CANARA BANK v. GOKULDAS SHENOY — 1988 DIGILAW 600 (KER)

Judgment :- 1. The plaintiff in O.S. No. 10 of 1978 on the file of the Court of the Subordinate Judge of Kasaragod is the appellant. 2. The suit was filed for recovery of money. It is necessary to briefly state the facts which are relevant for determination of the question raised in the appeal. 3. The 1st defendant who is the Proprietor of a firm by name 'M/s. Paxwell Printers' was given various financial facilities by the plaintiff-Bank under various transactions and as on the date of the plaint, a total of Rs. 5,39,220.93 was due from the 1st defendant. One such facility was open cash credit facility for a sum of Rs. 50,000/- on the strength of a deed of hypothecation and a promissory note. The stock-in-trade and the raw materials which belonged to the 1st defendant were hypothecated to the plaintiff bank. The 1st defendant was also given a key shut cash credit facility for a sum of three lakhs of rupees on the pledge of raw materials belonging to him as security. Subsequently, the 1st defendant also executed a promissory-note for the said sum. The 1st defendant sought a further loan of Rs. 1,80,000/- by way of Term Loan Facility on 14-8-1972 and the same was also granted by the plaintiff-Bank on the security of equitable mortgage by deposit of title deeds in respect of the properties belonging to the 1st defendant and by hypothecation of machineries and also by assigning life insurance policies. Thereafter the open credit facility of Rs. 50,000/- granted to the 1st defendant was enhanced to Rs. 75,000/- with effect from 19-1-1973. However, the 1st defendant was not diligent in repaying the loans and in the circumstances the plaintiff was contemplating legal steps to realise the amounts. At that stage, the 2nd defendant who is also an industrialist became desirous of starting a printing press at Bangalore and it appears that he contacted the 1st defendant with the idea of taking over the press of the 1st defendant. As a result of the understanding reached by them they approached the plaintiff and it was agreed that at the first instance the 2nd defendant would be given a facility for a sum of Rs. As a result of the understanding reached by them they approached the plaintiff and it was agreed that at the first instance the 2nd defendant would be given a facility for a sum of Rs. 1,05,000/- which would be adjusted towards the amounts due from the 1st defendant under the key-shut cash credit accommodation and that 32 drums of Chinawood Oil which was hypothecated by the 1st defendant in connection with the key-shut cash credit accommodation would be released to the 1st defendant on the understanding that the sale proceeds of the said Chinawood Oil amounting to Rs. 1,05,000/- would be credited towards the liability of the 1st defendant. The 2nd defendant agreed to be a guarantor for repayment of the above sum and to execute a hypothecation deed in respect of his lands and building valued at Rs. 2,00,000/- and a deed of guarantee guaranteeing the value of the Chinawood oil. Ext. A16 dated 17-6-1974 is the application sent by the 2nd defendant to the Bank regarding the arrangement. In the said application, the Bank was requested to grant a loan of Rs. 1,05,000/- against the security of the machineries and landed properties belonging to him, the book values of which as on 31-3-1973 was mentioned as Rs. 74,000/-. It also stated that the loan amount could, be credited towards the key-shut cash credit account of the 1st defendant and against this credit, Chinawood oil held by the Bank as part of the security would be released and that a sum of Rs. 1.05 lakhs would be paid within a period of 30 days from the date of release of the goods by the 1st defendant. Thereafter the Bank would grant a loan of Rs. 2.50 lakhs to the 2nd defendant against the existing machineries of Sri. Murughendra Deo, the 1st defendant which was hypothecated to the Bank and also the machineries of the 2nd defendant mentioned in Ext. A16 and the 2nd defendant would repay the entire loan amount of Rs. 2.50 lakhs in five annual instalments of Rs. 50,000/- and would stand as a guarantor to the amount that was payable by the 1st defendant on account of the Chinawood oil that would be released to the 1st defendant. Ext. A17 dated 17-6-1974 is a covering letter sent by the 1st defendant to the Bank a1ongwith Ex. A16 letter. In Ext. 50,000/- and would stand as a guarantor to the amount that was payable by the 1st defendant on account of the Chinawood oil that would be released to the 1st defendant. Ext. A17 dated 17-6-1974 is a covering letter sent by the 1st defendant to the Bank a1ongwith Ex. A16 letter. In Ext. A17, the 1st defendant stated that the proposal made in Ext. A16 was acceptable to the 1st defendant and that he undertook to deposit a sum of at least Rs. 1.05 lakhs within 45 days from the date of release of Chinawood Oil and Rs. 10,000/- within 10 days after release of G. P. Paper approximately 3 tons in weight, held by the Bank. Ext. A18 dated 6-9-1974 is a letter sent by the plaintiff-Bank to the 2nd defendant wherein it was stated that the Head Office of the plaintiff Bank had agreed in principle to grant a term loan of Rs. 2.50 lakhs to the 2nd defendant subject to the conditions mentioned therein. The conditions stated therein are: (1) The 2nd defendant should hypothecate the machinery items belonging to the 2nd defendant's existing foundry at Kasaragod having market value of not less than Rs. 2.00 lakhs and create equitable mortgage in favour of the Bank in respect of land and building offered by the 2nd defendant as security, (2) a sum of Rs. 28,783.63 which was due to Kerala State Finance Corporation against the aforesaid property should be cleared by the 2nd defendant and evidence should be furnished for having done so, or deposit the actual amount due to be paid to Kerala State Finance Corporation and the said amount would be remitted to the Corporation directly by the Bank; (3) after creation of security by the 2nd defendant in favour of the Bank, the G. P. Paper valued about Rs. 25,000/-should be released to the 1st defendant against the 2nd defendant's personal guarantee, and the 1st defendant would in turn arrange to sell the same and deposit a sum of Rs. 10,000/- with the Bank within a period of 10 days from the date of such release and (4) that at the time of making such release of Chinawood Oil, the 1st defendant would give a letter of undertaking to the Bank to the effect that he would credit a sum of Rs. 10,000/- with the Bank within a period of 10 days from the date of such release and (4) that at the time of making such release of Chinawood Oil, the 1st defendant would give a letter of undertaking to the Bank to the effect that he would credit a sum of Rs. 1.05 lakhs to the Bank within 30 days from the date of release and the balance amount of Rs. 15,000/ -available from out of the sale of G. P. Paper should be utilised by the 1st defendant for carrying the Chinawood Oil to Bombay for sale. Some other additional conditions are also mentioned in the said letter. Consequently, Ext. A19 agreement and guarantee letter dated 23-10-1974 were executed by the 2nd defendant in favour of the plaintiff Bank. Ext. A19 stated that the guarantor, namely, the 2nd defendant, agreed to indemnify the Bank against all loss and to pay and satisfy to the Bank on demand "the general balance" due from the borrower and the expression "general balance" shall be deemed to include all and every sum and sums of money which were then due from the borrower to the Bank or under any account whatsoever whether from the borrower solely or from the borrower jointly with any other or others in partnership or otherwise whether as principal or surety or otherwise. The total liability was