1. This judgment will dispose of Execution First Appeals Nos. 2D of 1956 and 19-D of 1956.
(2) Mudgil Motors Limited had executed a deed of hypothecation in favour of firm Jagdish Parshad Kishan Chand for advances up to a limit of Rs. 50,000/-. All the stock was covered by the deed and one of the clauses was that the creditor could obtain possession of specified goods so long as the indebtedness subsisted. On 19th June 1952 a suit was filed by firm Jagdish Parshad Kishan Chand (No. 265 of 1952) for various reliefs including a prayer for being put in possession of the goods of the debtor Company. Subsequently on 11th November 1952 another suit was filed by the aforesaid firm for recovery of Rs. 42,914/10/- on the basis of three pronotes which had been executed by the Company. In that suit the prayer inter alia was that the goods of the Company be put to sale. Both the suits were consolidation. Later on, an application for appointment of a receiver was made in the first suit. On 23rd June 1952 an order was made that the defendant-Company should give security to the extent of Rs. 40,000/- and if that was done the receiver was not to be appointed. On 16th July 1952 the present appellants along with one Parma Nand furnished security bonds mortgaging their immovable properties.
In the second suit also a similar order was made for furnishing a security in the sum of Rs. 50,000/- and the same persons, namely, the appellants and Parma Nand, executed the surety bonds. In April 1954 a resolution for winding up of the Company was passed and an application was made for that purpose on 4th November 1954. The suits were stayed but the stay order was later on vacated and a provisional liquidator was appointed. On 14th January 1955 the Company was ordered to be wound up. On 28th February, 1955 the first suit was withdrawn by the firm and it records were ordered to be consigned on the ground that it had been withdrawn.
In the second suit, however, a decree was passed in favour of the firm in the sum of Rs. 42,914/10/- with costs together with future interest on the principal amount of Rs. 41,800/- from the date of the suit till the date of realisation at the rate of 6 per cent per annum. On 16th March 1955 the decree-holder firm took out execution against the sureties who appeared and filed objections on 16th April 1955. Finally the objections of the sureties were dismissed on 20th December, 1955. Execution First Appeal No. 2-D of 1956 has been preferred by Basant Lal, Vidhya Dhari, Shri Chand and Debi Ram whereas Execution First Appeal 19-D of 1956 has been instituted by Parma Nand who filed a separate set of objections.
(3) Mr. Gurbachan Singh, the learned counsel for the appellants in the first appeal, has based his submission on two points only which according to him, arise out of issues Nos. 6 and 7. These issues were as follows:--
'6. Whether the surety bond requires registration?
7. Whether the decree-holders have committed any Act by which the remedy of the surety against the judgment-debtors has been impaired and that the respondents stood discharged ?'
Admittedly the appellants executed a joint surety bond, Exhibit R.1., which was in favour of the Court and not in favour of the decree-holder. The operative part of the bond was as follows:--
'Accordingly we of our own free will, stand sureties mortgaging the property specified in the Schedule hereunto annexed, and jointly and severally convenient that if any decree is passed against the defendant, he shall comply with the same and if he should fail therein, then any amount payable in the decree to the extent of Rs. 50,000/- shall be realised from the properties hereby mortgaged.'
The executants were identified by Shri Amirt Lal Patni, Advocate. It is not denied that the aforesaid bond was duly accepted by the Court. The Court below has relied on a decision of a Full Bench of the Lahore High Court consisting of Tek Chand, Jai Lal and Monroe, JJ. reported as Kasturi Lal v. Goverdhan Dass, AIR 1934 Lah 138. The Full Bench laid down that a surety bond whereby the surety hypothecated his immovable property for satisfaction of such decree as might be passed and which was duly accepted by the Court did not require registration as it was a step in judicial proceedings and the decree-holders could more the Court to realise the decretal amount form the immovable property of the surety even though it had not been registered.
The reasoning which appealed to their Lordships was that it was not the execution of the bond which effected the transfer of rights in the immovable property so as to make it available for the satisfaction of the decree but it was the order of the Court accepting the bond which created these rights. Even if a bond had been registered immediately after its execution, it would not have become operative until and unless it was accepted by the Court. If by reason of the insufficiently of the security or otherwise the Court chose not to accept the bond it would remain a wholly ineffectual document although it contained all the terms of the transaction and had been duly executed and registered. The previous decision in Lahore Spinning and Weaving Mills Co., Ltd. v. Uttam Chand, 122 Pun Re 1919: (AIR 1919 Lah 8) which expressed the contrary view was overruled. Mr. Gurbachan Singh has relied on a recent decision of a Division Bench of the Allahabad High Court in Bishnath Sahu v. Prayag Ding, AIR 1958 All 820, taking the contrary view in which the Lahore Full Bench decision was dissented from. The learned Allahabad Judges at page 823 made the following observations with respect to the reasoning which had appealed to the Lahore Full Bench:
'With all respect we are unable to appraise this legal position. As we apprehend the matter all that the Court does in such circumstances is to intimate that the property tendered as security is deemed to be sufficient, in other words, it approves the substance not the form of the security, the execution of the bond being the mode and the form in which the security is subsequently furnished.'0
With great respect to the learned Allahabad Judges their observations do not fully explain the reason which were adopted by the Full Bench and even though this Court, technically speaking, may not be bound by the decisions of the Lahore High Court, nevertheless. I consider that the Lahore view based, as it is on very good reasons ought to be followed. It is needless to mention that the Nagpur and Travancore-Cochin High Courts have also adopted the view of the Lahore Full Bench. See Dadoo Balaji v. Kanhaialal Dhanaram, AIR 1947 Nag. 26 and Subramania Nadar v. Esakkimadan Nadar, AIR 1953, Trav-Co. 364. To the same effect is the decision of the Bombay High Court in Jayappa Lokappa v. Shviangouda Dyamangouda, AIR 1928 Bom 42.
