties. There is another sentence in the bond which limits the guarantee to a maximum of Rs. 8,000 in regard to which no question arises.

4. The suit was dismissed by the trial Court. During the pendency of appeal by the plaintiff against the dismissal of the suit the Advocate for the second defendant (second respondent in that appeal) filed a pursis reading as follows:

'Here in the pleader for respondent No. 2 begs to pass the following pursis.

Respondent No. 2 contends that the suit shop is not at all a firm and that it is the exclusive property of himself. However, apart from the fact of the same being a firm or otherwise, respondent No. 2 submits that he shall have to give half share in the profits realised to plaintiff and defendant No. 3 in lieu of interest on the sums lent by them to him under the agreement reached to.

The liability of respondent No. 2 for accounts to plaintiff and defendant 3 under the said agreement is admitted. He however submits that he has rendered accounts and has even satisfied the stuns due to plaintiff and defendant 3.

The case may be remanded after setting aside the dismissal of the suit to the lower court for deciding as to whether the accounts have been rendered or not and as to further whether the sums due to plaintiff and defendant 3 have been satisfied or not.

Sd. Rachappa Sangappa

Kudari

Sd. I.G. Hiregoudar

9-2-1952

Pleader for Respondent No. 2

The plaintiffs advocate endorsed thereon as follows:--

'The findings on issues one and two beset aside; they may not be decided now. Thedefendant 2 admits his liability to render accounts. Therefore, dismissal of the suit be setaside, and the suit be remanded for accounts.

9-2-1952

Sd. S.C. Javali

Advocate

5. The suit was accordingly remanded to the trial court which after taking accounts made a decree in favour of the plaintiff directing payment to him by the second defendant of a sum of Rs. 7,505/- with interest thereon at 4 per cent per annum.

6. It was when in the course of the execution of the said decree the plaintiff sought to enforce the guarantee given by the appellant in terms of the bond already referred to that the appellant raised objections to the enforceability of the surety bond, all of which having been rejected by both the courts below the surety has approached this Court with this second appeal.

7. Although many objections were raised in the Courts below, the only objection that was pressed before me on behalf of the appellant by his learned Counsel Mr. Vittal Rao may be briefly summarised as follows: -

The surety bond given by the appellant should be strictly construed, and the nature and extent of the guarantee offered by the surety must be strictly limited to the language employed in the relevant Clause of the bond and is enforceable only if the circumstances necessary for making the guarantee enforceable exist or have arisen and not otherwise. Having regard to the language employed in the operative clause of the surety bond in question read, as it should be, in the light of the averments contained and the reliefs sought in the plaint, the surety in this case must be held to have undertaken to pay the amount which may be decreed by the Court in favour of the plaintiff only if the said amount is arrived at after the taking of accounts on the footing of a partnership between the plaintiff and the second defendant. Actually, however, according to the argument, the decree appears to have been passed upon accounts taken on a footing other than and distinct from accountability arising out of partnership pursuant to an understanding or a compromise arrived at between the plaintiff and the defendant behind the back of the surety. Hence it is contended that the surety must be held to have been discharged from his obligation under the bond or that the bond must be held to be unenforceable in the changed circumstances.

8. Some cases dealing with the principles of law governing the ascertainment of the extent and nature of a surety's liability were cited both by Mr. Vittal Rao for the appellant as well as by Mr. S.S. Javali for the contesting respondent. It appears to me that so far as me actual principles of law themselves are concerned, there could hardly be any controversy.

9. It is no doubt true, as Mr. S.S. Javali points out relying upon the cases reported in Madanlal Motilal v. Radhakishan Lakshminarain, AIR 1935 Nag 258 and O. Appani Nair v. Isaak Mackadam, AIR 1920 Mad 355, that a Mild for the perform mice of a decree which a governed by Section 145 of the Code of Civil Procedure is not in the strict sense a contract of guarantee governed by the provisions of the Contract Act and that the provisions of sections 133 to 139 of the Contract Act will not directly apply to such bonds. The liability of a surety under a bond executed for the performance of a decree may be determined or put an end to only by the Court in whose favour the bond is executed, and ordinarily a surety may not be entitled to ask the Court to relieve him of his obligation on the ground that the decree-holder has arrived at a certain arrangement with the principal debtor. But, as pointed out in Trilok Nath v. Kehar Singh. AIR 1982 J & K 72, another case cited by Mr. Javali, though the sections of the Contract Act mentioned above do not in terms apply to a surety bond executed in favour of a Court, it is well established that the principles contained in those sections do apply, and as pointed out by Seshagiri Aiyar, J. in the Madras case cited above, though in the absence of any stipulation in that behalf there is no ground for limiting a surety's liability only to decrees passed after contest, there is nothing unreasonable or wrong in a surety expressly stipulating that he would be bound by his guarantee only if a decree is passed after contest and that he would not be bound by a consent decree.

