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District Board Vs. Rai Bahadur Chandra Ketu Narayan Singh - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1937Cal625,175Ind.Cas.929
AppellantDistrict Board
RespondentRai Bahadur Chandra Ketu Narayan Singh
Cases ReferredTweddle v. Atkinson
- .....gave the plaintiff a decree, but this was reversed by the district judge on the ground that the surety bond was not legally enforceable. plaintiff is the district board of malda; defendant 2, one fagu singh, as lessee of certain ferries under the board, owed it a sum of rs. 5,234. the board took out a certificate under the public demands recovery act (act 3 b.c. of 1913) for recovery of this sum, and in execution of the certificate, defendant 2 was arrested under section 29 of the act. a sum of rs. 2,200 was thereupon paid by him, and he was afterwards released by the certificate officer on defendant 1, rai bahadur chandra ketu narain singh, offering to stand surety for him for the balance still due under the certificate, viz. a sum of rs. 3,342. defendant 1 actually executed what has.....

Biswas, J.

1. This is an appeal from the decision of the District Judge of Rajshahi, dismissing a suit for recovery of money from a surety. The trial Court gave the plaintiff a decree, but this was reversed by the District Judge on the ground that the surety bond was not legally enforceable. Plaintiff is the District Board of Malda; Defendant 2, one Fagu Singh, as lessee of certain ferries under the Board, owed it a sum of Rs. 5,234. The Board took out a certificate under the Public Demands Recovery Act (Act 3 B.C. of 1913) for recovery of this sum, and in execution of the certificate, defendant 2 was arrested under Section 29 of the Act. A sum of Rs. 2,200 was thereupon paid by him, and he was afterwards released by the certificate officer on defendant 1, Rai Bahadur Chandra Ketu Narain Singh, offering to stand surety for him for the balance still due under the certificate, viz. a sum of Rs. 3,342. Defendant 1 actually executed what has been termed a security bond to the certificate officer at the time. As the decision of the case turns on this document, it may be set out in full:

To the certificate officer, Malda.

I, Chandra Ketu Narain Singh, son of late Babu Islok Singh, ferry farmer under the Malda District Board, do hereby agree to stand surety for the payment of the sum of Rupees three thousand three hundred forty two only, by Fagu Singh, judgment-debtor under arrest, to the decree-holder, Malda District Board. I hereby agree to produce the said judgment-debtor on the date fixed, failing which I shall pay the said sum of Rupees three thousand three hundred forty-two, which may be realised from me by certificate in case of default. Executed in presence of Chairman, District Board, Babu Upendra Nath Moitra, Pleader.

Sd. Chandra Ketu Narain Singh.

2. The agreement is in the nature of a contract of guarantee under Section 126, Contract Act. At the time it was filed, it was not stamped as such but it appears that the requisite stamp duty with penalty was afterwards realised. Defendant 1 failed to produce defendant 2 before the certificate officer on the due date. A distress warrant was thereupon issued against defendant 1. This was returned unserved, but he submitted a petition addressed to the certificate officer through the District Board, in which he asked for further steps to be taken against the principal debtor, adding an assurance in these terms: 'I assure you, if the Board's money will not be realized in the long run, I shall pay it up on any action you like to take against me afterwards'. Further proceedings under the Act were accordingly taken against defendant 2, but without any result. The District Board then sought to execute the certificate again against defendant 1, presumably on the principle embodied in Section 145, Civil P.C., 1908, but defendant 1 objected. The objection was overruled by the certificate officer, but on appeal the Collector felt bound to give effect to it, holding that under the Act the certificate officer had no power to accept a surety or to proceed against him. The District Board was consequently obliged to bring the present suit, claiming to recover the sum of Rs. 3,342 plus Rs. 200 as damages.

3. Both defendants filed written statements, but the claim was directed mainly against defendant 1, and he stoutly contested the suit, the other defendant having been adjudicated an insolvent. Defendant 1 tried to show that he had executed the security bond on a misrepresentation of facts, but both Courts found against him on this point. He is now left with the plea that the bond is not legally enforceable, and that in any case the plaintiff cannot enforce it. This plea was rejected by the trial Court, but found favour with the learned District Judge. The appellant before us sought to avoid the difficulty by suggesting that the suit was not based on the bond, but on a prior oral agreement between the parties concerned, the document being no more than a report to the certificate officer bringing the fact of such agreement to his notice. We are unable to take this view, and do not think the appellant can be allowed to make such a case. The suit had throughout proceeded as a suit on the bond and must be disposed of on that basis. The main ground of attack on the bond rests on the circumstance that it was given to the certificate officer, and not to the plaintiff. It is said that this is a bond which the certificate officer has no power under the law to require or take, and hence is not legally enforceable: that in any case the plaintiff being no party to it, he cannot enforce it: Tweddle v. Atkinson (1861) 1 B & S 393.