limited to Rs. 2 lakhs and it was also agreed that the liability which shall be enforceable against the guarantor under the guarantee shall not exceed the sum of Rs. 2 lakhs together with interest thereon at 10% per annum above Reserve Bank of India rate with a minimum of 19% per annum from the date of demand by the Bank upon the guarantor for payment. Special mention has to be made to the following clause contained in Ext. A19: "The Guarantor hereby consents to the Bank's making any variance that the Bank may think fit in the terms of the Bank's contract with the Borrower, to the Bank's determining, enlarging or varying any credit to the Borrower to the Bank's making any composition with the Borrower or promising to give the Borrower time or not to sue him and to the Back's parting with any security the Bank may hold for the guaranteed debt. The Guarantor also agrees that the Guarantor shall not be discharged from his liability by the Bank's releasing the Borrower or by act or omission of the Bank the legal consequence of which may be to discharge the Borrower or by any act of the Bank which would, but for this present provision be inconsistent with the Guarantor's rights as surety or by the Bank's omission to do any act which, but for the present provision, the Bank's duty to the Guarantor would have required the Bank to do. Though as between the Borrower and the Guarantor, the Guarantor is surety only, the Guarantor agrees that as between the Bank and the Guarantor, the Guarantor, is the principal debtor jointly with the Borrower and accordingly the Guarantor shall not be entitled to any of the rights conferred as surety by S.133, 134, 135, 139 and 141 or any other relevant provisions of the Contract Act." Ext. A20 dated 23-10-1974 is the covering letter given by the 2nd defendant to the Bank stating that the agreement of guarantee was enclosed along with the letter and he would be responsible upto a limit of Rs. 2 lakhs for any credit by way of loans, overdraft, discount of bills or otherwise extended to M/s. Paxwell Printers, the first defendant. Ext. A21 dated 19-11-1974 is a letter of trust given by the 1st defendant to the Bank, in respect of the Chinawood Oil that was agreed to be released. Ext. A22 dated 19-11-1974 is another letter dated 19-11-1974 given by the 1st defendant in respect of release of ' Chinawood Oil and in this letter also, the 1st defendant undertook to deposit with the Bank a sum of Rs. 1.05 lakhs within 30 days from that date. Ext. A23 is the letter of release executed by the 1st defendant in respect of Chinawood Oil. It also shows that Chinawood Oil was released to the 1st defendant and the 1st defendant also acknowledged receipt of the same. Ext. A24 dated 19-10-1974 is a letter given by the 2nd defendant to the Bank to confirm deposit of title deeds on 17-10-74 relating to the properties of the 2nd defendant. B Schedule to Ext. A24 contains the particulars of the properties and A Schedule is the particulars of the sale deed and title deeds of the property. Ext. Ext. A24 dated 19-10-1974 is a letter given by the 2nd defendant to the Bank to confirm deposit of title deeds on 17-10-74 relating to the properties of the 2nd defendant. B Schedule to Ext. A24 contains the particulars of the properties and A Schedule is the particulars of the sale deed and title deeds of the property. Ext. A24 also mentions that B Schedule property together with all structures and machineries standing thereon were to be put up in future to secure the facility of loan of Rs. 2.50 lakhs. Ext. A25 dated 25-2-1975 is a deed of hypothecation of machineries executed by the 2nd defendant to the Bank as security against the financial accommodation upto a maximum term of loan of Rs. 2.50 lakhs applied for by the 2nd defendant. The maximum limit of financial accommodation stated therein is Rs. 10 lakhs. The 2nd defendant also hypothecated his machineries described in Schedule D to the plaint as per hypothecation deed dated 25-2-1975. Thus we find the Chinawood Oil was released by the plaintiff Bank to the 1st defendant on the strength of the above documents. After the release of the Chinawood Oil from out of the security only a sum of Rs. 25,000/- out of Rs. 1.05 lakhs was paid by the 1st defendant. The defendants did not account for the balance quantity of the Chinawood Oil, nor did they pay the balance amount of Rs. 80,000/- to the plaintiff. It is in these circumstances, the plaintiff filed the suit for recovery of the amounts due from the defendants to the plaintiff. 4. The 2nd defendant in his written statement contended that the plaintiff agreed to grant a term loan of two and a half lakhs of rupees and requested the 2nd defendant to hypothecate the machines belonging to him and deposit the title deeds of land and buildings belonging to him and accordingly he deposited the title deeds of land and buildings belonging to him as security for the said term loan, but the plaintiff did not honour their commitment and sanction the loan. Thereupon, he issued a notice dated 18-7-1977 to the Bank requesting to cancel the deed of hypothecation and also 10 return the documents deposited by him with the plaintiff bank but the plaintiff failed to comply with the demand or to send a reply, and was trying to recover the advance made by the Bank to the 1st defendant. He also contended that the Chinawood oil being imported under Actual User's Import Licence, it could not have been sold in open market and this fact was suppressed by the plaintiff when the alleged deed of guarantee was executed in connection with the release of Chinawood oil. He further contended that the obligation of the 1st defendant to deposit the sale proceeds was varied by the Bank without his knowledge by giving time to the 1st defendant and in the circumstances he was not liable to pay any amount to the plaintiff-Bank. In an additional written statement filed by the 2nd defendant, he further contended that the plaintiff and the 1st defendant entered into a compromise without his consent as per I. A. No. 818 of 1981 in respect of the suit claim, with a view to cause injury to him and that therefore the claim against him could not be enforced in law and that he was discharged from the liability as a surety in view of S.134,135, and 139 of the Indian Contract Act. According to him, he was also entitled to the benefits of S.141 of the Indian Contract Act. 5. The lower court after considering the documentary evidence adduced by the parties, found that the Chinawood Oil could not be sold in open market without the permission of the Controller of Exports and Imports and therefore the contract for release and sale of the Chinawood oil in respect of which guarantee was made by the 2nd defendant was void and that therefore the guarantee was not enforceable in view of S.23 of the Indian Contract Act. On the question of the alleged discharge of the guarantee under the provisions of S.134,135 and 139 of the Contract Act, the court below found that the 2nd defendant was concerned only with the release of the Chinawood oil and he had no connection whatsoever with the other transactions entered into between the plaintiff and the 1st defendant and that since the compromise did not relate to the release of the Chinawood oil and guarantee of the 2nd defendant in respect thereof, there was no substance in the contention of the second defendant that he was discharged from the liability as a result of the compromise. The court also rejected the plea of the 2nd defendant that by reason of the extension of time given by the plaintiff to the 1st defendant for sale of the oil, he was discharged from the liability in view of S.139 of the Contract Act. The plea of limitation also was negatived by the lower court on the basis of acknowledgement made by the 1st defendant under Ext. All. In view of its finding that the transaction relating to the release of the oil was illegal and void and consequently the guarantee executed to secure the payment of Rs. 1, 05, 000/-was also void, the lower court held that the plaintiff cannot enforce the guarantee. In this view, the court below passed a decree against the 1st defendant to pay a sum of Rs. 1,37,500. 