velappa kumar v. kosamattom chit fund — 1977 DIGILAW 309 (KER)

Judgment :- 1. The short point that arises for consideration in this case is whether the discharge of a decree debt under S.3 of the Kerala Debt Relief Ordinance, 1977, Ordinance No. I of 1977, for short the Ordinance, as far as the judgment-debtor who was the principal debtor in the transaction which ended in a decree, will automatically end in the discharge of the liability of a co judgment debtor who was only a surety for the principal debtor in the transaction. S.3 of the above Ordinance was in pari materia with the corresponding S.3 of the Kerala Debt Relief Act, 1977, Act 17 of 1977. 2. The second judgment-debtor in O. S. No. 137 of 1965 on the file of the Sub Court, Kottayam pending execution before the Sub Court, Trivandrum is the petitioner in this Civil Revision Petition. His grievance is against the order of the Subordinate Court, Trivandrum in E A. No. 2!4 of 1977 rejecting his contentions that since the liability of the first judgment-debtor stood discharged under S.3 of the Ordinance he has no further liability as he was only a surety for the first judgment-debtor in the transaction which ripened into the decree The above suit was one for money and the petitioner was impleaded as the 2nd defendant because he stood as surety for the 1st defendant in the transaction which resulted in the suit. In view of S.3 of the Ordinance, the liability of the first judgment-debtor stood discharged This was recognised by the execution court and admitted by the decree holders. Thereupon, the petitioner tiled the above E. A. which was dismissed by the execution court. 3. Shri. P. Gopalakrishnan Nair, learned counsel for the petitioner, contended that under the Indian Contract Act, 1872 at4y benefit claimed by the principal debtor can be claimed by his surety and hence the petitioner who was only a surety for the first judgment-debtor has no further liability to pay the decree debt when once the first judgment-debtor who was the principal debtor got a discharge of the debt under S.3 of the Ordinance Learned counsel referred to S.128 of the Contract Act and contended that the liability of the surety is co-extensive with that of the principal debtor. Reference was also made to S.133 and 139 of the Contract Act. Reference was also made to S.133 and 139 of the Contract Act. In support of his contentions, learned counsel relied on Mani v. Kochouseph (1965 KLT. 1266). In the above case, a surety bond was executed for stay of execution of a decree whereby the liability of the surety was limited to the amount due under the decree. Thereafter, the judgment-debtor was given the benefits of the Kerala Agriculturists Debt Relief Act, 31 of 1958 The question that arose in that case was whether the liability of the surety will also be reduced to the extent to which the liability of the judgment-debtor was reduced under Kerala Act 31 of 1958. This Court said: "In whatever way the modification or variation of the decretal amount is brought about, the surety is entitled to the benefit of the said modification or variation. So understood, there is nothing in the terms of the bond to enlarge the liability of the surety beyond the confines of the obligation of the judgment-debtor. What seems to be required by the expression'otherwise' in S.128 is a provision in the contract to the effect that notwithstanding any circumstance the surety's liability is not diminished and not a mere provision which in some way quantifies the measure of his obligation. There is no such provision in the suretyship bond executed in this case S.128 sketches the ambit of liability of the surety when it enacts that the liability is co-extensive with that of the principal debtor It has nothing to do with the consequences of recovery of the debt. Therefore a statutory reduction or extinguishment of the principal debtor's liability will operate as a pro tanta reduction or extinguishment of the surety's bond. A reduction or extinguishment of the debt is quite different from its unenforceability against the principal debtor by the operation of the law of bankruptcy or the statute of limitation." Reference was also made to Joseph Easo v. Francis (S. A. No. 899 of 1973) wherein the effect of S.135 of the Indian Contract Act was considered. The above decision is easily distinguishable since here no alteration was made in the contract as a result of an agreement entered into between the creditor and the principal debtor Learned counsel also relied on a Full Bench decision of the Madras High Court in Subramania Chettiar v Moniam P. Narayanaswami Gounder (AIR. 1951 Mad. The above decision is easily distinguishable since here no alteration was made in the contract as a result of an agreement entered into between the creditor and the principal debtor Learned counsel also relied on a Full Bench decision of the Madras High Court in Subramania Chettiar v Moniam P. Narayanaswami Gounder (AIR. 1951 Mad. 48) wherein it is said: - "The liability of a surety is only co-extensive with that of the principal debtor. A non-agriculturist surety will not be liable for the entire debt when the principal debt has been scaled down under the provisions of the Agriculturists' Relief Act. but will be liable only to the extent of the scaled down debt due by the principal debtor." 