4. It cannot be disputed that a security bond which a Court is authorized by law to take or require may be, and usually is, given to the Court. See, for instance, the forms given in the Code of Civil Procedure, 1908, Appendix F, Nos. 2, 6 and 10: the first two are to the Court, and the last to an officer of the Court or his successor in office. It seems to be further clear that such bonds, though given to the Court, being really for the benefit of the creditor, may be enforced at his instance by the ordinary process of the Court. Section 145 of the Code indeed contains express provision for enforcement of such bonds by way of execution of the decree or order against the surety. Reference may be made in this connexion to Basant Lal v. Chheddu Singh (1912) 39 Cal 1048, where the judgment-debtor brought under arrest was released under Section 55(4), Civil P. C, on a surety making a cash deposit by way of security for his production in, Court when called upon. The surety failed to produce him, and thereupon the decree-holder applied under Section 145, Civil P. C, that the security money might be paid to him. The Court ordered the money to be forfeited to Government, and not to the decree-holder. On appeal to this Court, this order was set aside by Jenkins, C.J., holding that the money had been deposited for the benefit of the creditor and must be paid to him accordingly, though it may be added there was no agreement for payment to the creditor.

5. There is authority to show that the remedy under Section 145, Civil P. C, is not exclusive, and does not preclude a regular suit on the surety bond to enforce the security: see Abdul Kadir v. Babu Huree Mohun (1874) 6 N W P 261. But where the bond is to the Court, it appears to be doubtful if the Court could sue upon it, or could even assign it for somebody else to sue upon it: see Janki Kuar v. Sarup Rani (1895) 17 All 99, where a security bond was given under Section 545, Civil P. C, 1882, corresponding to Order 41, Rule 5 of the present Code. This was a bond hypothecating properties, and it was argued that it could be enforced only by suit under Section 99, T.P. Act, as it then stood. Negativing this argument, the learned Judges remarked as follows:

It appears to us that when an Appellate Court is given by law power to require a security bond to be given for the performance of its decree, as for instance under Section 545, Civil P.C., 1882, it was not the intention of the Legislature that the bond should be given by one party to the other by ordinary process, similar to that under Section 253(corresponding to Section 145 of the Code of 1908), in the case of a security bond given in the suit; and it could not have been the intention that the Court should sue upon the bond, or that it should be necessary for the Court to assign the bond for some other person to sue upon it.

6. The matter was put in clearer terms by the Judicial Committee in Raghubar Singh v. Jai Indra Bahadur Singh AIR 1919 P C 55, where their Lordships approved the Allahabad decision. This was a case of a bond under Section 546, Civil P. C, 1882, corresponding to Order 41, Rule 6 of the present Code, hypothecating property. It was, held that the bond created no personal liability, but only a charge upon property, so that Section 145, Civil P. C, 1908, had no application. It was thereupon contended that the proper remedy of the decree-holder was by way of a suit to enforce the charge according to the procedure provided by the then Section 90, T.P. Act. Dealing with this point, their Lordships said that for a proceeding under the Transfer of Property Act, there must be a mortgagor and a mortgagee. But in this case there was no person mentioned in the instrument to whom the security was given. It was suggested that the sureties were bound to the Court. Referring to the suggestion, their Lordships observed:

It is suggested that they (the sureties) are bound to the Court. But the Court is not a judicial person. It cannot be sued. It cannot take property, and as it cannot take property it cannot assign it. It remains, therefore, that there is an unquestioned liability, and there must be some (mode) of enforcing it, and that the only mode of enforcing it must be by the Court making an order in the suit upon an application to which the sureties are parties, that the property charged be sold unless before a day named the sureties find the money.

7. It will be seen that bath in this case and in the Allahabad case the bond was one hypothecating property, and the question was whether a suit under Section 99 or Section 90, T.P. Act, was the proper remedy, and it was held that such a suit could not be brought by the Court. The question whether the decree-holder as the party entitled to the benefit of the security could sue upon it, specially where, as in these cases, a charge on property and consequently a trust had been created in his favour, was neither raised nor considered.