20 with future interest at 18% per annum till the date of realisation and the suit was dismissed as against the 2nd defendant. 6. In this appeal, Sri, T.R.G. Warrier, learned counsel for the appellant, contended that the finding of the lower court that the transaction relating to release of Chinawood oil for enabling the 1st defendant to sell the same was illegal and opposed to the provisions of the Import-Export Control Law, and that the guarantee given by the 2nd defendant for securing the payment of Rs. 1,05,000/- which is part of the arrangement is also consequently illegal, is unsustainable in law. The learned counsel submitted that the agreement does not in any way spell out an arrangement to sell the Chinawood oil in violation of any provisions relating to the Import-Export Law. On the other hand, Sri. 1,05,000/- which is part of the arrangement is also consequently illegal, is unsustainable in law. The learned counsel submitted that the agreement does not in any way spell out an arrangement to sell the Chinawood oil in violation of any provisions relating to the Import-Export Law. On the other hand, Sri. V. R. Venkitakrishnan, learned counsel for the respondent supported the finding and invited our attention to Para.369 to 375 of the Handbook of Import-Export Procedures, 1980-81, which read as follows: "369. Where an Actual User is unable to utilise the imported goods for the purpose for which he secured the goods or the imported material is surplus to his needs he may transfer or loans such imported material to another Actual User with the written permission of the sponsoring Authority concerned, provided both the buyer and the seller (lender and loanee) Actual Users are under the jurisdiction of the same sponsoring authority. 370. Where the respective sponsorting authorities are different, but the contracting Actual Users are situated in the same State or Union Territory, the (State) Directors of Industries may grant the permission in writing for transfer/loan of the imported material and also monitor it thereafter. 371. In other cases, prior written permission of the licensing authority is mandatory. After agreeing upon the terms of the transfer, the two Actual Users, i.e. the buyer and the seller, should apply through the sponsoring authority of the buyer actual user. 372. The above provisions will be equally applicable to material imported under open General Licence or obtained from a Canalising Agency. 373. No permission is required either of the sponsoring authority or the licensing authority for the transfer of imported material to a public sector agency or a State (Small) Industries Development Corporation. The Actual User shall only give an intimation by Registered Post of such transfer to the sponsoring authority and the licensing authority concerned, within a period of 30 days. 374. The Actual User shall only give an intimation by Registered Post of such transfer to the sponsoring authority and the licensing authority concerned, within a period of 30 days. 374. The above procedure will apply to the disposal of goods lying with a scheduled Bank in a case where (a) it has cleared the goods from the customs as the joint holder of a licence against which the goods had been imported, or (b) the goods imported had been pledged with the bank by the licence holder and the licence holder is not in a position to take over the goods in question, provided the Bank has acquired a legal right to the sale. 375. In case the STC/MMTC or any other similar agency is not willing to purchase the imported goods from the bank and the Bank has not been able to find out any Actual User willing to purchase such goods, through the sponsoring authority or through suitable advertisement in the newspapers of repute, the Bank can approach the concerned Licensing Authority for permission to auction the goods provided the licence ho I der agrees to the sale or the Bank has otherwise the legal right to sell the goods under the valid contractual terms." It is not disputed that identical provisions are contained in the Handbook of Import-Export Procedures, 1974-75, with which we are concerned in the instant case. On the basis of the above provisions, the learned counsel for the respondent No.1 argued that the Chinawood Oil in the instant case was imported under the Actual User's licence and that the same could not be sold without the written permission of the sponsoring authority as provided in Para.369 and 370. In cases not covered by Para.369 and 370, written permission of the licensing authority was mandatory and after agreeing upon the terms of the transfer, the buyer and seller should apply through the sponsoring authority of the buyer as provided in para 372. The imported material was not intended to be transferred to a public sector agency or a small industries corporation and therefore the provisions contained in para 373 had no application to the present case. This was also not a case coming under para 374. The imported material was not intended to be transferred to a public sector agency or a small industries corporation and therefore the provisions contained in para 373 had no application to the present case. This was also not a case coming under para 374. The learned counsel invited our attention to the pleading in Para.6 of the plaint where the plaintiff stated that the release was for the purpose of disposal of Chinawood oil in the market and to pay off the sale proceeds aggregating to Rs. 1,05,000/- to the plaintiff, in liquidation of the liability of the 1st defendant. The learned counsel also submitted that the 2nd defendant was not aware of the above provisions or the illegal way in which the goods were sought to be disposed of. He also placed heavy reliance on S.23 of the Indian Contract Act which states that the consideration or object of an agreement is lawful unless it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent or involves or implies injury to the person or property of another or the Court regards it as immoral, or opposed to public policy. He contended that the object of the agreement was unlawful and void in law and therefore the guarantee which was an integral part of the arrangement for the release of the imported material to the 1st defendant for securing repayment of the sale proceeds estimated at Rs. 1,05,000/- cannot be enforced. He also submitted that the arrangement to release the oil for sale was opposed to public policy. In this connection, the learned counsel drew our attention to the decisions in Firm of Pratap Chand Nopaji v. Firm of Kotrike Venkata Setty & Sons (AIR 1975 SC 1223), Rakurti Manikyam v. Medidi Satyanarayana (AIR 1972 And. Prad. 367) and in Re An Arbitration Between Mahmoud and Ispahani (1921) All. E.R.217. In the above Supreme Court decision, it was held that the contract in that case was void as having been entered into for an object prohibited by Essential Supplies Act read with Oil Seeds (Forward Contract Prohibition) Order, 1943 and that therefore it was not enforceable in law. E.R.217. In the above Supreme Court decision, it was held that the contract in that case was void as having been entered into for an object prohibited by Essential Supplies Act read with Oil Seeds (Forward Contract Prohibition) Order, 1943 and that therefore it was not enforceable in law. In the Andhra Pradesh decision, Chinnappa Reddy, J. (as he then was) held that agreement to sell paddy above the maximum price fixed under the Maximum Price Control Order, was unlawful and void and therefore where paddy is delivered in contravention of the Maximum Price Control Order, the acceptance of that delivery would not create a lawful relationship between the parties so as to attract the provisions of S.70 of the Contract Act. In the third decision cited, it was held that the court will not enforce a contract which is made illegal by a statutory order, even though the question of illegality is raised by the party who has been guilty of it, and even though the other party honestly believed, as a result of statements made to him by the party guilty of the illegality, that no breach of the order was being committed. The principle, that where a contract can be performed either lawfully or unlawfully and one party without the knowledge of the other elects to perform it unlawfully, that party cannot plead its illegality does not apply to a case where the contract sought to be enforced is altogether prohibited. 