Skip to content


Hiralal Chhotalal Shah Vs. Centeral Bank of India and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtGujarat High Court
Decided On
Judge
Reported in(1981)22GLR846
AppellantHiralal Chhotalal Shah
RespondentCenteral Bank of India and anr.
Cases ReferredS. Chattanathe Karyalar v. The Central Bank of India Ltd. and Ors A.I.R.
Excerpt:
- - 2 as well: 2 had accepted his position as the principal debtor and as per the terms of the surety bond, he would be liable to make good the suit amount as the payments made by the co-debtor-defendant no. it is clear that surety may effectively keep alive his liability by his own act without in any way affecting the plea of limitation in favour of the principal debtor. where the debt is sought to be recovered both against the principal debtor as well as the surety, the acknowledgement by the surety does not save the period of limitation as against the principal debtor. 15. the aforesaid decisions clearly take the view that in case of part payment or acknowledgement by the principal debtor of his liability qua the creditor within the period of limitation, the period of limitation for.....s.b. majmudar, j.1. this appeal is filed by original defendant no. 2 in regular civil suit no. 1552 of 1971 filed in the court of the 3rd joint civil judge (junior division) surat by respondent no. 1 bank for recovering an amount of rs. 4337-48 paise against appellant-defendant no. 2 as well: as respondent no. 2 original defendant no. 1.2. the trial court decreed the suit against respondent no. 2 but dismissed it against the appellant-defendant no. 2. the appellate court allowed the appeal of respondent no. 1 plaintiff bank and also passed a decree against the present appellant-original defendant no. 2. that has brought dissatisfied defendant no. 2 to this court by way of the present second appeal.3. now, a look at a few relevant facts. respondent no. 1 is a banking company registered.....
Judgment:

S.B. Majmudar, J.

1. This appeal is filed by original defendant No. 2 in regular civil suit No. 1552 of 1971 filed in the court of the 3rd Joint Civil Judge (Junior Division) Surat by respondent No. 1 Bank for recovering an amount of Rs. 4337-48 paise against appellant-defendant No. 2 as well: as respondent No. 2 original defendant No. 1.

2. The trial court decreed the suit against respondent No. 2 but dismissed it against the appellant-defendant No. 2. The appellate court allowed the appeal of respondent No. 1 plaintiff bank and also passed a decree against the present appellant-original defendant No. 2. That has brought dissatisfied defendant No. 2 to this Court by way of the present second appeal.

3. Now, a look at a few relevant facts. Respondent No. 1 is a Banking company registered under the Banking Companies Act, 1913 and it is transferred under the Acquisition and Transfer of Undertakings Act, 1969 and it is functioning in the name of Central Bank of India. Respondent No. 1 bank filed the aforesaid suit on a promissory note against respondent No. 2 original defendant No. 1 as the principal debtor and the present appellant-defendant No. 2 as a surety. It is the case of the plaintiff-bank that defendant No. 1 had borrowed an amount of Rs. 5,000/- on 19th September 1968 from the plaintiff bank by opening an account and the present appellant-defendant No. 2 had stood surety and guarantee for defendant No. 1 and both the defendants had executed a promissory note for Rs. 5,000/- on 19th September 1968. Defendant No. 1 paid some amount and after giving credit for the said amount, an amount of Rs. 4,337-48 was found outstanding from defendant No. 1 in 1971. As the said defendant had not paid the said amount, the plaintiff bank served the said defendant with a notice on 27th September 1971. Defendant No. 1 acknowledged the debt by his letter dated 10th October 1971. As the amount was ultimately not paid up by the defendants, the plaintiff-bank filed the aforesaid suit for recovery of Rs. 4,337-48 from both the defendants with running interest at 12% per annum.

4. Original defendant No. 1-the principal debtor though duly served did not appear and the suit was heard ex-parte against him. So far as the present appellant is concerned, he appeared and filed his written statement at Ex. 10 and denied execution of the promissory note and also denied acknowledgement of the debt and contended that defendant No. 2 had not borrowed any amount from the bank and it was further contended that the averments made by defendant No. I in reply to the suit notice were not binding on defendant No. 2 and that the plaintiff had no right to file the present suit against him and it was barred by limitation.