8. In the present case, as has been already pointed out, the plaintiff-creditor did at first apply to put the certificate in execution against the surety. Rightly or wrongly, however, the Collector held that this remedy was not open to him, and he has accordingly been driven to this suit. In the Privy Council case referred to above, it was no doubt indicated that the correct remedy was by way of application to the Court, even if Section 145, Civil P. C, was not applicable in terms, but as their Lordships also pointed out, where there is an unquestioned liability, there must be some mode of enforcing it. It may be conceded that a suit could not be maintained by the certificate officer, who, by Section 57, Public Demands Recovery Act, is deemed to be a Court, but that is no reason why the creditor, having been deprived of his proper remedy by the action of the certificate officer, should be held not entitled to maintain a suit to enforce the security which was admittedly for his benefit, unless of course the suit is barred by any other principle. We shall examine this question presently. It may be stated at once that there can be no question of such a suit being barred by Section 47, Civil P. C, or of the decision of the Collector operating as res judicata.

9. Nor do we think that in this case it is a valid answer to the suit to say that the surety bond was not one authorized by law, as it was in the cases referred to above. In our opinion such a bond may still be for lawful consideration and legally enforceable. The learned advocate for the appellant in fact suggested that the bond should be treated as one between party and party, and not as given by the surety to the certificate officer as a Court or ex officio on this basis it will have to be seen, first, whether the bond is a lawful agreement, and secondly, whether the plaintiff not being a party to it can sue upon it.

10. As to the first of these points, the consideration for the bond appears to be the release of the certificate debtor. Under Section 127, Contract Act, anything done for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee: so the release would be sufficient consideration for the bond. But would it be 'lawful' consideration within the meaning of Section 23, Contract Act? The respondent maintains that it is not, as he says in the language of the section that it is 'forbidden by law', tends to 'defeat the provisions of the law', and is opposed to 'public policy'. In our opinion there is no substance in any of these objections.

11. The provisions of the Public Demands Recovery Act relating to arrest and release are contained in Sections 29 to 33 and Rr. 77 and 78 of Sch. 2. It may be conceded that the circumstances in which the debtor was released in this case do not come within the express terms of any of these provisions. We do not think, however, that these provisions can be taken to limit the inherent jurisdiction of the certificate officer, who is a Court under the Act, to make an order of release such as was made in the circumstances of this case. The order here was made at the request of the decree-holder himself, and was in fact in aid and not to the detriment of the purposes of the Act, namely the speedy realisation of certificate dues. Section 31(1), Proviso (iii) of the Act expressly lays down that a certificate debtor shall be released from detention on the request of the person on whose requisition the certificate was filed. If the debtor could, therefore, be released even after detention at the request of the certificate-holder, we see no reason why he could not be released in similar circumstances before detention. It will be seen again that the release in this case was temporary, as it was contemplated that the debtor should be produced before the certificate officer on the date fixed for next hearing. It cannot be maintained that the certificate officer had no power to adjourn the case for final or further orders when a debtor was brought up under arrest. Section 29 does not require that on a debtor being brought under arrest, the certificate officer should forthwith commit him to prison. It is true that the Act does not contain any provision corresponding to Order 21, Rule 40, Civil P. C, but that cannot in our opinion take away inherent jurisdiction of the certificate officer to adjourn the proceedings. We cannot accede to the argument that what is not expressly permitted by the Act in this case must be held to be forbidden by law. The case relied on in support of this contention, Municipal Council, Kumbakonam v. Abbah Sahib (1913) 36 Mad 113, is not applicable. Referring to an agreement by a District Municipality by which it farmed out its right to collect fees on the slaughter of animals, the Court held that such an agreement was void as being ultra vires, and observed: 'The powers of a Corporation must be strictly construed, and it is hardly too much to say that what is not permitted to such a body is forbidden.' These remarks, it will be seen, are made with reference to the powers of a Corporation, and cannot apply to a Court or an authority exercising judicial functions.