4. Shri K. Ravindranathan Nair, learned counsel for the respondents-decreeholders, pointed out that in this case, the liability that is sought to be enforced against the petitioner is one under the decree which makes the surety and the principal debtor jointly liable. Learned counsel contended that when once a decree has been passed in the suit filed for enforcing the contract, the liability of the surety is that which arises under the decree and thereafter the surety cannot invoke the provisions of the Contract Act and contend that he cannot be made liable since the principal debtor is absolved of the liability. In support of his contention, learned counsel referred to the Nellore Co-operative Urban Bank Ltd. v. Akili Mallikarjunayya (AIR. 1948 Mad. 252) In the above case, a loan due to a Co-operative Society which was guaranteed by a surety not having been paid, the society preferred a claim under S.51 of the Madras Cooperative Societies Act, 1932 and in the arbitration, award was passed making both the principal debtor and the surety equally liable for the debt. Thereafter, the principal debtor applied to the Debt Conciliation Board for the settlement of his debt under S.4 of the Madras Debt Conciliation Act, 1936 and an order was passed under S.10 (2) of the Act discharging the principal debtor. Thereafter, the society proceeded to execute the award against the surety The surety raised a contention that he was no more liable under the award as the liability of the principal debtor was extinguished. Thereafter, the society proceeded to execute the award against the surety The surety raised a contention that he was no more liable under the award as the liability of the principal debtor was extinguished. The matter ultimately came in a second appeal before the Madras High Court and it held: "Under the award which had the effect of a decree, both the principal debtor and the surety were made liable for the debt and in view of S.57A, Madras Co-operative Societies Act, and R.15(7) (a) and 22 of the Rules framed thereunder, the award could be executed against the surety. Neither S 10(2), Madras Debt Conciliation Act, nor S.134, Contract Act, operated to effect a valid discharge of the surety's liability under the award. S 134, Contract Act, was not applicable to a case where the creditor had obtained a decree against both the principal debtor and the surety." in the above case, the Court further held: "The effect of a decree, and the award passed by a competent authority under a special statute such as we have here stands on the same footing, is to determine conclusively the rights and liabilities as between the decree holder and the judgment-debtor, and such rights and liabilities cannot be altered save by procedure known to law such as appeal, review, etc., or by special statutory provisions such as S.1012) expressly affecting decrees. The decree must rule with regard to matters which are the subject of adjudication, but all outside the scope of the adjudication is still governed by the general law. If, for instance, the decree directs the judgment-debtors jointly and severally to pay unconditionally a certain sum of money to the decree holder, the liability as determined by the decree cannot thereafter be modified by anything which the decree holder may do or omit to do." In the above case, reference was made to In re a Debtor ( (1913) 3 K. B. 11) wherein Phillimoer J. has said: "The original debt has now become merged in the judgment and all the defendants against whom judgment has passed stand on an equal footing. Each judgment-debtor is liable to pay to the judgment-creditor the whole of the debt There is no question as to one judgment-debtor being liable to a greater extent than the others; as far as the judgment-creditor is concerned they are all equally liable " The Madras High Court also referred to Jenkins v Robertson ((1854) 2 Drew 351) wherein Kindersley V C. has said: "The subsequent dealing with the principal debtor does not operate to discharge the surety from a liability under which he is, no longer as a surety, but under the decree " In Meenakshi Sundaram Chettiar v. Velambal Ammal (AIR. 1944 Madras 423 Horwill J. has said: "We are not, after a joint decree has been passed against principal, and surety, any longer dealing with a principal and surety but with a joint judgment-debtor." Learned counsel also rightly pointed out that the decisions in Mani v. Kochouseph (1965 KLT 1266) and Subramania Chettiar v. Moniam P. Narayanaswami Gounder (AIR. 1951 Madras 48) are not applicable to the facts, of this case. In Mani's case, the surety bond was executed after the decree was passed and the liability of the surety was in respect of the amount covered by the decree. When, thereafter, 'here was a scaling down of the decree debt, it goes without saying that the safety can only be made liable for the amount arrived at by the scaling down. In Subramania Chettiar's case also, the transaction in which the surety undertook the liability of the principal debtor did not ripen into a decree when the debt was scaled down under the Madras Agricultrists Relief Act, 1938. It was also pointed out that under S.3 of the Ordinance the liability of the surety has been expressly saved So, according to the learned counsel, the petitioner cannot take shelter under the discharge of the decree debt under S.3 of the ordinance. 