5. The trial court raised issues at Ex. 13 and came to the conclusion after recording evidence, that the execution of the promissory note on 19th September 1968 by defendant No. 1 was duly proved and that defendant No. 2 has stood surety for the amount of the promissory note borrowed by defendant No. 1. On the question of limitation, the court took the view that the suit was within limitation only against defendant No. 1 and held that acknowledgement made by defendant No. 1 was not binding on defendant No. 2 nor was the period of limitation against defendant No. 2 extended by various part-payments of the loan amount made by defendant No. 1. It was, therefore, held that the suit against defendant No. 2 was barred by limitation. The result was that the suit of the bank against defendant No. 2 was dismissed while it was decreed against defendant No. 1.

6. The trial court's decree resulted into an appeal at the instance of the plaintiff-bank before the District court, Surat. The bank contended in its appeal before the District court that the trial court ought to have passed a decree against surety-defendant No. 2 also. So far as original defendant No. 1 was concerned, he did not challenge the decree passed against him by the trial court and it became final against him.

7. The appellate court took the view that looking to the terms of the surety bond Ex. 43, defendant No. 2 had accepted his position as the principal debtor and as per the terms of the surety bond, he would be liable to make good the suit amount as the payments made by the co-debtor-defendant No. 1 would extend the period of limitation against defendant No. 2 also. In the view of the matter, the learned appellate Judge allowed the bank's appeal and passed an additional decree against defendant No. 2, the present appellant-also. As stated earlier, that has brought dissatisfied defendant No. 2 to this Court by way of the present second appeal.

8. It is apparent that now the dispute centres round the plaintiff-bank on one hand and the surety-defendant No. 2 on the other. The bank's decree against defendant No. 1 principal debtor has become final and the principal debtor's liability is, therefore, no longer in controversy at the present stage.

9. Mr. Shethna, the learned Advocate appearing for the appellant-defendant No. 2 contended that the appellate court had committed an error of law when it held that the suit was not barred against defendant No. 2 who was a surety. Mr. Shethna contended that even though as per the surety bond, Ex. 43, the surety had accepted his liability to be treated as a co-promissor and joint debtor, even then, as per Section 20 of the Limitation Act, 1963, part payment of the joint debt or any acknowledgement by a co-debtor cannot extend the period of limitation against non-paying or non-acknowledging co-debtor or co-promissor. Mr. Sheth relying upon two Division Bench judgments of the Bombay High Court and other decisions of other High courts, contended that part-payment or acknowledgement by the principal debtor cannot extend period of limitation against the surety and the suit against the surety was obviously barred by limitation.

10. Mr. C.M. Trivedi, learned Advocate appearing for respondent No. 1-bank on the other hand contended that even though there may be distinct contracts between the creditor and the principal debtor on one hand and the creditor and the surety on the other, the debt itself was only one; that if the surety can take the advantage of the part-payment made by the principal debtor to the creditor to reduce his liability, in equity and fairness, the surety would equally be liable for the extension of limitation brought about by the very fact of part-payment of the debt by the principal debtor which itself results in extention of limitation so far as the creditor's right to sue the principal debtor on the loan amount was concerned. In short, the submission on behalf of the plaintiff-bank was that the surety cannot blow hot and cold. If he takes the advantage of part payment by the principal debtor for the purpose of reduction of the total liability and as the liability of the surety was co-extensive with that of the principal debtor as per Section 128 of the contract Act, it would stand to reason that whatever liability the part-payment brought in its wake must also be visited on the surety. In order to support his contention, Mr. Trivedi has also invited my attention to a series of judgments to which I will make reference at a later stage. Mr. Trivedi, therefore, submitted that the decree as passed by the lower appellate court did not deserve any interference.