10. The two cases cited by Mr. Vittal Rao viz., G. Venkamma v. K. Sanyasayya, : AIR1938Mad422 and Narsingh Mahton v. Nirpat Singh, AIR 1932 Pat 313 are illustrations of the last mentioned principles. In the Madras case, the surety had undertaken to pay any amount that might be decreed against two defendants in a suit and which might not have been recovered from them. But as the result of a compromise between the plaintiff and one of the defendants, a compromise decree was passed only against one defendant and the suit dismissed against the other, it was held therein that the dismissal of the suit against one of the defendants operated as a release of the surety on the principle that the guarantee extends only to a liability precisely answering the description contained in the document furnishing the guarantee. In the Patna case, the relevant stipulation in the surety bond was--

'If the suit is decided against the defendants and a decree for mesne profits is passed in favour of the plaintiff, the plaintiffs would realise the amount of the decree of mesne profits from the property mentioned in this deed.'

The claim for possession was decided on merits. But the parties thereafter compromised their disputes as to mesne profits and agreed upon a definite sum, and a certain time was given to the defendants within which to make the payment. The Patna High Court held that both by making the compromise and the granting of time the surety was discharged. Their Lordships relied upon the principle stated by Lord Boughborough in Rees v. Berrington, (1795) 2 Ves. Jr. 540 (543); 3 R. R. 3 as follows :-

'It is the clearest and most evident equity not to carry on any transaction without the privity of him who must necessarily have a concern in any transaction with the principal debtor. You cannot keep him bound and transact his affairs (for they are as much his as your own) without consulting him.'

The English case was one which related to a contract of guarantee and not to a bond by a surety for the performance of a decree. Hence that case cannot, in my opinion, be relied upon in support of the proposition that in every case, the surety for the performance of a decree will be liable only if a decree is passed on contest and not if it is passed on a compromise. So far as the actual decision in the Patna case is concerned, it may be supported on the ground that the bond considered in that case was one limited to a decree for mesne profits passed on contest because it has been observed in that case that by reason of the compromise the surety had been deprived of the possibility of the Court finding after enquiry that no mesne profits were in fact payable.

11. In this case, in my opinion, the argument is not possible that the decree was purely one passed on compromise. A careful reading of the pursis Ex. 54 would show that there was no compromise in regard to the taking of accounts or in regard to the ultimate amount decreed as payable to the plaintiff. All that the parties agreed by the said pursis was that the question whether they were partners or not need not be gone into or adjudicated upon but that the relationship between them was one which gave rise to a liability on the part of the second defendant to account to the plaintiff in respect of the profits of the business curried on by the former. The second defendant's contention that he had already rendered the accounts or discharged his liability to account was not accepted by the plaintiff. That was the reason, why the case' was sent back to the trial Court to decide that question and take accounts if it found that the second defendant's contention was not proved.

12. The other cases cited by Mr. Vittal Rao, viz., Pratapsingh Mohalalbhai v. Keshavlal Harilal Setalwad, AIR 1935 PC 21, Charles Dudley Robert Ward v. National Bank of New Zealand, Ltd., (1883) 8 AC 755, Sree Meenakshi Mills Ltd. v. Ratilal Tribhuvandas, AIR 1941 Bom 108 and Holme v. Brunskill (1878) 3 QBD 495 are all authorities for the position that the terms of a guarantee must be strictly construed. It would be enough to copy the following from the judgment of Lord Westbury in Blest v. Brown, (1862) 4 De GF & J 367 cited by the Privy Council in the case of Pratapsingh mentioned above:--

'It must always be recollected in what manner & surety is bound. You bind him to the letter of his engagement. Beyond the proper interpretation of that engagement you have no hold upon him. He receives no benefit and no consideration. He is bound therefore merely according to the proper meaning and effect of the written engagement that he has entered into.'