7. After going through the provisions contained in Para.369 to 375 of the Handbook of Import-Export Procedures, we are unable to hold that the arrangement to release the imported material to the 1st defendant is tainted with any illegality. There is no total prohibition of selling the material imported under the Actual User's Licence and the only requirement is compliance with the provisions contained in the Procedure before sale is effected. It is for the actual user who has to apply for the required permission. With the materials available in the case, we are unable to attribute to the Bank any knowledge of any intention on the part of the 1st defendant to sell the oil in violation of the provisions contained in the procedure relating to the sale of imported article. With the materials available in the case, we are unable to attribute to the Bank any knowledge of any intention on the part of the 1st defendant to sell the oil in violation of the provisions contained in the procedure relating to the sale of imported article. We have carefully gone through the correspondence between the parties, the deed of trust executed by the 1st defendant and the agreement of guarantee executed by the 2nd defendant before Chinawood oil was released to the 1st defendant and are unable to find any material to suggest that the bank intended the disposal of the oil released to the 1st defendant otherwise than in accordance with the provisions contained in the Handbook on Import-Export Procedure. Nor are we impressed by the argument of the learned counsel for the 1st respondent that the pleading in Para.6 of the plaint that the material was released to the 1st defendant for the purpose of disposal of the same 'in the market' is indicative of any suggestion to dispose of the article in violation of the aforesaid provisions. That being the position, we are unable to hold that the contract was either forbidden by law or was of such a nature that if permitted, it would defeat the provisions of any law; or was fraudulent or involved or implied injury to the person or property of another; or was immoral or opposed to public policy. Therefore the decisions cited above have no application to the instant case. It follows that the finding of the lower court that the contract was tainted and was unlawful and therefore the guarantee cannot be enforced, is not correct. 8. The learned counsel for the 2nd defendant next submitted that even if the finding of the lower court on the question of legality of the contract is wrong, it would still be open to him to support the judgment and decree on the basis of the findings which were found against him. Since the suit was dismissed against the 2nd defendant, it was not necessary for him to file an appeal or cross objection against the decree and it would be open to the 2nd defendant to sustain the decree by showing that the findings of the lower court which were decided against him are wrong and illegal in view of the provisions contained in Order XLI. R.22 of the Code of Civil Procedure (See the decisions in AIR. 1962 SC. 779, AIR. 1963 SC. 1516 and AIR. 1964 SC. 1425). 9. Counsel for the 2nd defendant submitted that the suit was barred by limitation that bis liability as surety was discharged in view of the provisions contained in S.135, 136, 139 and 141 of the Indian Contract Act and that the finding of the lower court to the contrary is unsustainable. 10. Dealing with the question of limitation, the learned counsel for the 2nd defendant submitted that the suit was filed on 23-10-1979 beyond three years from the date of guarantee and was therefore barred. Learned counsel for the appellant supported the finding of the lower court on limitation on the basis of acknowledgements made by the 1st defendant in respect of the amount guaranteed. He also contended that the relevant Article in the case is Art.55 of the Limitation Act, and that the limitation would start against the 2nd defendant only on demand being made to pay the amount guaranteed. 11. Ext.A7, All and A15 are acknowledgements made by the Principal-debtor and they cover all the debts due from the Principal debtor. Ext.A11 is acknowledgement relating to key shut cash credit accommodation which is covered by the guarantee. On the basis of these acknowledgements, it is argued that an acknowledgement made by the Principal debtor when debt is alive and not extinguished is binding on the surety and it is not open to the surety to contend that it is without his knowledge that the acknowledgement is made by the principal debtor and it is not binding on him. This is what is held by this Court in Popular Bank Ltd. v. United Coir Factories & Others (1961 KLT 434) and Wandoor Jupitor Chits (P) Ltd. v. K.P. Mathew (1979 KLT. 566). A contrary view has been taken in Diyalu Mal v. Nandu Shah Dev Raj & Others (AIR. 1931 Lah. 691), Federal Bank of India (Punjab) Ltd. v. Som Dev Grover & Others (AIR. 1946 Punj. 21), Gopal Daji Sathe v. Gopal bin Sonu Bait (ILR. 28 Bomb. 248), Brojendro Kissore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. (AIR 1918 Calc. 707), Vaiyapuri Pandaram v. Seetharama Chettiar (AIR. 1934 Mad. 639), Suwalal Vemichand v. Fazle Hussain Rajabali Bohra & another (AIR. 1939 Nag. 31). 1946 Punj. 21), Gopal Daji Sathe v. Gopal bin Sonu Bait (ILR. 28 Bomb. 248), Brojendro Kissore Roy Chowdhury v. Hindustan Co-operative Insurance Society Ltd. (AIR 1918 Calc. 707), Vaiyapuri Pandaram v. Seetharama Chettiar (AIR. 1934 Mad. 639), Suwalal Vemichand v. Fazle Hussain Rajabali Bohra & another (AIR. 1939 Nag. 31). In the view we are taking as regards the Article that would apply in respect of a guarantee, we do not think that it is necessary to pronounce finally upon this question. 12. The learned counsel for the appellant contended that it is Art.55 of the Limitation Act 1962 that would be applicable to the present case. It is not disputed that if it is so, there is no bar of limitation. Ext.A19 is the agreement of guarantee executed by the 2nd defendant in favour of the first defendant and it is a continuing guarantee and what is agreed upon by the 2nd defendant thereby is to indemnify the Bank against all loss and to pay and satisfy the Bank on demand "general balance" due from the borrower upto a limit of Rs. 2 lakhs. Therefore, the cause of action against the 2nd defendant will arise only on demand and period of limitation of 3 years will start only when a breach in respect of the contract to pay on demand occurs under Art.55 of the Limitation Act. 13. The Supreme Court had occasion to consider a similar question in Mrs. Margaret Lalita Samuel v. Indo Commercial Bank Ltd. (AIR 1979 SC 102). The Supreme Court said: "The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach under Art.115 of the Schedule to the Limitation Act, 1908." Article 55 of the Schedule to the Limitation Act, 1963 corresponds to Art.115 of the Schedule to 1908 Act. 14. Limitation would only run from the date of breach under Art.115 of the Schedule to the Limitation Act, 1908." Article 55 of the Schedule to the Limitation Act, 1963 corresponds to Art.115 of the Schedule to 1908 Act. 14. Under S.126 of the Contract Act, a contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default and therefore the cause of action against the guarantor can arise only when the principal debtor fails to perform his promise or to discharge his liability and a demand is made to the guarantor to discharge the liability. 