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M.E. Abdul Rahiman Vs. Deputy Tahsildar, Kerala State Financial Enterprises Limited and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKerala High Court
Decided On
Case NumberO.P. No. 35809 of 2000-K
Judge
Reported in[2001]107CompCas306(Ker)
ActsIndian Contract Act, 1872 - Sections 134
AppellantM.E. Abdul Rahiman
RespondentDeputy Tahsildar, Kerala State Financial Enterprises Limited and ors.
Appellant Advocate Pulikool Abubacker and; Rafeek Chennera, Advs.
Respondent Advocate M.L. Sajeevan, Adv.
Cases Referred(Kanhai v. Sukannan
Excerpt:
- - it is complained that the second respondent is in error in not proceeding against the principal-debtor. it is the very same obligation, and it cannot be contended that the liability is secondary, and only on the failure of the principal-debtor recourse could be had against him. as the petitioner is not in good terms with the fourth respondent, he may also be advised of the result of such enquiry, if he is put to further disability for having once signed papers as a surety......position as arising in the case at hand, it could be stated that the petitioner who agreed to be a surety, agreed to be liable for the obligations of the principal-debtor. it is the very same obligation, and it cannot be contended that the liability is secondary, and only on the failure of the principal-debtor recourse could be had against him. it could generally be stated that the willingness once expressed encompasses all accessorial obligations. it is primary and direct and a plea that the creditor has to make a demand from him as a last resort may not be sustainable in law. in a commercial transaction, the liability of a surety is totally different from the responsibility as undertaken to be discharged by a guarantor, or insurer. 7. it could generally be stated that the liability of.....
Judgment:

M. Ramachandran, J.

1. The Kerala State Financial Enterprises Limited, the second respondent herein, had opted to proceed against the petitioner, a surety, in respect of the defaults of the fourth respondent, who was principally responsible for repayments after prizing of a kuri. Revenue recovery proceedings initiated against the petitioner are subjected to challenge in this original petition.

2. I had also heard standing counsel appearing for the Financial Enterprises. The naive and rustic submission of the petitioner is that the fourth respondent is possessing sufficient funds but in spite of that the petitioner is subjected to troubles. It is complained that the second respondent is in error in not proceeding against the principal-debtor.

3. Advocate Pulikool Abubacker highlighted the factual points urged in the original petition. The fourth respondent and his wife were subscribers to chitties, had availed of the proceeds, and had executed all necessary documents for due performance of the contract, viz., payment of balance instalments. The petitioner had been close with their family, and had stood surety to oblige them, but later on there was estrangement between them, and the defaults were deliberately made, so as to discredit him, and to give him sleepless nights.

4. By exhibits P-1 and P-2, the petitioner has shown the substantial wealth of the defaulter. He is running a hotel, a shop and has three jeeps with him. He has a residential house worth a few lakhs, and all modern household articles for luxurious living. Compared with him, the petitioner hasnothing but only a residential house. Nevertheless, when demands came he had paid to his ability but a point has come whereunder his resources have absolutely dried up. By the representations, he had requested the Kerala State Financial Enterprises Limited to proceed against the principal-debtor. Counsel concluded that the surety cannot have any more responsibility than a principal-debtor, and the creditor should see that a surety is proceeded against only if it was found that the realisation of debt is impossible. He submitted that the surety was equivalent to a guarantor, or an insurer, and was answerable only to the due performance of the contract.

5. Mr. Sajeevan submitted that a surety for a kuri bond, who signed the agreement along with the subscriber is squarely and equally responsible for due performance, and the option rested with the Enterprises to proceed against any or both, as they deemed fit. It was admitted however that exhibits P-2 and P-2(a), being representations had been received by them.

6. On an examination of the legal position as arising in the case at hand, it could be stated that the petitioner who agreed to be a surety, agreed to be liable for the obligations of the principal-debtor. It is the very same obligation, and it cannot be contended that the liability is secondary, and only on the failure of the principal-debtor recourse could be had against him. It could generally be stated that the willingness once expressed encompasses all accessorial obligations. It is primary and direct and a plea that the creditor has to make a demand from him as a last resort may not be sustainable in law. In a commercial transaction, the liability of a surety is totally different from the responsibility as undertaken to be discharged by a guarantor, or insurer.

7. It could generally be stated that the liability of an insurer is secondary in nature. The arrangement is to take care of the disability or- liability that may be suffered by their client who is insured. The position of a guarantor in its essential nature also is similar to that of an insurer. It is also the common practice that the said two arrangements are brought about by separate transactions. That definitely cannot be equated with the contract that is drawn up as between a creditor, on the one hand, and a debtor and surety jointly on the other hand. What is, therefore, agreed to by the surety is not a guarantee for payment, but payment itself. The words surety and guarantee are not synonyms. Though both of them are expected to meet the obligations of a third person, the degree of involvement of a surety is far greater as he is directly responsible and indebted for the liability itself. The petitioner as surety has subscribed his signature on the very same instrument, for the selfsame consideration. The creditor is not expected to know what was the arrangement between the said persons who approached him, and how as between them they had agreed to discharge the liability arising out of the undertaking for repayment. If thepetitioner's argument is to be accepted, it may lead to a position that the creditor will have to travel from pillar to post, and the viability and security of the transaction and arrangement for proper repayment itself stands uncertain. What was essential was repayment itself, and not a guarantee for such payment. A surety therefore could be defined as one who is tied up by an obligation as between himself and another, and who by the instrument is required to perform the obligation agreed to be discharged by the latter, by the terms of the instrument. This essentially is not the same as guarantee as a guarantee could be undertaken either before or after the signing of the contract and it springs to operation when there is default in performance of the obligations. But the former is an unqualified undertaking for shouldering the liability to pay another's debt. Liability of a surety is always there, and it is neither conditional nor dependent on a contingency, but could be enforced in the event of a default. The liability is joint and several and enforcement squarely is at the option of the creditor.

8. Under Section 134 of the Indian Contract Act, a surety is not discharged when the principal-debtor is released by contract, or any act or omission of the creditor. However, the surety is not discharged where the creditor merely waives his right of action against the principal-debtor or where the agreement to discharge the principal-debtor contains a reservation of the creditor's rights against the surety (Kanhai v. Sukannan, ILR 14 Rangoon 594. Section 135 of the Act also refers to a discharge when there is a composition. Sections 136, 137 and 138 also speak about the continued liability of a surety.

9. Section 39 of the Negotiable Instruments Act also refers to the disabilities of a surety. When a holder of an accepted bill of exchange enters into a contract with the acceptor, under Section 134 or 135 of the Indian Contract Act, it would discharge the other parties. The holder may expressly reserve his right to charge the named parties and in such cases they are not discharged. The nominal release of the debtor subject to a reservation as to surety does not destroy the debt but operates only as a covenant not to sue the debtor, who however, remains liable to indemnify the surety (Pollock and Mulla, page 742-10th edition). Therefore, the liability of the surety is unextinguishable and, therefore, unenviable, and consequently he cannot have any grouse when the creditor comes in search of him.

10. The second respondent is conducting the chitty as authorised under the Kerala Chitties Act, 1975. Under Section 27, a prized subscriber has to give security for due payment of future subscriptions, and the details of sureties and security are given by subsidiary instructions. The petitioner has come to act as a surety in the above context. In view of notification issued under Section 72 of the Revenue Recovery Act, the dues that are payable to the second respondent could be recovered in the same manner as dues tobe collected as land revenue. Proceedings have been initiated against the petitioner in the aforesaid circumstances. The petitioner has a contention that there is an upper limit of 12 per cent. of interest that could be levied in respect of the defaulted amount, and the present claims work out to a much higher quantum. This could of course be enquired into when the matter is before the appropriate authority.

11. In the above circumstances, I may be justified only to the extent of directing the first respondent to take up and dispose of exhibit P-2 representation, if necessary, after hearing the petitioner. Till such time as orders are passed on exhibit P-2, recovery proceedings may not be initiated against the petitioner. Being an enterprise of the State Government, the first respondent has to have the confidence of the general public, and irrespective of the legal rights, it may be examined as to whether there were any special reasons not to proceed against the principal-debtor, who is stated to be in affluent circumstances. As the petitioner is not in good terms with the fourth respondent, he may also be advised of the result of such enquiry, if he is put to further disability for having once signed papers as a surety. Further proceedings may be taken only after advising him of the decision on exhibit P-2.

12. The original petition is disposed of with the above observations.


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