(4) It has next been contended that the withdrawal of the first suit (No 265 of 1952) seriously impaired the rights of the sureties as the Company had the goods and if those goods had been actually brought into possession, the rights of the sureties would have been safeguarded. On behalf of the respondent firm an objection has been raised to this argument being advanced because it is said that it was never addressed to the Court below. A perusal of the judgment of the lower Court on issue No. 7 does show that the principal contention that was raised in this respect there related to the winding up proceedings wherein the decree-holders had made a statement before the District Judge on 14th January, 1955 that they had no objection to the Company being compulsorily wound up. It was contended that the Company had gone into liquidation with the consent of the decree-holders and they had omitted to oppose the liquidation of the judgment-debtor and by this act and conduct the eventual remedy of the sureties against the judgment-debtor had been impaired.
The Court below repelled that contention firstly on the ground that the decree-holders were not bound to contest the application of the Company and in the absence of collusion or fraud which had not been alleged or proved on the part of the decree-holders the sureties could not successfully contend that there had been any impairment of their eventual remedy and secondly, the Court accepted the view that the provisions of Secs. 133 to 139 of the Indian Contract Act could not be made applicable to cases where a surety bond had been executed in favour of the Court. Such a view was taken in Madan Lal Moti Lal v. Radhakishan Laxminarain, AIR 1935 Nag. 258, and Jang Bahadur Singh v. Basdeo Singh, AIR 1936 All 549.
The point that has now been raised before me about the impairment of the remedies of the sureties by withdrawal of the first suit is mentioned very briefly in the judgment of the lower Court but it is not possible to say that the aforesaid contention had been abandoned and that it is not open to the sureties to press before this Court that the Court below was in error in following the Nagpur and Allahabad authorities.
(5) The view which was adopted by the Court below as regards the applicability of the relevant provisions of the Indian contract Act to such bonds is opposed to a decision of a Division Bench of the Lahore High Court consisting of Harries C. J. and Abdur Rehman J. in Pirthi Singh v. Ram Charan, AIR 1944 Lah 428. According to this decision the principles underlying Secs. 133 to 141 of the Indian Contract Act apply to surety bonds executed in favour of courts under the Code of Civil Procedure, although the sections are themselves not applicable.
The view that has been expressed is that such a surety bond may not literally fall within the definition of a contract of guarantee but the existence of a contract is not sine qua non for the application of the principles of equity on which the aforesaid sections of the Contract Act are themselves based. The party for whose benefit such a bond is given has no right to act in a manner that may be detrimental to the surety on which may impair his right to any extent without his consent. In Parvatibai v. Vinayak Balvant. AIR 1939 Bom. 23, the principles underlying the aforesaid sections of the Contract Act were held to apply in such case. The Court below was in error in considering that in the Lahore case mentioned above the surety bond had not been given to the Court. In the first place even if the Lahore view were to be followed, it cannot be of any avail to the appellants.
The objection in the form in which it has been raised, namely, the alleged detriment or impairment as a result of the withdrawal of the first suit, found no place in the objections which had been filed by the appellants. The argument in the Court below has centred more on what happened in the proceedings relating to the winding up of the Company. The mere fact that the first suit was withdrawn could not possibly have the effect that has been attributed to it on behalf of the appellants because a decree had been granted in the second suit contemporaneously. It is significant that the first suit was not withdrawn earlier but was withdrawn on the same date when the section suit was decreed.
The first suit had become almost infructuous after a decree had been made in the second suit as the former related more or less to interim mattes. Moreover, the appellants had executed the surety bond separately in both the suits and nothing had been done in the second suit which had the effect of any detriment or impairment to the rights of the sureties so far as that litigation was concerned and it is the decree passed in that suit which is being executed now. There is also substance in the objection raised on behalf of the decree-holder firm that the absence of a specified objection of the nature that has now been pressed has led to a great deal of prejudice so far as the decree-holder firm is concerned because evidence could have been led and other facts and circumstances proved that the withdrawal of the first suit had no such detrimental effect as has been attributed to it by the appellants if the objection has been raised before the Court below.
(6) Mr. Gurbachan Singh did not seriously press the objection based on the conduct of the decree-holder firm in the proceedings relating to the winding up of the Company but the same was raised more pointedly by the learned counsel for the appellant in the other appeal (E.F.A. 19-D of 1956). The Court below has mentioned the fact that the Company was not able to pay the debts as is clear from Exhibit R. 3 who had seen the accounts of the Company in the presence of Shri Amrit Lal Patni, Advocate of the Company and had satisfied himself that it was not able to pay the debts. The other creditors were Income-tax Department and Sales Tax Department and the petition was not contested by them. Under these circumstances the Court below was justified in that it would have been futile on the part of the decree-holder firm to have contested the application of the Company for winding up.
(7) In the result, both the appeals fail and are dismissed, but keeping in view the entire circumstances the parties are left to bear their own costs throughout.
(8) Appeals dismissed.