15. The Indian Contract Act is based on the English Common Law Principles and we have adopted most of the principles of English Law in enacting our Law of Limitation. The English Law as to the Limitation to the action against a guarantor has been summarised in Paget's Law of Banking, Ninth Edition, at pages 520, 521 and 522 as follows: " As to the effect of the Limitation Act on a continuing guarantee, in Hartland v. Jukes (1863) 1 H & C 667 it was contended that the six years began to run in favour of the guarantor as soon as the principal debtor become indebted to the bank, inasmuch as there was then a right of action against the guarantor; but Pollock CB said: 'It was contended before us that the statute began to run from the 31st of December, 1855, by reason of the debt of £ 179: 1:11 then due to the bank; but no balance was then struck, and certainly no claim was made by the bank upon the defendant's testator (the guarantor) in respect of that debt; and we think the mere existence of the debt, unaccompanied by any claim from the bank, would not have the effect of making the statute run from that date.' On the other hand, in Parr's Banking Co. Ltd. v. Yates (1898) 2 QB 460 the Court of Appeal appear to have taken the opposite view. Ltd. v. Yates (1898) 2 QB 460 the Court of Appeal appear to have taken the opposite view. It is true that in that case the account, so far as drawing on it went, had been practically closed more than six years prior to the commencement of the action, but the court treated the statute as beginning to run in respect of each item on the debit side from the date it came into the account. Vaughan Williams LJ said that the right of action on each item of the account arose as soon as that item became due and was not paid, and the statute ran from that date in each case, in favour of both principal and surety. Hartland v. Jukes is cited with approval in Bradford Oil Bank Ltd. v. Sutcliffe (1918) 2 KB 833 at 839. Parr's Banking Co. Ltd. v. Yates was quoted by Swinfen Eady J. in Ascherson v. Tredegar Dry Dock and Wharf Co. Ltd. (1909) 2 Ch. 401 at 406. There can be little doubt but that Hartland v. Jukes is the better authority. xx xx xx xx The view taken in Parr's Banking Co. Ltd. v. Yates is altogether inconsistent with the intention and effect of a continuing guarantee. The object of such guarantee is the extension of a working credit to the principal debtor. There could be no right of action against the guarantor unless there was also one against the principal debtor, and the guarantee would be meaningless if the creditor could demand and enforce repayment of every overdraft within twenty four hours or less from the time it was granted. Lord Herschell said in Rouse v. Bradford Banking Co. (1894) AC 586 at 596, HL. "It is obvious that neither party would have it in contemplation that when the bank had granted an overdraft it would immediately, without notice, proceed to sue for the money; and the truth is that whether there were any legal obligation to abstain from so doing or not, it is obvious that, having regard to the course of business, if a bank which had agreed to give an overdraft were to act in such a fashion, the results to its business would be of the most serious nature. (Cf. Re Clough, Bradford Commercial Banking Co. (Cf. Re Clough, Bradford Commercial Banking Co. Cure (1885) 31 Ch.D. 324 at 326, per North J." There is another consideration which makes the question one of little practical importance. In Bradford Oil Bank Ltd. v. Sutcliffe, (1918) 2 K B 833, 24 Com. Cas 27, CA it was pointed out that the contract of the surety was a collateral, not a direct, one and that in such case demand was necessary to complete a cause of action and set the statute running. Moreover bank guarantees invariably specify that the liability of the surety is to pay on demand, and in this connection the words are not devoid of meaning or effect, even with reference to this statute, as is the case with a promissory note payable on demand, but make the demand a condition precedent to suing the surety, so that the statute does not begin to run till such demand has been made and not complied with. This in no wise runs counter to the decision in Joachimson v. Swiss Bank Corpn. (1921) 3 KB 110, 26 Com Cas 196, CA; indeed the principle is fully recognised there. Payment of interest or on account of principal by the debtor does not keep alive the liability of the surety, not being made on his behalf (See Bradford Oil Bank v. Sutcliffe (1918) 2 KB 833, 24 Com Cas 27, CA. Here also, Ext. A1 9 agreement guarantees payment on demand. "This Agreement witnesseth that in consideration of the Premises the Guarantor doth hereby agree to, indemnify the Bank against all loss and to pay and satisfy to the Bank on demand "the general balance" due from the Borrower" (Emphasis supplied) The foregoing discussion would show that the finding of the lower court that the suit is not barred by limitation is correct. 16. We shall now deal with the contentions raised by the learned counsel for the 2nd defendant on the basis of S.134, 135, 139 and 141 of the Contract Act. S.134 says that 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. S.134 says that 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. S.135 lays down that a contract between the creditor makes a composition with, or promises to give time to, or not to sue the principal debtor, discharges the surety, unless the surety assents to such contract. S.139 says that if the creditor does any act which is inconsistent with the right 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. S.141 says that a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety parts, with such security, the surety is discharged to the extent of the value of the, security. 17. Learned counsel for the 1st respondent submits that after filing the suit, the plaintiff bank compromised with the 1st defendant relating to relief No. 2 sought in the plaint. Under that relief, plaintiff prayed for a decree against the 1st defendant for a sum of Rs. 4,01,711.73 with interest thereon at 18% per annum from the date of suit till recovery and also on the charge of sale of A schedule machineries. According to the counsel, this compromise discharged the 2nd defendant from the liability of the relief sought against him. In this connection, the counsel submitted that the suit was for a total amount of Rs. 5,39,220.93. This is clear from para 5 of the plaint also. Particulars of the amounts due from the 1st defendant are shown as in Schedule E to the plaint. Rs. 5,39,220.93 is made up of the amount due as per ledger towards principal Rs. 3,15,016.93 and the interest thereon at 18% per annum from 1-7-1975 to 16-10-1978 amounting to Rs. 2,24,204.00. The amounts due from defendants 1 and 2 is shown as Rs. 1,37,509.20, made up on Rs. Rs. 5,39,220.93 is made up of the amount due as per ledger towards principal Rs. 3,15,016.93 and the interest thereon at 18% per annum from 1-7-1975 to 16-10-1978 amounting to Rs. 2,24,204.00. The amounts due from defendants 1 and 2 is shown as Rs. 1,37,509.20, made up on Rs. 80,000/-towards principal and interest thereon at 18% per annum from 19-12-1974 upto 16-1-1978 amounting to Rs. 57,509. 