11. As stated above, the rival contentions of the learned Advocates for both the sides raise a short question about limitation and the question lies in a very narrow compass in the background of the admitted facts. The promissory note in question was executed on 19th September 1968 and on that very day, the surety bond was executed by the present appellant. The principal debtor-original defendant No. 1 went on making various part-payments towards the promissory note dues upto 2nd June 1970. Thus, by virtue of Section 19 of the Indian Limitation Act, 1963, so far as the principal debtor or concerned, the creditor's remedy against him to enforce the balance of the loan amount would get extended upto a period of three years more from 2-6-1970 while the suit has been filed on 10-10-1971. Thus, on the date of the suit, the remedy of the creditor against the principal debtor to enforce the promissory note dues was quite alive as it had gone extended by various part-payments of the loan amount by the principal debtor. The only short question is whether such extension of limitation for enforcing the creditor's remedy against the principal debtor was also available against the surety-present appellant when he himself had not made any part-payments towards the suit dues nor had he made any acknowledgement himself nor had he authorised the principal debtor-defendant No. 1 to make any part-payment or acknowledgement on his behalf. It is further an admitted fact that on 10-10-1971, in reply to the suit notice, defendant No. 1 - original principal debtor also made acknowledgement of his subsisting liability to pay the balance of the dues under the said promissory note. In the background of these proved and admitted facts, the short question which has been posed for my consideration has to be answered, as to whether the part-payment and acknowledgement of liability on the part of the principal debtor qua creditor would extend the period of limitation for enforcement of the creditor's remedy also against the surety-present appellant, when the present appellant has made no such acknowledgement or part-payment nor had he authorised the principal debtor to do so on his behalf.

12. Mr. Shethna, learned Advocate for the appellant has invited my attention to a Division Bench judgment of the Bombay High Court in Gopal Daji Sathe v. Gopal bin Sonu and Ors. 5 B.L.R. 1020. The Division Bench of the Bombay High Court consisting of Lawrence Jenkins, C.J. and Aston, J. in terms considered the very question which has been posed for my consideration in the present proceedings, The question before the Division bench was whether payment of interest by the debtor within limitation does not give a fresh starting point of limitation against the surety under Section 20 of the Limitation Act, 1877 which is equivalent to Section 19 of the present Act of 1963. The Division Bench speaking through Jenkins, C.J. in this connection observed:

In the absence of a prohibition by the surety against the payment of interest by the debtor on his account, the payment of interest by the debtor within limitation does not give a fresh starting point for limitation against the surety also under Section 20 of the Limitation Act, 1977.

Analysing the nature of surety's liability, it was observed in the aforesaid decision that surety's liability was a distinct liability as defined by Section 126 of the Contract Act. Thus, there were two liabilities in two different persons. One was the liability of the principal debtor and another that of the surety. Having considered this position, a question was posed by the learned C.J. as to how then can the payment of interest by the principal debtor create a new period of limitation for the surety's debt? Analysing the provisions of Section 20 of the Limitation Act, 1887, it was observed that as per the said section, the principal is not the person liable to pay the debt of the surety: so that even if the payment of interest could be regarded as a payment of interest on the debt of the surety, still it was not made by a person liable to pay the surety's debt A further question was posed. Can it then be said that there was a payment of interest on the surety's debt by an agent duly authorised in this behalf? In this connection, it was observed that apart from the difficulty of treating the interest as due on the surety's debt, they thought, this question must be answered in the negative. It was further observed that the question propounded in the reference excluded an express authority and the relation of principal and surety does not give rise to any implied authority. The Division Beach further observed that it was no doubt provided by Section 128 of the Contract Act that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract but that section must be read together with the Limitation Act, and not so as to nullify the provision in that Act contained, limiting the time within which a suit must be brought after the accrual of a cause of action. It was accordingly held that payment of interest by the debtor within limitation did not give a fresh starting point of limitation against the surety. The aforesaid decision of the Bombay High Court was followed by a later Division Bench judgment of the Bombay High Court in Raghavendra Gururao Naik v. Mahipat Krishna Shollapur A.I.R. 1926 Bom. 244. In that decision another bench of the Bombay High Court consisting of L.A. Shah, Acting C.J. and Kincaid, J., referred with approval, the decision of the Bombay High Court in Gopal Daji's case (supra) and also a decision of the Calcutta High Court which had followed that decision, and observed as under:

Further it has been held by this Court in Gopal Daji v. Gopal bin Sonu that the payment of interest by the debtor within limitation does not give a fresh starting point for limitation against the surety. Having regard to the ratio decidendi of this case, and that of Brajendra Kishore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. it is clear that surety may effectively keep alive his liability by his own act without in any way affecting the plea of limitation in favour of the principal debtor. According to these two cases, the principal debtor and the surety can each keep his liability alive, though the remedy of the creditor may be barred as against the other on account of limitation.