12. We must consequently hold that the bond in suit is not hit by Section 23, Contract Act, and it is not suggested that its legality can be impugned on any other ground. Is there, then, anything in the argument that legal as the bond may be, the plaintiff cannot enforce it as he was no party to it? As already indicated, this argument is sought to be based on the authority of Tweddle v. Atkinson (1861) 1 B & S 393. In this case M and N married, and after the marriage, a contract was entered into between A and X, their respective fathers, that each should pay a sum of money to M and that M should have power to sue for such sums. After the death of A and X, M sued the executors of X for the money promised to him. It was held that no action would lie. Wightman, J. said:

Some of the old decisions appear to support the proposition that a stranger to the consideration of a contract may maintain an action upon it, it he stands in such a near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration. The strongest of these cases is that cited in Bourne v. Mason (1680)1 Ventris 6, in which it was held that the daughter of a physician might maintain assumpsit upon a promise to her father to give her a sum of money if he performed a certain cure. But there is no modern case in which the proposition has been supported. On the contrary, it is now established that no stranger to the consideration can take advantage of a contract although made for his benefit.

13. Here then we have the English Common Law doctrine laid down in unmistakable terms that if A makes a contract with B for the benefit of C, C cannot on that account sue on the contract. The reason for the rule was stated in different forms by the Judges of the Queen's Bench in Price v. Easton (1833) 4 B & Ad 433. Easton promised X that if X would work for him, ha would pay a sum of money to Price, The work was done, and Price sued Easton for the money. It was held that he could not recover, as he was not a party to the contract. Lord Denman, C.J. said that the plaintiff did not 'show any consideration for the promise moving from him to defendant'. Littledale, J. said: 'No privity is shown between the plaintiff and the defendant'. Taunton, J. said that it was consistent with the matter alleged in the declaration that the plaintiff may have been entirely ignorant of the arrangement between X and the defendant,' and Patterson, J. that there was 'no promise to the plaintiff alleged'.

14. The same rule, viz. that contracts affect the parties only, and that a contract can create no right or liability in a person who is not a party to it, applies in equity also; and 'generally, to a bill for a specific performance of a contract the parties to the contract only are the proper parties,' and persons, strangers to the contract, and therefore neither entitled to the right, nor subject to the liabilities which arise out of it, are as much strangers to a proceeding to enforce the execution of it as they are to a proceeding to recover damages for the breach of it.' Per Cottenham, L.C. in Tasker v. Small (1837) 5 L J Ch 321, De Hoghton v. Money (1866) 2 Ch 164, Markham v. Paget (1908) 1 Ch 697. See also Re Pigott and G.W. Ry. (1881) 18 Ch D 146. Certain exceptions (more apparent than real) have however been engrafted on the rule by application of equitable considerations, as where a third party is shown to hold a beneficial interest in the performance of the contract, that is to say, to be in the position of a cestui que trust vis a vis the contracting parties, or where he may be regarded as a principal claiming or being charged through an agent. An analysis of the cases will, in fact, show that it is where a trust or an agency can be founded on the contract that a person who is not a party to the contract has been held entitled to enforce it. See the observations of Jessel, M.R. in In re Empress Engineering Co. (1880) 16 Ch D 125; Robertson v. Wait (1853) 8 Ex 299; Re Rotherham Alum and Chemical Co. (1883) 25 Ch D 103; Les Affreteurs Reunis Societe Anonyme v. Leopold Walford (London) Ltd. (1919) A C 801; Dunlop Pneumatic Tyre Co. Ltd., v. Selfridge & Co., Ltd. (1915) A C 847. It would be wholly wrong to suppose that it was ever intended to be laid down as the law in England that where A simply contracts with B to pay money to C, C is entitled to sue A in equity, even if he could not do so at Common Law. Any deduction to the contrary from certain observations of Lord Hatherley in Touche v. Metropolitan Railway Warehousing Co. (1871) 6 Ch A 671, expressed in general terms as they were, would, it is respectfully submitted, be wholly unjustifiable.