20. In the relief portion, the amounts due from both defendants 1 and 2 are separately shown and a decree is sought against both defendants under relief I. The lower court negatived the contentions raised by the 2nd defendant based on S.134,135 and 139 of the Contract Act on the ground that the 2nd defendant was concerned only with the release of Chinawood oil to the 1st defendant for sale and he had no connection whatsoever with the other transactions entered into between the plaintiff and the first defendant, that regarding the claim on account of the release of Chinawood oil, the 1st defendant by the compromise entered into between him and the plaintiff, submitted to a decree as prayed for and that therefore there is no substance in the contention of the 2nd defendant that the compromise between the plaintiff and 1st defendant would discharge him from the liability under S.134 of the Contract Act. The decree passed against defendant No.1 made a charge on A schedule machinery hypothecated by the first defendant in regard to relief. The compromise effected did not seek to release the properties hypothecated by the 1st defendant in respect of relief No.1 with which the 2nd defendant was concerned. Therefore the 2nd defendant's right as surety has not been impaired in any way and on the facts of this case, the finding of the lower court is correct. This apart, such a contention is not available to the 2nd defendant in view of the terms of the guarantee which we have already extracted above. In Ext. A19, the 2nd defendant, the guarantor consents to the Bank's making any variance in the terms of the Bank's contract with the borrower to the bank's determining enlarging or varying any credit to the borrower, to the bank's making any composition with the borrower, or promising to give the borrower time or not to sue him and to the bank's parting with any security the bank may hold for the guaranteed debt. The guarantee also states that the guarantor agrees that as between the bank and the guarantor, the guarantor shall not be discharged from his liability by the bank's releasing the borrower or by act or omission of the bank the legal consequence of which may be to discharge the borrower or by any act of bank which would, but for this present provisions be inconsistent with the guarantor's rights as surety or by the bank's omission to do any act which but for the present provision, the bank's duty to the guarantor would have required the bank to do. He also agreed in Ext. A19 that he would be the principal debtor jointly with the borrower and accordingly he will not be entitled to any of the rights conferred as surety by S.133, 134, 135, 139 and 141 or any other provisions of the Contract Act. If these provisions are valid in law, the bank had unfettered right to enter into a compromise with the 1st defendant and it was not open to the 2nd defendant to contend that by reason of such compromise he was discharged. Similarly, there is no substance in the contention of the 2nd defendant that extension given by the plaintiff to the 1st defendant for sale of Chinawood oil and permission given for sale of oil at a lower price would absolve him from the liability as surety as those acts on the part of Bank are permitted in the guarantee. In this connection, we may refer to Ext. A26, a letter sent by the 2nd defendant to the bank pointing out that there were no lucrative buyers at a higher rate to cover the payment of Rs. 1.05 lakhs. Ext. B7 is a letter dated 3-6-1975 sent by the 2nd defendant to the plaintiff where he stated that the 1st defendant went to Bombay and had to return to Bangalore without disposing of the oil and that the study of the then market made it clear that there were no lucrative buyers to cover up the payment of Rs. 1.05 lakhs. In Ext. A43 letter dated 18-6-1975 addressed to the plaintiff, the 1st defendant stated that the market was not favourable to dispose of the oil. 1.05 lakhs. In Ext. A43 letter dated 18-6-1975 addressed to the plaintiff, the 1st defendant stated that the market was not favourable to dispose of the oil. These facts and the attendant circumstances would indicate that price of the oil was going down and the 2nd defendant was very well aware of the downward trend in the market and that under those compelling circumstances no other course was open to the bank, but to permit the 1st defendant to sell at a lower price. In any event the bank cannot be found fault with for the failure of the 1st defendant to dispose of the oil expeditiously and deposit the amount of Rs. 1.05 lakhs. 18. The learned counsel for the 1st respondent, however submitted that the provisions in the agreement Ext. A19 enabling the bank to vary the terms are opposed to public policy. He submitted that the 2nd defendant was not having an equal bargaining power with the bank, and in those circumstances, the enabling provisions for variance contained in Ext. A19 cannot be given effect to, as being opposed to public policy. 19. We may at once state that the pleadings in the written statement of the 2nd defendant in this regard are very meagre and do not set out specifically or precisely the facts, which would constitute the grounds for claiming discharge under S.134,135,139 and 141 of the Contract Act. However, the learned counsel for the 1st respondent contended that neither the right of the bank to vary the terms of the contract nor the waiver by the 2nd defendant of his rights under S.134,135 and 141 of the Contract Act has been pleaded by the plaintiff. The 2nd defendant claimed the discharge under S.141 only in the additional written statement when the claim under relief No.1 in the suit was compromised between the plaintiff and the 1st defendant. The only averment made in the additional written statement was that because of the compromise he was discharged from the liability under S.141 of the Act. 20. The expression "public policy" has not been defined in the Contract Act and is incapable of a precise definition. The only averment made in the additional written statement was that because of the compromise he was discharged from the liability under S.141 of the Act. 20. The expression "public policy" has not been defined in the Contract Act and is incapable of a precise definition. A beautiful exposition of the law as to public policy can be found in the judgment rendered by His Lordship Justice K.K. Mathew, who spoke for the bench in Murlidhar Agarwal and another v. State of Uttar Pradesh (AIR 1974 SC 1924): "29. The Courts have often repeated Mr. Justice Burrough's metaphor about public policy being an unruly horse. Some Judges appear to have thought it more like a tiger and have refused to mount it at all, perhaps because they feared the fate of the young lady of Riga. Others have regarded it like Balsam's ass which would carry its rider nowhere. But none, at any rate at the present day, has looked upon it as a Pegasus that might soar beyond the momentary needs of the community. There is nothing remarkable in this because the topic itself is so elusive. See Percy H. Winfield, "Public Policy in English Common Law", 42, Harward Law Rev. 76. 