The aforesaid two Division Bench judgments of the Bombay High Court which are directly on the point are binding on me and they squarely cover the controversy posed for my consideration. Mr. Shethna also invited my attention to a decision of the Calcutta High Court in Brajendra Kishore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. I.L.R. 44 Cal. 978, which has referred, with approval, by the earlier judgment of the Bombay High Court in Gopal Daji's case (supra) Sanderson, C.J. in the aforesaid Calcutta case, speaking for the Division Bench held as under:

That the fresh period of limitation created under Section 20 of the Limitation Act by the payment of interest by the principal debtor could be only in respect of the debt upon which the interest was paid, viz. the debt of the principal debtor. The fact that the interest was paid with the knowledge and consent of the surety and even at his request made no difference, unless the circumstances could be said to render the payment one on behalf of the surety.

Mookerjee, J. concurring with the above view, observed :

Though the liabilities of the debtor and the surety arise out of the same transaction, the liabilities of the two persons are distinct for the purposes of the application of Section 20 of the Limitation Act.

Mookerjee, J. in terms relied upon the decision of the Bombay High Court in Gopal Daji s case (supra). It was further observed:

The surety, under the terms of the contract, is either jointly or separately liable, along with the principal debtor; if the debts are deemed joint, Section 21(2) of the Limitation Act shows that the payment by one of (hem (the debtor) does not extend the time; on the other hand, if the debts are deemed distinct, the same result follows upon a true construction of Section, 20 itself. Section 128 of the Contract Act, which makes the liability of the surety co-extensive with that of the principal debtor is of no assistance to the plaintiff, as it must be read along with the provisions of the Limitation Act; it defines the measure of the liability and has no reference to the extinction of liability by operation of the Statute of Limitation.

It was further observed:

A payment of one person cannot keep alive the remedy against another unless the circumstances are such that payment by the one may be regarded as a payment for the others. There is nothing in the relation of principal and surety itself which makes payment by the principal binding as a payment by the surety.

As I have already stated above, the aforesaid Calcutta decision in Brqjendra Kishore's case (supra) has been referred to, with approval, by the later Division Bench judgment of the Bombay High Court in Raghvendra Gurudeo's case (supra).

13. Mr. Shethna also invited my attention to a judgment of the Punjab High Court in Hazard Singh Gujjar Singh v. Bakhshish Singh Mula Singh and Anr. A.I.R. 1942, Pun. 495, where a learned Single Judge following the aforesaid Bombay decisions and other decisions on the point, took the view that under Section 19, the acknowledgement has to be by a party or person against whom the right is claimed. Where the debt is sought to be recovered both against the principal debtor as well as the surety, the acknowledgement by the surety does not save the period of limitation as against the principal debtor. The right will only be saved qua the surety and not qua the principal debtor by whom there is no acknowledgement.

14. My attention was also invited to a Patna High Court judgment by Mr. Shethna, In Baikunth Naraln Mishra v. Mt. Kesar Kali Kuer and Anr. : AIR1969Pat160 , a learned Single Judge of the Patna High Court having considered the provisions of Sections 18 and 21 of the Limitation Act, took the view that acknowledgement by one of two joint executors of a promissory note will save the limitation against him only and not against other joint executor of the promissory note.

15. The aforesaid decisions clearly take the view that in case of part payment or acknowledgement by the principal debtor of his liability qua the creditor within the period of limitation, the period of limitation for enforcing the dues of the creditor against the principal debtor gets extended qua the principal debtor only but not against the surety in absence of the surety's own acknowledgement or part-payment or it being shown that the acknowledgement or part-payment by the principal debtor was made by the principal debtor as authorised agent of the surety.