5. It was also pointed out that under S.3 of the Ordinance the liability of the surety has been expressly saved So, according to the learned counsel, the petitioner cannot take shelter under the discharge of the decree debt under S.3 of the ordinance. 5. S.3 of Kerala Ordinance 1 of 1977 reads: "3, Discharge of debt Notwithstanding anything contained in any other law for the time being in force, or in any contractor other instrument having force by virtue of any such law, or in any decree or order of court, with effect on and from the commencement of this Ordinance (a) every debt and the interest thereon payable by a debtor to a creditor shall be deemed to be wholly discharged; (b) no civil court shall entertain any suit or other proceeding against a debtor for the recovery of any debt or part of a debt or any interest thereon; (c) all suits and other proceedings (including appeals, revision petitions, applications for review, proceedings for attachment and execution proceedings) pending at such commencement against any debtor for the recovery of any debt shall abate: Provided that nothing in this clause shall apply to (i) the sale of any movable property conducted and concluded before the commencement of this Ordinance; (ii) the sale of any immovable property confirmed before such commencement: Provided further that where a suit or other proceeding is instituted jointly against debtor and any other person, nothing in this section shall apply to the maintainability of such suit or other proceeding in so far as it relates to such other person; Sections 128,133,134 and 139 of the Indian Contract Act 1872 reads: "128. The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract." "133. Any variance, made without the surety's consent in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance." "134. The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor." "139. The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor." "139. If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged." 6. A surety receives no benefit and no consideration out of the transaction. That may be why it is often said that he is a favoured debtor. But it is to be remembered that he is one who voluntarily accepts a liability which is no doubt a contingent liability. The moment when there is a breach of contract by the person for whom he stood as surety, the surety also becomes equally liable to the creditor. When the creditor sues on the contract and obtains a decree against both, thereafter their liability is a liability under the decree and not one under the original contract. The liability of the surety judgment-debtor under the decree cannot cease as long as the decree against him remains not satisfied. It cannot be said to be co-extensive with that of the principal debtor and hence a discharge of the judgment-debtor who was the principal debtor cannot discharge the surely of the liability. Any variation in the contract also cannot affect his liability As a matter of fact, no question of variation of the contract arises after the decree. Similarly, the release of the principal debtor from the liability for whatever reason cannot affect the liability of the judgment-debtor who was the surety. Even if the remedy of the surety judgment debtor against the other judgment-debtor who was the principal debtor is lost because of anything done or omitted to be done by the creditor decree holder, that cannot affect his liability under the decree. S.128, 133,134 and 139 of the Contract Act can have application only as long as no decree is passed against the principal debtor and the surety on the basis oft the contract. S.128, 133,134 and 139 of the Contract Act can have application only as long as no decree is passed against the principal debtor and the surety on the basis oft the contract. The above provisions of the Contract Act which govern the rights and liabilities of the creditor, the principal debtor and surety, cease to operate after the rights and liabilities are determined and declared by a decree. In this case, the principal debtor-judgment debtor escaped the liability under the decree in view of the discharge of his debt under S.3 of Ordinance 1 of 197. The surety judgment-debtor who has a joint liability under the decree has to pay the decree-debt and get out of the liability as long as he is not entitled to the benefits of Ordinance 1 of 1977. Even if he has no remedy against the principal debtor judgment-debtor, that cannot he a reason to absolve him of the liability. Standing surety is not a joke. One should think ten times before doing that. In the above view I have taken, the order of the execution court impugned in this Civil Revision Petition is perfectly legal and valid. Not only that, there is no error of jurisdiction to warrant an interference by this court in revision. In the result, the Civil Revision Petition is dismissed. No costs. Dismissed.