30. "Public Policy" has been defined by Winfield as "a principle of judicial legislation or interpretation founded on the current needs of the community". (See Percy H. Winfield, "Public Policy in English Common Law," 42 Harward Law Rev. 76). Now, this would show that the interests of the whole public must be taken into account; but it leads in practice to the paradox that in many cases what seems to be in contemplation is the interest of one section only of the public, and a small section at that. The explanation of the paradox is that the courts must certainly weigh the interests of the whole community as well as the interests of a considerable section of it, such as tenants, for instance as a class . as in this case. If the decision is in their favour, it means no more than that there is nothing in their conduct which is prejudicial to the nation as a whole. Nor is the benefit of the whole community always a more tacit consideration. The courts may have to strike a balance in express terms between community interests and sectional interests. If the decision is in their favour, it means no more than that there is nothing in their conduct which is prejudicial to the nation as a whole. Nor is the benefit of the whole community always a more tacit consideration. The courts may have to strike a balance in express terms between community interests and sectional interests. So, here we are concerned with the general freedom of contract which everyone possesses as against the principle that this freedom shall not be used to subject a class, to the harassment of suits without valid or reasonable grounds. Though there is considerable support in judicial dicta for the view that courts cannot create new heads of public policy, see Gherulal Parakh v. Mahadeodas Maiya, 1959 Supp. (2) SCR 406 at p.440: (AIR. 1959 SC. 781), there is also no lack of judicial authority for the view that the categories of heads of public policy are not closed and that there remains a broad field within which courts can apply a variable notion of policy as a principle of judicial legislation or interpretation founded on the current needs of the community (See Dennis Lloyd, "Public Policy", (1953), pp. 112-113.) 31. Public Policy does not remain static in any given community. It may vary from generation to generation and even in the same generation. Public Policy would be almost useless if it were to remain in fixed moulds for all time. 32. If it is variable, if it depends on the welfare of the community at any given time, how are the courts to ascertain it? The Judges are more to be trusted as interpreters of the law than as expounders of public policy. However, there is no alternative under our system but to vest this power with Judges. The difficulty of discovering what public policy is at any given moment certainly does not absolve the judges from the duty of doing so. In conducting an enquiry, as already stated, judges are not hidebound by precedent. The Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction he must cast his gaze. The Judges are to base their decision on the opinions of men of the world, as distinguished from opinions based on legal learning. The Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction he must cast his gaze. The Judges are to base their decision on the opinions of men of the world, as distinguished from opinions based on legal learning. In other words, the judges will have to look beyond the jurisprudent and that in so doing, they must consult not their own personal standards or predilections but those of the dominant opinion at a given moment, or what has been termed customary morality. The Judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable results " 21. The Supreme Court again considered the concept of Public Policy in Central Inland Water Transport Corporation Ltd. and Another v. Brojo Nath Ganguly and Another (AIR. 1986 SC. 1571.) The Court held: "The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the Courts and similarly where there has been a well-recognised head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy." 22. In English Law, a contract to vary the rights of the surety has always been upheld. The assent of surety to variation has been discussed at page 90 of Rowlatt's Principal and Surety, Fourth Edition. It says: "A surety will not be discharged by a variation to which the creditor (on whom the onus lies) can show he assented, (i) General Steam Navigation Co. v. Rolt (1858) 6 CB (N.S.) 550 or which is provided for in the guarantee. (ii) British Motor Trust Co. v. Hyams (1934) 50 T. L. R.230.... Where the surety takes any active part in the transaction constituting the variation, he is clearly not discharged; as where solicitors, who were sureties, prepared documents referable to the variation. (iii) Woodcock v. Oxford and Worcester Ry. (1853) 1 Drew. 521. Similarly, if the surety permits the creditor to think he has assented. v. Hyams (1934) 50 T. L. R.230.... Where the surety takes any active part in the transaction constituting the variation, he is clearly not discharged; as where solicitors, who were sureties, prepared documents referable to the variation. (iii) Woodcock v. Oxford and Worcester Ry. (1853) 1 Drew. 521. Similarly, if the surety permits the creditor to think he has assented. (iv) See Hollier v. Eyre (1840) 9 C & F. at p. 52.... A surety is not discharges by a variation to which he assents afterwards, even though there may be no fresh consideration for the assent. (v) Mayhew v. Cricket (1818) 2 Swanst.185; Smith v. Winter (1838) 4 M & W. 454. 23. We are unable to find anything in Ext. A19 agreement which can be termed as being opposed to public policy. S.133,135, and 141 clearly indicate that the party can contract for waiving rights under the above provisions by employing expressions such as "without the surety's consent" (S. 133) or "unless the surety assents to such contract" (S. 135) or without the consent of the surety (S. 141). No doubt S.139 does not contain any such expression. But it has to be noticed that what S.139 speaks of is an act by the creditor which is inconsistent with the right of the surety, or omits to do any act which his duty to the surety requires to do and the eventual remedy of the surety himself against the principal debtor is thereby impaired. The rights of the surety being subject to contract to the contrary the 2nd defendant cannot complain that his right is impaired, or that what is provided in the guarantee is inconsistent with his right. When a statute itself provides provision enabling variation of the contract or waiver of the rights conferred by the Act, in our view, no question of violation of any public policy can possibly arise. 24. In Radha Thiagarajan v. South India Bank Ltd. (1985 K. L.T. Short Notes 43 P. 29) (A.S. No. 14 of 1978), a Division Bench of this Court to which one of us (Dr. Kochu Thommen J.) was a party considered the nature of the liability of the sureties and the circumstances under which the surety shall be discharged from the obligation under the guarantee. Kochu Thommen J.) was a party considered the nature of the liability of the sureties and the circumstances under which the surety shall be discharged from the obligation under the guarantee. The Division Bench observed: "The liability of the surety is coextensive with that of the principal, debtor, unless it is otherwise provided by the contract (S. 128 of the Contract Act). Where there is no principal, there can be no surety. "As a general rule, a voluntary discharge of the principal discharge the surety also, yet the surety may, by express stipulation in the guarantee, agree to remain liable, even after the discharge of the principal debtor": De Colyar's "Law of Guarantees and of the Principal and Surety", 3rd Edn. P. 417, Where there is an absolute release of the principal debtor, the remedy against the surety is gone, because the debt itself is extinguished. It would be a fraud on the principal debtor to profess to release him and then to sue the surety who in turn might sue the principal debtor. On the other hand, if the creditor, at the time he releases the principal debtor, reserves his remedies against the surety, such release merely amounts to a covenant not to sue, but does not discharge the surety. (See George W. Brandt. "The Law of Suretyship and Guarantee", Chicago 1905 Vol. I, Para.165)". The Division Bench finally held that discharge of the principal debtor will not discharge the surety where it is not brought about by the voluntary act of the creditor, but by the operation of law or where there is a contract to the contrary. If the intervention of substantive law destroys rights and obligations wholly or partly the surety will be discharged to the extent of such extinguishment. 