16. But Mr. Trivedi, learned Advocate appearing for respondent No. 1-Bank, however, invited my attention to a series of judgments which, according to him, were taking a contrary view. Mr. Trivedi mainly placed reliance for the purpose of his arguments, on a decision of a learned Single Judge of the Calcutta High Court in Ranjit Kumar Roy and Anr. v. Kabiraj Kisori Mohan Gupta and Anr. : AIR1940Cal401 . The learned Single Judge of the Calcutta High Court in the aforesaid decision did take a view which Mr. Trivedi is contending for the plaintiff-bank. Lort-Williams, J. in the said case held as under:

In case of principal and surety, there are two distinct contracts in respect of one debt common to both. There cannot be two distinct debts, otherwise payments on account of principal or interest by the principal would not ipso facto, reduce the debt due by the surety and vice versa, as they do. Hence, payments of principal or interest by either principal or surety and acknowledgements in accordance with the provisions of the section create a fresh period of limitation in respect of the common debt as against either the principal or (he surety. The expression 'fresh period of limitation' is in general terms, and there is nothing in the section to indicate that the new period of limitation is only to operate against the person making the payment.

It was further observed:

The principal or the surety is authorised by the other, by implication, to make payments on account of the common debt, and in the manner provided by the section. The object and intention of the arrangement made by the principal and surety is that the principal shall pay the debt and thus reduce or cancel the surety's liability, and the surety must be taken to be aware of the provisions of the section and the effect of payments made in accordance therewith.

With reference to Section 21(2), the learned Single Judge observed that principals and sureties are not to be regarded as joint contractors within the meaning of Section 21(2).

17. It is of course true that the aforesaid decision in Ranjit Kumar Roy's case (supra) takes a view contrary to the view of the Bombay High Court which is reflected by the aforesaid two Division Bench judgments. But as I have stated above, as the aforesaid two judgments of the Bombay High Court were rendered prior to the bifurcation of the bigger Bombay State and setting up of this High Court in 1960, these Bombay High Court judgments are binding on me and I cannot follow the decision of a learned Single Judge of the Calcutta High Court in preference to the Division Bench judgments of the Bombay High Court which took a contrary view.

18. Mr. Trivedi also invited my attention to a Division Bench judgment of the Calcutta High Court in Domi Lal Sahu v. Roshan Dobay I.L.R. 33 Cal. 1278 which had an occasion to interprete Section 20 of the Limitation Act, 1877. In the view of the Division Bench of the Calcutta High Court the words of Section 20 of the Limitation Act are general and there is nothing in it to indicate that the new period of limitation created by it is only to operate against the person making the payment. It must be stated that the facts of the case before the Calcutta High Court in Domi Lal's case (supra) were entirely different and the question which has been posed for my consideration had not arisen for decision in that case. The question before the Division Bench was whether payment by predecessor-in-title of the party can be pressed into service against the successor-in-interest of the payer for the purpose of extending period of limitation under Section 20 of the Act. The Calcutta High Court answered the question in the affirmative and it was observed:

Where a payment of part of the principal is made by a mortgagor, who was at the time liable for the debt, and the fact of the payment appears in his handwriting, the new period of limitation created by the section would also take effect as against the purchaser before the payment was made, of the equity of redemption in the mortgaged property under a money decree made against the mortgagor, whether the purchase was of the whole or only of part of such property.

Thus, strictly speaking, the aforesaid Calcutta decision will not be relevant for deciding the present controversy.

19. Mr. Trivedi then draw my attention to a decision of the Kerala High Court in Popular Bank Ltd. v. The United Coir Factories I.L.R. 1961 Kerala 493. Raman Nayar, J. had the occasion to consider the question whether acknowledgement of the liability by the principal debtor extended the period of limitation against the guarantor also in case of a continuing guarantee. In that connection, it was observed by Raman Nayar, J. as under:

In respect of any debt incurred by the principal during the currency of the guarantee, the surety is liable so long as the debt is recoverable from principal. It does not matter that the principal has kept the debt alive by acknowledgements under Section 9 of the Limitation Act or by payments under Section 20, for, by these acts, there is no renewal of the debt, and no new debt created which is not covered by the guarantee. The debt remains the same, namely, the debt guaranteed; only the bar of time against recovery is postponed Section 21(2) of the Limitation Act has no bearing, for a mere surety is not a joint contractor. His is a separate and collateral contract for the purpose of ensuring tint the principal keeps his contract.