13. The only question therefore for consideration is whether the sentence in the surety bond in this case which I have already extracted bears the interpretation sought to be placed upon it by Mr. Vittal Rao, viz., that the appellant agreed to stand guarantee for the amount of a decree to be passed on accounts being taken only on the footing of a partnership and not on any other basis.

14. The only basis for this argument is that the document distinctly stated [Original in Kannada script herein transliterated]

'Sadar Dawadalli Dawaprakar Lekkhawagi Sadari Daweyo Decree Aadalli.'

according to him means the plaint and therefore 'Dawa Prakar' means according to the plaint or in accordance with the plaint or on me basis as set out in the plaint That basis, according to him, is no other than an accountability on the fooling of a partnership. He contends that the actual accounts taken in the suit after remand were not taken on the footing that the parties were partners but on the footing that one of the terms of the admitted debtor-and-creditor relationship between the parties necessitated the taking of accounts to ascertain the share of the profits of the second defendant's business to be paid to the plaintiff in lien of interest. That basis, he points out, is distinct and different from accountability as a partner.

15. I find it difficult to agree that even on a very strict interpretation of the language of the document, the meaning suggested by Mr. Vittal Rao can be read into it.

16. In the first place, I cannot agree that 'Dawa' (original in Kannada script herein transliterated) means only the plaint. The Kannada expression actually comprehends the suit itself or the dispute which is brought to Court for adjudication in a proceeding which is called a suit. Understood that way, the expression 'Dawa Prakar Lekkawagi' (original in Kannada script herein transliterated) could only mean 'on accounts being taken in the suit.' It will be remembered that the basic fact, out of which the liability of the second defendant arose, was the fact of the plaintiff having lent moneys to the 2nd defendant upon the understanding that in lieu of interest he should be given a share in the profits derived from the 2nd defendant's business. There can be no doubt that the amount of profits can be ascertained only by taking accounts. Whether therefore the parties were partners or merely a debtor and a creditor the taxing of accounts was absolutely necessary.

17. The argument of Mr. Vittal Rao that the parties have agreed behind the back of the surety that they were not partners but merely a creditor and a debtor is not supported by the wording of the pursis Ex. 54. Actually they did not want the Court to decide that question and me said question was therefore agreed to be left open and undecided. There is no basis therefore for the argument that the source of the liability to account was distinct and different from the source as understood by the surety when he executed the bond. There is also no scope for the argument that if accounts had been taken on the footing of a partnership, the result might have been a loss because the payment to the plaintiff was clearly and admittedly of a share of profits and the very fact that a large sum actually came to be decreed in his favour suggests, in the absence of other material, that the business of the second defendant did result in considerable profit. Further, there is no special or express stipulation anywhere in the surety bond to the effect that the surety was to be liable only if a decree is passed upon contest and not if the decree is passed on the basis of a compromise. Hence even if the parties had filed a pursis to the effect that they had on a mutual understanding between them taken accounts of the relevant transactions out of Court and agreed that the second defendant should pay a specified sum of money to the plaintiff and the court on that pursis had passed a decree for payment of the said specified sum, I do not think it would have been possible for the surety to say that the bond could not be enforced against him for the recovery of the amount so decreed.

18. On the language of the document therefore, it is not possible for the surety to say either that the guarantee could be enforced only if accounts are taken on the footing of a partnership or that any compromise of the suit claim by the parties would have the effect of discharging him from his liability as surety.

19. In substance and in actual effect, what he agreed to guarantee was a decree in favour of the plaintiff against the second defendant in the suit for an amount arrived at on taking of accounts between them for ascertaining the share of the profits of the second defendant's business payable to the plaintiff, without any express stipulation limiting the source of accountability to a relationship of partners or excluding his (surety's) liability in the event of a compromise or understanding between the parties.

20. The Second Appeal therefore fails and is dismissed with costs of the contesting respondent (decree-holder).

21. Appeal dismissed.


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