25. The above discussion would show that it is open to the surety to agree to remain liable even after the discharge of the principal debtor. 26. The learned counsel for the 1st respondent heavily relied on the decision of the Supreme Court in State Bank of Saurashtra v. Chitranjan Ranganath Raja and Another (A. I. R.1980 S.C.1528), where the Supreme Court held that the guarantor is entitled to the benefit of S.141 in a case where security of the pledged goods was lost on account of the negligence of the creditor. In that case, Clause.5, 7 and 13 of the letter of guarantee were pressed into service by the Bank to sustain the action taken against the guarantor notwithstanding the loss of hypothecated goods due to the negligence of the bank. Clause.5 conferred right upon the creditor Bank to grant any time or indulgence in payment of the debt or to determine, enlarge or vary its credit and to vary, exchange or take other securities or release any other securities held by the bank, but such an act on the part of the bank would not have the effect of discharging the surety or in any manner affecting his liability under the letter of guarantee. Clause.7 provided for non-discharge of surety even if the creditor bank entered into a composition with the principal debtor and the surety would nonetheless be liable even if the bank had other guarantees, securities or remedies from the principal debtor. Clause.13 provided for continuing the guarantee where the principal debtor is an association of persons and for continuance of the guarantee in the event of death, retirement, etc. of one of such association of persons or the guarantee remaining intact and effective and legally enforceable irrespective of some defect arising from the internal management of such association of persons. Interpreting the effect of the above provisions in the guarantee, the Supreme Court made the following observations: "It is difficult to entertain a contention that S.141 would not be attracted and the surety would not be discharged even if it is found that a creditor has taken more than one security on the basis of which advance was made and the surety gave personal guarantee on the good faith of other security being offered by the principal debtor which itself may be a consideration for the surety offering his personal guarantee and the creditor by its own negligence lost one of the securities. Acceptance of such a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor. Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable? Acceptance of such a contention would tantamount to putting a premium on the negligence of the creditor to the detriment of the surety who is usually described as a preferred debtor. Should a Court by its construction of such letter of guarantee enable the creditor to act negligently and yet be not in any manner accountable? Was the guarantee a guarantee against proper performance of the contract evidencing advance of loan and methods of its repayment,or a guarantee covering Bank's utter disregard of its responsibility or to use the words of the High Court, the Bank's utter negligence in failing to exercise the care of a prudent man which one would expect in management of one's own affairs?" In the instant case, there was no release or loss of any goods pledged by the creditor except the release of the Chinawood oil and it was precisely for the release of Chinawood oil, the guarantee was given. In the circumstances the Supreme Court's decision relied on by the learned counsel for the 1st respondent has no application to the facts of this case. 27. The learned counsel also relied on a Division Bench ruling of the Andhra Pradesh High Court in Varada Bongar Raju v. Kirthali Avatharam and Others (AIR. 1965 AP. 86), where the Court held that a statute having been enacted solely for the benefit of the tenants who having regard to the lack of adequate accommodation were at the mercy of the landlords it was not open to the tenant to contract himself out the rights conferred on him by the enactment. This ruling also cannot have any application, since S.134, 135 and 141 enable the parties to contract waiving or varying the rights conferred by the aforesaid provisions. 28. The Supreme Court in Lachoo Mal v. Radye Shyam (AIR. 1971 SC 2213), held that a provision is enacted for the benefit of a section of people and there is nothing which precludes them to waive the benefit so provided unless a question of public policy is involved. In the instant case, no question of public policy is involved and the statute itself confers power upon the parties to contract waiving the benefits and therefore the decision in Murlidhar Agarwal and another v. State of Uttar Pradesh and Others (AIR. 1974 SC. In the instant case, no question of public policy is involved and the statute itself confers power upon the parties to contract waiving the benefits and therefore the decision in Murlidhar Agarwal and another v. State of Uttar Pradesh and Others (AIR. 1974 SC. 1924) which laid down that in a case where public policy is involved the parties cannot contract out of statute, is not applicable to the facts of this case. There the Supreme Court clearly found that the provisions in the U.P. (Temporary) Contract of Rent and Eviction Act, 1947 were intended to protect weaker class in the community from harassment of frivolous suit and the protection was based on public policy. Further here no question of contracting out of statute arises inasmuch as the statute itself provides for variation and waiver. 29. Lastly the learned counsel argued that if for any reason this Court finds that guarantee is enforceable, the decree should provide that the first defendant and the securities provided by him should be proceeded against first before the 2nd defendant is proceeded against and in support of that contention, he invited our attention to the decision in Union Bank of India v. Manku Narayana (A.I.R. 1987 SC. 1078). In that case, the Supreme Court held that where a decree in execution is a composite decree, personally against the defendants and also against the mortgaged property, the decree-holder bank has to proceed against the mortgaged property first and then proceed against the guarantor. This decision has not held that principal debtor must be proceeded first, before proceeding against the guarantor. On the other hand the Supreme Court in the Bank of Bihar Ltd. v. Dr. Damodara Prasad and Another (A. I. R.1969 SC. 297) has held that the surety has no right to restrain execution against him until the creditor exhausted his remedies against the principal. However, in the light of the decision in Union Bank of India's case, we direct that in execution, the property hypothecated by defendants 1 and 2 may be proceeded against first before proceeding personally against the 2nd defendant. In the result, we allow the appeal, modify the judgment and grant a decree against both defendants 1 and 2 for recovery of Rs. In the result, we allow the appeal, modify the judgment and grant a decree against both defendants 1 and 2 for recovery of Rs. 1,37,509.20 with interest at 18% per annum till recovery on the charge and by sale of A and D schedule machinery and movable properties and also on the charge and by sale of C schedule immovable property. In other respects the decree and judgment of the lower court are confirmed. The appellant is entitled to costs from the 2nd defendant.