15. The applicability of the rule in Tweddle v. Atkinson (1861) 1 B & S 393 to Courts in India has been the subject of considerable discussion in this Court as also in other High Courts and before the Judicial Committee. The decisions do not all speak with the same voice. Taking only the cases of the Calcutta High Court, it may be pointed out that in Debnarayan Dutt v. Chuni Lal Ghose AIR 1914 Cal 129 it was stated rather too broadly that Tweddle v. Atkinson (1861) 1 B & S 393 was not applicable in India. This decision has the high authority of Jenkins, C.J., but if we may say so with respect, the learned Chief Justice was misled by the general terms used by Lord Hatherley in Touche's case (1871) 6 Ch A 671. His Lordship also appears to have derived support for his view from the somewhat extended definition of 'consideration' in the Contract Act. But it is one thing to say there ia nothing in the Contract Act to preclude a third party from suing on a contract made by others for his benefit, it is quite a different thing to say that every contract made for the benefit of a third party may be sued upon by the third party. This distinction was not kept in view by the learned Chief Justice in the above case. The decision has been subjected to what we consider to be just criticism by Page, J. in Jiban Krishna Mullik v. Nirupama Gupta AIR 1926 Cal 1009, and by Rankin, C.J. in Krishna Lal v. Pramila Bala Dasi 0065/1928 : AIR1928Cal518 . We respectfully adopt this criticism. A more recent decision in which the authorities and the principles have been exhaustively reviewed is that of Adhar Chandra v. Dol Gobind Das : AIR1936Cal663 . Reference may also be made to the case in Hare Krishna Nayak v. Fakir Chandra Pal : AIR1936Cal260 , to which one of the members of this Bench was a party.

16. It is necessary to refer in this connexion to the decision in Krishna Lal v. Pramila Bala Dasi 0065/1928 : AIR1928Cal518 . Lort-Williams, J. in this case purported to follow the case of Debnarayan Dutt v. Chuni Lal Ghose AIR 1914 Cal 129, and presumably to dissent from the decisions in Khirod Bihari Dutt v. Man Gobinda Panda : AIR1934Cal682 and Krishna Lal v. Pramila Bala Dasi 0065/1928 : AIR1928Cal518 , although the learned Judge did not express his dissent in so many words, and in so far as this case intends to lay down the law in general terms that where A makes a contract with B for the benefit of C, C can sue on the contract, apart from any reference to trust or agency, we feel bound to say that would be a proposition not supported either by principle or by authority. It is to be observed that on the facts of that case Lort-Williams, J. held that the facts did constitute a trust or agency. M.C. Ghose, J. was apparently not inclined to agree with this view, but in the result agreed with the judgment passed, though, if we may say so with respect, on grounds which it is difficult to follow. The question has been discussed in other High Courts; suffice it for our present purposes to refer to a Pull Bench decision of the Madras High Court in Subbu Chetti v. Arunachalam Chettiar AIR 1930 Mad 382, and a decision of the Bombay High Court in National Petroleum Co., Ltd. v. Popatlal Mulji AIR 1936 Bom 344, which in our opinion give a correct exposition of the law. The question whether in a particular case there is an obligation in the nature of a trust in favour of a third party arising out of a contract will depend on the facts of the case.

17. In support of the plaintiff's right of action in the present case, the learned District Judge has relied on the authority of Khirod Bihari Dutt v. Mangobinda Panda : AIR1934Cal682 , as if the mere fact that the surety bond was entered into for the benefit of the plaintiff was sufficient to confer such right. For reasons we have explained, such a view cannot be sustained and the learned advocate for the plaintiff has not attempted to do so. He brings his case within what must now be regarded as a well recognized exception to the general rule as laid down in Tweddle v. Atkinson (1861) 1 B & S 393 founded on the creation of a trust. He points out in the first place that the entire benefit under the contract of surety is secured to the plaintiff, and secondly, that consideration for the contract moved wholly from the plaintiff. In other words, the certificate officer was the nominee or trustee of the plaintiff, and as such must therefore be held entitled to sue upon the contract. It is not a case of A simply making a contract with B for payment of money to C and C claiming to sue on the contract by virtue of that fact alone without more. The learned advocate for the respondent tried to repel the case of a trust by reference to S.4, Trusts Act, 1882 (Act 2 of 1882), which provides that a trust may be created for any lawful purpose. As to what is a lawful or unlawful purpose is defined in the section in the same terms as are to be found in Section 23, Contract Act, with reference to consideration. We have already held that the agreement does not come within the mischief of Section 23, Contract Act, and on the same grounds we must hold that there is no impediment to the creation of a valid trust under Section 4, Trusts Act.

18. In our opinion therefore it must be held that the plaintiff-appellant is entitled to maintain the suit and recover. The result is that this appeal is allowed, the judgment and decree of the learned District Judge are set aside, and those of the learned Subordinate Judge restored with costs in all Courts.

Henderson, J.

19. I agree.

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