The aforesaid decision of the Kerala High Court is in line with the decision of the learned Single Judge of the Calcutta High Court in Ranjit Kumar's case (supra).

20. Mr. Trivedi also invited my attention to the decision of another Division Bench of the Calcutta High Court in Gana Nath Sen v. Ranjit Ray I.L.R. 1942 Cal. 11, wherein, the Calcutta High Court on the peculiar terms of the surety bond in that case, took the view that the guarantee in that case was to remain in force until the debt due was fully and finally adjusted and was not to be affected by any forbearance or arrangement for giving time or o her facilities to the principal debtor. In the light of these terms, it was held that the principal debtor when he made payment from time to lira 3 and when the debt was not barred against him when the suit was brought by the creditor against the surety, the period of limitation against of the surety was also extended by reason of the payments by the principal. As stated above, in Gana Nath's case (supra) the Calcutta High Court placed strong reliance on the peculiar nature of the surety bond which ran as under:

This guarantee will remain in force until the debt due is fully and finally adjusted.

The Calcutta High Court interpreted these terms as evidencing a continuing guarantee and it is because of these peculiar terms as found in the surety bond that the Calcutta High Court came to the aforesaid conclusion in favour of the creditor.

21. These were the main judgments on which Mr. Trivedi placed strong reliance on behalf of the respondent-bank. But he also pressed in service two decisions of the Supreme Court, though they were directly not on the point.

22. Mr. Trivedi invited my attention to a decision of the Supreme Court in Punjab National Bank Ltd. v. Sri Bikram Cotton Mills Ltd. and Anr. : [1970]2SCR462 , In that decision, the Supreme Court had an occasion to consider the nature of the contracts of indemnity and guarantee. The Supreme Court observed:

A promise to be primarily and independently liable for another person's conduct may amount to a contract of indemnity. A contract of guarantee requires concurrence of three persons the principal debtor, the surety and the creditor.

It was further observed:

The liability of the surety under Section 128, Contract Act is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. It is therefore necessary to consider whether in the terms of the bond there is anything which shows that the liability of the surety is not co-extensive with that of the principal debtor.

The Supreme Court in the aforesaid decision had to consider the terms of the suretyship agreement under which the Managing Director or the Managing Agent of the Company in his individual capacity executed a bond called an agreement of guarantee, reciting that he, the managing director, guaranteed to the bank, payment on demand of all monies which may at any time be due to the Bank from the company on the general balance of that account with the bank. The Supreme Court interpreted the said terms as creating contract of continuing guarantee and observed:

The guarantee was to be a continuing guarantee for the ultimate balance which shall remain due to the bank on such cash credit account.

It is pertinent to note that the question which has been posed for my consideration had not arisen before the Supreme court for its decision. Under these circumstances, the observations of the Supreme Court on the nature of indemnity and guarantee contracts can be of no real assistance to Mr. Trivedi.

23. Mr. Trivedi also invited my attention to another decision of the Supreme Court in S. Chattanathe Karyalar v. The Central Bank of India Ltd. and Ors A.I.R. 1965 S.C. 1856, where it has been observed by the Supreme Court that where a transaction between the same parties is contained in more then one document; they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document. While interpreting the language of the promissory note in the context of the other two documents, it was manifest that the status of 'B' with regard to the transaction was that of a surety and not of a co-obligant. The above decision of the Supreme Court cannot be of any assistance to Mr. Trivedi so far as the present controversy is concerned as the question posed in the present proceedings did not arise for cons ideration in this decision of the Supreme Court to which attention was invited by Mr. Trivedi. Thus, the aforesaid two decisions of the Supreme Court cannot render any help to Mr. Trivedi.

24. The net effect of the aforesaid discussion is that so far as this Court is concerned, there are two binding judgments of the Division Benchs of the Bombay High Court taking a view in favour of the appellant. It is true that the learned Single Judges of the Kerala High Court and the Calcutta High Court have taken a contrary view. However, as earlier Division Bench of the Calcutta High Court in Brajendra Kishore's case (supra) following the Bombay decision in Gopul Dajis case (supra) had fallen in line with the Bombay view. I cannot prefer these contrary views in preference to that reflected by the binding Division Bench judgments of the Bombay High Court. Even otherwise, these contrary views in ray opinion are fraught with inherent dangers and pitfalls and hence are not preferable. In a contract of guarantee, the surety accepts his liability taking into consideration all the relevant facts as they exist at the time when the surety gives his guarantee. Subsequently if the liability of the principal debtor is to be extended over a longer period for any reason, unless the surety has expressly consented to be bound by grant of such extension or has exhibited an unequivocal conduct to be so bound, he could not be held liable as a surety for the extended liability of the principal debtor. Otherwise, lot of mischief may accrue. Take for example, a case where the principal debtor is on the brink of insolvency. The creditor having known this, may persuade the principal debtor, behind the back of the surety to pay a small amount of debt say Rs. 10/-within limitation with the ultimate view to rope in the surety for the entire balance. The principal debtor who is practically insolvent may not mind paying this small amount as he has nothing to lose thereby while it may result in creating a very heavy liability for the surety who may be in affluent circumstances and who may be totally ignorant of the subterfuge resorted to by the creditor and principal debtor behind his back or without his consent. This result would naturally be inequitable and unjust. The view taken by the Bombay decisions insulates against such unjust results which may otherwise detract persons from being sureties and may elbow out these good sureties who agree to be sureties for saving financial embarrassments of others with whom but for the support extended by these reliable sureties, the creditors are not prepared to deal directly. Thus, even from the point of view of equity and justness, the contrary view as propounded by the Kerala and Calcutta High Courts is not acceptable.

25. It must be stated at this stage that the appellate court took the view against the present appellant inspite of the fact that the Division Bench judgment of the Bombay High Court was cited before it, solely on account of the recitals in the surety-bond, Ex, 43. The relevant recitals in the surety bond Ex. 43 read as under:

I hereby bind myself to repay the ultimate balance that may be due to you in the said account as the principal debtor and whatever arrangement you make without my knowledge or consent with my co-debtor shall be binding on me and I shall not be exonerated by giving the time to my co-debtor or the neglect or forbearance of the bank in requiring or enforcing payment of the principal moneys and interest or any part thereof or any variation in terms of the arrangement and I hereby undertake that I would be liable and responsible to you as principal debtor in the said loan account even though the said account is opened by you in the name of my co-debtor at my request for the sake of convenience and that I shall be debarred from raising the contention that I signed the promissory note merely as a surety and ordinary rules relating to suretyship and guarantee will not apply to me and under no circumstances I shall be discharged from the liability by any arrangement you may enter into without my knowledge or consent with my co-debtor.

The aforesaid recitals at the highest show that the appellant-surety agreed to be treated as a joint-debtor alongwith the principal debtor. But even then, the part-payment or acknowledgement of liability by one of the joint debtors viz. defendant No. 1 cannot ipso facto extend the period of limitation against the present appeallant who may be treated to be at the highest, a Joint debtor on account of the recitals in the surety bond Ex.43 Section 20(2) of the Limitation Act in terms states:

Nothing in the said sections rendered one of several joint contractors, partners, executors or mortgages chargeable by reason only of a written acknowledgement singed by, or of a payment made by, or by the agent of, any other or others of them.

Consequently, even if the recitals in the surety bond,Ex.43 elevate the present surety to the status of a joint promisor, even then, in the light of Section 20(2) of the Limitation Act, the decision has got to be against respondent No, 1 bank, for the simple reason that even if defendant No. 1 might have acknowledged or partly paid the dues of the bank, the said acknowledgement or part-payment will not extend the period of limitation against defendant No. 1- the present applellant. Under these appellant has got to succeed.

26. The appeal is accordingly allowed. The Judgment and decree passed by the learned Appellat Judge are set aside and instead, the decree of the trial court is restored.

27. In view of the facts and circumstances of the present case and as respondent-Bank loses only on the technical plea of limitation, proper order as to costs is that there shall be no order as to costs of this appeal.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //